oObligations in general

Villaroel v. Estrada, 71 Phil 140

Digest Kasi in Spanish ito

Villaroel v. Estrada, G.R. No. L-47262, 19 December 1940.

[AVANCEÑA, Pres.]

FACTS:

On May 9, 1912, Alejandro Callao, mother of Juan Villaroel,

obtained a loan of P1,000 from spouses Mariano Estrada and
Severina payable after seven years.

Alejandra died, leaving Juan Villaroel as sole heir, Spouses Mariano

Estrada and Severina also died, leaving Bernardino Estrada as sole
heir.

On August 9, 1930, Juan Villaroel signed a document in which he

declared to pay the debt of his deceased mother in the amount of
P1,000 with legal interest of 12% per annum.

The Court of First Instance of Laguna ordered Juan Villaroel to pay

the amount of P1,000 with an interest of 12% per annum since
August 9, 1930 until full payment

Villaroel appealed.
ISSUE: Whether or not the right to prescription may be waived or
renounced.

HELD: Yes, right to prescription may be waived or renounced. As a

general rule, when a debt has already prescribed, it cannot be
imposed by the creditor. However, a new contract which recognizes
and assumes the prescribed debt is an exception, for it would be
valid and enforceable. Hence, a person who acknowledges the
correctness of the debt and promises to pay it despite knowing that
the debt has already prescribed, such as the case at bar, waived the
benefit of the prescription.

FACTS: On May 9, 1912, Alejandro F. Callao, the mother of the

defendant Juan F. Villarroel, obtained from the spouses Mariano
Estrada and Severina a loan of P1,000 payable after seven years.
Alejandra died, leaving as sole heir to the defendant. The spouses
Mariano Estrada and Severina also died, leaving as sole heir the
plaintiff Bernardino Estrada. On August 9, 1930, the defendant
signed a document (Exhibit B) by which it declares the applicant to
owe the amount of P1,000, with an interest of 12 percent per year.
This action deals with the collection of this amount.

ISSUE: Is the defendant Juan under obligation to pay the loan that
already prescribed if he subsequently declared that he owed it to
plaintiff Bernardino?

HELD: YES.

Although the action to recover the original debt has already been
prescribed when the claim was filed in this case, the question that
arises in this appeal is mainly whether, notwithstanding such a
prescription, the action (may be) brought. However, the present
action is not based on the original obligation contracted by the
defendant’s mother, who has already been prescribed, but in which
the defendant contracted on August 9, 1930 upon assuming the
fulfillment of that obligation, Already prescribed. Since the
defendant is the sole inheritor of the primitive debtor, with the right
to succeed in his inheritance, that debt, brought by his mother
legally, although it has lost its effectiveness by prescription, is now,
however, for a moral obligation, which is consideration Sufficient to
create and render effective and enforceable its obligation voluntarily
contracted on August 9, 1930 in Exhibit B.

The rule that a new promise to pay a pre-paid debt must be made
by the same obligated person or by another legally authorized by it,
is not applicable to the present case in which it is not required to
fulfill the obligation of the obligee originally, but of which he
voluntarily wanted to assume this obligation.

GR No. L-47362 December 19, 1940

JUAN F. VILLARROEL, appellant-appellant, v. BERNARDINO

ESTRADA, appealed-appealed.

Mr. Felipe Agoncillo in representation of the appellant-appelante.

Mr. Crispin Oben on behalf of the respondent-appellee.

AVANCEÑA, Pres .: Chanrobles virtual law library

On May 9, 1912, Alejandro F. Callao, mother of the defendant Juan

F. Villarroel, obtained from the spouses Mariano Estrada and
Severina a loan of P1,000 payable after seven years (Exhibit
A). Alejandra passed away, leaving the defendant as the sole
heir. Husbands Mariano Estrada and Severina also died, leaving
plaintiff Bernardino Estrada as the sole heir. On August 9, 1930, the
defendant signed a document (Exhibit B) by which he declares that
he owes the plaintiff the amount of P1,000, with an interest of 12
percent per year. This action deals with the collection of this
amount. chanroblesvirtualawlibrary chanrobles virtual law library

The Laguna First Instance Court, in which this action was filed,
ordered the defendant to pay the plaintiff the claimed amount of
P1,000 with his legal interest of 12 percent per year from August 9,
1930 until its full payment. This sentence was appealed. chanroblesvirtualawlibrary chanrobles virtual law library
It will be noted that the parties in this case are, respectively, the
only heirs of the original creditors and the debtor. This action is
exercised by virtue of the obligation that the defendant as the only
child of the original debtor contracted in favor of the plaintiff, the
sole heir of the original creditors. It is admitted that the amount of
P1,000 to which this obligation is contracted is the same debt from
the defendant's mother to the plaintiff's parents. chanroblesvirtualawlibrary chanrobles virtual law library

Although the action to recover the original debt has already

prescribed when the lawsuit was filed in this case, the question that
arises in this appeal is mainly that of whether, despite such
prescription, the action filed is appropriate. However, this action is
not based on the original obligation contracted by the defendant's
mother, which has already prescribed, but on the one that the
defendant contracted on August 9, 1930 (Exhibit B) when assuming
the fulfillment of that obligation, already prescribed. Being the
defendant the sole herd of the original debtor, with the right to
succeed her in her inheritance, that debt contracted by her mother
legally, although it lost its effectiveness by prescription, is now,
however, for him a moral obligation, chanroblesvirtualawlibrary chanrobles virtual law library

The rule that a new promise to pay a pre-written debt must be

made by the same obligated person or by another legally authorized
by him, is not applicable to the present case in which the fulfillment
of the obligation of the obligor originally is not required, but of the
one who wants to voluntarily assume this obligation. chanroblesvirtualawlibrary chanrobles virtual law library

The appealed sentence is confirmed, with the costs to the

appellant. So ordered.

Ansay v. NDC, 107 Phil 997

G.R. No. L-13667 April 29, 1960

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,

vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-appellees.
Celso A. Fernandez for appellants.
Juan C. Jimenez, for appellees.

PARAS, C. J.:

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a
complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The court a quo on
appellees' motion to dismiss, issued the following order:

Considering the motion to dismiss filed on 15 August, 1956, set for this morning; considering
that at the hearing thereof, only respondents appeared thru counsel and there was no
appearance for the plaintiffs although the court waited for sometime for them; considering,
however, that petitioners have submitted an opposition which the court will consider together
with the arguments presented by respondents and the Exhibits marked and presented,
namely, Exhibits 1 to 5, at the hearing of the motion to dismiss; considering that the action in
brief is one to compel respondents to declare a Christmas bonus for petitioners workers in
the National Development Company; considering that the Court does not see how petitioners
may have a cause of action to secure such bonus because:

(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers
to command respondents to be liberal;

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party to
comply with a moral obligation (Art. 142, New Civil Code.).

IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.

Appellants contend that there exists a cause of action in their complaint because their claim rests on
moral grounds or what in brief is defined by law as a natural obligation.

Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that
the grant arises only from a moral obligation or the natural obligation that they discussed in their
brief, this Court feels it urgent to reproduce at this point, the definition and meaning of natural
obligation.

Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a
right of action to compel their performance. Natural obligations, not being based on positive law but
on equity and natural law, do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof".

It is thus readily seen that an element of natural obligation before it can be cognizable by the court is
voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has been
voluntary performance. But here there has been no voluntary performance. In fact, the court cannot
order the performance.
At this point, we would like to reiterate what we said in the case of Philippine Education Co. vs. CIR
and the Union of Philippine Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) —

xxx xxx xxx

From the legal point of view a bonus is not a demandable and enforceable obligation. It is so
when it is made a part of the wage or salary compensation.

And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union, et al., 95
Phil., 553; 50 Off. Gaz., 4253, we stated that:

Even if a bonus is not demandable for not forming part of the wage, salary or compensation
of an employee, the same may nevertheless, be granted on equitable consideration as when
it was given in the past, though withheld in succeeding two years from low salaried
employees due to salary increases.

still the facts in said Heacock case are not the same as in the instant one, and hence the ruling
applied in said case cannot be considered in the present action.

Premises considered, the order appealed from is hereby affirmed, without pronouncement as to
costs.

DBP v. Confessor, 161 SCRA 307 (1988)

G.R. No. L-48889 May 11, 1989

DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,

vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First
Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
VILLAFUERTE, respondents.

GANCAYCO, J.:

The issue posed in this petition for review on certiorari is the validity of a promissory note which was
executed in consideration of a previous promissory note the enforcement of which had been barred
by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan
from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the
sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said date whereby
they bound themselves jointly and severally to pay the account in ten (10) equal yearly
amortizations. As the obligation remained outstanding and unpaid even after the lapse of the
aforesaid ten-year period, Confesor, who was by then a member of the Congress of the Philippines,
executed a second promissory note on April 11, 1961 expressly acknowledging said loan and
promising to pay the same on or before June 15, 1961. The new promissory note reads as follows —
 I hereby promise to pay the amount covered by my promissory note on or before
June 15, 1961. Upon my failure to do so, I hereby agree to the foreclosure of my
mortgage. It is understood that if I can secure a certificate of indebtedness from the
government of my back pay I will be allowed to pay the amount out of it.

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated
September 11, 1970 in the City Court of Iloilo City against the spouses for the payment of the loan.

After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the
dispositive part of which reads as follows:

WHEREFORE, premises considered, this Court renders judgment, ordering the

defendants Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff
Development Bank of the Philippines, jointly and severally, (a) the sum of P5,760.96
plus additional daily interest of P l.04 from September 17, 1970, the date Complaint
was filed, until said amount is paid; (b) the sum of P576.00 equivalent to ten (10%) of
the total claim by way of attorney's fees and incidental expenses plus interest at the
legal rate as of September 17,1970, until fully paid; and (c) the costs of the suit.

Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course
a decision was rendered on April 28, 1978 reversing the appealed decision and dismissing the
complaint and counter-claim with costs against the plaintiff.

A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10,
1978. Hence this petition wherein petitioner alleges that the decision of respondent judge is contrary
to law and runs counter to decisions of this Court when respondent judge (a) refused to recognize
the law that the right to prescription may be renounced or waived; and (b) that in signing the second
promissory note respondent Patricio Confesor can bind the conjugal partnership; or otherwise said
respondent became liable in his personal capacity. The petition is impressed with merit. The right to
prescription may be waived or renounced. Article 1112 of Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation results
from acts which imply the abandonment of the right acquired.

There is no doubt that prescription has set in as to the first promissory note of February 10, 1940.
However, when respondent Confesor executed the second promissory note on April 11, 1961
whereby he promised to pay the amount covered by the previous promissory note on or before June
15, 1961, and upon failure to do so, agreed to the foreclosure of the mortgage, said respondent
thereby effectively and expressly renounced and waived his right to the prescription of the action
covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the

creditor. But a new contract recognizing and assuming the prescribed debt would be
valid and enforceable ... .1

Thus, it has been held —

 Where, therefore, a party acknowledges the correctness of a debt and promises to
pay it after the same has prescribed and with full knowledge of the prescription he
thereby waives the benefit of prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay
the debt. The consideration of the new promissory note is the pre-existing obligation under the first
promissory note. The statutory limitation bars the remedy but does not discharge the debt.

A new express promise to pay a debt barred ... will take the case from the operation
of the statute of limitations as this proceeds upon the ground that as a statutory
limitation merely bars the remedy and does not discharge the debt, there is
something more than a mere moral obligation to support a promise, to wit a – pre-
existing debt which is a sufficient consideration for the new the new promise; upon
this sufficient consideration constitutes, in fact, a new cause of action.
3

... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as reanimating the
old promise, or as imparting vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to recover upon his original contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor
cannot thereby bind his wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil Code
which provides:

Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift,
or is under civil interdiction or is confined in a leprosarium, the husband cannot
alienate or encumber any real property of the conjugal partnership without, the wife's
consent. If she ay compel her to refuses unreasonably to give her consent, the court
m grant the same.

We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal
partnership. As such administrator, all debts and obligations contracted by the husband for the
benefit of the conjugal partnership, are chargeable to the conjugal partnership. No doubt, in this
5

case, respondent Confesor signed the second promissory note for the benefit of the conjugal
partnership. Hence the conjugal partnership is liable for this obligation.

WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is
hereby rendered reinstating the decision of the City Court of Iloilo City of December 27, 1976,
without pronouncement as to costs in this instance. This decision is immediately executory and no
motion for extension of time to file motion for reconsideration shall be granted.

SO ORDERED.

Heirs of Roldan v. Heirs of Roldan and Heirs of Magtulis, G.R. No.

202578 27 Sept 2017
G.R. No. 202578, September 27, 2017
HEIRS OF GILBERTO ROLDAN, NAMELY: ADELINA ROLDAN, ROLANDO ROLDAN,
GILBERTO ROLDAN, JR., MARIO ROLDAN, DANNY ROLDAN, LEONARDO
ROLDAN, ELSA ROLDAN, ERLINDA ROLDAN-CARAOS, THELMA ROLDAN-
MASINSIN, GILDA ROLDAN-DAWAL AND RHODORA ROLDAN-
ICAMINA, Petitioners, v. HEIRS OF SILVELA ROLDAN, NAMELY: ANTONIO R. DE
GUZMAN, AUGUSTO R. DE GUZMAN, ALICIA R. VALDORIA-PINEDA, AND SALLY
R. VALDORIA, AND HEIRS OF LEOPOLDO MAGTULIS, NAMELY: CYNTHIA
YORAC-MAGTULIS, LEA JOYCE MAGTULIS-MALABORBOR, DHANCY MAGTULIS,
FRANCES DIANE MAGTULIS, AND JULIERTO MAGTULIS-PLACER, Respondents.

DECISION

SERENO, C.J.:

Before this Court is a Petition for Review on Certiorari 1 assailing the Court of Appeals
(CA) Decision2 and Resolution,3 which affirmed the Decision4 of the Regional Trial Court
(RTC). The RTC ruled that petitioner heirs of Gilberto Roldan, respondent heirs of
Silvela Roldan,5 and respondent heirs of Leopoldo Magtulis are co-owners of Lot No.
4696.

FACTS OF THE CASE

Natalia Magtulis6 owned Lot No. 4696, an agricultural land in Kalibo, Aklan, which had
an area of 21,739 square meters, and was covered by Original Certificate of Title No. P-
7711.7 Her heirs included Gilberto Roldan and Silvela Roldan, her two children by her
first marriage; and, allegedly, Leopolda Magtulis her child with another man named
Juan Aguirre.8 After her death in 1961, Natalia left the lot to her children. However,
Gilberta and his heirs took possession of the property to the exclusion of respondents.

On 19 May 2003, respondents filed before the RTC a Complaint for Partition and
Damages against petitioners.9 The latter refused to yield the property on these
grounds: (1) respondent heirs of Silvela had already sold her share to Gilberto; and (2)
respondent heirs of Leopolda had no cause of action, given that he was not a child of
Natalia.

During trial, petitioners failed to show any document evidencing the sale of Silvela's
share to Gilberto. Thus, in its Decision dated 14 December 2007, the RTC ruled that the
heirs of Silvela remained co-owners of the property they had inherited from Natalia. As
regards Leopoldo Magtulis, the trial court concluded that he was a son of Natalia based
on his Certificate of Baptism10 and Marriage Contract.11

Considering that Gilberta, Silvela, and Leopolda were all descendants of Natalia, the
RTC declared each set of their respective heirs entitled to one-third share of the
property. Consequently, it ordered petitioners to account and deliver to respondents
their equal share to the produce of the land.

Petitioners appealed to the CA. They reiterated that Silvela had sold her share of the
property to her brother Gilberta. They asserted that the RTC could not have considered
Leopolda the son of Natalia on the mere basis of his Certificate of Baptism. Emphasizing
that filiation required a high standard of proof, petitioners argued that the baptismal
certificate of Leopoldo served only as evidence of the administration of the sacrament.

In its Decision dated 20 December 2011, the CA affirmed the ruling of the RTC that
Gilberto, Silvela, and Leopoldo remained co-owners of Lot No. 4696. The appellate
court refused to conclude that Silvela had sold her shares to Gilberto without any
document evidencing a sales transaction. It also held that Leopoldo was the son of
Natalia, since his Certificate of Baptism and Marriage Contract indicated her as his
mother.

Petitioner heirs of Gilberto moved for reconsideration, 12 but to no avail. Before this
Court, they reiterate that Silvela sold her shares to Gilberto, and that Leopoldo was not
the son of Natalia. They emphasize that the certificates of baptism and marriage do not
prove Natalia to be the mother of Leopoldo since these documents were executed
without her participation.

Petitioners additionally contend that respondents lost their rights over the property,
since the action for partition was lodged before the RTC only in 2003, or 42 years since
Gilberto occupied the property in 1961. For the heirs of Gilberto, prescription and laches
already preclude the heirs of Silvela and the heirs of Leopoldo from claiming co-
ownership over Lot No. 4696.

In their Comment,13 respondents assert that the arguments raised by petitioners

involve questions of fact not cognizable by this Court. As regards the issue of
prescription and laches, they insist that petitioners cannot invoke a new theory for the
first time on appeal.

ISSUES OF THE CASE

The following issues are presented to this Court for resolution:

1. Whether the CA erred in affirming the RTC's finding that Silvela did not sell her share
of the property to Gilberto

2. Whether the courts a quo correctly appreciated Leopoldo to be the son of Natalia
based on his baptismal and marriage certificates

3. Whether prescription and laches bar respondents from claiming coownership over Lot
No. 4696

RULING OF THE COURT

Sale of the Shares of Silvela to Gilberto

Petitioners argue before us that Silvela had a perfected contract of sale with Gilberto
over her shares of Lot No. 4696. That argument is obviously a question of fact, 14 as it
delves into the truth of whether she conveyed her rights in favor of her brother.

The assessment of the existence of the sale requires the calibration of the evidence on
record and the probative weight thereof. The RTC, as affirmed by the CA, already
performed its function and found that the heirs of Gilberto had not presented any
document or witness to prove the fact of sale.

The factual determination of courts, when adopted and confirmed by the CA, is final and
conclusive on this Court except if unsupported by the evidence on record. 15 In this case,
the exception does not apply, as petitioners merely alleged that Silvela "sold,
transferred and conveyed her share in the land in question to Gilberto Roldan for a
valuable consideration" without particularizing the details or referring to any proof of
the transaction.16 Therefore, we sustain the conclusion that she remains coowner of Lot
No. 4696.

Filiation of Leopoldo to Natalia

In resolving the issue of filiation, the RTC and the CA referred to Articles 172 and 175
of the Family Code, viz.:
Art. 172. The filiation of legitimate children is established by any of the following:

(1) The record of birth appearing in the civil register or a final judgment; or
(2) An admission of legitimate filiation in a public document or a private handwritten
instrument and signed by the parent concerned.

In the absence of the foregoing evidence, the legitimate filiation shall be proved by:

(1) The open and continuous possession of the status of a legitimate child; or
(2) Any other means allowed by the Rules of Court and special laws.

Art. 175. Illegitimate children may establish their illegitimate filiation in the same way
and on the same evidence as legitimate children.

The action must be brought within the same period specified in Article 173, except
when the action is based on the second paragraph of Article 172, in which case the
action may be brought during the lifetime of the alleged parent.
The parties concede that there is no record of Leopolda's birth in either the National
Statistics Office17 or in the Office of the Municipal Registrar of Kalibo, Aklan. 18 The RTC
and the CA then referred to other means to prove the status of Leopoldo: his Certificate
of Baptism and his Marriage Contract. Since both documents indicate Natalia as the
mother of Leopoldo, the courts a quo concluded that respondent heirs of Leopoldo had
sufficiently proven the filiation of their ancestor to the original owner of Lot No. 4696.
For this reason, the RTC and the CA maintained that the heirs of Leopoldo are entitled
to an equal share of the property, together with the heirs of Gilberto and heirs of
Silvela.

We disagree.

Jurisprudence has already assessed the probative value of baptismal certificates.

In Fernandez v. Court of Appeals,19 which referred to our earlier rulings in Berciles v.
Government Service Insurance System20 and Macadangdang v. Court of Appeals,21 the
Court explained that because the putative parent has no hand in the preparation of a
baptismal certificate, that document has scant evidentiary value. The canonical
certificate is simply a proof of the act to which the priest may certify, i.e., the
administration of the sacrament. In other words, a baptismal certificate is "no proof of
the declarations in the record with respect to the parentage of the child baptized, or of
prior and distinct facts which require separate and concrete evidence." 22

In cases that followed Fernandez, we reiterated that a baptismal certificate is

insufficient to prove filiation.23 But in Makati Shangri-La Hotel and Resort, Inc. v.
Harper,24 this Court clarified that a baptismal certificate has evidentiary value to prove
kinship "if considered alongside other evidence of filiation." 25 Therefore, to resolve one's
lineage, courts must peruse other pieces of evidence instead of relying only on a
canonical record. By way of example, we have considered the combination of
testimonial evidence,26 family pictures,27 as well as family books or charts,28 alongside
the baptismal certificates of the claimants, in proving kinship.

In this case, the courts below did not appreciate any other material proof related to the
baptismal certificate of Leopoldo that would establish his filiation with Natalia, whether
as a legitimate or as an illegitimate son.

The only other document considered by the RTC and the CA was the Marriage Contract
of Leopoldo. But, like his baptismal certificate, his Marriage Contract also lacks
probative value as the latter was prepared without the participation of Natalia. In Reyes
v. Court of Appeals,29 we held that even if the marriage contract therein stated that the
alleged father of the bride was the bride's father, that document could not be taken as
evidence of filiation, because it was not signed by the alleged father of the bride.

The instant case is similar to an issue raised in Paa v. Chan.30 The claimant in that case
relied upon baptismal and marriage certificates to argue filiation. The Court said:
As regards the baptismal and marriage certificates of Leoncio Chan, the same are not
competent evidence to prove that he was the illegitimate child of Bartola Maglaya by a
Chinese father. While these certificates may be considered public documents, they are
evidence only to prove the administration of the sacraments on the dates therein
specified - which in this case were the baptism and marriage, respectively, of Leoncio
Chan - but not the veracity of the statements or declarations made therein with respect
to his kinsfolk and/or citizenship.
All told, the Baptismal Certificate and the Marriage Contract of Leopoldo, which merely
stated that Natalia is his mother, are inadequate to prove his filiation with the property
owner. Moreover, by virtue of these documents alone, the RTC and the CA could not
have justly concluded that Leopoldo and his successors-in-interest were entitled to a
one-third share of the property left by Natalia, equal to that of each of her undisputed
legitimate children Gilberto and Silvela. As held in Board of Commissioners v. Dela
Rosa,31 a baptismal certificate is certainly not proof of the status of legitimacy or
illegitimacy of the claimant. Therefore, the CA erred in presuming the hereditary rights
of Leopoldo to be equal to those of the legitimate heirs of Natalia.

Prescription and Laches

According to petitioners, prescription and laches have clearly set in given their
continued occupation of the property in the last 42 years. Prescription cannot be
appreciated against the co-owners of a property, absent any conclusive act of
repudiation made clearly known to the other coowners.32

Here, petitioners merely allege that the purported co-ownership "was already
repudiated by one of the parties" without supporting evidence. Aside from the mere
passage of time, there was failure on the part of petitioners to substantiate their
allegation of laches by proving that respondents slept on their rights. 33 Nevertheless,
had they done so, two grounds deter them from successfully claiming the existence of
prescription and laches.

First, as demanded by the repudiation requisite for prescription to be appreciated, there

is a need to determine the veracity of factual matters such as the date when the period
to bring the action commenced to run. In Macababbad, Jr. v. Masirag,34 we considered
that determination as factual in nature. The same is true in relation to finding the
existence of laches. We held in Crisostomo v. Garcia, Jr.35 that matters like estoppel,
laches, and fraud require the presentation of evidence and the determination of facts.
Since petitions for review on certiorari under Rule 45 of the Rules of Court, as in this
case, entertain questions of law,36 petitioners claim of prescription and laches fail.

Second, petitioners have alleged prescription and laches only before this Court. Raising
a new ground for the first time on appeal contravenes due process, as that act deprives
the adverse party of the opportunity to contest the assertion of the claimant. 37 Since
respondents were not able to refute the issue of prescription and laches, this Court
denies the newly raised contention of petitioners.

WHEREFORE, the Petition for Review on Certiorari filed by petitioner heirs of Gilberto
Roldan is PARTIALLY GRANTED. The Court of Appeals Decision and Resolution in CA-
G.R. CEB-CV No. 02327 are hereby MODIFIED to read as follows:

1. Only the heirs of Gilberta Roldan and Silvela Roldan are declared co-owners of the
land covered by Original Certificate of Title No. P-7711, which should be partitioned
among them in the following proportions:
a. One-half share to the heirs of Gilberta Roldan; and
b. One-half share to the heirs of Silvela Roldan.
2. Petitioners are ordered to account for and deliver to the heirs of Silvela Roldan their
one-half share on the produce of the land.

SO ORDERED.

Solid Homes v. Sps. Horado GR 219673

Domestic Petroleum v. MIAA, GR 210641
Sources of Civil Obligation
Sagrada Orden v. NACOCO, 91 Phil 503
G.R. No. L-3756 June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-

appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for
appellant.
Ramirez and Ortigas for appellee.

LABRADOR, J.:

This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the
plaintiff, in whose name the title was registered before the war. On January 4, 1943, during the
Japanese military occupation, the land was acquired by a Japanese corporation by the name of
Taiwan Tekkosho for the sum of P140,00, and thereupon title thereto issued in its name (transfer
certificate of title No. 64330, Register of Deeds, Manila). After liberation, more specifically on April 4,
1946, the Alien Property Custodian of the United States of America took possession, control, and
custody thereof under section 12 of the Trading with the Enemy Act, 40 Stat., 411, for the reason
that it belonged to an enemy national. During the year 1946 the property was occupied by the Copra
Export Management Company under a custodianship agreement with United States Alien Property
Custodian (Exhibit G), and when it vacated the property it was occupied by the defendant herein.
The Philippine Government made representations with the Office Alien Property Custodian for the
use of property by the Government (see Exhibits 2, 2-A, 2-B, and 1). On March 31, 1947, the
defendant was authorized to repair the warehouse on the land, and actually spent thereon the
repairs the sum of P26,898.27. In 1948, defendant leased one-third of the warehouse to one
Dioscoro Sarile at a monthly rental of P500, which was later raised to P1,000 a month. Sarile did not
pay the rents, so action was brought against him. It is not shown, however, if the judgment was ever
executed.

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

The present action is to recover the reasonable rentals from August, 1946, the date when the
defendant began to occupy the premises, to the date it vacated it. The defendant does not contest
its liability for the rentals at the rate of P3,000 per month from February 28, 1949 (the date specified
in the judgment in civil case No. 5007), but resists the claim therefor prior to this date. It interposes
the defense that it occupied the property in good faith, under no obligation whatsoever to pay rentals
for the use and occupation of the warehouse. Judgment was rendered for the plaintiff to recover
from the defendant the sum of P3,000 a month, as reasonable rentals, from August, 1946, to the
date the defendant vacates the premises. The judgment declares that plaintiff has always been the
owner, as the sale of Japanese purchaser was void ab initio; that the Alien Property Administration
never acquired any right to the property, but that it held the same in trust until the determination as to
whether or not the owner is an enemy citizen. The trial court further declares that defendant can not
claim any better rights than its predecessor, the Alien Property Administration, and that as defendant
has used the property and had subleased portion thereof, it must pay reasonable rentals for its
occupation.

Against this judgment this appeal has been interposed, the following assignment of error having
been made on defendant-appellant's behalf:

The trial court erred in holding the defendant liable for rentals or compensation for the use
and occupation of the property from the middle of August, 1946, to December 14, 1948.

1. Want to "ownership rights" of the Philippine Alien Property Administration did not render
illegal or invalidate its grant to the defendant of the free use of property.

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

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

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

5. Defendant's possession was in good faith.

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

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

We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of
the property and the defendant-appellant the occupant, which used for its own benefit but by the
express permission of the Alien Property Custodian of the United States, so easily jumped to the
conclusion that the occupant is liable for the value of such use and occupation. If defendant-
appellant is liable at all, its obligations, must arise from any of the four sources of obligations,
namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish Civil Code.)
Defendant-appellant is not guilty of any offense at all, because it entered the premises and occupied
it with the permission of the entity which had the legal control and administration thereof, the Allien
Property Administration. Neither was there any negligence on its part. There was also no privity (of
contract or obligation) between the Alien Property Custodian and the Taiwan Tekkosho, which had
secured the possession of the property from the plaintiff-appellee by the use of duress, such that the
Alien Property Custodian or its permittee (defendant-appellant) may be held responsible for the
supposed illegality of the occupation of the property by the said Taiwan Tekkosho. The Allien
Property Administration had the control and administration of the property not as successor to the
interests of the enemy holder of the title, the Taiwan Tekkosho, but by express provision of law
(Trading with the Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a
trustee of the former owner, the plaintiff-appellee herein, but a trustee of then Government of the
United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and
against the claim or title of, the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich [1920],
179 N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.) From August, 1946, when defendant-appellant
took possession, to the late of judgment on February 28, 1948, Allien Property Administration had
the absolute control of the property as trustee of the Government of the United States, with power to
dispose of it by sale or otherwise, as though it were the absolute owner. (U.S vs. Chemical
Foundation [C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-
appellant were liable to the Allien Property Administration for rentals, these would not accrue to the
benefit of the plaintiff-appellee, the owner, but to the United States Government.

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

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

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

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay
rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the
judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.
The Metrobank v. Rosales and Yo Yuk To, G.R. No.183204, Jan. 13,
2014
G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand by
1

the depositor. 2

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the April 2, 2008
3

Decision and the May 30, 2008 Resolution of he Court of Appeals CA) in CA-G.R. CV No. 89086.
4 5

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized
and existing under the laws of the Philippines. Respondent Ana Grace Rosales (Rosales) is the
6

owner of China Golden Bridge Travel Services, a travel agency. Respondent Yo Yuk To is the
7 8

mother of respondent Rosales. 9

In 2000, respondents opened a Joint Peso Account with petitioner’s Pritil-Tondo Branch. As of
10 11

August 4, 2004, respondents’ Joint Peso Account showed a balance of ₱2,515,693.52. 12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account, as required by the PLRA. Since Liu Chiu
13

Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her. 14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar
Account with an initial deposit of US$14,000.00.
15 16

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

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre,
filed before the Office of the Prosecutor of Manila a criminal case for Estafa through False
Pretences, Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No. 03I-
25014, against respondent Rosales. Petitioner accused respondent Rosales and an unidentified
18 19

woman as the ones responsible for the unauthorized and fraudulent withdrawal of US$75,000.00
from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch. Petitioner alleged that on
20

February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal Clearance for the
dollar account of Liu Chiu Fang; that in the afternoon of the same day, respondent Rosales went to
21

petitioner’s Escolta Branch to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu
Fang was going to withdraw her dollar deposits in cash; that Gutierrez told respondent Rosales to
22

come back the following day because the bank did not have enough dollars; that on February 6,
23
2003, respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to the bank; that 24

the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in the amount of
US$75,000.00; that on March 3, 2003, respondents opened a dollar account with petitioner; and
25

that the bank later discovered that the serial numbers of the dollar notes deposited by respondents
in the amount of US$11,800.00 were the same as those withdrawn by the impostor. 26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal
from the dollar account of Liu Chiu Fang. Respondent Rosales claimed that she did not go to the
27

bank on February 5, 2003. Neither did she inform Gutierrez that Liu Chiu Fang was going to close
28

her account. Respondent Rosales further claimed that after Liu Chiu Fang opened an account with
29

petitioner, she lost track of her. Respondent Rosales’ version of the events that transpired
30

thereafter is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the
bank to close her account. At noon of the same day, respondent Rosales went to the bank to make
31

a transaction. While she was transacting with the teller, she caught a glimpse of a woman seated at
32

the desk of the Branch Operating Officer, Melinda Perez (Perez). After completing her transaction,
33

respondent Rosales approached Perez who informed her that Liu Chiu Fang had closed her account
and had already left. Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to
34

respondent Rosales. On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang
35

inquiring about the extension of her PLRA Visa and her dollar account. It was only then that Liu 36

Chiu Fang found out that her account had been closed without her knowledge. Respondent 37

Rosales then went to the bank to inform Gutierrez and Perez of the unauthorized withdrawal. On 38

June 23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where they were
informed that the Withdrawal Clearance was issued on the basis of a Special Power of Attorney
(SPA) executed by Liu Chiu Fang in favor of a certain Richard So. Liu Chiu Fang, however, denied 39

executing the SPA. The following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez
40

met at the PLRA Office to discuss the unauthorized withdrawal. During the conference, the bank
41

officers assured Liu Chiu Fang that the money would be returned to her. 42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing
the criminal case for lack of probable cause. Unfazed, petitioner moved for reconsideration.
43

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint for Breach of Obligation and Contract with Damages, docketed as Civil Case No.
44

04110895 and raffled to Branch 21, against petitioner. Respondents alleged that they attempted
several times to withdraw their deposits but were unable to because petitioner had placed their
accounts under "Hold Out" status. No explanation, however, was given by petitioner as to why it
45

issued the "Hold Out" order. Thus, they prayed that the "Hold Out" order be lifted and that they be
46

allowed to withdraw their deposits. They likewise prayed for actual, moral, and exemplary damages,
47

as well as attorney’s fees. 48

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing
the "Hold Out" order. It averred that due to the fraudulent scheme of respondent Rosales, it was
49

compelled to reimburse Liu Chiu Fang the amount of US$75,000.00 and to file a criminal complaint 50

for Estafa against respondent Rosales. 51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a
Resolution dated February 18, 2005, reversing the dismissal of the criminal complaint. An 52

Information, docketed as Criminal Case No. 05-236103, was then filed charging respondent
53

Rosales with Estafa before Branch 14 of the RTC of Manila. 54

 Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision finding petitioner liable for damages for breach
55

of contract. The RTC ruled that it is the duty of petitioner to release the deposit to respondents as
56

the act of withdrawal of a bank deposit is an act of demand by the creditor. The RTC also said that
57

the recourse of petitioner is against its negligent employees and not against respondents. The
58

dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner]

METROPOLITAN BANK & TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and
YO YUK TO to withdraw their Savings and Time Deposits with the agreed interest, actual damages
of ₱50,000.00, moral damages of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of the
amount due [respondents] as and for attorney’s fees plus the cost of suit.

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

SO ORDERED. 59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages
because "the basis for [respondents’] claim for such damages is the professional fee that they paid
to their legal counsel for [respondent] Rosales’ defense against the criminal complaint of [petitioner]
for estafa before the Office of the City Prosecutor of Manila and not this case." Thus, the CA
60

disposed of the case in this wise:

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

SO ORDERED. 61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008
Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE

APPLICATION AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS
CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE

NEGLIGENT IN RELEASING LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY

DAMAGES, AND ATTORNEY’S FEES. 63
 Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the
Application and Agreement for Deposit Account. It posits that the said clause applies to any and all
64

kinds of obligation as it does not distinguish between obligations arising ex contractu or ex

delictu. Petitioner also contends that the fraud committed by respondent Rosales was clearly
65

established by evidence; thus, it was justified in issuing the "Hold-Out" order. Petitioner likewise
66 67

denies that its employees were negligent in releasing the dollars. It claims that it was the deception
68

employed by respondent Rosales that caused petitioner’s employees to release Liu Chiu Fang’s
funds to the impostor. 69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It
insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent,
oppressive or malevolent manner. 70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to petitioner. They insist that petitioner
71

miserably failed to prove its accusations against respondent Rosales. In fact, no documentary
72

evidence was presented to show that respondent Rosales participated in the unauthorized
withdrawal. They also question the fact that the list of the serial numbers of the dollar notes
73

fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the alleged
impostor. Respondents likewise maintain that what was established during the trial was the
74

negligence of petitioner’s employees as they allowed the withdrawal of the funds without properly
verifying the identity of the depositor. Furthermore, respondents contend that their deposits are in
75

the nature of a loan; thus, petitioner had the obligation to return the deposits to them upon
demand. Failing to do so makes petitioner liable to pay respondents moral and exemplary
76

damages, as well as attorney’s fees. 77

Our Ruling

The Petition is bereft of merit.

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

The "Hold Out" clause does not apply

to the instant case.

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

Authority to Withhold, Sell and/or Set Off:

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

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert
a lien on any balance of the Account and apply all or any part thereof against any indebtedness,
matured or unmatured, that may then be owing to the Bank by any or all of the Depositors. It is
understood that if said indebtedness is only owing from any of the Depositors, then this provision
constitutes the consent by all of the depositors to have the Account answer for the said
indebtedness to the extent of the equal share of the debtor in the amount credited to the Account. 78

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

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-
79

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

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

Respondents are entitled to moral and

exemplary damages and attorney’s fees. 1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith, or is "guilty of gross negligence amounting to bad faith, or in wanton
80

disregard of his contractual obligations." 81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of the reason for the "Hold Out." Third,
82

the order was issued prior to the filing of the criminal complaint. Records show that the "Hold Out"
order was issued on July 31, 2003, while the criminal complaint was filed only on September 3,
83
2003. All these taken together lead us to conclude that petitioner acted in bad faith when it
84

breached its contract with respondents. As we see it then, respondents are entitled to moral
damages.

As to the award of exemplary damages, Article 2229 of the Civil Code provides that exemplary
85

damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis.
We need not belabor the fact that the banking industry is impressed with public interest. As such,
87

"the highest degree of diligence is expected, and high standards of integrity and performance are
even required of it." It must therefore "treat the accounts of its depositors with meticulous care and
88

always to have in mind the fiduciary nature of its relationship with them." For failing to do this, an
89

award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 of the Civil
90

Code.

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

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

Quasi-Delicts
Saludaga v. FEU, G.R. No. 179337 April 30, 2008
G.R. No. 179337 April 30, 2008

JOSEPH SALUDAGA, petitioner,

vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of
FEU, respondents.

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007
Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the
November 10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-
89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5

The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University
(FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the
school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical
Foundation (FEU-NRMF) due to the wound he sustained.6 Meanwhile, Rosete was brought to the
police station where he explained that the shooting was accidental. He was eventually released
considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they
breached their obligation to provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint7 against
Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent
FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's
President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay
attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive
portion of which reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and
severally Joseph Saludaga the amount of P35,298.25 for actual damages with 12%
interest per annum from the filing of the complaint until fully paid; moral damages of
P300,000.00, exemplary damages of P500,000.00, attorney's fees of P100,000.00
and cost of the suit;

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

3. And the 4th party complaint is dismissed for lack of cause of action. No
pronouncement as to costs.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal
portion of which provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is
hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against
appellant Far Eastern University and its President in Civil Case No. 98-89483 is
DISMISSED.

SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on
the following grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND

JURISPRUDENCE IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

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

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE

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

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE

AGENCY WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF
RESPONDENT FEU.11

Petitioner is suing respondents for damages based on the alleged breach of student-school contract
for a safe learning environment. The pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of their representative did
not bother to visit and inquire about his condition. This abject indifference on the part of the
defendants continued even after plaintiff was discharged from the hospital when not even a
word of consolation was heard from them. Plaintiff waited for more than one (1) year for the
defendants to perform their moral obligation but the wait was fruitless. This indifference and
total lack of concern of defendants served to exacerbate plaintiff's miserable condition.

xxxx

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

12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them.
Under this contract, defendants are supposed to ensure that adequate steps are taken to
provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside
defendant FEU's premises. In the instant case, the latter breached this contract when
defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people,
their security guard who was tasked to maintain peace inside the campus.12
In Philippine School of Business Administration v. Court of Appeals,13 we held that:

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

Institutions of learning must also meet the implicit or "built-in" obligation of providing their
students with an atmosphere that promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the school premises a constant
threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to prevent the breakdown
thereof.14

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

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of
its compliance justify, prima facie, a corresponding right of relief.15 In the instant case, we find that,
when petitioner was shot inside the campus by no less the security guard who was hired to maintain
peace and secure the premises, there is a prima facie showing that respondents failed to comply
with its obligation to provide a safe and secure environment to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event
because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he
was not their employee;16 and that they complied with their obligation to ensure a safe learning
environment for their students by having exercised due diligence in selecting the security services of
Galaxy.

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

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

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be
considered, respondents must show that no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take
steps to forestall the possible adverse consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and injury to another; nonetheless, showing that
the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt
one from liability. When the effect is found to be partly the result of a person's participation - whether
by active intervention, neglect or failure to act - the whole occurrence is humanized and removed
from the rules applicable to acts of God.17

Article 1170 of the Civil Code provides that those who are negligent in the performance of their
obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing
a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the
award of damages that the claimant must have satisfactorily proven during the trial the existence of
the factual basis of the damages and its causal connection to defendant's acts.18

In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and
other medical expenses.19 While the trial court correctly imposed interest on said amount, however,
the case at bar involves an obligation arising from a contract and not a loan or forbearance of
money. As such, the proper rate of legal interest is six percent (6%) per annum of the amount
demanded. Such interest shall continue to run from the filing of the complaint until the finality of this
Decision.20 After this Decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those incurred
in hiring a personal assistant while recuperating were however not duly supported by receipts.21 In
the absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under
Art. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered
some pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of
P20,000.00 as temperate damages is awarded to petitioner.

As regards the award of moral damages, there is no hard and fast rule in the determination of what
would be a fair amount of moral damages since each case must be governed by its own peculiar
circumstances.22 The testimony of petitioner about his physical suffering, mental anguish, fright,
serious anxiety, and moral shock resulting from the shooting incident23 justify the award of moral
damages. However, moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo
ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the
award of exorbitant damages; they should exercise balanced restrained and measured objectivity to
avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court.24 We
deem it just and reasonable under the circumstances to award petitioner moral damages in the
amount of P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is
reasonable in view of Article 2208 of the Civil Code.25 However, the award of exemplary damages is
deleted considering the absence of proof that respondents acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU.
In Powton Conglomerate, Inc. v. Agcolicol,26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of the
persons composing it, such that, save for certain exceptions, corporate officers who entered
into contracts in behalf of the corporation cannot be held personally liable for the liabilities of
the latter. Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when - (1) he assents
to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages
to the corporation, its stockholders or other persons; (2) he consents to the issuance of
watered down stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) he agrees to hold himself personally and
solidarily liable with the corporation; or (4) he is made by a specific provision of law
personally answerable for his corporate action.27

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus
should not be held solidarily liable with respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-student
contract, petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of
the Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

xxxx

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

We agree with the findings of the Court of Appeals that respondents cannot be held liable for
damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete.
The latter was employed by Galaxy. The instructions issued by respondents' Security Consultant to
Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the
contract for services entered into by a principal and a security agency. They cannot be construed as
the element of control as to treat respondents as the employers of Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and
assigns the works of its watchmen or security guards to a client, the employer of such guards
 or watchmen is such agency, and not the client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence of a good father of a family cannot
be demanded from the said client:

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

xxxx

The fact that a client company may give instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the security
guards concerned and liable for their wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko,32 we held that:

The third-party complaint is, therefore, a procedural device whereby a 'third party' who is
neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into
the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity, subrogation or any
other relief, in respect of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's complaint. Were it not for this
provision of the Rules of Court, it would have to be filed independently and separately from
the original complaint by the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of
action in respect of plaintiff's claim against a third-party in the original and principal case with
the object of avoiding circuitry of action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject matter arising from one particular
set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course of
the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is
negligent not only in the selection of its employees but also in their supervision. Indeed, no
administrative sanction was imposed against Rosete despite the shooting incident; moreover, he
was even allowed to go on leave of absence which led eventually to his disappearance.34 Galaxy
also failed to monitor petitioner's condition or extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their pledge to
reimburse petitioner's medical expenses.

For these acts of negligence and for having supplied respondent FEU with an unqualified security
guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable
to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to
petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly
negligent in directing the affairs of the security agency. It was Imperial who assured petitioner that
his medical expenses will be shouldered by Galaxy but said representations were not fulfilled
because they presumed that petitioner and his family were no longer interested in filing a formal
complaint against them.35

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

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

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

c. the award of exemplary damages is DELETED.

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

respondents are likewise DISMISSED.

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

SO ORDERED.

People’s Car v. Commando Security, 51 SCRA 40

G.R. No. L-36840 May 22, 1973

PEOPLE'S CAR INC., plaintiff-appellant,

vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

TEEHANKEE, J.:

In this appeal from the adverse judgment of the Davao court of first instance limiting plaintiff-
appellant's recovery under its complaint to the sum of P1,000.00 instead of the actual damages of
P8,489.10 claimed and suffered by it as a direct result of the wrongful acts of defendant security
agency's guard assigned at plaintiff's premises in pursuance of their "Guard Service Contract", the
Court finds merit in the appeal and accordingly reverses the trial court's judgment.

The appeal was certified to this Court by a special division of the Court of Appeals on a four-to-one
vote as per its resolution of April 14, 1973 that "Since the case was submitted to the court a quo for
decision on the strength of the stipulation of facts, only questions of law can be involved in the
present appeal."

The Court has accepted such certification and docketed this appeal on the strength of its own finding
from the records that plaintiff's notice of appeal was expressly to this Court (not to the appellate
court)" on pure questions of law" and its record on appeal accordingly prayed that" the
1

corresponding records be certified and forwarded to the Honorable Supreme Court." The trial court
2

so approved the same on July 3, 1971 instead of having required the filing of a petition for review of
3

the judgment sought to be appealed from directly with this Court, in accordance with the provisions
of Republic Act 5440. By some unexplained and hitherto undiscovered error of the clerk of court,
furthermore, the record on appeal was erroneously forwarded to the appellate court rather than to
this Court.

The parties submitted the case for judgment on a stipulation of facts. There is thus no dispute as to
the factual bases of plaintiff's complaint for recovery of actual damages against defendant, to wit,
that under the subsisting "Guard Service Contract" between the parties, defendant-appellee as a
duly licensed security service agency undertook in consideration of the payments made by plaintiff to
safeguard and protect the business premises of (plaintiff) from theft, pilferage, robbery, vandalism
and all other unlawful acts of any person or person prejudicial to the interest of (plaintiff)."
4

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

As a result of these wrongful acts of defendant's security guard, the car of plaintiff's customer,
Joseph Luy, which had been left with plaintiff for servicing and maintenance, "suffered extensive
damage in the total amount of P7,079." besides the car rental value "chargeable to defendant" in the
6

sum of P1,410.00 for a car that plaintiff had to rent and make available to its said customer to enable
him to pursue his business and occupation for the period of forty-seven (47) days (from April 25 to
June 10, 1970) that it took plaintiff to repair the damaged car, or total actual damages incurred by
7

plaintiff in the sum of P8,489.10.

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

The parties thus likewise stipulated on this sole issue submitted by them for adjudication, as follows:
 Interpretation of the contract, as to the extent of the liability of the defendant to the
plaintiff by reason of the acts of the employees of the defendant is the only issue to
be resolved.

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

'Par. 4. — Party of the Second Part (defendant) through the

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

'Par. 5 — The party of the Second Part assumes the responsibility for
the proper performance by the guards employed, of their duties and
(shall) be solely responsible for the acts done during their watch
hours, the Party of the First Part being specifically released from any
and all liabilities to the former's employee or to the third parties
arising from the acts or omissions done by the guard during their tour
of
duty.' ...
8

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

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

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

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

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

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

technical and unrealistic and untenable.

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

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

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

Cruz v. Tuazon & Co., 76 SCRA 543

G.R. No. L-23749 April 29, 1977
FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-appellees.

BARREDO, J.:

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in Civil
Case No. Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing
the complaint of appellant Cruz for the recovery of improvements he has made on appellees' land
and to compel appellees to convey to him 3,000 square meters of land on three grounds: (1) failure
of the complaint to state a cause of action; (2) the cause of action of plaintiff is unenforceable under
the Statute of Frauds; and (3) the action of the plaintiff has already prescribed.

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

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

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

Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13, 1964:
In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed that
the complaint against it be dismissed on the ground that (1) the claim on which the
action is founded is unenforceable under the provision of the Statute of Frauds; and
(2) the plaintiff's action, if any has already prescribed. In the other motion of February
11, 1964, defendant J. M. Tuason & Co., Inc. sought the dismissal of the plaintiffs
complaint on the ground that it states no cause of action and on the Identical grounds
stated in the motion to dismiss of defendant Gregorio Araneta, Inc. The said motions
are duly opposed by the plaintiff.

From the allegations of the complaint, it appears that, by virtue of an agreement

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

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for the
reimbursement of the amounts of P38,400.00 and P7,781.74 is concerned, it is not a
privy to the plaintiff's agreement to assist the Deudors n improving the 50 quinones.
On the other hand, the plaintiff countered that, by holding and utilizing the
improvements introduced by him, the defendants are unjustly enriching and
benefiting at the expense of the plaintiff; and that said improvements constitute a lien
or charge of the property itself

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

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

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

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without

pronouncement as to costs.

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

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

Plaintiff through undersigned counsel and to this Honorable Court, respectfully

moves to reconsider its Order bearing date of 13 August 1964, on the following
grounds:

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

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

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

ARGUMENT

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

Under its order of August 3, 1964, this Honorable Court dismissed the claim for sum
of money on the ground that the complaint does not state a cause of action against
defendants. We respectfully submit:

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

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

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

ORDER

xxx xxx xxx

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

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

(16) That the services and personal expenses of plaintiff mentioned

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

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

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

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

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

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

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

The Statute of Frauds is CLEARLY inapplicable to this case:

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

ORDER

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is

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

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

COMPLAINT

xxx xxx xxx

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

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

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

(b) That as of date of signing the compromise agreement, plaintiff

shall be the owner of the 3,000 sq. ms. but the documents evidencing
his title over this property shall be executed and delivered by
defendants to plaintiff within ten (10) years from and after date of
signing of the compromise agreement;
 (c) That plaintiff shall, without any monetary expense of his part,
assist in clearing the 20 quinones of its occupants;

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

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

That plaintiff further assisted defendants' employees in the actual

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

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

SAME ACTION TO ENFORCE. — The statute of frauds has

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

The statute of the frauds is not applicable to contracts which are

either totally or partially performed, on the theory that there is a wide
field for the commission of frauds in executory contracts which can
only be prevented by requiring them to be in writing, a facts which is
reduced to a minimum in executed contracts because the intention of
the parties becomes apparent buy their execution and execution, in
mots cases, concluded the right the parties. ... The partial
performance may be proved by either documentary or oral evidence.
(At pp. 564-565, Tolentino's Civil Code of the Philippines, Vol. IV,
1962 Ed.; Emphasis supplied).

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

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO

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

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

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

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

Plaintiff's Cause of Action had NOT Prescribed:

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

ORDER

xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the
plaintiff's action has prescribed. It is alleged in par. III of the complaint
that, sometime in 1952, the defendants approached the plaintiff to
prevail upon the Deudors to enter into a compromise agreement in
Civil Case No. Q-135 and allied cases. Furthermore, pars. 13 and 14
of the complaint alleged that plaintiff acted as emissary of both
parties in conveying their respective proposals and counter-proposals
until the final settlement was affected on March 16, 1953 and
approved by the Court on April 11, 1953. In the present actin, which
was instituted on January 24, 1964, the plaintiff is seeking to enforce
the supposed agreement entered into between him and the
defendants in 1952, which has already proscribed. (at p. 3, Order).
 The present action has not prescribed, especially when we consider carefully the
terms of the agreement between plaintiff and the defendants. First, we must draw the
attention of this Honorable Court to the fact that this is an action to compel
defendants to execute a Deed of Conveyance over the 3,000 sq. ms. subject of their
agreement. In paragraph 12 of the complaint, the terms and conditions of the
contract between the parties are spelled out. Paragraph 12 (b) of the complaint
states:

(b) That as of date of signing the compromise agreement, plaintiff

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

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

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

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

PRAYER

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

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

On September 7, 1964, the trial court denied the motion for reconsiderations thus:

After considering the plaintiff's Motion for Reconsideration of August 20, 1964 and it
appearing that the grounds relied upon in said motion are mere repetition of those
already resolved and discussed by this Court in the order of August 13, 1964, the
instant motion is hereby denied and the findings and conclusions arrived at by the
Court in its order of August 13, 1964 are hereby reiterated and affirmed.
 SO ORDERED. (Page 90, Rec. on Appeal.)

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

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

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE

GROUND THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
UNENFORCEABLE UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING

APPELLANT'S COMPLAINT ON THE GROUND THAT HIS CLAIM OVER THE
3,000 SQ. MS. IS ALLEGEDLY BARRED BY THE STATUTE OF LIMITATIONS; and

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

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

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

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

(a) An agreement that by its terms is not to be performed within a

year from the making thereof;

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

of another;

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

mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at

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

(f) a representation as to the credit of a third person.

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

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

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

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

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

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

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

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

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot
emerge as against one party when the subject mater thereof is already covered by an existing
contract with another party. Predicated on the principle that no one should be allowed to unjustly
enrich himself at the expense of another, Article 2124 creates the legal fiction of a quasi-contract
precisely because of the absence of any actual agreement between the parties concerned.
Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract with
a third party, his cause of action should be against the latter, who in turn may, if there is any ground
therefor, seek relief against the party benefited. It is essential that the act by which the defendant is
benefited must have been voluntary and unilateral on the part of the plaintiff. As one distinguished
civilian puts it, "The act is voluntary. because the actor in quasi-contracts is not bound by any pre-
existing obligation to act. It is unilateral, because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why the law creates a
juridical relations and imposes certain obligation is to prevent a situation where a person is able to
benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said actor."
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since appellant has a
clearer and more direct recourse against the Deudors with whom he had entered into an agreement
regarding the improvements and expenditures made by him on the land of appellees. it Cannot be
said, in the sense contemplated in Article 2142, that appellees have been enriched at the expense of
appellant.

In the ultimate. therefore, Our holding above that appellant's first two assignments of error are well
taken cannot save the day for him. Aside from his having no cause of action against appellees, there
is one plain error of omission. We have found in the order of the trial court which is as good a ground
as any other for Us to terminate this case favorably to appellees. In said order Which We have
quoted in full earlier in this opinion, the trial court ruled that "the grounds relied upon in said motion
are mere repetitions of those already resolved and discussed by this Court in the order of August 13,
1964", an observation which We fully share. Virtually, therefore. appellant's motion for
reconsideration was ruled to be pro-forma. Indeed, a cursory reading of the record on appeal reveals
that appellant's motion for reconsideration above-quoted contained exactly the same arguments and
manner of discussion as his February 6, 1964 "Opposition to Motion to Dismiss" of defendant
Gregorio Araneta, Inc. ((pp. 17-25, Rec. on Appeal) as well as his February 17, 1964 "Opposition to
Motion to Dismiss of Defendant J. M. Tuason & Co." (pp. 33-45, Rec. on Appeal and his February
29, 1964 "Rejoinder to Reply Oil Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We
cannot see anything in said motion for reconsideration that is substantially different from the above
oppositions and rejoinder he had previously submitted and which the trial court had already
considered when it rendered its main order of dismissal. Consequently, appellant's motion for
reconsideration did not suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890,
905-6.) And as this point was covered by appellees' "Opposition to Motion for Reconsideration" (pp.
8689), hence, within the frame of the issues below, it is within the ambit of Our authority as the
Supreme Court to consider the same here even if it is not discussed in the briefs of the parties.
(Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd.
[Resolution en banc of March 10, 1977 in G. R. No. L-25291).

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

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

Gutierrez Hermanos v. Orense, 28 Phil 571
G.R. No. L-9188 December 4, 1914

GUTIERREZ HERMANOS, plaintiff-appellee,

vs.
ENGRACIO ORENSE, defendant-appellant.

William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.

Rafael de la Sierra for appellee.

TORRES, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If the defendant Orense acknowledged and admitted under oath that he had consented to Jose
Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for
him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500 for the
said property.

The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is
alleged to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of
Civil Procedure, because the authority which Orense may have given to Duran to make the said
contract of sale is not shown to have been in writing and signed by Orense, but the record discloses
satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale
executed in a public instrument by his nephew Jose Duran. Such consent was proven in a criminal
action by the sworn testimony of the principal and presented in this civil suit by other sworn
testimony of the same principal and by other evidence to which the defendant made no objection.
Therefore the principal is bound to abide by the consequences of his agency as though it had
actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs.
Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)

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

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

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

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

Adille v. CA, 157 SCRA 455

G.R. No. L-44546 January 29, 1988

RUSTICO ADILLE, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO
ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.

SARMIENTO, J.:

In issue herein are property and property rights, a familiar subject of controversy and a wellspring of enormous conflict that has led not only
to protracted legal entanglements but to even more bitter consequences, like strained relationships and even the forfeiture of lives. It is a
question that likewise reflects a tragic commentary on prevailing social and cultural values and institutions, where, as one observer notes,
wealth and its accumulation are the basis of self-fulfillment and where property is held as sacred as life itself. "It is in the defense of his
property," says this modern thinker, that one "will mobilize his deepest protective devices, and anybody that threatens his possessions will
arouse his most passionate enmity." 1

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

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

The antecedent facts are quoted from the decision appealed from: 2

xxx xxx xxx

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

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

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

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

III. ... ordering one of the plaintiffs who is in possession of the portion of the property
to vacate the land, p. 1 Appellant's brief.
which can be reduced to simple question of whether or not on the basis of evidence and law,
judgment appealed from should be maintained. 3

xxx xxx xxx

The respondent Court of appeals reversed the trial Court, and ruled for the plaintiffs-appellants, the
4

private respondents herein. The petitioner now appeals, by way of certiorari, from the Court's
decision.

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

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

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

There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with aspect to his share alone. While the5

records show that the petitioner redeemed the property in its entirety, shouldering the expenses
therefor, that did not make him the owner of all of it. In other words, it did not put to end the existing
state of co-ownership.

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

expense. Under the Civil Code:

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

The result is that the property remains to be in a condition of co-ownership. While a vendee a retro,
under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the
redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership
over it. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the
property and consolidate title thereto in his name. But the provision does not give to the redeeming
7

co-owner the right to the entire property. It does not provide for a mode of terminating a co-
ownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name
terminate the existing co-ownership. While his half-brothers and sisters are, as we said, liable to him
for reimbursement as and for their shares in redemption expenses, he cannot claim exclusive right to
the property owned in common. Registration of property is not a means of acquiring ownership. It
operates as a mere notice of existing title, that is, if there is one.

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

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

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

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

This Court is not unaware of the well-established principle that prescription bars any demand on
property (owned in common) held by another (co-owner) following the required number of years. In
that event, the party in possession acquires title to the property and the state of co-ownership is
ended . In the case at bar, the property was registered in 1955 by the petitioner, solely in his name,
8

while the claim of the private respondents was presented in 1974. Has prescription then, set in?

We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must

have been preceded by repudiation (of the co-ownership). The act of repudiation, in turn is subject to
certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is
clearly made known to the other co-owners; (3) the evidence thereon is clear and conclusive, and (4)
he has been in possession through open, continuous, exclusive, and notorious possession of the
property for the period required by law. 9

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

It is true that registration under the Torrens system is constructive notice of title, but it has likewise
10

been our holding that the Torrens title does not furnish a shield for fraud. It is therefore no
11
argument to say that the act of registration is equivalent to notice of repudiation, assuming there was
one, notwithstanding the long-standing rule that registration operates as a universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over
the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten
years, reckoned from the date of the registration of the property, we, as we said, are not prepared
12 13

to count the period from such a date in this case. We note the petitioner's sub rosa efforts to get hold
of the property exclusively for himself beginning with his fraudulent misrepresentation in his
unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza
with the consequence that he was able to secure title in his name also." Accordingly, we hold that
14

the right of the private respondents commenced from the time they actually discovered the
petitioner's act of defraudation. According to the respondent Court of Appeals, they "came to know
15

[of it] apparently only during the progress of the litigation." Hence, prescription is not a bar.
16

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a
motion to dismiss or in the answer otherwise it is deemed waived, and here, the petitioner never
17

raised that defense. There are recognized exceptions to this rule, but the petitioner has not shown
18

why they apply.

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

SO ORDERED,

Andres v. Mantrust, 177 SCRA 618 (1989)

G.R. No. 82670 September 15, 1989

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF
APPEALS, respondents.

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:

Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which,
applying the doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch
CV, Quezon City by deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of
ladies garments, children's wear, men's apparel and linens for local and foreign buyers. Among its
foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.

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

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

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

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

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

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

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

With costs against defendant-appellee.

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

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

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

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

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

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

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

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

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

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

The contention is without merit.

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

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

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

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

Plaintiff-appellant made the second remittance on the wrong assumption that

defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo, pp.
26-27.]

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

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

Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the
wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss.

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

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

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

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

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

SO ORDERED.

Puyat & Sons v. Manila, 7 SCRA 970

G.R. No. L-17447 April 30, 1963

GONZALO PUYAT & SONS, INC., plaintiff-appelle,

vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila, defendants-
appellants
Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal Manuel T. Reyes for
defendants-appellants.

PAREDES, J.:

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

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

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

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

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

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail
DealerlsTaxes paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of 1956,
amounting to P33,785.00, against the City of Manila and its City Treasurer.The case was submitted
on the following stipulation of facts, to wit--

"1. That the plaintiff is a corporation duly organized and existing according to the laws of the
Philippines, with offices at Manila; while defendant City Manila is a Municipal Corporation
duly organized in accordance with the laws of the Philippines, and defendant Marcelino
Sarmiento is the dulyqualified incumbent City Treasurer of Manila;

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

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

Amount
Period Date Paid O.R. No. Assessed
and Paid.
First Quarter 1950 Jan. 25, 1950 436271X P1,255.00
Second Quarter 1950 Apr. 25, 1950 215895X 1,250.00
Third Quarter 1950 Jul. 25, 1950 243321X 1,250.00
 Fourth Quarter 1950 Oct. 25, 1950 271165X 1,250.00
(Follows the assessment for different quarters in 1951, 1952,
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
First Quarter 1956 Jan. 25, 1956 823047X 1,250.00
Second Quarter 1956 Apr. 25, 1956 855949X 1,250.00
Third Quarter 1956 Jul. 25, 1956 880789X 1,250.00

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

===========

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

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

xxx xxx xxx

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

"7. That on July 24, 1958, the defendant City Treasurer of Maniladefinitely denied said
request for refund.

"8. Hence on August 21, 1958, plaintiff filed the present complaint.

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

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

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

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

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

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

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

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

"Payment by reason of a mistake in the contruction or application of a doubtful or difficult question of

law may come within the scope of the preceding article" (Art. 21555)..

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

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

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

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

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

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

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

CBK Power Co. Ltd. v. CIR, G.R. Nos. 198729-30, January15, 2014
G.R. Nos. 198729-30 January 15, 2014

CBK POWER COMPANY LIMITED, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed
1

by CBK Power Company Limited (petitioner). The Petition assails the Decision dated 27 June 2011
2

and Resolution dated 16 September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in
3

C.T.A. EB Nos. 658 and 659. The assailed Decision and Resolution reversed and set aside the
Decision dated 3 March 2010 and Resolution dated 6 July 2010 rendered by the CTA Special
4 5

Second Division in C.T.A. Case No. 7621, which partly granted the claim of petitioner for the
issuance of a tax credit certificate representing the latter's alleged unutilized input taxes on local
purchases of goods and services attributable to effectively zero-rated sales to National Power
Corporation (NPC) for the second and third quarters of 2005.

The Facts

Petitioner is engaged, among others, in the operation, maintenance, and management of the
Kalayaan II pumped-storage hydroelectric power plant, the new Caliraya Spillway, Caliraya,
Botocan; and the Kalayaan I hydroelectric power plants and their related facilities located in the
Province of Laguna. 6

On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal
Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC)
of 1997, as amended. The application was duly approved by the BIR. Thus, petitioner ’s sale of
electr icity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the
benefit of effectively zero-rated value added tax (VAT).7

Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged
unutilized input taxes on its purchase of capital goods and alleged unutilized input taxes on its local
purchases and/or importation of goods and services, other than capital goods, pursuant to Sections
112(A) and (B) of the NIRC of 1997, as amended, with BIR Revenue District Office (RDO) No. 55 of
Laguna, as follows: 8

Period Covered Date Of Filing

1st quarter of 2005 30-Jun-05

2nd quarter of 2005 15-Sep-05

3rd quarter of 2005 28-Oct-05

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

THE CTA SPECIAL SECOND DIVISION RULING

After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010.
Applying Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant), the court
9

a quo ruled that petitioner had until the following dates within which to file both administrative and
judicial claims:

Taxable Quarter Last Day to

File Claim for
2005 Close of the quarter Refund

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

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

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

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

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

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

THE CTA EN BANC RULING

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

of 2005 were belatedly filed.

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

Hence, this Petition.ISSUE

Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on
its claim for refund of unutilized input VAT for the first to third quarters of 2005.11

THE COURT’S RULING

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

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

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

xxxx

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

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

Petitioner’s sales to NPC are effectively zero-rated

As aptly ruled by the CTA Special Second Division, petitioner’s sales to NPC are effectively subject
to zero percent (0%) VAT. The NPC is an entity with a special charter, which categorically exempts it
from the payment of any tax, whether direct or indirect, including VAT. Thus, services rendered to
NPC by a VAT-registered entity are effectively zero-rated. In fact, the BIR itself approved the
application for zero-rating on 29 December 2004, filed by petitioner for its sales to NPC covering
January to October 2005. As a consequence, petitioner claims for the refund of the alleged excess
12

input tax attributable to its effectively zero-rated sales to NPC.

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

Revenue, this Court ruled:
13

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

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

Although the ponente in this case expressed a different view on the mandatory application of the
120+30 day period as prescribed in Section 112, with the finality of the Court’s pronouncement on
the consolidated tax cases Commissioner of Internal Revenue v. San Roque Power Corporation,
Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue (hereby collectively referred as San Roque), we are constrained
14

to apply the dispositions therein to the facts herein which are similar.

Administrative Claim

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

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

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

However, the fact remains that Section 112 is the controlling provision for the refund or credit of
input tax during the time that petitioner filed its claim with which they ought to comply. It must be
emphasized that the Court merely clarified in Mirant that Sections 204 and 229, which prescribed a
different starting point for the two-year prescriptive limit for filing a claim for a refund or credit of
excess input tax, were not applicable. Input tax is neither an erroneously paid nor an illegally
collected internal revenue tax. 15

Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively
zero-rated, a claim for the refund or credit of creditable input tax that is due or paid, and that is
attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close
of the taxable quarter when such sales were made. The reckoning frame would always be the end of
the quarter when the pertinent sale or transactions were made, regardless of when the input VAT
was paid.16

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

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

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

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

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

Judicial Claim

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

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

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

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

Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of
Internal Revenue, this Court has ruled thus:
17

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

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

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

xxxx

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

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on
1âwphi1

BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional. (Emphasis supplied)

In applying the foregoing to the instant case, we consider the following pertinent dates:
1âwphi1

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

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

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

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

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

Petitioner is similarly situated as Philex in the same case, San Roque, in which this Court ruled:
18

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim
long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period.
In any event, whether governed by jurisprudence before, during, or after the Atlas case, Philex’s
judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive period
is counted from the date of payment of the output VAT following the Atlas doctrine, or from the close
of the taxable quarter when the sales attributable to the input VAT were made following the Mirant
and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed
a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences. (Emphases in the original)

Likewise, while petitioner filed its administrative and judicial claims during the period of applicability
of BIR Ruling No. DA-489-03, it cannot claim the benefit of the exception period as it did not file its
judicial claim prematurely, but did so long after the lapse of the 30-day period following the expiration
of the 120-day period. Again, BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim,
which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative
claim, but not its late filing.
19

As this Court enunciated in San Roque , petitioner cannot rely on Atlas either, since the latter case
was promulgated only on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year
period from the date of filing of the return and payment of the tax, does not interpret − expressly or
impliedly − the 120+30 day periods. Simply stated, Atlas referred only to the reckoning of the
20

prescriptive period for filing an administrative claim.

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

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

Also devoid of merit is the applicability of the principle of solutio indebiti to the present case.
According to this principle, if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. In that situation, a creditor-debtor
relationship is created under a quasi-contract, whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who has no right to
receive the payment becomes obligated to return it. The quasi-contract of solutio indebiti is based
21

on the ancient principle that no one shall enrich oneself unjustly at the expense of another. 22

There is solutio indebiti when:

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

(2) Payment is made through mistake, and not through liberality or some other cause. 23

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

First, there exists a binding relation between petitioner and the CIR, the former being a taxpayer
obligated to pay VAT.
Second, the payment of input tax was not made through mistake, since petitioner was legally
obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely
based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the
amount paid was correct and proper. 24

Finally, equity, which has been aptly described as "a justice outside legality," is applied only in the
absence of, and never against, statutory law or judicial rules of procedure. Section 112 is a positive
25

rule that should preempt and prevail over all abstract arguments based only on equity. Well-settled is
the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer. The burden is on the taxpayer to show strict compliance with the conditions for the grant
26

of the tax refund or credit.

27

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

Cangco v. MRR, 38 Phil 768

G.R. No. L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,

vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.

Kincaid & Hartigan for appellee.

FISHER, J.:

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

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

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

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

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

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

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

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

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

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

Upon this point the Court said:

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

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

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

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

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua
and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-
contractual liability of the defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court, after citing the last paragraph
of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and (2) that that
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.

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

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

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

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual

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

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

The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the obligation
upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof
rests upon plaintiff to prove the negligence — if he does not his action fails. But when the facts
averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that
plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his
pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its nonperformance is
sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor

should assume the burden of proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which presupposes the existence of a
contractual obligation, if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach
was due to the negligent conduct of defendant or of his servants, even though such be in fact the
actual cause of the breach, it is obvious that proof on the part of defendant that the negligence or
omission of his servants or agents caused the breach of the contract would not constitute a defense
to the action. If the negligence of servants or agents could be invoked as a means of discharging the
liability arising from contract, the anomalous result would be that person acting through the medium
of agents or servants in the performance of their contracts, would be in a better position than those
acting in person. If one delivers a valuable watch to watchmaker who contract to repair it, and the
bailee, by a personal negligent act causes its destruction, he is unquestionably liable. Would it be
logical to free him from his liability for the breach of his contract, which involves the duty to exercise
due care in the preservation of the watch, if he shows that it was his servant whose negligence
caused the injury? If such a theory could be accepted, juridical persons would enjoy practically
complete immunity from damages arising from the breach of their contracts if caused by negligent
acts as such juridical persons can of necessity only act through agents or servants, and it would no
doubt be true in most instances that reasonable care had been taken in selection and direction of
such servants. If one delivers securities to a banking corporation as collateral, and they are lost by
reason of the negligence of some clerk employed by the bank, would it be just and reasonable to
permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon
the payment of the debt by proving that due care had been exercised in the selection and direction
of the clerk?
This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a
mere incident to the performance of a contract has frequently been recognized by the supreme court
of Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In the
decisions of November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that
defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense.
The Spanish Supreme Court rejected defendant's contention, saying:

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

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

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

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

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for the personal injuries caused by the negligence of defendant's chauffeur while driving
defendant's automobile in which defendant was riding at the time. The court found that the damages
were caused by the negligence of the driver of the automobile, but held that the master was not
liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. .
. . The act complained of must be continued in the presence of the owner for such length of
time that the owner by his acquiescence, makes the driver's acts his own.

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

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

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

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

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

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

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

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

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

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

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

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

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

Gutierrez v. Gutierrez, 56 Phil 177

G.R. No. 34840 September 23, 1931

NARCISO GUTIERREZ, plaintiff-appellee,

vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.

L.D. Lockwood for appellants Velasco and Cortez.

San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.

MALCOLM, J.:

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

On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of
Las Piñas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was
owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18
years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At
the time of the collision, the father was not in the car, but the mother, together will several other
members of the Gutierrez family, seven in all, were accommodated therein. A passenger in the
autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The
collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fracture right
leg which required medical attendance for a considerable period of time, and which even at the date
of the trial appears not to have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The difference between
the parties is that, while the plaintiff blames both sets of defendants, the owner of the passenger
truck blames the automobile, and the owner of the automobile, in turn, blames the truck. We have
given close attention to these highly debatable points, and having done so, a majority of the court
are of the opinion that the findings of the trial judge on all controversial questions of fact find
sufficient support in the record, and so should be maintained. With this general statement set down,
we turn to consider the respective legal obligations of the defendants.

In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be
explained that the youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive
rate of speed, and that, on approaching the bridge and the truck, he lost his head and so contributed
by his negligence to the accident. The guaranty given by the father at the time the son was granted a
license to operate motor vehicles made the father responsible for the acts of his son. Based on
these facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the
minor or the mother, would be liable for the damages caused by the minor.

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

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

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

Domestic Petroleum Case

As to Perfection and Extinguishment-Kinds of Civil Obligation
HSBC v. Sps. Broqueza, G.R. No. 178610, November 17, 2010
G.R. No. 178610 November 17, 2010

HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN, Retirement
Trust Fund, Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.

DECISION

CARPIO, J.:

G.R. No. 178610 is a petition for review1 assailing the Decision2 promulgated on 30 March 2006 by
the Court of Appeals (CA) in CA-G.R. SP No. 62685. The appellate court granted the petition filed by
Fe Gerong (Gerong) and Spouses Bienvenido and Editha Broqueza (spouses Broqueza) and
dismissed the consolidated complaints filed by Hongkong and Shanghai Banking Corporation, Ltd. -
Staff Retirement Plan (HSBCL-SRP) for recovery of sum of money. The appellate court reversed
and set aside the Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil
Case No. 00-787 dated 11 December 2000, as well as its Order4 dated 5 September 2000. The
RTC’s decision affirmed the Decision5 dated 28 December 1999 of Branch 61 of the Metropolitan
Trial Court (MeTC) of Makati City in Civil Case No. 52400 for Recovery of a Sum of Money.

The Facts

The appellate court narrated the facts as follows:

Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of Hongkong and
Shanghai Banking Corporation (HSBC). They are also members of respondent Hongkong Shanghai
Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP, plaintiff below). The HSBCL-SRP is a
retirement plan established by HSBC through its Board of Trustees for the benefit of the employees.

On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of
Php175,000.00. On December 12, 1991, she again applied and was granted an appliance loan in
the amount of Php24,000.00. On the other hand, petitioner Gerong applied and was granted an
emergency loan in the amount of Php35,780.00 on June 2, 1993. These loans are paid through
automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of HSBC’s
employees were terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The
employees then filed an illegal dismissal case before the National Labor Relations Commission
(NLRC) against HSBC. The legality or illegality of such termination is now pending before this
appellate Court in CA G.R. CV No. 56797, entitled Hongkong Shanghai Banking Corp. Employees
Union, et al. vs. National Labor Relations Commission, et al.

Because of their dismissal, petitioners were not able to pay the monthly amortizations of their
respective loans. Thus, respondent HSBCL-SRP considered the accounts of petitioners delinquent.
Demands to pay the respective obligations were made upon petitioners, but they failed to pay.6

HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. Custodio, filed
Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. On 19 September 1996,
HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits were civil actions for recovery
and collection of sums of money.

The Metropolitan Trial Court’s Ruling

On 28 December 1999, the MeTC promulgated its Decision7 in favor of HSBCL-SRP. The MeTC
ruled that the nature of HSBCL-SRP’s demands for payment is civil and has no connection to the
ongoing labor dispute. Gerong and Editha Broqueza’s termination from employment resulted in the
loss of continued benefits under their retirement plans. Thus, the loans secured by their future
retirement benefits to which they are no longer entitled are reduced to unsecured and pure civil
obligations. As unsecured and pure obligations, the loans are immediately demandable.

The dispositive portion of the MeTC’s decision reads:

WHEREFORE, premises considered and in view of the foregoing, the Court finds that the plaintiff
was able to prove by a preponderance of evidence the existence and immediate demandability of
the defendants’ loan obligations as judgment is hereby rendered in favor of the plaintiff and against
the defendants in both cases, ordering the latter:

1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at six percent interest per
annum from the time of demand and in Civil Case No. 52911, to pay the amount of
Php25,344.12 at six percent per annum from the time of the filing of these cases, until the
amount is fully paid;

2. To pay the amount of Php20,000.00 each as reasonable attorney’s fees;

3. Cost of suit.

SO ORDERED.8

Gerong and the spouses Broqueza filed a joint appeal of the MeTC’s decision before the RTC.
Gerong’s case was docketed Civil Case No. 00-786, while the spouses Broqueza’s case was
docketed as Civil Case No. 00-787.

The Regional Trial Court’s Ruling

The RTC initially denied the joint appeal because of the belated filing of Gerong and the spouses
Broqueza’s memorandum. The RTC later reconsidered the order of denial and resolved the issues in
the interest of justice.

On 11 December 2000, the RTC affirmed the MeTC’s decision in toto.9

The RTC ruled that Gerong and Editha Broqueza’s termination from employment disqualified them
from availing of benefits under their retirement plans. As a consequence, there is no longer any
security for the loans. HSBCL-SRP has a legal right to demand immediate settlement of the unpaid
balance because of Gerong and Editha Broqueza’s continued default in payment and their failure to
provide new security for their loans. Moreover, the absence of a period within which to pay the loan
allows HSBCL-SRP to demand immediate payment. The loan obligations are considered pure
obligations, the fulfillment of which are demandable at once.

Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA.

The Ruling of the Court of Appeals

On 30 March 2006, the CA rendered its Decision10 which reversed the 11 December 2000 Decision
of the RTC. The CA ruled that the HSBCL-SRP’s complaints for recovery of sum of money against
Gerong and the spouses Broqueza are premature as the loan obligations have not yet matured.
Thus, no cause of action accrued in favor of HSBCL-SRP. The dispositive portion of the appellate
court’s Decision reads as follows:

WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE. A new one is
hereby rendered DISMISSING the consolidated complaints for recovery of sum of money.

SO ORDERED.11

HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in its
Resolution12 promulgated on 19 June 2007.

On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition against Gerong
because she already settled her obligations. In a Resolution13 of this Court dated 10 September
2007, this Court treated the manifestation as a motion to withdraw the petition against Gerong,
granted the motion, and considered the case against Gerong closed and terminated.

Issues

HSBCL-SRP enumerated the following grounds to support its Petition:

I. The Court of Appeals has decided a question of substance in a way not in accord with law
and applicable decisions of this Honorable Court; and

II. The Court of Appeals has departed from the accepted and usual course of judicial
proceedings in reversing the decision of the Regional Trial Court and the Metropolitan Trial
Court.14

The Court’s Ruling

The petition is meritorious. We agree with the rulings of the MeTC and the RTC.
The Promissory Notes uniformly provide:

PROMISSORY NOTE

P_____ Makati, M.M. ____ 19__

FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE HSBC
RETIREMENT PLAN (hereinafter called the "PLAN") at its office in the Municipality of Makati, Metro
Manila, on or before until fully paid the sum of PESOS ___ (P___) Philippine Currency without
discount, with interest from date hereof at the rate of Six per cent (6%) per annum, payable monthly.

I/WE agree that the PLAN may, upon written notice, increase the interest rate stipulated in this note
at any time depending on prevailing conditions.

I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of the
principal without notice to the other(s), and in such a case our liability shall remain joint and several.1avvphi1

In case collection is made by or through an attorney, I/WE jointly and severally agree to pay ten
percent (10%) of the amount due on this note (but in no case less than P200.00) as and for
attorney’s fees in addition to expenses and costs of suit.

In case of judicial execution, I/WE hereby jointly and severally waive our rights under the provisions
of Rule 39, Section 12 of the Rules of Court.15

In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:

Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once.

x x x. (Emphasis supplied.)

We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the
Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not contain a
period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the Civil Code
applies. The spouses Broqueza’s obligation to pay HSBCL-SRP is a pure obligation. The fact that
HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza’s salary is of no
moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to
enforce a pure obligation.

In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s dismissal from
HSBC in December 1993, she "religiously paid the loan amortizations, which HSBC collected
through payroll check-off."16 A definite amount is paid to HSBCL-SRP on a specific date. Editha
Broqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are fully paid.
Editha Broqueza, however, defaulted in her monthly loan payment due to her dismissal. Despite the
spouses Broqueza’s protestations, the payroll deduction is merely a convenient mode of payment
and not the sole source of payment for the loans. HSBCL-SRP never agreed that the loans will be
paid only through salary deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases
to be an employee of HSBC, her obligation to pay the loans will be suspended. HSBCL-SRP can
immediately demand payment of the loans at anytime because the obligation to pay has no period.
Moreover, the spouses Broqueza have already incurred in default in paying the monthly installments.
Finally, the enforcement of a loan agreement involves "debtor-creditor relations founded on contract
and does not in any way concern employee relations. As such it should be enforced through a
separate civil action in the regular courts and not before the Labor Arbiter."17

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. SP No.
62685 promulgated on 30 March 2006 is REVERSED and SET ASIDE. The decision of Branch 139
of the Regional Trial Court of Makati City in Civil Case No. 00-787, as well as the decision of Branch
61 of the Metropolitan Trial Court of Makati City in Civil Case No. 52400 against the spouses
Bienvenido and Editha Broqueza, are AFFIRMED. Costs against respondents.

SO ORDERED.

Pay v. Palanca, 57 SCRA 618

G.R. No. L-29900 June 28, 1974

IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE

PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.

Florentino B. del Rosario for petitioner-appellant.

Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p

There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were raised, the decisive
issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than fifteen years earlier
with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand, the basis for the action
being the latter alternative. The lower court held that the ten-year period of limitation of actions did apply, the note being immediately due and
demandable, the creditor admitting expressly that he was relying on the wording "upon demand." On the above facts as found, and with the
law being as it is, it cannot be said that its decision is infected with error. We affirm.

From the appealed decision, the following appears: "The parties in this case agreed to submit the
matter for resolution on the basis of their pleadings and annexes and their respective memoranda
submitted. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July
3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby
the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the
amount of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now
before this Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo
Palanca, he appointed as administratrix of a certain piece of property which is a residential dwelling
located at 2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo
Palanca, assessed at P41,800.00. The idea is that once said property is brought under
administration, George Pay, as creditor, can file his claim against the administratrix." It then stated 1

that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de
Palanca to be appointed as administratrix; that the property sought to be administered no longer
belonged to the debtor, the late Justo Palanca; and that the rights of petitioner-creditor had already
prescribed. The promissory note, dated January 30, 1962, is worded thus: " `For value received from
time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at
the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by either of the
undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. . . .
As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo
Palanca." Then came this paragraph: "The Court has inquired whether any cash payment has been
2

received by either of the signers of this promissory note from the Estate of the late Carlos Palanca.
Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his
right under the promissory note ." After which, came the ruling that the wording of the promissory
3

note being "upon demand," the obligation was immediately due. Since it was dated January 30,
1952, it was clear that more "than ten (10) years has already transpired from that time until to date.
The action, therefore, of the creditor has definitely prescribed." The result, as above noted, was the
4

dismissal of the petition.

In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the
correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of
the late Justo Palanca to be appointed as administratrix, as to the property sought to be
administered no longer belonging to the debtor, the late Justo Palanca, and as to the rights of
petitioner-creditor having already prescribed. As noted at the outset, only the question of prescription
need detain us in the disposition of this appeal. Likewise, as intimated, the decision must be
affirmed, considering the clear tenor of the promissory note.

From the manner in which the promissory note was executed, it would appear that petitioner was
hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving
cash payment from the estate of the late Carlos Palanca presumptively as one of the heirs, or, as
expressed therein, "upon demand." There is nothing in the record that would indicate whether or not
the first alternative was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen
years after the execution of the promissory note on January 30, 1952, this petition was filed. The
defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil Code
provides: "Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once." This used to be Article 1113 of
the Spanish Civil Code of 1889. As far back as Floriano v. Delgado, a 1908 decision, it has been
5

applied according to its express language. The well-known Spanish commentator, Manresa, on this
point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de
este, se fija, para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es
consecuencia de aquel: la exigibilidad immediata." 6

The obligation being due and demandable, it would appear that the filing of the suit after fifteen
years was much too late. For again, according to the Civil Code, which is based on Section 43 of Act
No. 190, the prescriptive period for a written contract is that of ten years. This is another instance
7

where this Court has consistently adhered to the express language of the applicable norm. There is
8

no necessity therefore of passing upon the other legal questions as to whether or not it did suffice for
the petition to fail just because the surviving spouse refuses to be made administratrix, or just
because the estate was left with no other property. The decision of the lower court cannot be
overturned.

WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.
Smith Bell v. Sotelo Matti, 44 Phil 874
G.R. No. L-16570 March 9, 1922

SMITH, BELL & CO., LTD., plaintiff-appellant,

vs.
VICENTE SOTELO MATTI, defendant-appellant.

Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.

Ramon Sotelo for defendant-appellant.

ROMUALDEZ, J.:

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into
contracts whereby the former obligated itself to sell, and the latter to purchase from it, two steel
tanks, for the total price of twenty-one thousand pesos (P21,000), the same to be shipped from New
York and delivered at Manila "within three or four months;" two expellers at the price of twenty five
thousand pesos (P25,000) each, which were to be shipped from San Francisco in the month of
September, 1918, or as soon as possible; and two electric motors at the price of two thousand pesos
(P2,000) each, as to the delivery of which stipulation was made, couched in these words:
"Approximate delivery within ninety days. — This is not guaranteed."

The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918;
and the motors on the 27th of February, 1919.

The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr.
Sotelo refused to receive them and to pay the prices stipulated.

The plaintiff brought suit against the defendant, based on four separate causes of action, alleging,
among other facts, that it immediately notified the defendant of the arrival of the goods, and asked
instructions from him as to the delivery thereof, and that the defendant refused to receive any of
them and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in
good condition. (Amended complaint, pages 16-30, Bill of Exceptions.)

In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-
Products Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their
arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and
pay their price, and the good condition of the expellers and the motors, alleging as special defense
that Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil
Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May,
1919, that it notified the intervenor that said tanks had arrived, the motors and the expellers having
arrived incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege
that, as a consequence of the plaintiff's delay in making delivery of the goods, which the intervenor
intended to use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of
one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos
(P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty
pesos (P21,250) on account of the expellers and the motors not having arrived in due time.

The case having been tried, the court below absolved the defendants from the complaint insofar as
the tanks and the electric motors were concerned, but rendered judgment against them, ordering
them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos
(P50,00), the price of the said goods, with legal interest thereon from July 26, 1919, and costs."

Both parties appeal from this judgment, each assigning several errors in the findings of the lower
court.

The principal point at issue in this case is whether or not, under the contracts entered into and the
circumstances established in the record, the plaintiff has fulfilled, in due time, its obligation to bring
the goods in question to Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must
be held guilty of delay and liable for the consequences thereof.

To solve this question, it is necessary to determine what period was fixed for the delivery of the
goods.

As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both
of them we find this clause:

To be delivered within 3 or 4 months — The promise or indication of shipment carries with it

absolutely no obligation on our part — Government regulations, railroad embargoes, lack of
vessel space, the exigencies of the requirement of the United States Government, or a
number of causes may act to entirely vitiate the indication of shipment as stated. In other
words, the order is accepted on the basis of shipment at Mill's convenience, time of shipment
being merely an indication of what we hope to accomplish.

In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following
stipulation appears:

The following articles, hereinbelow more particularly described, to be shipped at San

Francisco within the month of September /18, or as soon as possible. — Two Anderson oil
expellers . . . .

And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:

Approximate delivery within ninety days. — This is not guaranteed. — This sale is subject to
our being able to obtain Priority Certificate, subject to the United States Government
requirements and also subject to confirmation of manufactures.

In all these contracts, there is a final clause as follows:

The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes
or other causes known as "Force Majeure" entirely beyond the control of the sellers or their
representatives.

Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the
goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or 4 months,"
but that period was subject to the contingencies referred to in a subsequent clause. With regard to
the expellers, the contract says "within the month of September, 1918," but to this is added "or as
soon as possible." And with reference to the motors, the contract contains this expression,
"Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed."

The oral evidence falls short of fixing such period.

From the record it appears that these contracts were executed at the time of the world war when
there existed rigid restrictions on the export from the United States of articles like the machinery in
question, and maritime, as well as railroad, transportation was difficult, which fact was known to the
parties; hence clauses were inserted in the contracts, regarding "Government regulations, railroad
embargoes, lack of vessel space, the exigencies of the requirements of the United States
Government," in connection with the tanks and "Priority Certificate, subject to the United State
Government requirements," with respect to the motors. At the time of the execution of the contracts,
the parties were not unmindful of the contingency of the United States Government not allowing the
export of the goods, nor of the fact that the other foreseen circumstances therein stated might
prevent it.

Considering these contracts in the light of the civil law, we cannot but conclude that the term which
the parties attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those
articles could be brought to Manila or not. If that is the case, as we think it is, the obligations must be
regarded as conditional.

Obligations for the performance of which a day certain has been fixed shall be demandable
only when the day arrives.

A day certain is understood to be one which must necessarily arrive, even though its date be
unknown.

If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is
conditional and shall be governed by the rules of the next preceding section. (referring to
pure and conditional obligations). (Art. 1125, Civ. Code.)

And as the export of the machinery in question was, as stated in the contract, contingent upon the
sellers obtaining certificate of priority and permission of the United States Government, subject to
the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a
condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon
the will of third persons who could in no way be compelled to fulfill the condition. In cases like this,
which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be
deemed to have sufficiently performed his part of the obligation, if he has done all that was in his
power, even if the condition has not been fulfilled in reality.

In such cases, the decisions prior to the Civil Code have held that the obligee having done
all that was in his power, was entitled to enforce performance of the obligation. This
performance, which is fictitious — not real — is not expressly authorized by the Code, which
limits itself only to declare valid those conditions and the obligation thereby affected; but it is
neither disallowed, and the Code being thus silent, the old view can be maintained as a
doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.)

The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on
November 19, 1896, and February 23, 1871.

In the former it is held:

First. That when the fulfillment of the conditions does not depend on the will of the obligor,
but on that of a third person who can in no way be compelled to carry it out, and it is found
by the lower court that the obligor has done all in his power to comply with the obligation, the
judgment of the said court, ordering the other party to comply with his part of the contract, is
not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novísima
 Recopilación," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no
law or precedent is alleged to have been violated. (Jurisprudencia Civil published by the
directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14, page 656.)

In the second decision, the following doctrine is laid down:

Second. That when the fulfillment of the condition does not depend on the will of the obligor,
but on that of a third person, who can in no way be compelled to carry it out, the obligor's
part of the contract is complied withalf Belisario not having exercised his right of repurchase
reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of
Basilio Borja for the consolidacion de dominio was presented for record in the registry of
deeds and recorded in the registry on the same date.

(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor
children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs.

(33) That in the execution and sales thereunder, in which C. H. McClure appears as the
judgment creditor, he was represented by the opponent Peter W. Addison, who prepared
and had charge of publication of the notices of the various sales and that in none of the sales
was the notice published more than twice in a newspaper.

The claims of the opponent-appellant Addison have been very fully and ably argued by his
counsel but may, we think, be disposed of in comparatively few words. As will be seen from
the foregoing statement of facts, he rest his title (1) on the sales under the executions issued
in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with
the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase
from the Director of Lands after the land in question had been forfeited to the Government
for non-payment of taxes under Act No. 1791.

The sheriff's sales under the execution mentioned are fatally defective for what of sufficient
publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as
follows:

SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows:

1. In case of perishable property, by posing written notice of the time and place of the sale in
three public places of the municipality or city where the sale is to take place, for such time as
may be reasonable, considering the character and condition of the property;

2. * * * * * * *

3. In cases of real property, by posting a similar notice particularly describing the property,
for twenty days in three public places of the municipality or city where the property is
situated, and also where the property is to be sold, and publishing a copy thereof once a
week, for the same period, in some newspaper published or having general circulation in the
province, if there be one. If there are newspaper published in the province in both the
Spanish and English languages, then a like publication for a like period shall be made in one
newspaper published in the Spanish language, and in one published in the English
language: Provided, however, That such publication in a newspaper will not be required
when the assessed valuation of the property does not exceed four hundred pesos;
 4. * * * * * * *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14,
1916; the notice first published gave the date of the sale as October 15th, but upon discovering that
October 15th was a Sunday, the date was changed to October 14th. The correct notice was
published twice in a local newspaper, the first publication was made on October 7th and the second
and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical published
every Saturday afternoon.

In case No. 454 there were only two publications of the notice in a newspaper, the first publication
being made only fourteen days before the date of the sale. In case No. 499, there were also only two
publications, the first of which was made thirteen days before the sale. In the last case the sale was
advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section
457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00
in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by
the judgment creditor or his agent, who also took charged of the publication of such notices.

In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if
a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the
judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void
and not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever
the rule may be elsewhere.

It appears affirmatively from the evidence in the present case that there is a newspaper published in
the province where the sale in question took place and that the assessed valuation of the property
disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with
what was actually done, it is self-evident that notices of the sales mentioned were not given as
prescribed by the statute and taking into consideration that in connection with these sales the
appellant Addison was either the judgment creditor or else occupied a position analogous to that of a
judgment creditor, the sales must be held invalid.

The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The
provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for non-
payment of taxes are found in section 19 of the Act and read:

. . . In case such redemption be not made within the time above specified the Government of
the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon
the expiration of the said ninety days, if redemption be not made, the provincial treasurer
shall immediately notify the Director of Lands of the forfeiture and furnish him with a
description of the property, and said Director of Lands shall have full control and custody
thereof to lease or sell the same or any portion thereof in the same manner as other public
lands are leased or sold: Provided, That the original owner, or his legal representative, shall
have the right to repurchase the entire amount of his said real property, at any time before a
sale or contract of sale has been made by the director of Lands to a third party, by paying
therefore the whole sum due thereon at the time of ejectment together with a penalty of ten
per centum . . . .

The appellant Addison repurchased under the final proviso of the section quoted and was allowed to
do so as the successor in interest of the original owner under the execution sale above discussed.
As we have seen, he acquired no rights under these sales, was therefore not the successor of the
original owner and could only have obtained a valid conveyance of such titles as the Government
might have by following the procedure prescribed by the Public Land Act for the sale of public lands.
he is entitled to reimbursement for the money paid for the redemption of the land, with interest, but
has acquired no title through the redemption.

The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to
Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's
or execution sales cannot be validated through inscription in the Mortgage Law registry.

The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question
was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of
Paula Ira inealed from is modified, and the defendant Mr. Vicente Sotelo Matti, sentenced to accept
and receive from the plaintiff the tanks, the expellers and the motors in question, and to pay the
plaintiff the sum of ninety-six thousand pesos (P96,000), with legal interest thereon from July 17,
1919, the date of the filing of the complaint, until fully paid, and the costs of both instances. So
ordered.

Chavez v. Gonzales, 32 SCRA 547

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO

GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING

OF PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.—
Where the time for compliance had expired and there was breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to fix a
period for the performance of the contract before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF
THE PHILIPPINES.— Where the defendant virtually admitted non-performance of the
contract by returning the typewriter that he was obliged to repair in a non-working
condition, with essential parts missing, Article 1197 of the Civil Code of the Philippines
cannot be invoked. The fixing of a period would thus be a mere formality and would
serve no purpose than to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-
appellee contravened the tenor of his obligation because he not only did not repair the
typewriter but returned it "in shambles,’’ he is liable for the cost of the labor or service
expended in the repair of the typewriter, which is in the amount of P58.75, because the
obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170
of the Code, for the cost of the missing parts, in the amount of P31.10, for in his
obligation to repair the typewriter he was bound, but failed or neglected, to return it in
the same condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE;
NOT ALLEGED OR PROVED IN INSTANT CASE.— Claims for damages and attorney’s
fees must be pleaded, and the existence of the actual basis thereof must be proved. As
no findings of fact were made on the claims for damages and attorney’s fees, there is
no factual basis upon which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME

COURT; ONLY QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly
appeals from the decision of the trial court to the Supreme Court on questions of law,
he is bound by the judgment of the court a quo on its findings of fact.

DECISION

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract
and recovery of damages but was unsatisfied with the decision rendered by the Court of
First Instance of Manila, in its Civil Case No. 65138, because it awarded him only
P31.10 out of his total claim of P690 00 for actual, temperate and moral damages and
attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in full: jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a
typewriter repairer, a portable typewriter for routine cleaning and servicing. The
defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff. The defendant merely gave assurances, but failed to comply with
the same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for
the purchase of spare parts, which amount the plaintiff gave to the defendant. On
October 26, 1963, after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked for the return of
the typewriter. The defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to him by the defendant
and found out that the same was in shambles, with the interior cover and some parts
and screws missing. On October 29, 1963. the plaintiff sent a letter to the defendant
formally demanding the return of the missing parts, the interior cover and the sum of
P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of the
missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business
Machines, and the repair job cost him a total of P89.85, including labor and materials
(Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of
Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages,
and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant made
no denials of the facts narrated above, except the claim of the plaintiff that the
typewriter was delivered to the defendant through a certain Julio Bocalin, which the
defendant denied allegedly because the typewriter was delivered to him personally by
the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost of
P89.85 should not, however, be fully chargeable against the defendant. The repair
invoice, Exhibit C, shows that the missing parts had a total value of only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff
the sum of P31.10, and the costs of suit.

"SO ORDERED." cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is
that it awarded only the value of the missing parts of the typewriter, instead of the
whole cost of labor and materials that went into the repair of the machine, as provided
for in Article 1167 of the Civil Code, reading as follows:jgc:chanrobles.com.ph

"ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he undone."
virtua1aw library
cralaw

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that
he is not liable at all, not even for the sum of P31.10, because his contract with
plaintiff-appellant did not contain a period, so that plaintiff-appellant should have first
filed a petition for the court to fix the period, under Article 1197 of the Civil Code,
within which the defendant appellee was to comply with the contract before said
defendant-appellee could be held liable for breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not
interpose any appeal, the facts, as found by the trial court, are now conclusive and
non-reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a
portable typewriter for routine cleaning and servicing" ; that the defendant was not able
to finish the job after some time despite repeated reminders made by the plaintiff" ;
that the "defendant merely gave assurances, but failed to comply with the same" ; and
that "after getting exasperated with the delay of the repair of the typewriter", the
plaintiff went to the house of the defendant and asked for its return, which was done.
The inferences derivable from these findings of fact are that the appellant and the
appellee had a perfected contract for cleaning and servicing a typewriter; that they
intended that the defendant was to finish it at some future time although such time was
not specified; and that such time had passed without the work having been
accomplished, far the defendant returned the typewriter cannibalized and unrepaired,
which in itself is a breach of his obligation, without demanding that he should be given
more time to finish the job, or compensation for the work he had already done. The
time for compliance having evidently expired, and there being a breach of contract by
non-performance, it was academic for the plaintiff to have first petitioned the court to
fix a period for the performance of the contract before filing his complaint in this case.
Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted non-
performance by returning the typewriter that he was obliged to repair in a non-working
condition, with essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila
Railroad Co. 98 Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation because
he not only did not repair the typewriter but returned it "in shambles", according to the
appealed decision. For such contravention, as appellant contends, he is liable under
Article 1167 of the Civil Code. jam quot, for the cost of executing the obligation in a
proper manner. The cost of the execution of the obligation in this case should be the
cost of the labor or service expended in the repair of the typewriter, which is in the
amount of P58.75. because the obligation or contract was to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for
the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the same condition it
was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were,
however, correctly rejected by the trial court, for these were not alleged in his
complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s fees must
be pleaded, and the existence of the actual basis thereof must be proved. 2 The
appealed judgment thus made no findings on these claims, nor on the fraud or malice
charged to the appellee. As no findings of fact were made on the claims for damages
and attorney’s fees, there is no factual basis upon which to make an award therefor.
Appellant is bound by such judgment of the court, a quo, by reason of his having
resorted directly to the Supreme Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by

ordering the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-
appellant the sum of P89.85, with interest at the legal rate from the filing of the
complaint. Costs in all instances against appellee Fructuoso Gonzales.

Encarnacion v. Baldomar, 77 Phil 470

G.R. No. L-264 October 4, 1946

VICENTE SINGSON ENCARNACION, plaintiff-appellee,

vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.
Bausa and Ampil for appellants.
Tolentino and Aguas for appellee.

HILADO, J.:

Vicente Singson Encarnacion, owner of the house numbered 589 Legarda Street, Manila, some six
years ago leased said house to Jacinto Baldomar and her son, Lefrado Fernando, upon a month-to-
month basis for the monthly rental of P35. After Manila was liberated in the last war, specifically on
March 16, 1945, and on April 7, of the same year, plaintiff Singson Encarnacion notified defendants,
the said mother and son, to vacate the house above-mentioned on or before April 15, 1945, because
plaintiff needed it for his offices as a result of the destruction of the building where said plaintiff had
said offices before. Despite this demand, defendants insisted on continuing their occupancy. When
the original action was lodged with the Municipal Court of Manila on April 20, 1945, defendants were
in arrears in the payment of the rental corresponding to said month, the agrees rental being payable
within the first five days of each month. That rental was paid prior to the hearing of the case in the
municipal court, as a consequence of which said court entered judgment for restitution and payment
of rentals at the rate of P35 a month from May 1, 1945, until defendants completely vacate the
premises. Although plaintiff included in said original complaint a claim for P500 damages per month,
that claim was waived by him before the hearing in the municipal court, on account of which nothing
was said regarding said damages in the municipal court's decision.

When the case reached the Court of First Instance of Manila upon appeal, defendants filed therein a
motion to dismiss (which was similar to a motion to dismiss filed by them in the municipal court)
based upon the ground that the municipal court had no jurisdiction over the subject matter due to the
aforesaid claim for damages and that, therefore, the Court of First Instance had no appellate
jurisdiction over the subject matter of the action. That motion to dismiss was denied by His Honor,
Judge Mamerto Roxas, by order dated July 21, 1945, on the ground that in the municipal court
plaintiff had waived said claim for damages and that, therefore, the same waiver was understood
also to have been made in the Court of First Instance. lawphil.net

In the Court of First Instance the graveman of the defense interposed by defendants, as it was
expressed defendant Lefrado Fernando during the trial, was that the contract which they had
celebrated with plaintiff since the beginning authorized them to continue occupying the house
indefinetly and while they should faithfully fulfill their obligations as respects the payment of the
rentals, and that this agreement had been ratified when another ejectment case between the parties
filed during the Japanese regime concerning the same house was allegedly compounded in the
municipal court. The Court of First Instance gave more credit to plaintiff's witness, Vicente Singson
Encarnacion, jr., who testified that the lease had always and since the beginning been upon a
month-to-month basis. The court added in its decision that this defense which was put up by
defendant's answer, for which reason the Court considered it as indicative of an eleventh-hour
theory. We think that the Court of First Instance was right in so declaring. Furthermore, carried to its
logical conclusion, the defense thus set up by defendant Lefrado Fernando would leave to the sole
and exclusive will of one of the contracting parties (defendants in this case) the validity and
fulfillment of the contract of lease, within the meaning of article 1256 of the Civil Code, since the
continuance and fulfillment of the contract would then depend solely and exclusively upon their free
and uncontrolled choice between continuing paying the rentals or not, completely depriving the
owner of all say in the matter. If this defense were to be allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals, the owner would never be able to
discontinue it; conversely, although the owner should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient
of stopping payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil
Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil., 100.)

During the pendency of the appeal in the Court of First Instance and before the judgment appealed
from was rendered on October 31, 1945, the rentals in areas were those pertaining to the month of
August, 1945, to the date of said judgment at the rate of P35 a month. During the pendency of the
appeal in that court, certain deposits were made by defendants on account of rentals with the clerk
of said court, and in said judgment it is disposed that the amounts thus deposited should be
delivered to plaintiff.

Upon the whole, we are clearly of opinion that the judgment appealed from should be, as it is
hereby, affirmed, with the costs of the three instances to appellants. So ordered.

Eleizegui v. Lawn Tennis Club, 2 Phil 309

G.R. No. 967 May 19, 1903

DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,

vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.

Pillsburry and Sutro for appellant.

Manuel Torres Vergara for appellee.

ARELLANO, C. J.:

This suit concerns the lease of a piece of land for a fixed consideration and to endure at the will of
the lessee. By the contract of lease the lessee is expressly authorized to make improvements upon
the land, by erecting buildings of both permanent and temporary character, by making fills, laying
pipes, and making such other improvements as might be considered desirable for the comfort and
amusement of the members.

With respect to the term of the lease the present question has arisen. In its decision three theories
have been presented: One which makes the duration depend upon the will of the lessor, who, upon
one month's notice given to the lessee, may terminate the lease so stipulated; another which, on the
contrary, makes it dependent upon the will of the lessee, as stipulated; and the third, in accordance
with which the right is reversed to the courts to fix the duration of the term.

The first theory is that which has prevailed in the judgment below, as appears from the language in
which the basis of the decision is expressed: "The court is of the opinion that the contract of lease
was terminated by the notice given by the plaintiff on August 28 of last year . . . ." And such is the
theory maintained by the plaintiffs, which expressly rests upon article 1581 of the Civil Code, the law
which was in force at the time the contract was entered into (January 25, 1890). The judge, in giving
to this notice the effect of terminating the lease, undoubtedly considers that it is governed by the
article relied upon by the plaintiffs, which is of the following tenor: "When the term has not been fixed
for the lease, it is understood to be for years when an annual rental has been fixed, for months when
the rent is monthly. . . ." The second clause of the contract provides as follows: "The rent of the said
land is fixed at 25 pesos per month." (P. 11, Bill of Exceptions.)
In accordance with such a theory, the plaintiffs might have terminated the lease the month following
the making of the contract — at any time after the first month, which, strictly speaking, would be the
only month with respect to which they were expressly bound, they not being bound for each
successive month except by a tacit renewal (art. 1566) — an effect which they might prevent by
giving the required notice.

Although the relief asked for in the complaint, drawn in accordance with the new form of procedure
established by the prevailing Code, is the restitution of the land to the plaintiffs (a formula common to
various actions), nevertheless the action which is maintained can be no other than that of desahucio,
in accordance with the substantive law governing the contract. The lessor — says article 1569 of the
Civil Code — may judicially dispossess the lessee upon the expiration of the conventional term or of
the legal term; the conventional term — that is, the one agreed upon by the parties; the legal term, in
defect of the conventional, fixed for leases by articles 1577 and 1581. We have already seen what
this legal term is with respect to urban properties, in accordance with article 1581.

Hence, it follows that the judge has only to determine whether there is or is not conventional term. If
there be a conventional term, he can not apply the legal term fixed in subsidium to cover a case in
which the parties have made no agreement whatsoever with respect to the duration of the lease. In
this case the law interprets the presumptive intention of the parties, they having said nothing in the
contract with respect to its duration. "Obligations arising from contracts have the force of
law between the contracting parties and must be complied with according to the tenor of the
contracts." (Art. 1091 of the Civil Code.)

The obligations which, with the force of law, the lessors assumed by the contract entered into, so far
as pertaining to the issues, are the following: "First. . . . They lease the above-described land to Mr.
Williamson, who takes it on lease, . . . for all the time the members of the said club may desire to
use it . . . Third. . . . the owners of the land undertake to maintain the club as tenant as long as the
latter shall see fit, without altering in the slightest degree the conditions of this contract, even though
the estate be sold."

It is necessary, therefore, to answer the first question: Was there, or was there not, a conventional
term, a duration, agreed upon in the contract in question? If there was an agreed duration, a
conventional term, then the legal term — the term fixed in article 1581 — has no application; the
contract is the supreme law of the contracting parties. Over and above the general law is the special
law, expressly imposed upon themselves by the contracting parties. Without these clauses 1 and 3,
the contract would contain no stipulation with respect to the duration of the lease, and then article
1581, in connection with article 1569, would necessarily be applicable. In view of these clauses,
however, it can not be said that there is no stipulation with respect to the duration of the lease, or
that, notwithstanding these clauses, article 1581, in connection with article 1569, can be applied. If
this were so, it would be necessary to hold that the lessors spoke in vain — that their words are to
be disregarded — a claim which can not be advanced by the plaintiffs nor upheld by any court
without citing the law which detracts all legal force from such words or despoils them of their literal
sense.

It having been demonstrated that the legal term can not be applied, there being a conventional term,
this destroys the assumption that the contract of lease was wholly terminated by the notice given by
the plaintiffs, this notice being necessary only when it becomes necessary to have recourse to the
legal term. Nor had the plaintiffs, under the contract, any right to give such notice. It is evident that
they had no intention of stipulating that they reserved the right to give such notice. Clause 3 begins
as follows: "Mr. Williamson, or whoever may succeed him as secretary of said club, may terminate
this lease whenever desired without other formality than that of giving a month's notice. The owners
of the land undertake to maintain the club as tenant as long as the latter shall see fit." The right of
the one and the obligation of the others being thus placed in antithesis, there is something more,
much more, than the inclusio unius, exclusio alterius. It is evident that the lessors did not intend to
reserve to themselves the right to rescind that which they expressly conferred upon the lessee by
establishing it exclusively in favor of the latter.

It would be the greatest absurdity to conclude that in a contract by which the lessor has left the
termination of the lease to the will of the lessee, such a lease can or should be terminated at the will
of the lessor.

It would appear to follow, from the foregoing, that, if such is the force of the agreement, there can be
no other mode of terminating the lease than by the will of the lessee, as stipulated in this case. Such
is the conclusion maintained by the defendant in the demonstration of the first error of law in the
judgment, as alleged by him. He goes so far, under this theory, as to maintain the possibility of a
perpetual lease, either as such lease, if the name can be applied, or else as an innominate contract,
or under any other denomination, in accordance with the agreement of the parties, which is, in fine,
the law of the contract, superior to all other law, provided that there be no agreement against any
prohibitive statute, morals, or public policy.

It is unnecessary here to enter into a discussion of a perpetual lease in accordance with the law and
doctrine prior to the Civil Code now in force, and which has been operative since 1889. Hence the
judgment of the supreme court of Spain of January 2, 1891, with respect to a lease made in 1887,
cited by the defendant, and a decision stated by him to have been rendered by the Audiencia of
Pamplona in 1885 (it appears to be rather a decision by the head office of land registration of July 1,
1885), and any other decision which might be cited based upon the constitutions of Cataluna,
according to which a lease of more than ten years is understood to create a life tenancy, or even a
perpetual tenancy, are entirely out of point in this case, in which the subject-matter is a lease
entered into under the provisions of the present Civil Code, in accordance with the principles of
which alone can this doctrine be examined.

It is not to be understood that we admit that the lease entered into was stipulated as a life tenancy,
and still less as a perpetual lease. The terms of the contract express nothing to this effect. They do,
whatever, imply this idea. If the lease could last during such time as the lessee might see fit,
because it has been so stipulated by the lessor, it would last, first, as long as the will of the lessee —
that is, all his life; second, during all the time that he may have succession, inasmuch as he who
contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question does
not fall within any of the cases in which the rights and obligations arising from a contract can not be
transmitted to heirs, either by its nature, by agreement, or by provision of law. Furthermore, the
lessee is an English association.

Usufruct is a right of superior degree to that which arises from a lease. It is a real right and includes
all the jus utendi and jus fruendi. Nevertheless, the utmost period for which a usufruct can endure, if
constituted in favor a natural person, is the lifetime of the usufructuary (art. 513, sec. 1); and if in
favor of juridical person, it can not be created for more than thirty years. (Art. 515.) If the lease might
be perpetual, in what would it be distinguished from an emphyteusis? Why should the lessee have a
greater right than the usufructuary, as great as that of an emphyteuta, with respect to the duration of
the enjoyment of the property of another? Why did they not contract for a usufruct or an
emphyteusis? It was repeatedly stated in the document that it was a lease, and nothing but a lease,
which was agreed upon: "Being in the full enjoyment of the necessary legal capacity to enter into this
contract of lease . . . they have agreed upon the lease of said estate . . . They lease to Mr.
Williamson, who receives it as such. . . . The rental is fixed at 25 pesos a month. . . . The owners
bind themselves to maintain the club as tenant. . . . Upon the foregoing conditions they make the
present contract of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it must be
for a determinate period. (Art. 1543.) By its very nature it must be temporary, just as by reason of its
nature an emphyteusis must be perpetual, or for an unlimited period. (Art. 1608.)

On the other hand, it can not be concluded that the termination of the contract is to be left completely
at the will of the lessee, because it has been stipulated that its duration is to be left to his will.

The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general
of obligations with a term it has supplied the deficiency of the former law with respect to the "duration
of the term when it has been left to the will of the debtor," and provides that in this case the term
shall be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the authorities,
there is always a creditor who is entitled to demand the performance, and a debtor upon whom rests
the obligation to perform the undertaking. In bilateral contracts the contracting parties are mutually
creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with respect to the
rights enumerated in article 1554, and is the debtor with respect to the obligations imposed by
articles 1555 and 1561. The term within which performance of the latter obligation is due is what has
been left to the will of the debtor. This term it is which must be fixed by the courts.

The only action which can be maintained under the terms of the contract is that by which it is sought
to obtain from the judge the determination of this period, and not the unlawful detainer action which
has been brought — an action which presupposes the expiration of the term and makes it the duty of
the judge to simply decree an eviction. To maintain the latter action it is sufficient to show the
expiration of the term of the contract, whether conventional or legal; in order to decree the relief to
be granted in the former action it is necessary for the judge to look into the character and conditions
of the mutual undertakings with a view to supplying the lacking element of a time at which the lease
is to expire. In the case of a loan of money or a commodatum of furniture, the payment or return to
be made when the borrower "can conveniently do so" does not mean that he is to be allowed to
enjoy the money or to make use of the thing indefinitely or perpetually. The courts will fix in each
case, according to the circumstances, the time for the payment or return. This is the theory also
maintained by the defendant in his demonstration of the fifth assignment of error. "Under article 1128
of the Civil Code," thus his proposition concludes, "contracts whose term is left to the will of one of
the contracting parties must be fixed by the courts, . . . the conditions as to the term of this lease has
a direct legislative sanction," and he cites articles 1128. "In place of the ruthless method of
annihilating a solemn obligation, which the plaintiffs in this case have sought to pursue, the Code
has provided a legitimate and easily available remedy. . . . The Code has provided for the proper
disposition of those covenants, and a case can hardly arise more clearly demonstrating the
usefulness of that provision than the case at bar." (Pp. 52 and 53 of appellant's brief.)

The plaintiffs, with respect to this conclusion on the part of their opponents, only say that article 1128
"expressly refers to obligations in contracts in general, and that it is well known that a lease is
included among special contracts." But they do not observe that if contracts, simply because special
rules are provided for them, could be excepted from the provisions of the articles of the Code relative
to obligations and contracts in general, such general provisions would be wholly without application.
The system of the Code is that of establishing general rules applicable to all obligations and
contracts, and then special provisions peculiar to each species of contract. In no part of Title VI of
Book IV, which treats of the contract of lease, are there any special rules concerning pure of
conditional obligations which may be stipulated in a lease, because, with respect to these matters,
the provisions of section 1, chapter 3, Title I, on the subject of obligations are wholly sufficient. With
equal reason should we refer to section 2, which deals with obligations with a term, in the same
chapter and title, if a question concerning the term arises out of a contract of lease, as in the present
case, and within this section we find article 1128, which decides the question.
The judgment was entered below upon the theory of the expiration of a legal term which does not
exist, as the case requires that a term be fixed by the courts under the provisions of article 1128 with
respect to obligations which, as is the present, are terminable at the will of the obligee. It follows,
therefore, that the judgment below is erroneous.

The judgment is reversed and the case will be remanded to the court below with directions to enter a
judgment of dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club, without
special allowance as to the recovery of costs. So ordered.

Philbanking v. Lui She, 21 SCRA 53

G.R. No. L-17587 September 12, 1967

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y

CANON FAUSTINO, deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng,
deceased, defendant-appellant.

Nicanor S. Sison for plaintiff-appellant.

Ozaeta, Gibbs & Ozaeta for defendant-appellant.

CASTRO, J.:

Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of
land in Manila. This parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and
opens into Florentino Torres street at the back and Katubusan street on one side. In it are two
residential houses with entrance on Florentino Torres street and the Hen Wah Restaurant with
entrance on Rizal Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese,
lived with his family in the restaurant. Wong had been a long-time lessee of a portion of the property,
paying a monthly rental of P2,620.

On September 22, 1957 Justina Santos became the owner of the entire property as her sister died
with no other heir. Then already well advanced in years, being at the time 90 years old, blind,
crippled and an invalid, she was left with no other relative to live with. Her only companions in the
house were her 17 dogs and 8 maids. Her otherwise dreary existence was brightened now and then
by the visits of Wong's four children who had become the joy of her life. Wong himself was the
trusted man to whom she delivered various amounts for safekeeping, including rentals from her
property at the corner of Ongpin and Salazar streets and the rentals which Wong himself paid as
lessee of a part of the Rizal Avenue property. Wong also took care of the payment; in her behalf, of
taxes, lawyers' fees, funeral expenses, masses, salaries of maids and security guard, and her
household expenses.

"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed
on November 15, 1957 a contract of lease (Plff Exh. 3) in favor of Wong, covering the portion then
already leased to him and another portion fronting Florentino Torres street. The lease was for 50
years, although the lessee was given the right to withdraw at any time from the agreement; the
monthly rental was P3,120. The contract covered an area of 1,124 square meters. Ten days later
(November 25), the contract was amended (Plff Exh. 4) so as to make it cover the entire property,
including the portion on which the house of Justina Santos stood, at an additional monthly rental of
P360. For his part Wong undertook to pay, out of the rental due from him, an amount not exceeding
P1,000 a month for the food of her dogs and the salaries of her maids.

On December 21 she executed another contract (Plff Exh. 7) giving Wong the option to buy the
leased premises for P120,000, payable within ten years at a monthly installment of P1,000. The
option, written in Tagalog, imposed on him the obligation to pay for the food of the dogs and the
salaries of the maids in her household, the charge not to exceed P1,800 a month. The option was
conditioned on his obtaining Philippine citizenship, a petition for which was then pending in the Court
of First Instance of Rizal. It appears, however, that this application for naturalization was withdrawn
when it was discovered that he was not a resident of Rizal. On October 28, 1958 she filed a petition
to adopt him and his children on the erroneous belief that adoption would confer on them Philippine
citizenship. The error was discovered and the proceedings were abandoned.

On November 18, 1958 she executed two other contracts, one (Plff Exh. 5) extending the term of the
lease to 99 years, and another (Plff Exh. 6) fixing the term of the option of 50 years. Both contracts
are written in Tagalog.

In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she bade her legatees to
respect the contracts she had entered into with Wong, but in a codicil (Plff Exh. 17) of a later date
(November 4, 1959) she appears to have a change of heart. Claiming that the various contracts
were made by her because of machinations and inducements practiced by him, she now directed
her executor to secure the annulment of the contracts.

On November 18 the present action was filed in the Court of First Instance of Manila. The complaint
alleged that the contracts were obtained by Wong "through fraud, misrepresentation, inequitable
conduct, undue influence and abuse of confidence and trust of and (by) taking advantage of the
helplessness of the plaintiff and were made to circumvent the constitutional provision prohibiting
aliens from acquiring lands in the Philippines and also of the Philippine Naturalization Laws." The
court was asked to direct the Register of Deeds of Manila to cancel the registration of the contracts
and to order Wong to pay Justina Santos the additional rent of P3,120 a month from November 15,
1957 on the allegation that the reasonable rental of the leased premises was P6,240 a month.

In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he
volunteered the information that, in addition to the sum of P3,000 which he said she had delivered to
him for safekeeping, another sum of P22,000 had been deposited in a joint account which he had
with one of her maids. But he denied having taken advantage of her trust in order to secure the
execution of the contracts in question. As counterclaim he sought the recovery of P9,210.49 which
he said she owed him for advances.

Wong's admission of the receipt of P22,000 and P3,000 was the cue for the filing of an amended
complaint. Thus on June 9, 1960, aside from the nullity of the contracts, the collection of various
amounts allegedly delivered on different occasions was sought. These amounts and the dates of
their delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957);
P22,000 and P3,000 (as admitted in his answer). An accounting of the rentals from the Ongpin and
Rizal Avenue properties was also demanded.
In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic
Relations Court, the Security Bank & Trust Co. was appointed guardian of the properties of Justina
Santos, while Ephraim G. Gochangco was appointed guardian of her person.

In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by
the parties. He likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of
P7,344.42 and P10,000, but contended that these amounts had been spent in accordance with the
instructions of Justina Santos; he expressed readiness to comply with any order that the court might
make with respect to the sums of P22,000 in the bank and P3,000 in his possession.

The case was heard, after which the lower court rendered judgment as follows:

[A]ll the documents mentioned in the first cause of action, with the exception of the first which
is the lease contract of 15 November 1957, are declared null and void; Wong Heng is
condemned to pay unto plaintiff thru guardian of her property the sum of P55,554.25 with
legal interest from the date of the filing of the amended complaint; he is also ordered to pay
the sum of P3,120.00 for every month of his occupation as lessee under the document of
lease herein sustained, from 15 November 1959, and the moneys he has consigned since
then shall be imputed to that; costs against Wong Heng.

From this judgment both parties appealed directly to this Court. After the case was submitted for
decision, both parties died, Wong Heng on October 21, 1962 and Justina Santos on December 28,
1964. Wong was substituted by his wife, Lui She, the other defendant in this case, while Justina
Santos was substituted by the Philippine Banking Corporation.

Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease
contract (Plff Exh. 3) should have been annulled along with the four other contracts (Plff Exhs. 4-7)
because it lacks mutuality; because it included a portion which, at the time, was in custodia legis;
because the contract was obtained in violation of the fiduciary relations of the parties; because her
consent was obtained through undue influence, fraud and misrepresentation; and because the lease
contract, like the rest of the contracts, is absolutely simulated.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this
agreement." It is claimed that this stipulation offends article 1308 of the Civil Code which provides
that "the contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them."

We have had occasion to delineate the scope and application of article 1308 in the early case
of Taylor v. Uy Tieng Piao.1 We said in that case:

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen,
does not make either the validity or the fulfillment of the contract dependent upon the will of
the party to whom is conceded the privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of agreement.
Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehand
is fulfillment.2
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee,
at any time before he erected any building on the land, might rescind the lease, can hardly be
regarded as a violation of article 1256 [now art. 1308] of the Civil Code."

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of
mutuality, because of a difference in factual setting. In that case, the lessees argued that they could
occupy the premises as long as they paid the rent. This is of course untenable, for as this Court said,
"If this defense were to be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue the lessees could effectively thwart his
purpose if they should prefer to terminate the contract by the simple expedient of stopping payment
of the rentals." Here, in contrast, the right of the lessee to continue the lease or to terminate it is so
circumscribed by the term of the contract that it cannot be said that the continuance of the lease
depends upon his will. At any rate, even if no term had been fixed in the agreement, this case would
at most justify the fixing of a period5 but not the annulment of the contract.

Nor is there merit in the claim that as the portion of the property formerly owned by the sister of
Justina Santos was still in the process of settlement in the probate court at the time it was leased,
the lease is invalid as to such portion. Justina Santos became the owner of the entire property upon
the death of her sister Lorenzo on September 22, 1957 by force of article 777 of the Civil Code.
Hence, when she leased the property on November 15, she did so already as owner thereof. As this
Court explained in upholding the sale made by an heir of a property under judicial administration:

That the land could not ordinarily be levied upon while in custodia legis does not mean that
one of the heirs may not sell the right, interest or participation which he has or might have in
the lands under administration. The ordinary execution of property in custodia legis is
prohibited in order to avoid interference with the possession by the court. But the sale made
by an heir of his share in an inheritance, subject to the result of the pending administration,
in no wise stands in the way of such administration.6

It is next contended that the lease contract was obtained by Wong in violation of his fiduciary
relationship with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil Code,
which disqualifies "agents (from leasing) the property whose administration or sale may have been
entrusted to them." But Wong was never an agent of Justina Santos. The relationship of the parties,
although admittedly close and confidential, did not amount to an agency so as to bring the case
within the prohibition of the law.

Just the same, it is argued that Wong so completely dominated her life and affairs that the contracts
express not her will but only his. Counsel for Justina Santos cites the testimony of Atty. Tomas S.
Yumol who said that he prepared the lease contract on the basis of data given to him by Wong and
that she told him that "whatever Mr. Wong wants must be followed."7

The testimony of Atty. Yumol cannot be read out of context in order to warrant a finding that Wong
practically dictated the terms of the contract. What this witness said was:

Q Did you explain carefully to your client, Doña Justina, the contents of this document before
she signed it?

A I explained to her each and every one of these conditions and I also told her these
conditions were quite onerous for her, I don't really know if I have expressed my opinion, but
I told her that we would rather not execute any contract anymore, but to hold it as it was
before, on a verbal month to month contract of lease.
 Q But, she did not follow your advice, and she went with the contract just the same?

A She agreed first . . .

Q Agreed what?

A Agreed with my objectives that it is really onerous and that I was really right, but after that,
I was called again by her and she told me to follow the wishes of Mr. Wong Heng.

xxx xxx xxx

Q So, as far as consent is concerned, you were satisfied that this document was perfectly
proper?

xxx xxx xxx

A Your Honor, if I have to express my personal opinion, I would say she is not, because, as I
said before, she told me — "Whatever Mr. Wong wants must be followed."8

Wong might indeed have supplied the data which Atty. Yumol embodied in the lease contract, but to
say this is not to detract from the binding force of the contract. For the contract was fully explained to
Justina Santos by her own lawyer. One incident, related by the same witness, makes clear that she
voluntarily consented to the lease contract. This witness said that the original term fixed for the lease
was 99 years but that as he doubted the validity of a lease to an alien for that length of time, he tried
to persuade her to enter instead into a lease on a month-to-month basis. She was, however, firm
and unyielding. Instead of heeding the advice of the lawyer, she ordered him, "Just follow Mr. Wong
Heng."9 Recounting the incident, Atty. Yumol declared on cross examination:

Considering her age, ninety (90) years old at the time and her condition, she is a wealthy
woman, it is just natural when she said "This is what I want and this will be done." In
particular reference to this contract of lease, when I said "This is not proper," she said —
"You just go ahead, you prepare that, I am the owner, and if there is any illegality, I am the
only one that can question the illegality."10

Atty. Yumol further testified that she signed the lease contract in the presence of her close friend,
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side.11 Any of them
could have testified on the undue influence that Wong supposedly wielded over Justina Santos, but
neither of them was presented as a witness. The truth is that even after giving his client time to think
the matter over, the lawyer could not make her change her mind. This persuaded the lower court to
uphold the validity of the lease contract against the claim that it was procured through undue
influence.

Indeed, the charge of undue influence in this case rests on a mere inference12 drawn from the fact
that Justina Santos could not read (as she was blind) and did not understand the English language
in which the contract is written, but that inference has been overcome by her own evidence.

Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of the
contracts in question, was given out of a mistaken sense of gratitude to Wong who, she was made to
believe, had saved her and her sister from a fire that destroyed their house during the liberation of
Manila. For while a witness claimed that the sisters were saved by other persons (the brothers
Edilberto and Mariano Sta. Ana)13 it was Justina Santos herself who, according to her own witness,
Benjamin C. Alonzo, said "very emphatically" that she and her sister would have perished in the fire
had it not been for Wong.14 Hence the recital in the deed of conditional option (Plff Exh. 7) that
"[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang magkapatid sa halos ay tiyak na
kamatayan", and the equally emphatic avowal of gratitude in the lease contract (Plff Exh. 3).

As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs. 4-7)
— the consent of Justina Santos was given freely and voluntarily. As Atty. Alonzo, testifying for her,
said:

[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both. When
we had conferences, they used to tell me what the documents should contain. But, as I said,
I would always ask the old woman about them and invariably the old woman used to tell me:
"That's okay. It's all right."15

But the lower court set aside all the contracts, with the exception of the lease contract of November
15, 1957, on the ground that they are contrary to the expressed wish of Justina Santos and that their
considerations are fictitious. Wong stated in his deposition that he did not pay P360 a month for the
additional premises leased to him, because she did not want him to, but the trial court did not believe
him. Neither did it believe his statement that he paid P1,000 as consideration for each of the
contracts (namely, the option to buy the leased premises, the extension of the lease to 99 years, and
the fixing of the term of the option at 50 years), but that the amount was returned to him by her for
safekeeping. Instead, the court relied on the testimony of Atty. Alonzo in reaching the conclusion that
the contracts are void for want of consideration.

Atty. Alonzo declared that he saw no money paid at the time of the execution of the documents, but
his negative testimony does not rule out the possibility that the considerations were paid at some
other time as the contracts in fact recite. What is more, the consideration need not pass from one
party to the other at the time a contract is executed because the promise of one is the consideration
for the other.16

With respect to the lower court's finding that in all probability Justina Santos could not have intended
to part with her property while she was alive nor even to lease it in its entirety as her house was built
on it, suffice it to quote the testimony of her own witness and lawyer who prepared the contracts (Plff
Exhs. 4-7) in question, Atty. Alonzo:

The ambition of the old woman, before her death, according to her revelation to me, was to
see to it that these properties be enjoyed, even to own them, by Wong Heng because Doña
Justina told me that she did not have any relatives, near or far, and she considered Wong
Heng as a son and his children her grandchildren; especially her consolation in life was
when she would hear the children reciting prayers in Tagalog.17

She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped
her much, and she told me to see to it that no one could disturb Wong Heng from those
properties. That is why we thought of the ninety-nine (99) years lease; we thought of
adoption, believing that thru adoption Wong Heng might acquire Filipino citizenship; being
the adopted child of a Filipino citizen.18

This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just
quoted, while dispelling doubt as to the intention of Justina Santos, at the same time gives the clue
to what we view as a scheme to circumvent the Constitutional prohibition against the transfer of
lands to aliens. "The illicit purpose then becomes the illegal causa"19 rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they
reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be
sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to
buy real property on condition that he is granted Philippine citizenship. As this Court said in Krivenko
v. Register of Deeds:20

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the Constitution.
Should they desire to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property,21 this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to dispose of it ( jus disponendi) — rights the sum total
of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use,
the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up
are consolidated in an alien. And yet this is just exactly what the parties in this case did within the
space of one year, with the result that Justina Santos' ownership of her property was reduced to a
hollow concept. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.

It does not follow from what has been said, however, that because the parties are in pari delicto they
will be left where they are, without relief. For one thing, the original parties who were guilty of a
violation of the fundamental charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their guilt.23 For another thing, and this is not
only cogent but also important, article 1416 of the Civil Code provides, as an exception to the rule
on pari delicto, that "When the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered." The Constitutional provision that "Save in cases
of hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain in
the Philippines"24 is an expression of public policy to conserve lands for the Filipinos. As this Court
said in Krivenko:

It is well to note at this juncture that in the present case we have no choice. We are
construing the Constitution as it is and not as we may desire it to be. Perhaps the effect of
our construction is to preclude aliens admitted freely into the Philippines from owning sites
where they may build their homes. But if this is the solemn mandate of the Constitution, we
will not attempt to compromise it even in the name of amity or equity . . . .

For all the foregoing, we hold that under the Constitution aliens may not acquire private or
public agricultural lands, including residential lands, and, accordingly, judgment is affirmed,
without costs.25

That policy would be defeated and its continued violation sanctioned if, instead of setting the
contracts aside and ordering the restoration of the land to the estate of the deceased Justina Santos,
this Court should apply the general rule of pari delicto. To the extent that our ruling in this case
conflicts with that laid down in Rellosa v. Gaw Chee Hun 26 and subsequent similar cases, the latter
must be considered as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of Justina Santos, must be
denied for lack of merit.

And what of the various amounts which Wong received in trust from her? It appears that he kept two
classes of accounts, one pertaining to amount which she entrusted to him from time to time, and
another pertaining to rentals from the Ongpin property and from the Rizal Avenue property, which he
himself was leasing.

With respect to the first account, the evidence shows that he received P33,724.27 on November 8,
1957 (Plff Exh. 16); P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957
(Plff Exh. 14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19. He
claims, however, that he settled his accounts and that the last amount of P18,928.50 was in fact
payment to him of what in the liquidation was found to be due to him.

He made disbursements from this account to discharge Justina Santos' obligations for taxes,
attorneys' fees, funeral services and security guard services, but the checks (Def Exhs. 247-278)
drawn by him for this purpose amount to only P38,442.84.27 Besides, if he had really settled his
accounts with her on August 26, 1959, we cannot understand why he still had P22,000 in the bank
and P3,000 in his possession, or a total of P25,000. In his answer, he offered to pay this amount if
the court so directed him. On these two grounds, therefore, his claim of liquidation and settlement of
accounts must be rejected.

After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), there is a difference of

P31,564 which, added to the amount of P25,000, leaves a balance of P56,564.3528 in favor of
Justina Santos.

As to the second account, the evidence shows that the monthly income from the Ongpin property
until its sale in Rizal Avenue July, 1959 was P1,000, and that from the Rizal Avenue property, of
which Wong was the lessee, was P3,120. Against this account the household expenses and
disbursements for the care of the 17 dogs and the salaries of the 8 maids of Justina Santos were
charged. This account is contained in a notebook (Def. Exh. 6) which shows a balance of P9,210.49
in favor of Wong. But it is claimed that the rental from both the Ongpin and Rizal Avenue properties
was more than enough to pay for her monthly expenses and that, as a matter of fact, there should
be a balance in her favor. The lower court did not allow either party to recover against the other.
Said the court:

[T]he documents bear the earmarks of genuineness; the trouble is that they were made only
by Francisco Wong and Antonia Matias, nick-named Toning, — which was the way she
signed the loose sheets, and there is no clear proof that Doña Justina had authorized these
two to act for her in such liquidation; on the contrary if the result of that was a deficit as
alleged and sought to be there shown, of P9,210.49, that was not what Doña Justina
apparently understood for as the Court understands her statement to the Honorable Judge of
the Juvenile Court . . . the reason why she preferred to stay in her home was because there
she did not incur in any debts . . . this being the case, . . . the Court will not adjudicate in
favor of Wong Heng on his counterclaim; on the other hand, while it is claimed that the
expenses were much less than the rentals and there in fact should be a superavit, . . . this
Court must concede that daily expenses are not easy to compute, for this reason, the Court
faced with the choice of the two alternatives will choose the middle course which after all is
permitted by the rules of proof, Sec. 69, Rule 123 for in the ordinary course of things, a
person will live within his income so that the conclusion of the Court will be that there is
neither deficit nor superavit and will let the matter rest here.
Both parties on appeal reiterate their respective claims but we agree with the lower court that both
claims should be denied. Aside from the reasons given by the court, we think that the claim of
Justina Santos totalling P37,235, as rentals due to her after deducting various expenses, should be
rejected as the evidence is none too clear about the amounts spent by Wong for food29 masses30 and
salaries of her maids.31 His claim for P9,210.49 must likewise be rejected as his averment of
liquidation is belied by his own admission that even as late as 1960 he still had P22,000 in the bank
and P3,000 in his possession.

ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land
subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by
the Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui She)
is ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest from
the date of the filing of the amended complaint; and the amounts consigned in court by Wong Heng
shall be applied to the payment of rental from November 15, 1959 until the premises shall have been
vacated by his heirs. Costs against the defendant-appellant.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Angeles,
JJ., concur.

Lim v. People, 133 SCRA 333

G.R. No. L-34338 November 21, 1984

LOURDES VALERIO LIM, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.

RELOVA, J.:

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer
an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4)
months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize
imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo)

From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of
the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate
penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1)
day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50
without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)

The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell
or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de
Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged.

The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to
the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to
 the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a
kilo. The appellant was to receive the overprice for which she could sell the tobacco.
This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:

To Whom It May Concern:

This is to certify that I have received from Mrs. Maria de Guzman

Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of
leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of
Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be
given to her as soon as it was sold.

This was signed by the appellant and witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was
bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant.
Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and
this was paid on three different times. Demands for the payment of the balance of the
value of the tobacco were made upon the appellant by Ayroso, and particularly by
her sister, Salud Bantug. Salud Bantug further testified that she had gone to the
house of the appellant several times, but the appellant often eluded her; and that the
"camarin" the appellant was empty. Although the appellant denied that demands for
payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter
to Salud Bantug which reads as follows:

Dear Salud,

Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte

pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito
at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay
makapagbigay man lang ako ng marami para hindi masiadong
kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay
bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud
kung talagang kailangan mo ay bukas ay dadalhan kita ng pera.

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil

nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at
tiyak na babayaran kita.

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Ludy

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on
April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of
P240.00. As no further amount was paid, the complainant filed a complaint against
the appellant for estafa. (pp. 14, 15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to
wit:
 1. Whether or not the Honorable Court of Appeals was legally right in holding that the
foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore,
immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as
against the theory of the petitioner that the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a period was intended in
which case the only action that can be maintained is a petition to ask the court to fix
the duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that
"Art. 1197 of the New Civil Code does not apply" as against the alternative theory of
the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the debtor in which case
the only action that can be maintained is a petition to ask the court to fix the duration
of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the
foregoing receipt is a contract of agency to sell as against the theory of the petitioner
that it is a contract of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code,
which provides that the courts may fix the duration of the obligation if it does not fix a period, does
not apply.

Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she
would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the
matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be
her agent in selling Ayroso's tobacco, the appellant herself admitted that there was
an agreement that upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she would go to the extent
of going to Ayroso's house and take the tobacco with a jeep which she had brought if
she did not intend to make a profit out of the transaction. Certainly, if she was doing
a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco,
it would not have been the appellant who would have gone to the house of Ayroso,
but it would have been Ayroso who would have gone to the house of the appellant
and deliver the tobacco to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be
given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to
the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return
the tobacco if the same was not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.

SO ORDERED.
Araneta, Inc. v. Phil. Sugar Estates, 20 SCRA 330
G.R. No. L-22558 May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.

Araneta and Araneta for petitioner.

Rosauro Alvarez and Ernani Cruz Paño for respondent.

REYES, J.B.L., J.:

Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R,
affirming with modification, an amendatory decision of the Court of First Instance of Manila, in its
Civil Case No. 36303, entitled "Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J.
M. Tuason & Co., Inc. and Gregorio Araneta, Inc., defendants."

As found by the Court of Appeals, the facts of this case are:

J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as
the Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July 28, 1950,
through Gregorio Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area of 43,034.4
square meters, more or less, for the sum of P430,514.00, to Philippine Sugar Estates Development
Co., Ltd. The parties stipulated, among in the contract of purchase and sale with mortgage, that the
buyer will —

Build on the said parcel land the Sto. Domingo Church and Convent

while the seller for its part will —

Construct streets on the NE and NW and SW sides of the land herein sold so that the latter
will be a block surrounded by streets on all four sides; and the street on the NE side shall be
named "Sto. Domingo Avenue;"

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto.
Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing the
streets, is unable to finish the construction of the street in the Northeast side named (Sto. Domingo
Avenue) because a certain third-party, by the name of Manuel Abundo, who has been physically
occupying a middle part thereof, refused to vacate the same; hence, on May 7, 1958, Philippine
Sugar Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and
instance, seeking to compel the latter to comply with their obligation, as stipulated in the above-
mentioned deed of sale, and/or to pay damages in the event they failed or refused to perform said
obligation.

Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter
particularly setting up the principal defense that the action was premature since its obligation to
construct the streets in question was without a definite period which needs to he fixed first by the
court in a proper suit for that purpose before a complaint for specific performance will prosper.
The issues having been joined, the lower court proceeded with the trial, and upon its termination, it
dismissed plaintiff's complaint (in a decision dated May 31, 1960), upholding the defenses
interposed by defendant Gregorio Araneta, Inc. 1äwphï1.ñët

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within
which defendants will comply with their obligation to construct the streets in question.

Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not
expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that
the evidence presented at the trial was insufficient to warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of
such a period," issued an order granting plaintiff's motion for reconsideration and amending the
dispositive portion of the decision of May 31, 1960, to read as follows:

WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a

period of two (2) years from notice hereof, within which to comply with its obligation under
the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which
motion, plaintiff opposed.

On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter
perfected its appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief
granted, i.e., fixing of a period, under the amendatory decision of July 16, 1960, was not justified by
the pleadings and not supported by the facts submitted at the trial of the case in the court below and
that the relief granted in effect allowed a change of theory after the submission of the case for
decision.

Ruling on the above contention, the appellate court declared that the fixing of a period was within the
pleadings and that there was no true change of theory after the submission of the case for decision
since defendant-appellant Gregorio Araneta, Inc. itself squarely placed said issue by alleging in
paragraph 7 of the affirmative defenses contained in its answer which reads —

7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a
reasonable time within which to comply with its obligations to construct and complete the
streets on the NE, NW and SW sides of the lot in question; that under the circumstances,
said reasonable time has not elapsed;

Disposing of the other issues raised by appellant which were ruled as not meritorious and which are
not decisive in the resolution of the legal issues posed in the instant appeal before us, said appellate
court rendered its decision dated December 27, 1963, the dispositive part of which reads —

IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given

two (2) years from the date of finality of this decision to comply with the obligation to
construct streets on the NE, NW and SW sides of the land sold to plaintiff so that the same
would be a block surrounded by streets on all four sides.
Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc.
resorted to a petition for review by certiorari to this Court. We gave it due course.

We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of
First Instance is legally untenable. The fixing of a period by the courts under Article 1197 of the Civil
Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that the contract with respondent
Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable
time within which to comply with its obligation to construct and complete the streets." Neither of the
courts below seems to have noticed that, on the hypothesis stated, what the answer put in issue was
not whether the court should fix the time of performance, but whether or not the parties agreed that
the petitioner should have reasonable time to perform its part of the bargain. If the contract so
provided, then there was a period fixed, a "reasonable time;" and all that the court should have done
was to determine if that reasonable time had already elapsed when suit was filed if it had passed,
then the court should declare that petitioner had breached the contract, as averred in the complaint,
and fix the resulting damages. On the other hand, if the reasonable time had not yet elapsed, the
court perforce was bound to dismiss the action for being premature. But in no case can it be logically
held that under the plea above quoted, the intervention of the court to fix the period for performance
was warranted, for Article 1197 is precisely predicated on the absence of any period fixed by the
parties.

Even on the assumption that the court should have found that no reasonable time or no period at all
had been fixed (and the trial court's amended decision nowhere declared any such fact) still, the
complaint not having sought that the Court should set a period, the court could not proceed to do so
unless the complaint in as first amended; for the original decision is clear that the complaint
proceeded on the theory that the period for performance had already elapsed, that the contract had
been breached and defendant was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of performance, still the
amended decision is defective in that no basis is stated to support the conclusion that the period
should be set at two years after finality of the judgment. The list paragraph of Article 1197 is clear
that the period can not be set arbitrarily. The law expressly prescribes that —

the Court shall determine such period as may under the circumstances been probably
contemplated by the parties.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the
proven facts precisely warrant the fixing of such a period," a statement manifestly insufficient to
explain how the two period given to petitioner herein was arrived at.

It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must
first determine that "the obligation does not fix a period" (or that the period is made to depend upon
the will of the debtor)," but from the nature and the circumstances it can be inferred that a period was
intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to
the second step, and decide what period was "probably contemplated by the parties" (Do., par. 3).
So that, ultimately, the Court can not fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended. As the record stands,
the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no
circumstances are mentioned to support it. Plainly, this is not warranted by the Civil Code.

In this connection, it is to be borne in mind that the contract shows that the parties were fully aware
that the land described therein was occupied by squatters, because the fact is expressly mentioned
therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must resort to legal processes in evicting the
squatters, they must have realized that the duration of the suits to be brought would not be under
their control nor could the same be determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would render the date of performance
indefinite. Yet, the circumstances admit no other reasonable view; and this very indefiniteness is
what explains why the agreement did not specify any exact periods or dates of performance.

It follows that there is no justification in law for the setting the date of performance at any other time
than that of the eviction of the squatters occupying the land in question; and in not so holding, both
the trial Court and the Court of Appeals committed reversible error. It is not denied that the case
against one of the squatters, Abundo, was still pending in the Court of Appeals when its decision in
this case was rendered.

In view of the foregoing, the decision appealed from is reversed, and the time for the performance of
the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on
affected areas are finally evicted therefrom.

Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P.,

Millare v. Hernando, 151 SCRA 484

G.R. No. L-55480

PACIFICA MILLARE, petitioner,

vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of Instance of Abra,
Second Judicial District, Branch I, ANTONIO CO and ELSA CO, respondents.

FELICIANO, J.:

On 17 June 1975, a five-year Contract of Lease was executed between petitioner Pacifica Millare
1

as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written
agreement, which was scheduled to expire on 31 May 1980, the lessor-petitioner agreed to rent out
to thelessee at a monthly rate of P350.00 the "People's Restaurant", a commercial establishment
located at the corner of McKinley and Pratt Streets in Bangued, Abra.

The present dispute arose from events which transpired during the months of May and July in 1980.
According to the Co spouses, sometime during the last week of May 1980, the lessor informed them
that they could continue leasing the People's Restaurant so long as they were amenable to paying
creased rentals of P1,200.00 a month. In response, a counteroffer of P700.00 a month was made by
the Co spouses. At this point, the lessor allegedly stated that the amount of monthly rentals could be
resolved at a later time since "the matter is simple among us", which alleged remark was supposedly
taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to
continue occupying the subject premises and to forego their search for a substitute place to rent. In 2

contrast, the lessor flatly denied ever having considered, much less offered, a renewal of the
Contract of Lease.

The variance in versions notwithstanding, the record shows that on 22 July 1980, Mrs. Millare wrote
the Co spouses requesting them to vacate the leased premises as she had no intention of renewing
the Contract of Lease which had, in the meantime, already expirecl. In reply, the Co spouses
3

reiterated their unwillingness to pay the Pl,200.00 monthly rentals supposedly sought bv Mrs. Millare
which they considered "highly excessive, oppressive and contrary to existing laws". They also
signified their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to
accept their counter-offer. Another letter of demand from Mrs. Millare was received on 28 July 1980
4

by the Co spouses, who responded by depositing the rentals for June and July (at 700.00 a month)
in court.

On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and filed a
Complaint (docketed as Civil Case No. 1434) with the then Court of First Instance of Abra against
5

Mrs. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate
of P700.00 a nionth and for a period of ten years, (b) ordering the defendant to collect the sum of
P1,400.00 deposited by plaintiffs with the court, and (c) ordering the defendant to pay damages in
the amount of P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare filed an
ejectment case against the Co spouses in the Municipal Court of Bangued, Abra, docketed as Civil
Case No. 661. The spouses Co, defendants therein, sut)sequently set up lis pendens as a Civil
Case No. 661. The spouses Co, defendants therein, subsequently set up lis pendens as a defense
against the complaint for ejectment.

Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus Motion to
Dismiss rounded on (a) lack of cause of action due to plaintiffs' failure to establish a valid renewal of
6

the Contract of Lease, and (b) lack of jurisdiction by the trial court over the complaint for failure of
plaintiffs to secure a certification from the Lupong Tagapayapa of the barangay wherein both
disputants reside attesting that no amicable settlement between them had been reached despite
efforts to arrive at one, as required by Section 6 of Presidential Decree No. 1508. The Co spouses
opposed the motion to dismiss. 7

In an Order dated 15 October 1980, respondent judge denied the motion to dismiss and ordered the
renewal of the Contract of Lease. Furthermore plaintiffs were allowed to deposit all accruing monthly
rentals in court, while defendant Millare was directed to submit her answer to the complaint. A 8

motion for reconsideration was subsequently filed which, however, was likewise denied. Hence,
9 10

on 13 November 1980, Mrs. Millare filed the instant Petition for Certiorari, Prohibition and
Mandamus, seeking injunctive relief from the abovementioned orders. This Court issued a temporary
restraining order on 21 November 1980 enjoining respondent, judge from conducting further
proceedings in Civil Case No. 1434. Apparently, before the temporary restraining order could be
11

served on the respondent judge, he rendered a "Judgment by Default" dated 26 November 1980
ordering the renewal of the lease contract for a term of 5 years counted from the expiration date of
the original lease contract, and fixing monthly rentals thereunder at P700.00 a month, payable in
arrears. On18 March 1981, this Court gave due course to the Petition for Certiorari, Prohibition and
Mandamus. 12
Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over
Civil Case No. 1434; and (2) whether or not private respondents have a valid cause of action against
petitioner.

Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though for
reasons different from those cited by the respondent judge. We would note firstly that the
13

conciliation procedure required under P.D. 1508 is not a jurisdictional requirement in the sense that
failure to have prior recourse to such procedure would not deprive a court of its jurisdiction either
over the subject matter or over the person of the defendant. Secondly, the acord shows that two
14

complaints were submitted to the barangay authorities for conciliation — one by petitioner for
ejectment and the other by private respondents for renewal of the Contract of Lease. It appears
further that both complaints were, in fact, heard by the Lupong Tagapayapa in the afternoon of 30
August 1980. After attempts at conciliation had proven fruitless, Certifications to File Action
authorizing the parties to pursue their respective claims in court were then issued at 5:20 p.m. of that
same aftemoon, as attested to by the Barangay Captain in a Certification presented in evidence by
petitioner herself.15

Petitioner would, nonetheless, assail the proceedings in the trial court on a technicaety, i.e., private
respondents allegedly filed their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty
minutes before the issuance of the requisite certification by the Lupng Tagapayapa. The defect in
procedure admittedly initially present at that particular moment when private respondents first filed
the complaint in the trial court, was cured by the subsequent issuance of the Certifications to File
Action by the barangay Lupong Tagapayapa Such certifications in any event constituted substantial
comphance with the requirement of P.D. 1508.

We turn to the second issue, that is, whether or not the complaint in Civil Case No. 1434 filed by the
respondent Co spouses claiming renewal of the contract of lease stated a valid cause of action.
Paragraph 13 of the Contract of Lease reads as follows:

13. This contract of lease is subject to the laws and regulations ofthe goverrunent; and that
this contract of lease may be renewed after a period of five (5) years under the terms and
conditions as will be mutually agreed upon by the parties at the time of renewal; ...
(Emphasis supplied.)

The respondent judge, in his Answer and Comment to the Petition, urges that under paragraph 13
quoted above.

there was already a consummated and finished mutual agreement of the parties to renew
the contract of lease after five years; what is only left unsettled between the parties to the
contract of lease is the amount of the monthly rental; the lessor insists Pl,200 a month, while
the lessee is begging P700 a month which doubled the P350 monthly rental under the
original contract .... In short, the lease contract has never expired because paragraph 13
thereof had expressly mandated that it is renewable. ... 16

In the "Judgment by Default" he rendered, the respondent Judge elaborated his views — obviously
highly emotional in character — in the following extraordinary tatements:

However, it is now the negative posture of the defendant-lessor to block, reject and refuse to
renew said lease contract. It is the defendant-lessor's assertion and position that she can at
the mere click of her fingers, just throw-out the plaintiffs-lessees from the leased premises
and any time after the original term of the lease contract had already expired; This negative
position of the defendantlessor, to the mind of this Court does not conform to the principles
 and correct application of the philosophy underlying the law of lease; for indeed, the law of
lease is impressed with public interest, social justice and equity; reason for which, this Court
cannot sanction lot owner's business and commercial speculations by allowing them
with "unbridled discretion" to raise rentals even to the extent of "extraordinary gargantuan
proportions, and calculated to unreasonably and unjustly eject the helpless lessee because
he cannot afford said inflated monthly rental and thereby said lessee is placed without any
alternative, except to surrender and vacate the premises mediately,-" Many business
establishments would be closed and the public would directly suffer the direct
consequences; Nonetheless, this is not the correct concept or perspective the law of lease,
that is, to place the lessee always at the mercy of the lessor's "Merchant of Venice" and to
agit the latter's personal whims and caprices; the defendant-lessor's hostile attitude by
imposing upon the lessee herein an "unreasonable and extraordinary gargantuan monthly
rental of P1,200.00", to the mind of this Court, is "fly-by night unjust enrichment" at the
expense of said lessees; but, no Man should unjustly enrich himself at the expense of
another; under these facts and circumstances surrounding this case, the action therefore to
renew the lease contract! is "tenable" because it falls squarely within the coverage and
command of Articles 1197 and 1670 of the New Civil Code, to wit:

xxx xxx xxx

The term "to be renewed" as expressly stipulated by the herein parties in the original contract
of lease means that the lease may be renewed for another term of five (5) years; its
equivalent to a promise made by the lessor to the lessee, and as a unilateral stipulation,
obliges the lessor to fulfill her promise; of course the lessor is free to comply and honor her
commitment or back-out from her promise to renew the lease contract; but, once expressly
stipulated, the lessor shall not be allowed to evade or violate the obligation to renew the
lease because, certainly, the lessor may be held hable for damages caused to the lessee as
a consequence of the unjustifiable termination of the lease or renewal of the same; In other
words, the lessor is guilty of breach of contract: Since the original lease was fixed for five (5)
years, it follows, therefore, that the lease contract is renewable for another five (5) years and
the lessee is not required before hand to give express notice of this fact to the lessor
because it was expressly stipulated in the original lease contract to be renewed; Wherefore,
the bare refusal of the lessor to renew the lease contract unless the monthly rental is
P1,200.00 is contrary to law, morals, good customs, public policy, justice and equity because
no one should unjustly enrich herself at the expense of another. Article 1197 and 1670 of the
New Civil Code must therefore govern the case at bar and whereby this Court is authorized
to fix the period thereof by ordering the renewal of the lease contract to another fixed term of
five (5) years.
17

Clearly, the respondent judge's grasp of both the law and the Enghsh language is tenuous at best.
We are otherwise unable to comprehend how he arrived at the reading set forth above. Paragraph
13 of the Contract of Lease can only mean that the lessor and lessee may agree to renew the
contract upon their reaching agreement on the terms and conditions to be embodied in such renewal
contract. Failure to reach agreement on the terms and conditions of the renewal contract will of
course prevent the contract from being renewed at all. In the instant case, the lessor and the lessee
conspicuously failed to reach agreement both on the amount of the rental to be payable during the
renewal term, and on the term of the renewed contract.

The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the "Judgment by
Default" by which he ordered the renewal of the lease for another term of five years and fixed
monthly rentals thereunder at P700.00 a month. Article 1197 of the Civil Code provides as follows:
 If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the
debtor.

In every case, the courts shall determine such period as may, under the circumstances, have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them. (Emphasis supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix
an original period of five years, which had expired. It is also clear from paragraph 13 of the Contract
of Lease that the parties reserved to themselves the faculty of agreeing upon the period of the
renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable since the
duration of the renewal period was not left to the wiu of the lessee alone, but rather to the will of both
the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease
clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the
period of which could have been fixed.

Article 1670 of the Civil Code reads thus:

If at the end of the contract the lessee should continue enjoying the thing left for 15 days with
the acquiescence of the lessor and unless a notice to the contrary by either party has
previously been given. It is understood that there is an implied new lease, not for the period
of the original contract but for the time established in Articles 1682 and 1687. The ther terms
of the original contract shall be revived. (Emphasis suplied.)

The respondents themselves, public and private, do not pretend that the continued occupancy of the
leased premises after 31 May 1980, the date of expiration of the contract, was with the
acquiescence of the lessor. Even if it be assumed that tacite reconduccion had occurred, the implied
new lease could not possibly have a period of five years, but rather would have been a month-to-
month lease since the rentals (under the original contract) were payable on a monthly basis. At the
latest, an implied new lease (had one arisen) would have expired as of the end of July 1980 in view
of the written demands served by the petitioner upon the private respondents to vacate the
previously leased premises.

It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in
fact. Save in the limited and exceptional situations envisaged inArticles ll97 and 1670 of the Civil
Code, which do not obtain here, courts have no authority to prescribe the terms and conditions of a
contract for the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine Long
Distance Telephone,Co.,[[18

[P]arties cannot be coerced to enter into a contract where no agreement is had between
them as to the principal terms and conditions of the contract. Freedom to stipulate such
terms and conditions is of the essence of our contractual system, and by express provision
of the statute, a contract may be annulled if tainted by violence, intimidation or undue
influence (Article 1306, 1336, 1337, Civil Code of the Philippines).

Contractual terms and conditions created by a court for two parties are a contradiction in terms. If
they are imposed by a judge who draws upon his own private notions of what morals, good customs,
justice, equity and public policy" demand, the resulting "agreement" cannot, by definition, be
consensual or contractual in nature. It would also follow that such coerced terms and conditions
cannot be the law as between the parties themselves. Contracts spring from the volition of the
parties. That volition cannot be supplied by a judge and a judge who pretends to do so, acts
tyrannically, arbitrarily and in excess of his jurisdiction.
19

WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is granted. The Orders of the
respondent judge in Civil Case No. 1434 dated 26 September 1980 (denying petitioner's motion to
dismiss) and 4 November 1980 (denying petitioner's motion for reconsideration), and the "Judgment
by Default" rendered by the respondent judge dated 26 November 1980, are hereby annulled and
set aside and Civil Case No. 1434 is hereby dismissed. The temporary restraining order dated 21
November 1980 issued by this ourt, is hereby made permanent. No pronouncement as to costs.

SO ORDERED.

As to Plurality of Prestation
Arco Pulp and Paper Co., Inc. and Santos v. Lim, G.R. No. 206806, June
25, 2014
G.R. No. 206806, June 25, 2014

ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS, Petitioners, v. DAN
T. LIM, DOING BUSINESS UNDER THE NAME AND STYLE OF QUALITY PAPERS &
PLASTIC PRODUCTS ENTERPRISES, Respondent.

DECISION

LEONEN, J.:

Novation must be stated in clear and unequivocal terms to extinguish an obligation. It

cannot be presumed and may be implied only if the old and new contracts are
incompatible on every point.

Before us is a petition for review on certiorari 1 assailing the Court of Appeals’

decision2 in CA-G.R. CV No. 95709, which stemmed from a complaint 3 filed in the
Regional Trial Court of Valenzuela City, Branch 171, for collection of sum of money.

The facts are as follows:

Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business.4 From February 2007 to March 2007, he delivered
scrap papers worth P7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp
and Paper) through its Chief Executive Officer and President, Candida A. Santos.5 The
parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the value
of the raw materials or deliver to him their finished products of equivalent value.6 cralawred
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper
issued a post-dated check dated April 18, 20077 in the amount of P1,487,766.68 as
partial payment, with the assurance that the check would not bounce.8 When he
deposited the check on April 18, 2007, it was dishonored for being drawn against a
closed account.9cralawred

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum
of agreement10 where Arco Pulp and Paper bound themselves to deliver their finished
products to Megapack Container Corporation, owned by Eric Sy, for his account.
According to the memorandum, the raw materials would be supplied by Dan T. Lim,
through his company, Quality Paper and Plastic Products. The memorandum of
agreement reads as follows: chanRoblesvirtualLawlibrary

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs.
Candida A. Santos and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175
GSM, full width 76 inches at the price of P18.50 per kg. to Megapack Container for Mr.
Eric Sy’s account. Schedule of deliveries are as follows:

....

It has been agreed further that the Local OCC materials to be used for the production of
the above Test Liners will be supplied by Quality Paper & Plastic Products Ent., total of
600 Metric Tons at P6.50 per kg. (price subject to change per advance notice). Quantity
of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack
Container Corp. based on the above production schedule. 11

On May 5, 2007, Dan T. Lim sent a letter12 to Arco Pulp and Paper demanding payment
of the amount of ?7,220,968.31, but no payment was made to him.13 cralawred

Dan T. Lim filed a complaint14 for collection of sum of money with prayer for attachment
with the Regional Trial Court, Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp
and Paper filed its answer15 but failed to have its representatives attend the pre-trial
hearing. Hence, the trial court allowed Dan T. Lim to present his evidence ex parte.16 cralawred

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and
Paper and dismissed the complaint, holding that when Arco Pulp and Paper and Eric Sy
entered into the memorandum of agreement, novation took place, which extinguished
Arco Pulp and Paper’s obligation to Dan T. Lim.17 cralawred

Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him,
novation did not take place since the memorandum of agreement between Arco Pulp
and Paper and Eric Sy was an exclusive and private agreement between them. He
argued that if his name was mentioned in the contract, it was only for supplying the
parties their required scrap papers, where his conformity through a separate contract
was indispensable.19 cralawred

On January 11, 2013, the Court of Appeals20 rendered a decision21 reversing and setting
aside the judgment dated September 19, 2008 and ordering Arco Pulp and Paper to
jointly and severally pay Dan T. Lim the amount of P7,220,968.31 with interest at
12% per annum from the time of demand; P50,000.00 moral damages; P50,000.00
exemplary damages; and P50,000.00 attorney’s fees. 22 cralawred

The appellate court ruled that the facts and circumstances in this case clearly showed
the existence of an alternative obligation.23 It also ruled that Dan T. Lim was entitled to
damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in
not honoring its undertaking.24 cralawred

Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its
President and Chief Executive Officer, Candida A. Santos, bring this petition for review
on certiorari.

On one hand, petitioners argue that the execution of the memorandum of agreement
constituted a novation of the original obligation since Eric Sy became the new debtor of
respondent. They also argue that there is no legal basis to hold petitioner Candida A.
Santos personally liable for the transaction that petitioner corporation entered into with
respondent. The Court of Appeals, they allege, also erred in awarding moral and
exemplary damages and attorney’s fees to respondent who did not show proof that he
was entitled to damages. 27 cralawred

Respondent, on the other hand, argues that the Court of Appeals was correct in ruling
that there was no proper novation in this case. He argues that the Court of Appeals was
correct in ordering the payment of ?7,220,968.31 with damages since the debt of
petitioners remains unpaid.28 He also argues that the Court of Appeals was correct in
holding petitioners solidarily liable since petitioner Candida A. Santos was “the prime
mover for such outstanding corporate liability.”29 cralawred

In their reply, petitioners reiterate that novation took place since there was nothing in
the memorandum of agreement showing that the obligation was alternative. They also
argue that when respondent allowed them to deliver the finished products to Eric Sy,
the original obligation was novated.30 cralawred

A rejoinder was submitted by respondent, but it was noted without action in view of
A.M. No. 99-2-04-SC dated November 21, 2000.31 cralawred

The issues to be resolved by this court are as follows: chanRoblesvirtualLawlibrary

1. Whether the obligation between the parties was extinguished by novation

2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.

3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded

The petition is denied.

The obligation between the

parties was an alternative
obligation

The rule on alternative obligations is governed by Article 1199 of the Civil Code, which
states:chanRoblesvirtualLawlibrary
Article 1199. A person alternatively bound by different prestations shall completely
perform one of them.

The creditor cannot be compelled to receive part of one and part of the other
undertaking.

“In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor who generally has the right of
election.”32 The right of election is extinguished when the party who may exercise that
option categorically and unequivocally makes his or her choice known.33 The choice of
the debtor must also be communicated to the creditor who must receive notice of it
since:chanRoblesvirtualLawlibrary

The object of this notice is to give the creditor . . . opportunity to express his consent,
or to impugn the election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if impugned by the latter,
when declared proper by a competent court.34

According to the factual findings of the trial court and the appellate court, the original
contract between the parties was for respondent to deliver scrap papers worth
P7,220,968.31 to petitioner Arco Pulp and Paper. The payment for this delivery became
petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner Arco Pulp and
Paper, as the debtor, had the option to either (1) pay the price or (2) deliver the
finished products of equivalent value to respondent.35 cralawred

The appellate court, therefore, correctly identified the obligation between the parties as
an alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the
raw materials from respondent, would either pay him the price of the raw materials
or, in the alternative, deliver to him the finished products of equivalent value.

When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment
for the scrap papers, they exercised their option to pay the price. Respondent’s receipt
of the check and his subsequent act of depositing it constituted his notice of petitioner
Arco Pulp and Paper’s option to pay.

This choice was also shown by the terms of the memorandum of agreement, which was
executed on the same day. The memorandum declared in clear terms that the delivery
of petitioner Arco Pulp and Paper’s finished products would be to a third person,
thereby extinguishing the option to deliver the finished products of equivalent value to
respondent.

The memorandum of
agreement did not constitute
a novation of the original
contract

The trial court erroneously ruled that the execution of the memorandum of agreement
constituted a novation of the contract between the parties. When petitioner Arco Pulp
and Paper opted instead to deliver the finished products to a third person, it did not
novate the original obligation between the parties.
The rules on novation are outlined in the Civil Code, thus: chanRoblesvirtualLawlibrary

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by another which

substitute the same, it is imperative that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point incompatible with each other. (1204)

Article 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237. (1205a)

Novation extinguishes an obligation between two parties when there is a substitution of

objects or debtors or when there is subrogation of the creditor. It occurs only when the
new contract declares so “in unequivocal terms” or that “the old and the new
obligations be on every point incompatible with each other.” 36 cralawred

Novation was extensively discussed by this court in Garcia v. Llamas:37 cralawred

Novation is a mode of extinguishing an obligation by changing its objects or

principal obligations, by substituting a new debtor in place of the old one, or
by subrogating a third person to the rights of the creditor. Article 1293 of the
Civil Code defines novation as follows:

“Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the new debtor gives him rights
mentioned in articles 1236 and 1237.”

In general, there are two modes of substituting the person of the debtor:
(1) expromision and (2) delegacion. In expromision, the initiative for the change does
not come from — and may even be made without the knowledge of — the debtor, since
it consists of a third person’s assumption of the obligation. As such, it logically requires
the consent of the third person and the creditor. In delegacion, the debtor offers, and
the creditor accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary. Both modes of
substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation

is terminated by the creation of a new one that takes the place of the former. It is
merely modificatory when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement. Whether extinctive or modificatory,
novation is made either by changing the object or the principal conditions, referred to
as objective or real novation; or by substituting the person of the debtor or subrogating
a third person to the rights of the creditor, an act known as subjective or personal
novation. For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.

Novation may also be express or implied. It is express when the new obligation
declares in unequivocal terms that the old obligation is extinguished. It is implied when
the new obligation is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand together, each one
with its own independent existence.38 (Emphasis supplied)

Because novation requires that it be clear and unequivocal, it is never presumed,

thus: chanRoblesvirtualLawlibrary

In the civil law setting, novatio is literally construed as to make new. So it is deeply
rooted in the Roman Law jurisprudence, the principle — novatio non
praesumitur — that novation is never presumed. At bottom, for novation to be a
jural reality, its animus must be ever present, debitum pro debito — basically
extinguishing the old obligation for the new one.39 (Emphasis supplied)

There is nothing in the memorandum of agreement that states that with its execution,
the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. It
also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper opted to
deliver the finished products to a third person instead.

The consent of the creditor must also be secured for the novation to be valid: chanRoblesvirtualLawlibrary

Novation must be expressly consented to. Moreover, the conflicting intention and
acts of the parties underscore the absence of any express disclosure or circumstances
with which to deduce a clear and unequivocal intent by the parties to novate the old
agreement.40 (Emphasis supplied)

In this case, respondent was not privy to the memorandum of agreement, thus, his
conformity to the contract need not be secured. This is clear from the first line of the
memorandum, which states: chanRoblesvirtualLawlibrary

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs.
Candida A. Santos and Mr. Eric Sy. . . .41

If the memorandum of agreement was intended to novate the original agreement

between the parties, respondent must have first agreed to the substitution of Eric Sy as
his new debtor. The memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and
Paper to respondent. Neither of these circumstances is present in this case.
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also
conflicts with their alleged intent to pass on their obligation to Eric Sy. When
respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric
Sy, it showed that the former neither acknowledged nor consented to the latter as his
new debtor. These acts, when taken together, clearly show that novation did not take
place.

Since there was no novation, petitioner Arco Pulp and Paper’s obligation to respondent
remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay
respondent the full amount of P7,220,968.31.

Petitioners are liable for damages

Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach
of contract where the breach is due to fraud or bad faith: chanRoblesvirtualLawlibrary

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

Moral damages are not awarded as a matter of right but only after the party claiming it
proved that the breach was due to fraud or bad faith. As this court stated: chanRoblesvirtualLawlibrary

Moral damages are not recoverable simply because a contract has been breached. They
are recoverable only if the party from whom it is claimed acted fraudulently or in bad
faith or in wanton disregard of his contractual obligations. The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive. 42

Further, the following requisites must be proven for the recovery of moral damages: chanRoblesvirtualLawlibrary

An award of moral damages would require certain conditions to be met, to wit: (1) first,
there must be an injury, whether physical, mental or psychological, clearly sustained by
the claimant; (2) second, there must be culpable act or omission factually established;
(3) third, the wrongful act or omission of the defendant is the proximate cause of the
injury sustained by the claimant; and (4) fourth, the award of damages is predicated
on any of the cases stated in Article 2219 of the Civil Code. 43

Here, the injury suffered by respondent is the loss of P7,220,968.31 from his business.
This has remained unpaid since 2007. This injury undoubtedly was caused by petitioner
Arco Pulp and Paper’s act of refusing to pay its obligations.

When the obligation became due and demandable, petitioner Arco Pulp and Paper not
only issued an unfunded check but also entered into a contract with a third person in an
effort to evade its liability. This proves the third requirement.

As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages
may be awarded in the following instances: chanRoblesvirtualLawlibrary
Article 2219. Moral damages may be recovered in the following and analogous cases: ChanRoblesVirtualawlibrary

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Breaches of contract done in bad faith, however, are not specified within this
enumeration. When a party breaches a contract, he or she goes against Article 19 of
the Civil Code, which states: chanRoblesvirtualLawlibrary

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

Persons who have the right to enter into contractual relations must exercise that right
with honesty and good faith. Failure to do so results in an abuse of that right, which
may become the basis of an action for damages. Article 19, however, cannot be its sole
basis:chanRoblesvirtualLawlibrary

Article 19 is the general rule which governs the conduct of human relations. By itself, it
is not the basis of an actionable tort. Article 19 describes the degree of care required so
that an actionable tort may arise when it is alleged together with Article 20 or Article
21.44

Article 20 and 21 of the Civil Code are as follows: chanRoblesvirtualLawlibrary

Article 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same.

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

To be actionable, Article 20 requires a violation of law, while Article 21 only concerns

with lawful acts that are contrary to morals, good customs, and public policy: chanRoblesvirtualLawlibrary

Article 20 concerns violations of existing law as basis for an injury. It allows recovery
should the act have been willful or negligent. Willful may refer to the intention to do the
act and the desire to achieve the outcome which is considered by the plaintiff in tort
action as injurious. Negligence may refer to a situation where the act was consciously
done but without intending the result which the plaintiff considers as injurious.

Article 21, on the other hand, concerns injuries that may be caused by acts which are
not necessarily proscribed by law. This article requires that the act be willful, that is,
that there was an intention to do the act and a desire to achieve the outcome. In cases
under Article 21, the legal issues revolve around whether such outcome should be
considered a legal injury on the part of the plaintiff or whether the commission of the
act was done in violation of the standards of care required in Article 19. 45

When parties act in bad faith and do not faithfully comply with their obligations under
contract, they run the risk of violating Article 1159 of the Civil Code:
chanRoblesvirtualLawlibrary

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

Article 2219, therefore, is not an exhaustive list of the instances where moral damages
may be recovered since it only specifies, among others, Article 21. When a party
reneges on his or her obligations arising from contracts in bad faith, the act is not only
contrary to morals, good customs, and public policy; it is also a violation of Article
1159. Breaches of contract become the basis of moral damages, not only under Article
2220, but also under Articles 19 and 20 in relation to Article 1159.

Moral damages, however, are not recoverable on the mere breach of the contract.
Article 2220 requires that the breach be done fraudulently or in bad faith. In Adriano v.
Lasala:46
cralawred

To recover moral damages in an action for breach of contract, the breach must be
palpably wanton, reckless and malicious, in bad faith, oppressive, or abusive. Hence,
the person claiming bad faith must prove its existence by clear and convincing evidence
for the law always presumes good faith.

Bad faith does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of known duty through some motive or interest or ill will that partakes
of the nature of fraud. It is, therefore, a question of intention, which can be
inferred from one’s conduct and/or contemporaneous statements.47 (Emphasis
supplied)

Since a finding of bad faith is generally premised on the intent of the doer, it requires
an examination of the circumstances in each case.

When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation
to respondent, it was presumably with the knowledge that it was being drawn against a
closed account. Worse, it attempted to shift their obligations to a third person without
the consent of respondent.

Petitioner Arco Pulp and Paper’s actions clearly show “a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of known duty through some
motive or interest or ill will that partakes of the nature of fraud.” 48 Moral damages may,
therefore, be awarded.

Exemplary damages may also be awarded. Under the Civil Code, exemplary damages
are due in the following circumstances: chanRoblesvirtualLawlibrary
Article 2232. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.

Article 2233. Exemplary damages cannot be recovered as a matter of right; the court
will decide whether or not they should be adjudicated.

Article 2234. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages
should be awarded.

In Tankeh v. Development Bank of the Philippines,49 we stated that: chanRoblesvirtualLawlibrary

The purpose of exemplary damages is to serve as a deterrent to future and

subsequent parties from the commission of a similar offense. The case of People
v. Rante citing People v. Dalisay held that: ChanRoblesVirtualawlibrary

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective

damages are intended to serve as a deterrent to serious wrong doings, and as
a vindication of undue sufferings and wanton invasion of the rights of an
injured or a punishment for those guilty of outrageous conduct. These terms are
generally, but not always, used interchangeably. In common law, there is preference in
the use of exemplary damages when the award is to account for injury to feelings and
for the sense of indignity and humiliation suffered by a person as a result of an injury
that has been maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the defendant
—associated with such circumstances as willfulness, wantonness, malice, gross
negligence or recklessness, oppression, insult or fraud or gross fraud—that intensifies
the injury. The terms punitive or vindictive damages are often used to refer to those
species of damages that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended in good measure to
deter the wrongdoer and others like him from similar conduct in the future. 50 (Emphasis
supplied; citations omitted)

The requisites for the award of exemplary damages are as follows: ChanRoblesVirtualawlibrary

(1) they may be imposed by way of example in addition to compensatory damages, and only
after the claimant's right to them has been established;
(2) that they cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or
malevolent manner.51

Business owners must always be forthright in their dealings. They cannot be allowed to
renege on their obligations, considering that these obligations were freely entered into
by them. Exemplary damages may also be awarded in this case to serve as a deterrent
to those who use fraudulent means to evade their liabilities.

Since the award of exemplary damages is proper, attorney’s fees and cost of the suit
may also be recovered. Article 2208 of the Civil Code states: chanRoblesvirtualLawlibrary
Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded[.]

Petitioner Candida A. Santos

is solidarily liable with petitioner
corporation

Petitioners argue that the finding of solidary liability was erroneous since no evidence
was adduced to prove that the transaction was also a personal undertaking of petitioner
Santos. We disagree.

In Heirs of Fe Tan Uy v. International Exchange Bank, 52 we stated that: chanRoblesvirtualLawlibrary

Basic is the rule in corporation law that a corporation is a juridical entity which is vested
with a legal personality separate and distinct from those acting for and in its behalf and,
in general, from the people comprising it. Following this principle, obligations incurred
by the corporation, acting through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is generally not held
personally liable for obligations incurred by the corporation. Nevertheless, this
legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.

....

Before a director or officer of a corporation can be held personally liable for

corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented
to patently unlawful acts of the corporation, or that the officer was guilty of
gross negligence or bad faith; and (2) the complainant must clearly and
convincingly prove such unlawful acts, negligence or bad faith.

While it is true that the determination of the existence of any of the circumstances that
would warrant the piercing of the veil of corporate fiction is a question of fact which
cannot be the subject of a petition for review on certiorari under Rule 45, this Court can
take cognizance of factual issues if the findings of the lower court are not supported by
the evidence on record or are based on a misapprehension of facts. 53 (Emphasis
supplied)

As a general rule, directors, officers, or employees of a corporation cannot be held

personally liable for obligations incurred by the corporation. However, this veil of
corporate fiction may be pierced if complainant is able to prove, as in this case, that (1)
the officer is guilty of negligence or bad faith, and (2) such negligence or bad faith was
clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the
President and Chief Executive Officer of Arco Pulp and Paper. She also issued the check
in partial payment of petitioner corporation’s obligations to respondent on behalf of
petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the
account name, “Arco Pulp & Paper, Co., Inc.”54 Any obligation arising from these acts
would not, ordinarily, be petitioner Santos’ personal undertaking for which she would be
solidarily liable with petitioner Arco Pulp and Paper.

We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger
Philippines:55 cralawred

Piercing the veil of corporate fiction is an equitable doctrine developed to address

situations where the separate corporate personality of a corporation is abused or used
for wrongful purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes,
such as to evade a just and due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable considerations, other
unjustifiable aims or intentions, in which case, the fiction will be disregarded
and the individuals composing it and the two corporations will be treated as
identical.56 (Emphasis supplied)

According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner
Arco Pulp and Paper, stating that: chanRoblesvirtualLawlibrary

In the present case, We find bad faith on the part of the [petitioners] when they
unjustifiably refused to honor their undertaking in favor of the [respondent]. After the
check in the amount of P1,487,766.68 issued by [petitioner] Santos was dishonored for
being drawn against a closed account, [petitioner] corporation denied any privity with
[respondent]. These acts prompted the [respondent] to avail of the remedies provided
by law in order to protect his rights.57

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind
the corporate veil. When petitioner Arco Pulp and Paper’s obligation to respondent
became due and demandable, she not only issued an unfunded check but also
contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s
liability. She unjustifiably refused to honor petitioner corporation’s obligations to
respondent. These acts clearly amount to bad faith. In this instance, the corporate veil
may be pierced, and petitioner Santos may be held solidarily liable with petitioner Arco
Pulp and Paper.

The rate of interest due on

the obligation must be reduced
in view of Nacar v. Gallery
Frames58 cralawred

In view, however, of the promulgation by this court of the decision dated August 13,
2013 in Nacar v. Gallery Frames,59 the rate of interest due on the obligation must be
modified from 12% per annum to 6% per annum from the time of demand.

Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of

Appeals,60 and we have laid down the following guidelines with regard to the rate of
legal interest: chanRoblesvirtualLawlibrary
To recapitulate and for future guidance, the guidelines laid down in the case
of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular
No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on “Damages” of the Civil Code govern in determining the
measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to
July 1, 2013, shall not be disturbed and shall continue to be implemented applying the
rate of interest fixed therein.61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation of P7,220,968.31

should now be at 6% per annum, computed from May 5, 2007, when respondent sent
his letter of demand to petitioners. This interest shall continue to be due from the
finality of this decision until its full satisfaction.

WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709
is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered
solidarily to pay respondent Dan T. Lim the amount of P7,220,968.31 with interest of
6% per annum at the time of demand until finality of judgment and its full satisfaction,
with moral damages in the amount of P50,000.00, exemplary damages in the amount
of P50,000.00, and attorney’s fees in the amount of P50,000.00.

SO ORDERED.

As to rights & obligations of multiple parties

Ronquillo v. CA, 132 SCRA 274
G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner,

vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.

Gloria A. Fortun for petitioner.

Roselino Reyes Isler for respondents.

CUEVAS, J.:

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

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

On December 13, 1979, the lower court rendered its Decision 1 based on the compromise agreement submitted by
the parties, the pertinent portion of which reads as follows:

1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000 .00 and
defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P10,000.00 the amount of
P55,000.00 on or before December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of six months from
January 1980, or before June 30, 1980; (Emphasis supplied)
 xxx xxx xxx

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

xxx xxx xxx

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

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

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

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

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

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

ORDER

Regardless of whatever the compromise agreement has intended the payment

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

WHEREFORE, let writ of execution issue as prayed for

On March 17, 1980, petitioner moved for the reconsideration of the above order, and the same was
set for hearing on March 25,1980.
Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued for the
satisfaction of the sum of P82,500.00 as against the properties of the defendants (including
petitioner), "singly or jointly hable."
6

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

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

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

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

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

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

SO ORDERED.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and
defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P110,000.00, the amount
of P5,000.00 on or before December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of six months from
January 1980 or before June 30, 1980. (Emphasis supply)

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

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

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

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

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

Cost against petitioner.

SO ORDERED.
Malayan Insurance v. CA, 165 SCRA 536
G.R. No. L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner,

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

Freqillana Jr. for petitioner.

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

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

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

PADILLA, J.:

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

The antecedent facts of the case are as follows:

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

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

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

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

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

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

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

After trial, judgment was rendered as follows:

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

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

(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for
the period of three (3) years;

(c) P5,000.00 as moral damages;

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

The above-named parties against whom this judgment is rendered are hereby held
jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its
liability will be up to only P20,000.00.

As no satisfactory proof of cost of damage to its bus was presented by defendant

Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees
is also dismissed for not being proved. 1

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

Hence, the present recourse by petitioner insurance company.

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

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

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

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

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

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

It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated
Willys jeep, pursuant to Article 2184 of the Civil Code which provides:

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of due diligence, prevented
the misfortune it is disputably presumed that a driver was negligent, if he had been
found guilty of reckless driving or violating traffic regulations at least twice within the
next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to
plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of the
motor vehicle mishap, is Article 2180 of the Civil Code which reads:

Art. 2180. The obligation imposed by article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are
not engaged ill any business or industry.

xxx xxx xxx

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

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

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

In Guingon vs. Del Monte, a passenger of a jeepney had just alighted therefrom, when he was
5

bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the
heirs of said passenger against the driver and owner of the jeepney at fault as well as against the
insurance company which insured the latter jeepney against third party liability, the trial court,
affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and severally
liable to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's fees;
while the insurance company was sentenced to pay the heirs the amount of P5,500.00 which was to
be applied as partial satisfaction of the judgment rendered against said owner and driver of the
jeepney. Thus, in said Guingon case, it was only the owner and the driver of the jeepney at fault, not
including the insurance company, who were held solidarily liable to the heirs of the victim.

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer
6

under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort.

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

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. On the other hand, insurance is defined as "a contract whereby one undertakes for a
7

consideration to indemnify another against loss, damage, or liability arising from an unknown or
contingent event." 8

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

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

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

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

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

Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the equitable
right of subrogation as the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur.
2nd 746). Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not
dependent upon , nor does it grow out of any privity of contract (emphasis supplied)
or upon written assignment of claim, and payment to the insured makes the insurer
assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C.
456, 142 SE 2d 18). 9
It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding
P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is
subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217
of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be
reimbursed by his co-debtors for the share which corresponds to each.

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

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

xxx xxx xxx

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

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

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

SO ORDERED.

Melencio-Herrera (Chair

PNB v. Independent Planters, 122 SCRA 113

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

PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA, DELFIN FAJARDO,
CEFERINO VALENCIA, MOISES CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA,
LAURO LEVISTE, GAVINO GONZALES, LOPE GEVANA and BONIFACIO
LAUREANA, defendants-appellees.
Basa, Ilao, del Rosario Diaz for plaintiff-appellant.

Laurel Law Office for Dimayuga.

Tomas Yumol for Fajardo, defendant-appellee.

PLANA, J.:

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

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

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

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

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

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

It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or convenient
for the protection of his interests; and if, after instituting a collection suit based on contract against
some or all of them and, during its pendency, one of the defendants dies, the court retains
jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants.
Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this Court ruled:

Construing Section 698 of the Code of Civil Procedure from whence the aforequoted
provision (Sec. 6, Rule 86) was taken, this Court held that where two persons are
bound in solidum for the same debt and one of them dies, the whole indebtedness
can be proved against the estate of the latter, the decedent's liability being absolute
and primary; and if the claim is not presented within the time provided by the rules,
the same will be barred as against the estate. It is evident from the foregoing that
Section 6 of Rule 87 (now Rule 86) provides the procedure should the creditor desire
to go against the deceased debtor, but there is certainly nothing in the said provision
 making compliance with such procedure a condition precedent before an ordinary
action against the surviving solidary debtors, should the creditor choose to demand
payment from the latter, could be entertained to the extent that failure to observe the
same would deprive the court jurisdiction to take cognizance of the action against the
surviving debtors. Upon the other hand, the Civil Code expressly allows the creditor
to proceed against any one of the solidary debtors or some or all of them
simultaneously. There is, therefore, nothing improper in the creditor's filing of an
action against the surviving solidary debtors alone, instead of instituting a proceeding
for the settlement of the estate of the deceased debtor wherein his claim could be
filed.

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

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

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

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

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

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

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

SO ORDERED.
Calang and Philtranco vs. People, G.R. No. 190696 August 3, 2010
G.R. No. 190696 August 3, 2010

ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC., Petitioners,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by the petitioners, Philtranco Service Enterprises,
Inc. (Philtranco) and Rolito Calang, to challenge our Resolution of February 17, 2010. Our assailed
Resolution denied the petition for review on certiorari for failure to show any reversible error
sufficient to warrant the exercise of this Court’s discretionary appellate jurisdiction.

Antecedent Facts

At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No. 7001, owned by
Philtranco along Daang Maharlika Highway in Barangay Lambao, Sta. Margarita, Samar when its
rear left side hit the front left portion of a Sarao jeep coming from the opposite direction. As a result
of the collision, Cresencio Pinohermoso, the jeep’s driver, lost control of the vehicle, and bumped
and killed Jose Mabansag, a bystander who was standing along the highway’s shoulder. The jeep
turned turtle three (3) times before finally stopping at about 25 meters from the point of impact. Two
of the jeep’s passengers, Armando Nablo and an unidentified woman, were instantly killed, while the
other passengers sustained serious physical injuries.

The prosecution charged Calang with multiple homicide, multiple serious physical injuries and
damage to property thru reckless imprudence before the Regional Trial Court (RTC), Branch 31,
Calbayog City. The RTC, in its decision dated May 21, 2001, found Calang guilty beyond reasonable
doubt of reckless imprudence resulting to multiple homicide, multiple physical injuries and damage to
property, and sentenced him to suffer an indeterminate penalty of thirty days of arresto menor, as
minimum, to four years and two months of prision correccional, as maximum. The RTC ordered
Calang and Philtranco, jointly and severally, to pay ₱50,000.00 as death indemnity to the heirs of
Armando; ₱50,000.00 as death indemnity to the heirs of Mabansag; and ₱90,083.93 as actual
damages to the private complainants.

The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed as CA-G.R. CR
No. 25522. The CA, in its decision dated November 20, 2009, affirmed the RTC decision in toto. The
CA ruled that petitioner Calang failed to exercise due care and precaution in driving the Philtranco
bus. According to the CA, various eyewitnesses testified that the bus was traveling fast and
encroached into the opposite lane when it evaded a pushcart that was on the side of the road. In
addition, he failed to slacken his speed, despite admitting that he had already seen the jeep coming
from the opposite direction when it was still half a kilometer away. The CA further ruled that Calang
demonstrated a reckless attitude when he drove the bus, despite knowing that it was suffering from
loose compression, hence, not roadworthy.

The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner
Calang, for failing to prove that it had exercised the diligence of a good father of the family to prevent
the accident.
The petitioners filed with this Court a petition for review on certiorari. In our Resolution dated
February 17, 2010, we denied the petition for failure to sufficiently show any reversible error in the
assailed decision to warrant the exercise of this Court’s discretionary appellate jurisdiction.

The Motion for Reconsideration

In the present motion for reconsideration, the petitioners claim that there was no basis to hold
Philtranco jointly and severally liable with Calang because the former was not a party in the criminal
case (for multiple homicide with multiple serious physical injuries and damage to property thru
reckless imprudence) before the RTC.

The petitioners likewise maintain that the courts below overlooked several relevant facts, supported
by documentary exhibits, which, if considered, would have shown that Calang was not negligent,
such as the affidavit and testimony of witness Celestina Cabriga; the testimony of witness Rodrigo
Bocaycay; the traffic accident sketch and report; and the jeepney’s registration receipt. The
petitioners also insist that the jeep’s driver had the last clear chance to avoid the collision.

We partly grant the motion.

Liability of Calang

We see no reason to overturn the lower courts’ finding on Calang’s culpability. The finding of
negligence on his part by the trial court, affirmed by the CA, is a question of fact that we cannot pass
upon without going into factual matters touching on the finding of negligence. In petitions for review
on certiorari under Rule 45 of the Revised Rules of Court, this Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of support by the
evidence on record, or the assailed judgment is based on a misapprehension of facts.

Liability of Philtranco

We, however, hold that the RTC and the CA both erred in holding Philtranco jointly and severally
liable with Calang. We emphasize that Calang was charged criminally before the RTC. Undisputedly,
Philtranco was not a direct party in this case. Since the cause of action against Calang was based
on delict, both the RTC and the CA erred in holding Philtranco jointly and severally liable with
Calang, based on quasi-delict under Articles 21761 and 21802 of the Civil Code. Articles 2176 and
2180 of the Civil Code pertain to the vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not apply to civil liability arising from delict.

If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised Penal Code states the
subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors of establishments, as follows:

In default of the persons criminally liable, innkeepers, tavernkeepers, and any other persons or
corporations shall be civilly liable for crimes committed in their establishments, in all cases where a
violation of municipal ordinances or some general or special police regulations shall have been
committed by them or their employees. 1avvphil

Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft within their
houses from guests lodging therein, or for the payment of the value thereof, provided that such
guests shall have notified in advance the innkeeper himself, or the person representing him, of the
deposit of such goods within the inn; and shall furthermore have followed the directions which such
innkeeper or his representative may have given them with respect to the care of and vigilance over
such goods. No liability shall attach in case of robbery with violence against or intimidation of
persons unless committed by the innkeeper’s employees.

The foregoing subsidiary liability applies to employers, according to Article 103 of the Revised Penal
Code, which reads:

The subsidiary liability established in the next preceding article shall also apply to employers,
teachers, persons, and corporations engaged in any kind of industry for felonies committed by their
servants, pupils, workmen, apprentices, or employees in the discharge of their duties.

The provisions of the Revised Penal Code on subsidiary liability – Articles 102 and 103 – are
deemed written into the judgments in cases to which they are applicable. Thus, in the dispositive
portion of its decision, the trial court need not expressly pronounce the subsidiary liability of the
employer.3 Nonetheless, before the employers’ subsidiary liability is enforced, adequate evidence
must exist establishing that (1) they are indeed the employers of the convicted employees; (2) they
are engaged in some kind of industry; (3) the crime was committed by the employees in the
discharge of their duties; and (4) the execution against the latter has not been satisfied due to
insolvency. The determination of these conditions may be done in the same criminal action in which
the employee’s liability, criminal and civil, has been pronounced, in a hearing set for that precise
purpose, with due notice to the employer, as part of the proceedings for the execution of the
judgment.4

WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals decision that
affirmed in toto the RTC decision, finding Rolito Calang guilty beyond reasonable doubt of reckless
imprudence resulting in multiple homicide, multiple serious physical injuries and damage to property,
is AFFIRMED, with the MODIFICATION that Philtranco’s liability should only be subsidiary. No
costs.

SO ORDERED.

Ruks Konsult and Construction vs. Adworld Sign and Advertising Corp.
and Transworld Media Ads, G.R. No. 204866 January 21, 2015
G.R. No. 204866, January 21, 2015

RUKS KONSULT AND CONSTRUCTION, Petitioner, v. ADWORLD SIGN AND

ADVERTISING CORPORATION* AND TRANSWORLD MEDIA ADS,
INC., Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated November 16,
2011 and the Resolution3 dated December 10, 2012 of the Court of Appeals (CA) in CA-
G.R. CV No. 94693 which affirmed the Decision4 dated August 25, 2009 of the Regional
Trial Court of Makati City, Branch 142 (RTC) in Civil Case No. 03-1452 holding, inter
alia, petitioner Ruks Konsult and Construction (Ruks) and respondent Transworld Media
Ads, Inc. (Transworld) jointly and severally liable to respondent Adworld Sign and
Advertising Corporation (Adworld) for damages. cralawred

The Facts

The instant case arose from a complaint for damages filed by Adworld against
Transworld and Comark International Corporation (Comark) before the RTC. 5 In the
complaint, Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard structure
located at EDSA Tulay, Guadalupe, Barangka Mandaluyong, which was misaligned and
its foundation impaired when, on August 11, 2003, the adjacent billboard structure
owned by Transworld and used by Comark collapsed and crashed against it.
Resultantly, on August 19, 2003, Adworld sent Transworld and Comark a letter
demanding payment for the repairs of its billboard as well as loss of rental income. On
August 29, 2003, Transworld sent its reply, admitting the damage caused by its
billboard structure on Adworld’s billboard, but nevertheless, refused and failed to pay
the amounts demanded by Adworld. As Adworld’s final demand letter also went
unheeded, it was constrained to file the instant complaint, praying for damages in the
aggregate amount of P474,204.00, comprised of P281,204.00 for materials, P72,000.00
for labor, and P121,000.00 for indemnity for loss of income. 6 chanRoblesvirtualLawlibrary

In its Answer with Counterclaim, Transworld averred that the collapse of its billboard
structure was due to extraordinarily strong winds that occurred instantly and
unexpectedly, and maintained that the damage caused to Adworld’s billboard structure
was hardly noticeable. Transworld likewise filed a Third-Party Complaint against Ruks,
the company which built the collapsed billboard structure in the former’s favor. It was
alleged therein that the structure constructed by Ruks had a weak and poor foundation
not suited for billboards, thus, prone to collapse, and as such, Ruks should ultimately
be held liable for the damages caused to Adworld’s billboard structure. 7 chanRoblesvirtualLawlibrary

For its part, Comark denied liability for the damages caused to Adworld’s billboard
structure, maintaining that it does not have any interest on Transworld’s collapsed
billboard structure as it only contracted the use of the same. In this relation, Comark
prayed for exemplary damages from Transworld for unreasonably including it as a
party-defendant in the complaint.8 chanRoblesvirtualLawlibrary

Lastly, Ruks admitted that it entered into a contract with Transworld for the
construction of the latter’s billboard structure, but denied liability for the damages
caused by its collapse. It contended that when Transworld hired its services, there was
already an existing foundation for the billboard and that it merely finished the structure
according to the terms and conditions of its contract with the latter. 9 chanRoblesvirtualLawlibrary

The RTC Ruling

In a Decision10 dated August 25, 2009, the RTC ultimately ruled in Adworld’s favor, and
accordingly, declared, inter alia, Transworld and Ruks jointly and severally liable to
Adworld in the amount of P474,204.00 as actual damages, with legal interest from the
date of the filing of the complaint until full payment thereof, plus attorney’s fees in the
amount of P50,000.00.11 chanRoblesvirtualLawlibrary
The RTC found both Transworld and Ruks negligent in the construction of the collapsed
billboard as they knew that the foundation supporting the same was weak and would
pose danger to the safety of the motorists and the other adjacent properties, such as
Adworld’s billboard, and yet, they did not do anything to remedy the situation. 12 In
particular, the RTC explained that Transworld was made aware by Ruks that the initial
construction of the lower structure of its billboard did not have the proper foundation
and would require additional columns and pedestals to support the structure.
Notwithstanding, however, Ruks proceeded with the construction of the billboard’s
upper structure and merely assumed that Transworld would reinforce its lower
structure.13 The RTC then concluded that these negligent acts were the direct and
proximate cause of the damages suffered by Adworld’s billboard. 14 chanRoblesvirtualLawlibrary

Aggrieved, both Transworld and Ruks appealed to the CA. In a Resolution dated
February 3, 2011, the CA dismissed Transworld’s appeal for its failure to file an
appellant’s brief on time.15 Transworld elevated its case before the Court, docketed as
G.R. No. 197601.16 However, in a Resolution17 dated November 23, 2011, the Court
declared the case closed and terminated for failure of Transworld to file the intended
petition for review on certiorari within the extended reglementary period. Subsequently,
the Court issued an Entry of Judgment18 dated February 22, 2012 in G.R. No. 197601
declaring the Court’s November 23, 2011 Resolution final and executory.

The CA Ruling

In a Decision19 dated November 16, 2011, the CA denied Ruks’s appeal and affirmed
the ruling of the RTC. It adhered to the RTC’s finding of negligence on the part of
Transworld and Ruks which brought about the damage to Adworld’s billboard. It found
that Transworld failed to ensure that Ruks will comply with the approved plans and
specifications of the structure, and that Ruks continued to install and finish the billboard
structure despite the knowledge that there were no adequate columns to support the
same.20chanRoblesvirtualLawlibrary

Dissatisfied, Ruks moved for reconsideration,21 which was, however, denied in a

Resolution22 dated December 10, 2012, hence, this petition.

On the other hand, Transworld filed another appeal before the Court, docketed as G.R.
No. 205120.23 However, the Court denied outright Transworld’s petition in a
Resolution24 dated April 15, 2013, holding that the same was already bound by the
dismissal of its petition filed in G.R. No. 197601.

The Issue Before the Court

The primordial issue for the Court’s resolution is whether or not the CA correctly
affirmed the ruling of the RTC declaring Ruks jointly and severally liable with
Transworld for damages sustained by Adworld.

The Court’s Ruling

The petition is without merit.

At the outset, it must be stressed that factual findings of the RTC, when affirmed by the
CA, are entitled to great weight by the Court and are deemed final and conclusive when
supported by the evidence on record.25 Absent any exceptions to this rule – such as
when it is established that the trial court ignored, overlooked, misconstrued, or
misinterpreted cogent facts and circumstances that, if considered, would change the
outcome of the case26 – such findings must stand.

After a judicious perusal of the records, the Court sees no cogent reason to deviate
from the findings of the RTC and the CA and their uniform conclusion that both
Transworld and Ruks committed acts resulting in the collapse of the former’s billboard,
which in turn, caused damage to the adjacent billboard of Adworld.

Jurisprudence defines negligence as the omission to do something which a reasonable

man, guided by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a prudent and reasonable man would
not do.27 It is the failure to observe for the protection of the interest of another person
that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury.28 chanRoblesvirtualLawlibrary

In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial
construction of its billboard’s lower structure without the proper foundation, and that of
Ruks’s finishing its upper structure and just merely assuming that Transworld would
reinforce the weak foundation are the two (2) successive acts which were the direct and
proximate cause of the damages sustained by Adworld. Worse, both Transworld and
Ruks were fully aware that the foundation for the former’s billboard was weak; yet,
neither of them took any positive step to reinforce the same. They merely relied on
each other’s word that repairs would be done to such foundation, but none was done at
all. Clearly, the foregoing circumstances show that both Transworld and Ruks are guilty
of negligence in the construction of the former’s billboard, and perforce, should be held
liable for its collapse and the resulting damage to Adworld’s billboard structure. As joint
tortfeasors, therefore, they are solidarily liable to Adworld. Verily, “[j]oint tortfeasors
are those who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or approve of it after it is done, if
done for their benefit. They are also referred to as those who act together in
committing wrong or whose acts, if independent of each other, unite in causing a single
injury. Under Article 219429 of the Civil Code, joint tortfeasors are solidarily liable for
the resulting damage. In other words, joint tortfeasors are each liable as principals, to
the same extent and in the same manner as if they had performed the wrongful act
themselves.”30 The Court’s pronouncement in People v. Velasco31 is instructive on this
matter, to wit:32
chanRoblesvirtualLawlibrary

Where several causes producing an injury are concurrent and each is an

efficient cause without which the injury would not have happened, the injury
may be attributed to all or any of the causes and recovery may be had against
any or all of the responsible persons although under the circumstances of the case,
it may appear that one of them was more culpable, and that the duty owed by them to
the injured person was not same. No actor’s negligence ceases to be a proximate cause
merely because it does not exceed the negligence of other actors. Each wrongdoer is
responsible for the entire result and is liable as though his acts were the sole cause of
the injury.

There is no contribution between joint [tortfeasors] whose liability is solidary since both
of them are liable for the total damage. Where the concurrent or successive
negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what proportion each
contributed to the injury and either of them is responsible for the whole
injury. x x x. (Emphases and underscoring supplied)

In conclusion, the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and
severally liable with Transworld for damages sustained by Adworld. chanrobleslaw

WHEREFORE, the petition is DENIED. The Decision dated November 16, 2011 and the
Resolution dated December 10, 2012 of the Court of Appeals in CA-G.R. CV No. 94693
are hereby AFFIRMED.

SO ORDERED. cralawlawlibrary

TMBI v. Feb Mitsui and Manalastas, G.R. No. 194121, July 11, 2016
G.R. No. 194121, July 11, 2016

TORRES-MADRID BROKERAGE, INC., Petitioner, v. FEB MITSUI MARINE

INSURANCE CO., INC. AND BENJAMIN P. MANALASTAS, DOING BUSINESS
UNDER THE NAME OF BMT TRUCKING SERVICES, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari challenging the Court of

Appeals' (CA) October 14, 2010 decision in CA-G.R. CV No. 91829. 1 chanrobleslaw

The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case No. 01-
1596, and found petitioner Torres-Madrid Brokerage, Inc. (TMBI) and respondent
Benjamin P. Manalastas jointly and solidarily liable to respondent FEB Mitsui Marine
Insurance Co., Inc. (Mitsui) for damages from the loss of transported cargo.

Antecedents

On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia
arrived at the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the arrival,
Sony had engaged the services of TMBI to facilitate, process, withdraw, and deliver the
shipment from the port to its warehouse in Binan, Laguna. 2 chanrobleslaw

TMBI - who did not own any delivery trucks - subcontracted the services of Benjamin
Manalastas' company, BMT Trucking Services (BMT), to transport the shipment from
the port to the Binan warehouse.3 Incidentally, TMBI notified Sony who had no
objections to the arrangement.4 chanrobleslaw
Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of October
7, 2000. However, BMT could not immediately undertake the delivery because of the
truck ban and because the following day was a Sunday. Thus, BMT scheduled the
delivery on October 9, 2000.

In the early morning of October 9, 2000, the four trucks left BMT's garage for
Laguna.5 However, only three trucks arrived at Sony's Binan warehouse.

At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was
found abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City. 6 Both
the driver and the shipment were missing.

Later that evening, BMT's Operations Manager Melchor Manalastas informed Victor
Torres, TMBI's General Manager, of the development. 7 They went to Muntinlupa
together to inspect the truck and to report the matter to the police. 8 chanrobleslaw

Victor Torres also filed a complaint with the National Bureau of

Investigation (NBI) against Lapesura for "hijacking." 9 The complaint resulted in a
recommendation by the NBI to the Manila City Prosecutor's Office to prosecute
Lapesura for qualified theft.10chanrobleslaw

TMBI notified Sony of the loss through a letter dated October 10, 2000, 11 It also sent
BMT a letter dated March 29, 2001, demanding payment for the lost shipment. BMT
refused to pay, insisting that the goods were "hijacked."

In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the
goods. After evaluating the merits of the claim, Mitsui paid
Sony PHP7,293,386.23 corresponding to the value of the lost goods.12 chanrobleslaw

After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter dated August
30, 2001 for payment of the lost goods. TMBI refused to pay Mitsui's claim. As a result,
Mitsui filed a complaint against TMBI on November 6, 2001,

TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party

defendant. TMBI alleged that BMT's driver, Lapesura, was responsible for the
theft/hijacking of the lost cargo and claimed BMT's negligence as the proximate cause
of the loss. TMBI prayed that in the event it is held liable to Mitsui for the loss, it should
be reimbursed by BMT,

At the trial, it was revealed that BMT and TMBI have been doing business with each
other since the early 80's. It also came out that there had been a previous hijacking
incident involving Sony's cargo in 1997, but neither Sony nor its insurer filed a
complaint against BMT or TMBI.13 chanrobleslaw

On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly and solidarity
liable to pay Mitsui PHP 7,293,386.23 as actual damages, attorney's fees equivalent to
25% of the amount claimed, and the costs of the suit. 14 The RTC held that TMBI and
Manalastas were common carriers and had acted negligently.

Both TMBI and BMT appealed the RTC's verdict.

TMBI denied that it was a common carrier required to exercise extraordinary diligence.
It maintains that it exercised the diligence of a good father of a family and should be
absolved of liability because the truck was "hijacked" and this was a fortuitous event.

BMT claimed that it had exercised extraordinary diligence over the lost shipment, and
argued as well that the loss resulted from a fortuitous event.

On October 14, 2010, the CA affirmed the RTC's decision but reduced the award of
attorney's fees to PHP 200,000.

The CA held: (1) that "hijacking" is not necessarily a fortuitous event because the term
refers to the general stealing of cargo during transit; 15 (2) that TMBI is a common
carrier engaged in the business of transporting goods for the general public for a
fee; 16 (3) even if the "hijacking" were a fortuitous event, TMBI's failure to observe
extraordinary diligence in overseeing the cargo and adopting security measures
rendered it liable for the loss; 17 and (4) even if TMBI had not been negligent in the
handling, transport and the delivery of the shipment, TMBI still breached its contractual
obligation to Sony when it failed to deliver the shipment. 18 chanrobleslaw

TMBI disagreed with the CA's ruling and filed the present petition on December 3,
2010.

The Arguments

TMBI's Petition

TMBI insists that the hijacking of the truck was a fortuitous event. It contests the CA's
finding that neither force nor intimidation was used in the taking of the cargo.
Considering Lapesura was never found, the Court should not discount the possibility
that he was a victim rather than a perpetrator.19 chanrobleslaw

TMBI denies being a common carrier because it does not own a single truck to transport
its shipment and it does not offer transport services to the public for compensation. 20 It
emphasizes that Sony knew TMBI did not have its own vehicles and would subcontract
the delivery to a third-party.

Further, TMBI now insists that the service it offered was limited to the processing of
paperwork attendant to the entry of Sony's goods. It denies that delivery of the
shipment was a part of its obligation.21
chanrobleslaw

TMBI solely blames BMT as it had full control and custody of the cargo when it was
lost.22 BMT, as a common carrier, is presumed negligent and should be responsible for
the loss.

BhtT's Comment

BMT insists that it observed the required standard of care. 23 Like the petitioner, BMT
maintains that the hijacking was a fortuitous event - a force majeure - that exonerates
it from liability.24 It points out that Lapesura has never been seen again and his fate
remains a mystery. BMT likewise argues that the loss of the cargo necessarily showed
that the taking was with the use of force or intimidation. 25 cralawredchanrobleslaw

If there was any attendant negligence, BMT points the finger on TMBI who failed to
send a representative to accompany the shipment. 26 BMT further blamed TMBI for the
latter's failure to adopt security measures to protect Sony's cargo. 27 chanrobleslaw

Mitsui's Comment

Mitsui counters that neither TMBI nor BMT alleged or proved during the trial that the
taking of the cargo was accompanied with grave or irresistible threat, violence, or
force.28 Hence, the incident cannot be considered "force majeure" and TMBI remains
liable for breach of contract.

Mitsui emphasizes that TMBI's theory - that force or intimidation must have been used
because Lapesura was never found - was only raised for the first time before this
Court.29 It also discredits the theory as a mere conjecture for lack of supporting
evidence.

Mitsui adopts the CA's reasons to conclude that TMBI is a common carrier. It also points
out Victor Torres' admission during the trial that TMBI's brokerage service includes the
eventual delivery of the cargo to the consignee. 30
chanrobleslaw

Mitsui invokes as well the legal presumption of negligence against TMBI, pointing out
that TMBI simply entrusted the cargo to BMT without adopting any security measures
despite: (1) a previous hijacking incident, when TMBI lost Sony's cargo; and (2) TMBI's
knowledge that the cargo was worth more than 10 million pesos. 31 chanrobleslaw

Mitsui affirms that TMBI breached the contract of carriage through its negligent
handling of the cargo, resulting in its loss.

The Court's Ruling

A brokerage may be considered a common

carrier if it also undertakes to deliver the
goods for its customers

Common carriers are persons, corporations, firms or associations engaged in the

business of transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. 32 By the nature of their business and
for reasons of public policy, they are bound to observe extraordinary diligence in the
vigilance over the goods and in the safety of their passengers. 33 chanrobleslaw

In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a customs broker -
whose principal business is the preparation of the correct customs declaration and the
proper shipping documents - is still considered a common carrier if it also undertakes to
deliver the goods for its customers. The law does not distinguish between one whose
principal business activity is the carrying of goods and one who undertakes this task
only as an ancillary activity.35 This ruling has been reiterated in Schmitz Transport
& Brokerage Corp. v. Transport Venture, Inc.,36 Loadmasters Customs Services, Inc. v.
Glodel Brokerage Corporation,37 and Wesrwind Shipping Corporation v. UCPB General
Insurance Co., Inc.38 chanrobleslaw

Despite TMBI's present denials, we find that the delivery of the goods is an integral,
albeit ancillary, part of its brokerage services. TMBI admitted that it was contracted to
facilitate, process, and clear the shipments from the customs authorities, withdraw
them from the pier, then transport and deliver them to Sony's warehouse in Laguna. 39 chanrobleslaw

Further, TMBI's General Manager Victor Torres described the nature of its services as
follows:
chanRoblesvirtualLawlibrary

ATTY. VIRTUDAZO: Could you please tell the court what is the nature of the business of
[TMBI]?

Witness MR. Victor Torres of Torres Madrid: We are engaged in customs brokerage
business. We acquire the release documents from the Bureau of Customs
and eventually deliver the cargoes to the consignee's warehouse and we are
engaged in that kind of business, sir. 40

That TMBI does not own trucks and has to subcontract the delivery of its clients' goods,
is immaterial. As long as an entity holds itself to the public for the transport of goods as
a business, it is considered a common carrier regardless of whether it owns the vehicle
used or has to actually hire one.41 chanrobleslaw

Lastly, TMBI's customs brokerage services - including the transport/delivery of the

cargo - are available to anyone willing to pay its fees. Given these circumstances, we
find it undeniable that TMBI is a common carrier.

Consequently, TMBI should be held responsible for the loss, destruction, or

deterioration of the goods it transports unless it results from:
chanRoblesvirtualLawlibrary

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act of omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.42 chanroblesvirtuallawlibrary

For all other cases - such as theft or robbery - a common carrier is presumed to have
been at fault or to have acted negligently, unless it can prove that it
observed extraordinary diligence.43 chanrobleslaw

Simply put, the theft or the robbery of the goods is not considered a fortuitous event
or a force majeure. Nevertheless, a common carrier may absolve itself of liability for a
resulting loss: (1) if it proves that it exercised extraordinary diligence in transporting
and safekeeping the goods;44 or (2) if it stipulated with the shipper/owner of the goods
to limit its liability for the loss, destruction, or deterioration of the goods to a degree
less than extraordinary diligence.45 chanrobleslaw

However, a stipulation diminishing or dispensing with the common carrier's liability for
acts committed by thieves or robbers who do not act with grave or irresistible threat,
violence, or force is void under Article 1745 of the Civil Code for being contrary to
public policy. 46Jurisprudence, too, has expanded Article 1734's five exemptions. De
Guzman v. Court of Appeals47 interpreted Article 1745 to mean that a robbery attended
by "grave or irresistible threat, violence or force" is a fortuitous event that absolves the
common carrier from liability.

In the present case, the shipper, Sony, engaged the services of TMBI, a common
carrier, to facilitate the release of its shipment and deliver the goods to its warehouse.
In turn, TMBI subcontracted a portion of its obligation - the delivery of the cargo - to
another common carrier, BMT.

Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736,
a common carrier's extraordinary responsibility over the shipper's goods lasts from the
time these goods are unconditionally placed in the possession of, and received by, the
carrier for transportation, until they are delivered, actually or constructively, by
the carrier to the consignee. 48 chanrobleslaw

That the cargo disappeared during transit while under the custody of BMT - TMBI's
subcontractor - did not diminish nor terminate TMBFs responsibility over the cargo.
Article 1735 of the Civil Code presumes that it was at fault.

Instead of showing that it had acted with extraordinary diligence, TMBI simply argued
that it was not a common carrier bound to observe extraordinary diligence. Its failure to
successfully establish this premise carries with it the presumption of fault or negligence,
thus rendering it liable to Sony/Mitsui for breach of contract.

Specifically, TMBI's current theory - that the hijacking was attended by force or
intimidation - is untenable.

First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was
responsible for hijacking the shipment.49 Further, Victor Torres filed a criminal complaint
against Lapesura with the NBI.50 These actions constitute direct and binding admissions
that Lapesura stole the cargo. Justice and fair play dictate that TMBI should not be
allowed to change its legal theory on appeal.

Second, neither TMBI nor BMT succeeded in substantiating this theory through
evidence. Thus, the theory remained an unsupported allegation no better than
speculations and conjectures. The CA therefore correctly disregarded the defense
of force majeure.

TMBI and BMT are not solidarity liable

to Mitsui

We disagree with the lower courts" ruling that TMBI and BMT are solidarity liable to
Mitsui for the loss as joint tortfeasors. The ruling was based on Article 2194 of the Civil
Code:
chanRoblesvirtualLawlibrary

Art. 2194. The responsibility of two or more persons who are liable for quasi-
delict is solidary.

Notably, TMBI's liability to Mitsui does not stem from a quasi-delict (culpa
aquiliana) but from its breach of contract (culpa contractual). The tie that binds TMBI
with Mitsui is contractual, albeit one that passed on to Mitsui as a result of TMBI's
contract of carriage with Sony to which Mitsui had been subrogated as an insurer who
had paid Sony's insurance claim. The legal reality that results from this contractual tie
precludes the application of quasi-delict based Article 2194.

A third party may recover from a

common carrier for quasi-delict
but must prove actual n egligence

We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the
loss of the cargo. While it is undisputed that the cargo was lost under the actual
custody of BMT (whose employee is the primary suspect in the hijacking or robbery of
the shipment), no direct contractual relationship existed between Sony/Mitsui and BMT.
If at all, Sony/Mitsui's cause of action against BMT could only arise from quasi-delict, as
a third party suffering damage from the action of another due to the latter's fault or
negligence, pursuant to Article 2176 of the Civil Code. 51 chanrobleslaw

We have repeatedly distinguished between an action for breach of contract {culpa

contractual) and an action for quasi-delict (culpa aquiliana).

In culpa contractual, the plaintiff only needs to establish the existence of the contract
and the obligor's failure to perform his obligation. It is not necessary for the plaintiff to
prove or even allege that the obligor's non- compliance was due to fault or negligence
because Article 1735 already presumes that the common carrier is negligent. The
common carrier can only free itself from liability by proving that it
observed extraordinary diligence. It cannot discharge this liability by shifting the blame
on its agents or servants.52 chanrobleslaw

On the other hand, the plaintiff in culpa aquiliana must clearly establish the defendant's
fault or negligence because this is the very basis of the action. 53 Moreover, if the injury
to the plaintiff resulted from the act or omission of the defendant's employee or
servant, the defendant may absolve himself by proving that he observed the diligence
of a good father of a family to prevent the damage, 54 chanrobleslaw

In the present case, Mitsui's action is solely premised on TMBl's breach of contract.
Mitsui did not even sue BMT, much less prove any negligence on its part. If BMT has
entered the picture at all, it 'is because TMBI sued it for reimbursement for the liability
that TMBI might incur from its contract of carriage with Sony/Mitsui. Accordingly, there
is no basis to directly hold BMT liable to Mitsui for quasi-delict.

BMT is liable to TMBI for breach

of their contract of carriage
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo
delivery to BMT, TMBI entered into its own contract of carriage with a fellow common
carrier.

The cargo was lost after its transfer to BMT's custody based on its contract of carriage
with TMBI. Following Article 1735, BMT is presumed to be at fault. Since BMT failed to
prove that it observed extraordinary diligence in the performance of its obligation to
TMBI, it is liable to TMBI for breach of their contract of carriage.

In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract
of carriage. In turn, TMBI is entitled to reimbursement from BMT due to the latter's own
breach of its contract of carriage with TMBI. The proverbial buck stops with BMT who
may either: (a) absorb the loss, or (b) proceed after its missing driver, the suspected
culprit, pursuant to Article 2181,55 chanrobleslaw

WHEREFORE, the Court hereby ORDERS petitioner Torres- Madrid Brokerage, Inc. to
pay the respondent FEB Mitsui Marine Insurance Co., Inc. the following:
chanRoblesvirtualLawlibrary

a. Actual damages in the amount of PHP 7,293,386.23 plus legal interest from the
time the complaint was filed until it is fully paid;

b. Attorney's fees in the amount of PHP 200,000.00; and cralawlawlibrary

c. Costs of suit.

Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE Torres-

Madrid Brokerage, Inc. of the above-mentioned amounts.

SO ORDERED

Sanico and Castro v. Colipano, G.R. No. 209969, 27 Sept 2017

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

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

COLIPANO, Respondent.

DECISION

CAGUIOA, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court filed by petitioners Jose Sanico (Sanico) and Vicente Castro (Castro), assailing
the Decision2 dated September 30, 2013 of the Court of Appeals (CA) in CA-G.R. CEB-
CV No. 01889. The CA affirmed with modification the Decision 3 dated October 27, 2006
of the Regional Trial Court, Branch 25, Danao City (RTC) which found Sanico and Castro
liable for breach of' contract of carriage and awarded actual and compensatory
damages for loss of income in favor of respondent Werherlina P. Colipano (Colipano).
The CA reduced the compensatory damages that the RTC awarded.

Antecedents

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

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

After trial, the RTC found that Sanico and Castro breached the contract of carriage
between them and Colipano but only awarded actual and compensatory damages in
favor of Colipano. The dispositive portion of the RTC Decision states:
WHEREFORE, premises considered, this Court finds the defendants LIABLE for breach
of contract of carriage and are solidarily liable to pay plaintiff:

1. Actual damages in the amount of P2,098.80; and

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

No costs.

SO ORDERED.16
Only Sanico and Castro appealed to the CA, which affirmed with modification the RTC
Decision. The dispositive portion of the CA Decision states:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY GRANTED. The
Decision dated October 27, 2006 of the Regional Trial Court, Branch 25, Danao City, in
Civil Case No. DNA-418, is AFFIRMED with MODIFICATION in that the award for
compensatory damages for loss of income in paragraph 2 of the dispositive portion of
the RTC's decision, is reduced to P200,000.00.
SO ORDERED.17
Without moving for the reconsideration of the CA Decision, Sanico and Castro filed this
petition before the Court assailing the CA Decision.
Issues

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

b. Whether the Affidavit of Desistance and Release of Claim is binding on

Colipano; and

c. Whether the CA erred in the amount of damages awarded.

The Court's Ruling

The Court partly grants the petition.

Only Sanico breached the contract of carriage.

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

Since the cause of action is based on a breach of a contract of carriage, the

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

In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for
breach of a contract of carriage is dismissible as against the employee who
was driving the bus because the parties to the contract of carriage are only
the passenger, the bus owner, and the operator, viz.:
The complaint against Caccam was therefore properly dismissed. He was not a
party to the contract; he was a mere employee of the BAL. The parties to that
contract are Juana Soberano, the passenger, and the MRR and its subsidiary,
the BAL, the bus owner and operator, respectively; and consequent to the
inability of the defendant companies to carry Juana Soberano and her baggage
arid personal effects securely and safely to her destination as imposed by law
(art. 1733, in relation to arts. 1736 and 1755, N.C.C.), their liability to her
becomes direct and immediate.19
Since Castro was not a party to the contract of carriage, Colipano had no cause
of action against him and the pomplaint against him should be dismissed.
Although he was driving the jeepney, he was a mere employee of Sanico, who
was the operator and owner of the jeepney. The obligation to carry Colipano
safely to her destination was with Sanico. In fact, the elements of a contract
of carriage existeid between Colipano and Sanico: consent, as shown when
Castro, as employee of Sanico, accepted Colipano as a passenger when he
allowed Colipano to board the jeepney, and as to Colipano, when she boarded
the jeepney; cause or consideration, when Colipano, for her part, paid her
fare; and, object, the transportation of Colipano from the place of departure to
the place of destination.20

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

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

Specific to a contract of carriage, ithe Civil Code requires common carriers to

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

Such extraordinary diligence in the vigilance over the goods is further

expressed in Articles 1734, 1735 and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in
Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code, means
that common carriers have the obligation to carry passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the circumstances.

In case of death of or injury to their passengers, Article 1756 of the Civil Code
provides that common carriers are presumed to have been at fault or
negligent, and this presumption can be overcome only by proof of the
extraordinary diligence exercised to ensure the safety of the passengers. 21

Being an operator and owner of a common carrier, Sanico was required to

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

In Calalas v. Court of Appeals,22 the Court found that allowing the respondent
in that case to be seated in an extension seat, which was a wooden stool at
the rear of the jeepney, "placed [the respondent] in a peril greater than that
to which the other passengers were exposed."23 The Court further ruled that
the petitioner in Calalas was not only "unable to overcome the presumption of
negligence imposed on him for the injury sustained by [the respondent], but
also, the evidence shows he was actually negligent in transporting
passengers."24
Calalas squarely applies here. Sanico failed to rebut the presumption of fault
or negligence under the Civil Code. More than this, the evidence indubitably
established Sanico's negligence when Castro made Colipano sit on an empty
beer case at the edge of the rear entrance/exit of the jeepney with her
sleeping child on her lap, which put her and her child in greater peril than the
other passengers. As the CA correctly held:
For the driver, Vicente Castro, to allow a seat extension made of an empty
case of beer clearly indicates lack of prudence. Permitting Werherlina to
occupy an improvised seat in the rear portion of the jeepney, with a child on
her lap to boot, exposed her and her child in a peril greater than that to which
the other passengers were exposed. The use of an improvised seat extension
is undeniable, in view of the testimony of plaintiffs witness, which is
consistent with Werherlina's testimonial assertion. Werherlina and her
witness's testimony were accorded belief by the RTC. Factual findings of the
trial court are entitled to great weight on appeal and should not be disturbed
except for strong and valid reasons, because the trial court ip in a better
position to examine the demeanor of the witnesses while testifying. 25
The CA also correctly held that the!defense of engine failure, instead of
exonerating Sanico, only aggravated his already precarious position. 26 The
engine failure "hinted lack of regular check and maintenance to ensure that
the engine is at its best, considering that the jeepney regularly passes through
a mountainous area."27 This failure to ensure that the jeepney can safely
transport passengers through its route which required navigation through a
mountainous area is proof of fault on Sanico's part. In the face of such
evidence, there is no question as to Sanico's fault or negligence.

Further, common carriers may also be liable for damages when they
contravene the tenor of their obligations. Article 1170 of the Civil Code states:
ART. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner
contravene the tenor' of the obligation includes any illicit act or omission
which impairs the strict and faithful fulfillment of the obligation and every
kind of defective performance."29 There is no question here that making
Colipano sit on the empty beer case was a clear showing of how Sanico
contravened the tenor of his obligation to safely transport Colipano from the
place of departure to the place of destination as far as human care and
foresight can provide, using the utmost diligence of very cautious persons,
and with due regard for all the circumstances.

Sanico's attempt to evade liability by arguing that he exercised extraordinary

diligence when he hired; Castro, who was allegedly an experienced and time-
tested driver, whom he had even accompanied on a test-drive and in whom he
was personally convinced of the driving skills, 30 are not enough to exonerate
him from liability - because the liability of common carriers does not cease
upon p!roof that they exercised all the diligence of a good father of a family
irii the selection. and supervision of their employees. This is the express
mandate of Article 1759 of the Civil Code:
ART. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former's employees,
although such employees may have acted beyond the scope of their authority
or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.
The only defenses available to common carriers are (1) proof that they
observed extraordinary diligence as prescribed in Article 1756, 31 and (2)
following Article 1174 of the Civil Code, proof that the injury or death was
brought about by an event which "could not be foreseen, or which, though
foreseen, were inevitable," or a fortuitous event.

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

The Affidavit of Desistance and Release of Claim is void.

Sanico cannot be exonerated from liability under the Affidavit of Desistance

and Release of Claim32and his payment of the hospital and medical bills of
Colipano amounting to P44,900.00.33

The RTC ruled that "the Affidavit of Desistance and Release of Claim is not
binding on plaintiff [Colipano] in the absence of proof that the contents
thereof were sufficiently translated and explained to her." 34 The CA affirmed
the findings of the RTC and ruled that the document was not binding on
Colipano, as follows:
Finally, We sustain the RTC's finding that the affidavit of desistance and
release of claim, offered by defendants-appellants, are not binding on
Werherlina, quoting with approval its reflection on the matter, saying:
xxx this Court finds that the Affidavit of Desistance and Release of Claim is not
binding on plaintiff in the absence of proof that the contents thereof were
sufficiently explained to her. It is clear from the plaintiffs circumstances that
she is not able to understand English, more so stipulations stated in the said
Affidavit and Release. It is understandable that in her pressing need, the
plaintiff may have been easily convinced to sign the document with the
promise that she will be compensated for her injuries. 35
The Court finds no reason to depart from these findings of the CA and the RTC.

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

(1) that the person making the waiver possesses the right, (2) that he has the
capacity and power to dispose of the right, (3) that the waiver must be clear
and unequivocal although it may be made expressly or impliedly, and (4) that
the waiver is not contrary to law, public policy, public order, morals, good
customs or prejudicial to a third person with a right recognized by law. 36
While the first two requirements can be said to exist in this case, the third and
fourth requirements are, however, lacking.
For the waiver to be clear and unequivocal, the person waiving the right
should understand what she is waiving and the effect of such waiver. Both the
CA and RTC made the factual deitermination that Colipano was not able to
understand English and that there was no proof that the documents and their
contents and effects were explained to her. These findings of the RTC,
affirmed by the CA, are entitled to great weight and respect. 37 As this Court
held in Philippine National Railways Corp. v. Vizcara 38:
It is a well-established rule that factual fill dings by the CA are conclusive on
the parties and are not reviewable byj this Court. They are entitled to great
weight and respect, even finality, especially when, as in this case, the CA
affirmed the factual findings arrived at by the trial court. 39
Although there are exceptions to this rule,40 the exceptions are absent here.

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

The fourth requirement for a valid waiver is also lacking as the waiver, based
on the attendant facts, can only be construed as contrary to public policy. The
doctrine in Gatchalian v. Delim,41 which the CA correctly cited,42 is applicable
here:
Finally, because what is involved here is the liability of a common carrier for
injuries sustained by passengers in respect of whose safety a common carrier
must exercise extraordinary diligence, we must construe any such purported
waiver most strictly against the common carrier. For a waiver to be valid and
effective, it must not be contrary to law, morals, public policy or good
customs. To uphold a supposed waiver of any right to claim damages by an
injured passenger, under circumstances like those exhibited in this case,
would be to dilute and weaken the standard of extraordinary diligence exacted
by the law from common carriers and hence to render that standard
unenforceable. We believe such a purported waiver is offensive to public
policy.43
"[P]ublic policy refers to the aims of the state to promote the social and
general well-being of the inhabitants."44 The Civil Code requires extraordinary
diligence from common carriers because the nature of their business requires
the public to put their safety and lives in the hands of these common carriers.
The State imposes this extraordinary diligence to promote the well-being of
the public who avail themselves of the services of common carriers. Thus, in
instances of injury or death, a waiver of the right to claim damages is strictly
construed against the common carrier so as not to dilute or weaken the public
policy behind the required standard of extraordinary diligence.

It was for this reason that in Gatchalian, the waiver was considered offensive
to public policy because it was shown that the passenger was still in the
hospital and was dizzy when she signed the document. It was also shown that
when she saw the other passengers signing the document, she signed it
without reading it. .
Similar to Gatchalian, Colipano testified that she did not understand the
document she signed.45 She also did not understand the nature and extent of
her waiver as the content of the document was not explained to her. 46 The
waiver is therefore void because it is contrary to public policy. 47

The Court reiterates that waivers executed under similar circumstances are
indeed contrary to public policy and are void.48 To uphold waivers taken from
injured passengers who have no knowledge of their entitlement under the law
and the extent of liability of common carriers would indeed dilute the
extraordinary diligence required from common carriers, and contravene a
public policy reflected in the Civil Code.

Amount of compensatory damages granted is incorrect.

On the amount of damages, the RiTC awarded P2,098.80 as actual damages

and P360,000.00 as compensatoiy damages for loss of income, as follows:
[T]his Court can only award actual damages in the amount that is duly
supported by receipts, that is, P2,098.80 mid not P7,277.80 as prayed for by
plaintiff as there is no basis for the amount prayed for. However, considering
that plaintiff has suffered the loss of one leg which has caused her to be
limited in her movement thus resulting in loss of livelihood, she is entitled to
compensatory damages for lost income at the rate of P12,000.00/year for
thirty years in the amount of P360,000.00. 49
The CA, on the other hand, modified the award of the RTC by reducing the
compensatory damages from P360,000.00 to P200,000.00, thus:
By virtue of their negligence, defendants-appellants are liable to pay
Werheiiina compensatory damages for loss of earning capacity. In arriving at
the proper amount, the Supremip Court has consistently used the following
formula:
Net Earning Capacity
=
Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross
annual income)]

where life expectancy

=
2/3 (80 - the age of the deceased).
Based on the stated formula, the damages due to Werherlina for loss of
earning capacity is:
Net Earning Capacity
=
[2/3 x (80-30)] x (P12,000.00 x (50%)

=
(2/3 x 50) x P6,000.00

=
33.33 x P6,000.00
 =
P200,000.00
The award of the sum of P200,000.00 as compensatory damages for loss of
earning capacity is in order, notwithstanding the objections of defendants-
appellants with respect to lack of evidence on Werherlina's age and annual
income.50
Sanico argues that Colipano failed to present documentary evidence to
support her age and her income, so that her testimony is self-serving and that
there was no basis for the award of compensatory damages in her
favor.51 Sanico is gravely mistaken.

The Court has held in Heirs of Pedro Clemeña y Zurbano v. Heirs of Irene B.
Bien52 that testimonial evidence cannot be objected to on the ground of being
self-serving, thus:
"Self-serving evidence" is not to be taken literally to mean any evidence that
serves its proponent's interest. The term, if used with any legal sense, refers
only to acts or declarations made by a party in his own interest at some place
and time out of court, and it does not include testimony that he gives as a
witness in court. Evidence of this sort is excluded on the same ground as any
hearsay evidence, that is, lack of opportunity for cross-examination by the
adverse party and on the consideration that its admission would open the door
to fraud and fabrication. In contrast, a party's testimony in court is sworn and
subject to cross-examination by the other party, and therefore, not
susceptible to an objection on the ground that it is self-serving. 53
Colipano was subjected to cross-examination and both the RTC and CA
believed her testimony on her age and annual income. In fact, as these are
questions of facts, these findings of the RTC and CA are likewise binding on
the Court.54

Further, although as a general rule, documentary evidence is required to

prove loss of earning capacity, Colipano's testimony on her annual earnings of
P12,000.00 is an allowed exception. There are two exceptions to the general
rule and Colipano's testimonial evidence falls under the second
exception, viz.:
By way of exception, damages for loss of earning capacity may be awarded
despite the absence of documentary evidence when (1) the deceased is self-
employed earning less than the minimum wage under current labor laws, and
judicial notice may be taken of the fact that in the deceased's line of work no
documentary evidence is available; or (2) the deceased is employed as a daily
wage worker earning less than the minimum wage under current labor laws. 55
The CA applied the correct formula for computing the loss of Colipano's
earning capacity:
Net earning capacity = Life expectancy x [Gross Annual Income - Living
Expenses (50% of gross annual income)], where life expectancy = 2/3 (80-
the age of the deceased).56
However, the CA erred when it used Colipano's age at the time she testified as
basis for computing the loss of earning capacity. 57 The loss of earning capacity
commenced when Colipano's leg was crushed on December 25, 1993. Given
that Colipano was 30 years old when she testified on October 14, 1997, she
was roughly 27 years old on December 25, 1993 when the injury was
sustained. Following the foregoing formula, the net earning capacity of
Colipano is P212,000.00.58

Sanico is liable to pay interest.

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

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

As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of

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

WHEREFORE, premises considered, the petition for review is hereby PARTLY

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

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

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

SO ORDERED.
As to performance of prestation
Sps. Lam v. KODAK PHILIPPINES, G.R. No. 167615, January 11,
2016
G.R. No. 167615

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

DECISION

LEONEN, J.:

This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30, 2005
Decision and September 9, 2005 Amended Decision of the Court of Appeals, which modified the
1 2

February 26, 1999 Decision of the Regional Trial Court by reducing the amount of damages
3

awarded to petitioners Spouses Alexander and Julie Lam (Lam Spouses). The Lam Spouses argue
4

that respondent Kodak Philippines, Ltd.’s breach of their contract of sale entitles them to damages
more than the amount awarded by the Court of Appeals. 5

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement
(Letter Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL (Minilab
6

Equipment) in the amount of ₱1,796,000.00 per unit, with the following terms:
7

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

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

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

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

3. NO DOWNPAYMENT.

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

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

6. Price is subject to change without prior notice.

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

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in
Tagum, Davao Province. The delivered unit was installed by Noritsu representatives on March 9,
9

1992. The Lam Spouses issued postdated checks amounting to ₱35,000.00 each for 12 months as
10

payment for the first delivered unit, with the first check due on March 31, 1992. 11

The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March 31,
1992 allegedly due to insufficiency of funds. The same request was made for the check due on
12

April 30, 1992. However, both checks were negotiated by Kodak Philippines, Ltd. and were honored
by the depository bank. The 10 other checks were subsequently dishonored after the Lam Spouses
13

ordered the depository bank to stop payment. 14

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it
delivered together with its accessories. The Lam Spouses ignored the demand but also rescinded
15

the contract through the letter dated November 18, 1992 on account of Kodak Philippines, Ltd.’s
failure to deliver the two (2) remaining Minilab Equipment units. 16

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of
sum of money. The case was raffled to Branch 61 of the Regional Trial Court, Makati City. The 17

Summons and a copy of Kodak Philippines, Ltd.’s Complaint was personally served on the Lam
Spouses. 18

The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial brief
despite being given extensions. Thus, on July 30, 1993, they were declared in default. Kodak
19 20

Philippines, Ltd. presented evidence ex-parte. The trial court issued the Decision in favor of Kodak
21

Philippines, Ltd. ordering the seizure of the Minilab Equipment, which included the lone delivered
unit, its standard accessories, and a separate generator set. Based on this Decision, Kodak
22

Philippines, Ltd. was able to obtain a writ of seizure on December 16, 1992 for the Minilab
Equipment installed at the Lam Spouses’ outlet in Tagum, Davao Province. The writ was enforced
23

on December 21, 1992, and Kodak Philippines, Ltd. gained possession of the Minilab Equipment
unit, accessories, and the generator set. 24

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

On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V.
Gorospe, Jr., who had issued the writ of seizure. The ground for the motion for inhibition was not
26 27

provided. Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the case was
reassigned to Branch 65 of the Regional Trial Court, Makati City on October 3, 1995. 28

In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak Philippines, Ltd.
defaulted in the performance of its obligation under its Letter Agreement with the Lam Spouses. It 29

held that Kodak Philippines, Ltd.’s failure to deliver two (2) out of the three (3) units of the Minilab
Equipment caused the Lam Spouses to stop paying for the rest of the installments. The trial court
30

noted that while the Letter Agreement did not specify a period within which the delivery of all units
was to be made, the Civil Code provides "reasonable time" as the standard period for compliance:

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

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

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

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

The trial court found:

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

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

....

Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of
defendants’ inability to pay, non-delivery during the two (2) months that payments were honored is
unjustified.
33

Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the first unit,
they became liable for the fair value of the goods received:

On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the Civil
Code, in the event the buyer accepts incomplete delivery and uses the goods so delivered, not then
knowing that there would not be any further delivery by the seller, the buyer shall be liable only for
the fair value to him of the goods received. In other words, the buyer is still liable for the value of the
property received. Defendants were under obligation to pay the amount of the unit. Failure of
delivery of the other units did not thereby give unto them the right to suspend payment on the unit
delivered. Indeed, in incomplete deliveries, the buyer has the remedy of refusing payment unless
delivery is first made. In this case though, payment for the two undelivered units have not even
commenced; the installments made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered. 34

The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to deliver
the remaining units did not give them the right to suspend payment for the unit already
delivered. However, the trial court held that since Kodak Philippines, Ltd. had elected to cancel the
35

sale and retrieve the delivered unit, it could no longer seek payment for any deterioration that the
unit may have suffered while under the custody of the Lam Spouses. 36

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

from the Lam Spouses should be replaced. 38

The dispositive portion of the Regional Trial Court Decision reads:

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

1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12%
per annum from December 1992 until fully paid; and

2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal
Ave., Manila outlets.

SO ORDERED. 39

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

Regional Trial Court’s award for the generator set and the renovation expenses. 41

Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals dismissed it on
42

December 16, 2002 for Kodak Philippines, Ltd.’s failure to file its appellant’s brief, without prejudice
to the continuation of the Lam Spouses’ appeal. The Court of Appeals’ December 16, 2002
43

Resolution denying Kodak Philippines, Ltd.’s appeal became final and executory on January 4,
2003.44

In the Decision dated March 30, 2005, the Court of Appeals Special Fourteenth Division modified
45

the February 26, 1999 Decision of the Regional Trial Court:

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:

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

2. P440,000.00 as actual damages;

3. P25,000.00 as moral damages; and

 4. P50,000.00 as exemplary damages.

SO ORDERED. (Emphasis supplied)

46

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

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

In determining the divisibility of an obligation, the following factors may be considered, to wit: (1) the
will or intention of the parties, which may be expressed or presumed; (2) the objective or purpose of
the stipulated prestation; (3) the nature of the thing; and (4) provisions of law affecting the prestation.

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

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

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

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

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

Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam Spouses to
pay the remaining balance for the first delivered unit is based on the second sentence of Article 1592
of the New Civil Code. The Lam Spouses’ receipt and use of the Minilab Equipment before they
50

knew that Kodak Philippines, Ltd. would not deliver the two (2) remaining units has made them liable
for the unpaid portion of the purchase price.51

The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with the
Lam Spouses in the letter dated October 14, 1992. The rescission was based on Article 1191 of the
52

New Civil Code, which provides: "The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him." In its letter, Kodak
53

Philippines, Ltd. demanded that the Lam Spouses surrender the lone delivered unit of Minilab
Equipment along with its standard accessories. 54

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

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

obligatory relation as if one was never created: 57

To rescind is to declare a contract void in its inception and to put an end to it as though it never
were. It is not merely to terminate it and to release parties from further obligations to each other but
abrogate it from the beginning and restore parties to relative positions which they would have
occupied had no contract been made. 58

The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its
standard accessories, while Kodak Philippines, Ltd. was ordered to return the amount of
₱270,000.00, tendered by the Lam Spouses as partial payment. 59

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

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

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

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

In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have manifested bad
faith and malevolence because as earlier ruled upon, it was well within its right to do the same.
However, with respect to the seizure of the generator set, where Kodak misrepresented to the
court a quo its alleged right over the said item, Kodak’s bad faith and abuse of judicial processes
become self-evident. Considering the off-setting circumstances attendant, the amount of P25,000.00
by way of moral damages is considered sufficient.

In addition, so as to serve as an example to the public that an application for replevin should not be
accompanied by any false claims and misrepresentation, the amount of P50,000.00 by way of
exemplary damages should be pegged against Kodak.

With respect to the attorney’s fees and litigation expenses, We find that there is no basis to award
Sps. Lam the amount sought for. 63

Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it was
denied for lack of merit. However, the Court of Appeals noted that the Lam Spouses’ Opposition
64

correctly pointed out that the additional award of ₱270,000.00 made by the trial court was not
mentioned in the decretal portion of the March 30, 2005 Decision:

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

The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak
Philippines, Ltd. filed its Motion for Reconsideration before the Court of Appeals on April 22, 2005.
66

While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this court,
the Court of Appeals Special Fourteenth Division, acting on Kodak Philippines, Ltd.’s Motion for
Reconsideration, issued the Amended Decision dated September 9, 2005. The dispositive portion
67

of the Decision reads:

WHEREFORE, premises considered, this Court resolved that:

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

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

"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-appellant
is ordered to pay the following:

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

b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid;
 c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages; and

e. P50,000.00 as exemplary damages.

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

SO ORDERED."

SO ORDERED. (Emphasis in the original)

68

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

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

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

Lam Spouses’ Motion for Consolidation. 72

In the Resolution dated September 20, 2006, this court deconsolidated G.R No. 167615 from G.R.
73

No. 169639 and declared G.R. No. 169639 closed and terminated since Kodak Philippines, Ltd.
failed to file its Petition for Review.

II

We resolve the following issues:

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

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

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

Petitioners assert that the obligations of the parties were not susceptible of partial performance since
the Letter Agreement was for a package deal consisting of three (3) units. For the delivery of these
75

units, petitioners were obliged to pay 48 monthly payments, the total of which constituted one
debt. Having relied on respondent’s assurance that the three units would be delivered at the same
76

time, petitioners simultaneously rented and renovated three stores in anticipation of simultaneous
operations. Petitioners argue that the divisibility of the object does not necessarily determine the
77
divisibility of the obligation since the latter is tested against its susceptibility to a partial
performance. They argue that even if the object is susceptible of separate deliveries, the
78

transaction is indivisible if the parties intended the realization of all parts of the agreed obligation. 79

Petitioners support the claim that it was the parties’ intention to have an indivisible agreement by
asserting that the payments they made to respondent were intended to be applied to the whole
package of three units. The postdated checks were also intended as initial payment for the whole
80

package. The separate purchase price for each item was merely intended to particularize the unit
81

prices, not to negate the indivisible nature of their transaction. As to the issue of delivery, petitioners
82

claim that their acceptance of separate deliveries of the units was solely due to the constraints faced
by respondent, who had sole control over delivery matters. 83

With the obligation being indivisible, petitioners argue that respondent’s failure to comply with its
obligation to deliver the two (2) remaining Minilab Equipment units amounted to a breach. Petitioners
claim that the breach entitled them to the remedy of rescission and damages under Article 1191 of
the New Civil Code. 84

Petitioners also argue that they are entitled to moral damages more than the ₱50,000.00 awarded
by the Court of Appeals since respondent’s wrongful act of accusing them of non-payment of their
obligations caused them sleepless nights, mental anguish, and wounded feelings. They further
85

claim that, to serve as an example for the public good, they are entitled to exemplary damages as
respondent, in making false allegations, acted in evident bad faith and in a wanton, oppressive,
capricious, and malevolent manner. 86

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

Respondent argues that the parties’ Letter Agreement contained divisible obligations susceptible of
partial performance as defined by Article 1225 of the New Civil Code. In respondent’s view, it was
88

the intention of the parties to be bound separately for each individually priced Minilab Equipment unit
to be delivered to different outlets:89

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

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

With the contract being severable in character, respondent argues that it performed its obligation
when it delivered one unit of the Minilab Equipment. Since each unit could perform on its own, there
91

was no need to await the delivery of the other units to complete its job. Respondent then is of the
92

view that when petitioners ordered the depository bank to stop payment of the issued checks
covering the first delivered unit, they violated their obligations under the Letter Agreement since
respondent was already entitled to full payment. 93

Respondent also argues that petitioners benefited from the use of the Minilab Equipment for 10
months—from March to December 1992— despite having paid only two (2) monthly
installments. Respondent avers that the two monthly installments amounting to ₱70,000.00 should
94

be the subject of an offset against the amount the Court of Appeals awarded to petitioners. 95

Respondent further avers that petitioners have no basis for claiming damages since the seizure and
recovery of the Minilab Equipment was not in bad faith and respondent was well within its right. 96

III

The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement as basis of their respective obligations. Written by
97

respondent’s Jeffrey T. Go and Antonio V. Mines and addressed to petitioner Alexander Lam, the
Letter Agreement contemplated a "package deal" involving three (3) units of the Kodak Minilab
System 22XL, with the following terms and conditions:

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

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

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

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

3. NO DOWNPAYMENT.

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

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

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION
SEVEN HUNDRED NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.

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

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

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

Minilab Equipment units. Lastly, the fourth clause of the Letter Agreement clearly referred to the
object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the Court of
Appeals highlighted: (a) the separate purchase price of each item; (b) petitioners’ acceptance of
separate deliveries of the units; and (c) the separate payment arrangements for each
unit. However, through the specified terms and conditions, the tenor of the Letter Agreement
100

indicated an intention for a single transaction. This intent must prevail even though the articles
involved are physically separable and capable of being paid for and delivered individually, consistent
with the New Civil Code:

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

When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible
of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if
so provided by law or intended by the parties. (Emphasis supplied)

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

the subject of partial performance:

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

citation omitted)

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

IV

With both parties opting for rescission of the contract under Article 1191, the Court of Appeals
correctly ordered for restitution.
The contract between the parties is one of sale, where one party obligates himself or herself to
transfer the ownership and deliver a determinate thing, while the other pays a certain price in money
or its equivalent. A contract of sale is perfected upon the meeting of minds as to the object and the
103

price, and the parties may reciprocally demand the performance of their respective obligations from
that point on.104

The Court of Appeals correctly noted that respondent had rescinded the parties’ Letter Agreement
through the letter dated October 14, 1992. It likewise noted petitioners’ rescission through the letter
105

dated November 18, 1992. This rescission from both parties is founded on Article 1191 of the New
106

Civil Code:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

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

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

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

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

....

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

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

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.

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

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked
because the power to resolve is implied in reciprocal obligations. The right to resolve allows an
111

injured party to minimize the damages he or she may suffer on account of the other party’s failure to
perform what is incumbent upon him or her. When a party fails to comply with his or her obligation,
112

the other party’s right to resolve the contract is triggered. The resolution immediately produces
113

legal effects if the non-performing party does not question the resolution. Court intervention only
114

becomes necessary when the party who allegedly failed to comply with his or her obligation disputes
the resolution of the contract. Since both parties in this case have exercised their right to resolve
115

under Article 1191, there is no need for a judicial decree before the resolution produces effects.

The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall only
pertain to questions of law. It is not the duty of this court to re-evaluate the evidence adduced
116

before the lower courts. Furthermore, unless the petition clearly shows that there is grave abuse of
117

discretion, the findings of fact of the trial court as affirmed by the Court of Appeals are conclusive
upon this court. In Lorzano v. Tabayag, Jr.:
118 119

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

....

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

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

The damages awarded by the Court of Appeals were supported by documentary

evidence. Petitioners failed to show any reason why the factual determination of the Court of
121

Appeals must be reviewed, especially in light of their failure to produce receipts or check payments
to support their other claim for actual damages. 122

Furthermore, the actual damages amounting to ₱2,040,000.00 being sought by petitioners must be 123

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

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

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue ₱17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his
₱17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the ₱17,000.00, it is just that he should account for the
interest thereon. (Emphasis supplied)
126

The award for moral and exemplary damages also appears to be sufficient. Moral damages are
granted to alleviate the moral suffering suffered by a party due to an act of another, but it is not
intended to enrich the victim at the defendant’s expense. It is not meant to punish the culpable
127

party and, therefore, must always be reasonable vis-a-vis the injury caused. Exemplary damages,
128

on the other hand, are awarded when the injurious act is attended by bad faith. In this case, 129

respondent was found to have misrepresented its right over the generator set that was seized. As
such, it is properly liable for exemplary damages as an example to the public. 130

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

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

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

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

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

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

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

 (e) P50,000.00 as exemplary damages; and

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

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

SO ORDERED.

As to the presence of an accessory undertaking in case of breach

Bachrach v. Espiritu, 52 Phil 346
G.R. No. L-28497 November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee,

vs.
FAUSTINO ESPIRITU, defendant-appellant.

------------------------------

G.R. No. L-28498 November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee,

vs.
FAUSTINO ESPIRITU, defendant-appellant, and
ROSARIO ESPIRITU, intervenor-appellant.

Ernesto Zaragoza and Simeon Ramos for defendant-appellant.

Benito Soliven and Jose Varela Calderon for intervenor-appellant.
B. Francisco for appellee.

AVANCEÑA, C. J.:

These two cases, Nos. 28497 and 28948, were tried together.

It appears, in connection with case 28497; that on July 28, 1925 the defendant Faustino Espiritu
purchased of the plaintiff corporation a two-ton White truck for P11,983.50, paying P1,000 down to
apply on account of this price, and obligating himself to pay the remaining P10,983.50 within the
periods agreed upon. To secure the payment of this sum, the defendants mortgaged the said truck
purchased and, besides, three others, two of which are numbered 77197 and 92744 respectively,
and all of the White make (Exhibit A). These two trucks had been purchased from the same plaintiff
and were fully paid for by the defendant and his brother Rosario Espiritu. The defendant failed to pay
P10,477.82 of the price secured by this mortgage.
In connection with case 28498, it appears that on February 18, 1925 the defendant bought a one-
ton White truck of the plaintiff corporation for the sum of P7,136.50, and after having deducted the
P500 cash payment and the 12 per cent annual interest on the unpaid principal, obligated himself to
make payment of this sum within the periods agreed upon. To secure this payment the defendant
mortgaged to the plaintiff corporation the said truck purchased and two others, numbered 77197 and
92744, respectively, the same that were mortgaged in the purchase of the other truck referred to in
the other case. The defendant failed to pay P4,208.28 of this sum.

In both sales it was agreed that 12 per cent interest would be paid upon the unpaid portion of the
price at the executon of the contracts, and in case of non-payment of the total debt upon its maturity,
25 per cent thereon, as penalty.

In addition to the mortagage deeds referred to, which the defendant executed in favor of the plaintiff,
the defendant at the same time also signed a promissory note solidarily with his brother Rosario
Espiritu for the several sums secured by the two mortgages (Exhibits B and D).

Rosario Espiritu appeared in these two cases as intervenor, alleging to be the exclusive owner of the
two White trucks Nos. 77197 and 92744, which appear to have been mortgaged by the defendants
to the plaintiff.
lawphi1.net

While these two cases were pending in the lower court the mortgaged trucks were sold by virtue of
the mortgage, all of them together bringing in, after deducting the sheriff's fees and transportation
charges to Manila, the net sum of P3,269.58.

The judgment appealed from ordered the defendants and the intervenor to pay plaintiff in case
28497 the sum of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926
until fully paid, and 25 per cent thereof in addition as penalty. In case 28498, the trial court ordered
the defendant and the intervenor to pay plaintiff the sum of P4,208.28 with interest at 12 per cent per
annum from December 1, 1925 until fully paid, and 25 per cent thereon as penalty.

The appellants contend that trucks 77197 and 92744 were not mortgaged, because, when the
defendant signed the mortgage deeds these trucks were not included in those documents, and were
only put in later, without defendant's knowledge. But there is positive proof that they were included at
the time the defendant signed these documents. Besides, there were presented two of defendant's
letters to Hidalgo, an employee of the plaintiff's written a few days before the transaction,
acquiescing in the inclusion of all his White trucks already paid for, in the mortgage (Exhibit H-I).

Appellants also alleged that on February 4, 1925, the defendant sold his rights in said trucks Nos.
77197 and 92744 to the intervenor, and that as the latter did not sign the mortgage deeds, such
trucks cannot be considered as mortgaged. But the evidence shows that while the intervenor
Rosario Espiritu did not sign the two mortgage deeds (Exhibits A and C), yet, together with the
defendants Faustino Espiritu, he signed the two promissory notes (Exhibits B and D) secured by
these two mortgages. All these instruments were executed at the same time, and when the trucks
77197 and 92744 were included in the mortgages, the intervenor Rosario Espiritu was aware of it
and consented to such inclusion. These facts are supported by the testimony of Bachrach, manager
of the plaintiff corporation, of Agustin Ramirez, who witnessed the execution of all these documents,
and of Angel Hidalgo, who witnessed the execution of Exhibits B and D.

We do not find the statement of the intervenor Rosario Espiritu that he did not sign promissory notes
Exhibits B and C to be sufficient to overthrow this evidence. A comparison of his genuine signature
on Exhibit AA with those appearing on promissory notes B and C, convinces us that the latter are his
signatures. And such is our conclusion, notwithstanding the evidence presented to establish that on
the date when Exhibits B appears to have been signed, that is July 25, 1925, the intervenor was in
Batac, Ilocos Norte, many miles away from Manila. And the fact that on the 24th of said month of
July, the plaintiff sent some truck accessory parts by rail to Ilocos for the intervenor does not
necessarily prove that the latter could not have been in Manila on the 25th of that month.

In view of his conclusion that the intervenor signed the promissory notes secured by trucks 77197
and 92744 and consented to the mortgage of the same, it is immaterial whether he was or was not
the exclusive owner thereof.

It is finally contended that the 25 per cent penalty upon the debt, in addition to the interest of 12 per
cent per annum, makes the contract usurious. Such a contention is not well founded. Article 1152 of
the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such
an agreemnet, the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not
include the interest, and which may be demamded separetely. According to this, the penalty is not to
be added to the interest for the determination of whether the interest exceeds the rate fixed by the
law, since said rate was fixed only for the interest. But considering that the obligation was partly
performed, and making use of the power given to the court by article 1154 of the Civil Code, this
penalty is reduced to 10 per cent of the unpaid debt.

With the sole modification that instead of 25 per cent upon the sum owed, the defendants need pay
only 10 per cent thereon as penalty, the judgment appealed from is affired in all other respects
without special pronouncement as to costs. So ordered.

Robes-Francisco v. CFI, 86 SCRA 59

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

ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION, petitioner,

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

Purugganan & Bersamin for petitioner.

Salvador N. Beltran for respondent.

MUÑOZ PALMA, J.:

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

WHEREFORE, judgment is hereby rendered commanding the defendant to register

the deed of absolute sale it had executed in favor of plaintiff with the Register of
Deeds of Caloocan City and secure the corresponding title in the name of plaintiff
within ten (10) days after finality of this decision; if, for any reason, this not possible,
defendant is hereby sentenced to pay plaintiff the sum of P5,193.63 with interest at
4% per annum from June 22, 1972 until fully paid.
 In either case, defendant is sentenced to pay plaintiff nominal damages in the
amount of P20,000.00 plus attorney's fee in the amount of P5,000.00 and costs.

SO ORDERED.

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

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

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

The following incidents are not in dispute:

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

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

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

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

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

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

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

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

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

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

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

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

It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause which
will preclude an award of damages to the vendee Millan. In fact the clause is so worded as to work
to the advantage of petitioner corporation.

Unfortunately, the vendee, now private respondent, submitted her case below without presenting
evidence on the actual damages suffered by her as a result of the nonperformance of petitioner's
obligation under the deed of sale. Nonetheless, the facts show that the right of the vendee to acquire
title to the lot bought by her was violated by petitioner and this entitles her at the very least to
nominal damages.

The pertinent provisions of our Civil Code follow:

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

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

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

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

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

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

In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca, 1965, this Court, however,
through then Justice Roberto Concepcion who later became Chief Justice of this Court, sustained
an award of P20,000.00 as nominal damages in favor of respnodent Cuenca. The Court there found
special reasons for considering P20,000.00 as "nominal". Cuenca who was the holder of a first class
ticket from Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to the
tourist class notwithstanding its knowledge that Cuenca as Commissioner of Public Highways of the
Republic of the Philippines was travelling in his official capacity as a delegate of the country to a
conference in Tokyo." 11

Actually, as explained in the Court's decision in Northwest Airlines, there is no conflict between that
case and Medina, for in the latter, the P10,000.00 award for nominal damages was eliminated
principally because the aggrieved party had already been awarded P6,000.00 as compensatory
damages, P30,000.00 as moral damages and P10,000.00 as exemplary damages, and "nominal
damages cannot coexist with compensatory damages," while in the case of Commissioner Cuenca,
no such compensatory, moral, or exemplary damages were granted to the latter. 12

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

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

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

In case of breach of contract, exemplary damages may be awarded if the guilty party acted in
wanton, fraudulent, reckless, oppressive or malevolent manner. Furthermore, exemplary or
13

corrective damages are to be imposed by way of example or correction for the public good, only if
the injured party has shown that he is entitled to recover moral, temperate or compensatory
damages."

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

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

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

Without pronouncement as to costs.

SO ORDERED.

Pamintuan v. CA, 94 SCRA 556

G.R. No. L-26339 December 14, 1979

MARIANO C. PAMINTUAN, petitioner-appellant,

vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-appellees.

V. E. del Rosario & Associates for appellant.

Sangco & Sangalang for private respondent.

AQUINO, J.:
This case is about the recovery compensatory, damages for breach of a contract of sale in addition
to liquidated damages.

Mariano C. Pamintuan appealed from the judgment of the Court of Appeals wherein he was ordered
to deliver to Yu Ping Kun Co., Inc. certain plastic sheetings and, if he could not do so, to pay the
latter P100,559.28 as damages with six percent interest from the date of the filing of the complaint.
The facts and the findings of the Court of Appeals are as follows:

In 1960, Pamintuan was the holder of a barter license wherein he was authorized to export to Japan
one thousand metric tons of white flint corn valued at forty-seven thousand United States dollars in
exchange for a collateral importation of plastic sheetings of an equivalent value.

By virtue of that license, he entered into an agreement to ship his corn to Tokyo Menka Kaisha, Ltd.
of Osaka, Japan in exchange for plastic sheetings. He contracted to sell the plastic sheetings to Yu
Ping Kun Co., Inc. for two hundred sixty-five thousand five hundred fifty pesos. The company
undertook to open an irrevocable domestic letter of credit for that amount in favor of Pamintuan.

It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its
bodegas in Manila or suburbs directly from the piers "within one month upon arrival of" the carrying
vessels. Any violation of the contract of sale would entitle the aggreived party to collect from the
offending party liquidated damages in the sum of ten thousand pesos (Exh. A).

On July 28, 1960, the company received a copy of the letter from the Manila branch of Toyo Menka
Kaisha, Ltd. confirming the acceptance by Japanese suppliers of firm offers for the consignment to
Pamintuan of plastic sheetings valued at forty-seven thousand dollars. Acting on that information,
the company lost no time in securing in favor of Pamintuan an irrevocable letter of credit for two
hundred sixty-five thousand five hundred fifty pesos.

Pamintuan was apprised by the bank on August 1, 1960 of that letter of credit which made reference
to the delivery to Yu Ping Kun Co., Inc. on or before October 31, 1960 of 336, 360 yards of plastic
sheetings (p. 21, Record on Appeal).

On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped to Pamintuan,
through Toyo Menka Kaisha, Ltd., the plastic sheetings in four shipments to wit: (1) Firm Offer No.
327 for 50,000 yards valued at $9,000; (2) Firm Offer No. 328 for 70,000 yards valued at $8,050; (3)
Firm Offers Nos. 329 and 343 for 175,000 and 18,440 yards valued at $22,445 and $2,305,
respectively, and (4) Firm Offer No. 330 for 26,000 yards valued at $5,200, or a total of 339,440
yards with an aggregate value of $47,000 (pp. 4-5 and 239-40, Record on Appeal).

The plastic sheetings arrived in Manila and were received by Pamintuan. Out of the shipments,
Pamintuan delivered to the company's warehouse only the following quantities of plastic sheetings:

November 11, 1960 — 140 cases, size 48 inches by 50 yards. November 14, 1960
— 258 cases out of 352 cases. November 15, 1960 — 11 cases out of 352 cases.
November 15, 1960 — 10 cases out of 100 cases. November 15, 1960 — 30 cases
out of 100 cases.

Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26,000 yards valued at
$5,200; (2) 37 cases containing 18,440 yards valued at $2,305; (3) 60 cases containing 30,000
yards valued at $5,400 and (4) 83 cases containing 40,850 yards valued at $5,236.97. While the
plastic sheetings were arriving in Manila, Pamintuan informed the president of Yu Ping Kun Co., Inc.
that he was in dire need of cash with which to pay his obligations to the Philippine National Bank.
Inasmuch as the computation of the prices of each delivery would allegedly be a long process,
Pamintuan requested that he be paid immediately.

Consequently, Pamintuan and the president of the company, Benito Y.C. Espiritu, agreed to fix the
price of the plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual invoice value
thereof. The parties arrived at that figure by dividing the total price of P265,550 by 339,440 yards,
the aggregate quantity of the shipments.

After Pamintuan had delivered 224,150 yards of sheetings of interior quality valued at P163,.047.87,
he refused to deliver the remainder of the shipments with a total value of P102,502.13 which were
covered by (i) Firm Offer No. 330, containing 26,000 yards valued at P29,380; (2) Firm Offer No.
343, containing 18,440 yards valued at P13,023.25; (3) Firm Offer No. 217, containing 30,000 yards
valued at P30,510 and (4) Firm Offer No. 329 containing 40,850 yards valued at P29,588.88 (See
pp. 243-2, Record on Appeal).

As justification for his refusal, Pamintuan said that the company failed to comply with the conditions
of the contract and that it was novated with respect to the price.

On December 2, 1960, the company filed its amended complaint for damages against Pamintuan.
After trial, the lower court rendered the judgment mentioned above but including moral damages.

The unrealized profits awarded as damages in the trial court's decision were computed as follows
(pp. 248-9, Record on Appeal):

(1) 26,000 yards with a contract price of Pl.13 per yard and a selling price at the time
of delivery of Pl.75 a yard........................................................... P16,120.00

(2) 18,000 yards with a contract price of P0.7062 per yard and selling price of Pl.20
per yard at the time of delivery......................................... 9,105.67

(3) 30,000 yards with a contract price of Pl.017 per yard and a selling price of Pl.70
per yard. 20,490.00

(4) 40,850 yards with a contract price of P0.7247 per yard and a selling price of
P1.25 a yard at the time of delivery.............................................. 21,458.50 Total
unrealized profits....................... P67,174.17

The overpayment of P12,282.26 made to Pamintuan by Yu Ping Kun Co., Inc. for the 224,150 yards,
which the trial court regarded as an item of damages suffered by the company, was computed as
follows (p. 71, Record on Appeal):

Liquidation value of 224,150 yards at P0.7822 a

yard .............................................................................. P175,330.13

Actual peso value of 224,150 yards as per firm offers or as per

contract............................................ 163,047.87

Overpayment................................................................ P 12,282.26
To these two items of damages (P67,174.17 as unrealized profits and P12,282.26 as overpayment),
the trial court added (a) P10,000 as stipulated liquidated damages, (b) P10,000 as moral damages,
(c) Pl,102.85 as premium paid by the company on the bond of P102,502.13 for the issuance of the
writ of preliminary attachment and (d) P10,000 as attorney's fees, or total damages of P110,559.28)
p. 250, Record on Appeal). The Court of Appeals affirmed that judgment with the modification that
the moral damages were disallowed (Resolution of June 29, 1966).

Pamintuan appealed. The Court of Appeals in its decision of March 18, 1966 found that the contract
of sale between Pamintuan and the company was partly consummated. The company fulfilled its
obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm offers totalling
$47,000. Pamintuan reaped certain benefits from the contract. Hence, he is estopped to repudiate it;
otherwise, he would unjustly enrich himself at the expense of the company.

The Court of Appeals found that the writ of attachment was properly issued. It also found that
Pamintuan was guilty of fraud because (1) he was able to make the company agree to change the
manner of paying the price by falsely alleging that there was a delay in obtaining confirmation of the
suppliers' acceptance of the offer to buy; (2) he caused the plastic sheetings to be deposited in the
bonded warehouse of his brother and then required his brother to make him Pamintuan), his
attorney-in-fact so that he could control the disposal of the goods; (3) Pamintuan, as attorney-in-fact
of the warehouseman, endorsed to the customs broker the warehouse receipts covering the plastic
sheetings withheld by him and (4) he overpriced the plastic sheetings which he delivered to the
company.

The Court of Appeals described Pamintuan as a man "who, after having succeeded in getting
another to accommodate him by agreeing to liquidate his deliveries on the basis of P0.7822 per
yard, irrespective of invoice value, on the pretense that he would deliver what in the first place he
ought to deliver anyway, when he knew all the while that he had no such intention, and in the
process delivered only the poorer or cheaper kind or those which he had predetermined to deliver
and did not conceal in his brother's name and thus deceived the unwary party into overpaying him
the sum of P 1 2,282.26 for the said deliveries, and would thereafter refuse to make any further
delivery in flagrant violation of his plighted word, would now ask us to sanction his actuation" (pp. 61-
62, Rollo).

The main contention of appellant Pamintuan is that the buyer, Yu Ping Kun Co., Inc., is entitled to
recover only liquidated damages. That contention is based on the stipulation "that any violation of
the provisions of this contract (of sale) shall entitle the aggrieved party to collect from the offending
party liquidated damages in the sum of P10,000 ".

Pamintuan relies on the rule that a penalty and liquidated damages are the same (Lambert vs. Fox
26 Phil. 588); that "in obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no stipulation to the
contrary " (1st sentence of Art. 1226, Civil Code) and, it is argued, there is no such stipulation to the
contrary in this case and that "liquidated damages are those agreed upon by the parties to a
contract, to be paid in case of breach thereof" (Art. 2226, Civil Code).

We hold that appellant's contention cannot be sustained because the second sentence of article
1226 itself provides that I nevertheless, damages shall be paid if the obligor ... is guilty of fraud in the
fulfillment of the obligation". "Responsibility arising from fraud is demandable in all obligations" (Art.
1171, Civil Code). "In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for an damages which may be reasonably attributed to the non-performance of the
obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not
make a complete delivery of the plastic sheetings and he overpriced the same. That factual finding is
conclusive upon this Court.

There is no justification for the Civil Code to make an apparent distinction between penalty and
liquidated damages because the settled rule is that there is no difference between penalty and
liquidated damages insofar as legal results are concerned and that either may be recovered without
the necessity of proving actual damages and both may be reduced when proper (Arts. 1229, 2216
and 2227, Civil Code. See observations of Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p.
251).

Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. Una funcion
coercitiva o de garantia, consistente en estimular al deudor al complimiento de la obligacion
principal, ante la amenaza de tener que pagar la pena. 2. Una funcion liquidadora del daño, o sea la
de evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el incumplimiento o
cumplimiento inadecuado de la obligacion. 3. Una funcion estrictamente penal, consistente en
sancionar o castigar dicho incumplimiento o cumplimiento inadecuado, atribuyendole consecuencias
mas onerosas para el deudor que las que normalmente lleva aparejadas la infraccion contractual. "
(3 Derecho Civil Espanol, 9th Ed., p. 128).

The penalty clause is strictly penal or cumulative in character and does not partake of the nature of
liquidated damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir, en el
supuesto incumplimiento o mero retardo de la obligacion principal, ademas de la pena, los danos y
perjuicios. Se habla en este caso de pena cumulativa, a differencia de aquellos otros ordinarios, en
que la pena es sustitutiva de la reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).

After a conscientious consideration of the facts of the case, as found by Court of Appeals and the
trial court, and after reflecting on the/tenor of the stipulation for liquidated damages herein, the true
nature of which is not easy to categorize, we further hold that justice would be adequately done in
this case by allowing Yu Ping Kun Co., Inc. to recover only the actual damages proven and not to
award to it the stipulated liquidated damages of ten thousand pesos for any breach of the
contract. The proven damages supersede the stipulated liquidated damages.

This view finds support in the opinion of Manresa (whose comments were the bases of the new
matter found in article 1226, not found in article 1152 of the old Civil Code) that in case of fraud the
difference between the proven damages and the stipulated penalty may be recovered (Vol. 8, part.
1, Codigo Civil, 5th Ed., 1950, p. 483).

Hence, the damages recoverable by the firm would amount to ninety thousand five hundred fifty-nine
pesos and twenty-eight centavos (P90,559.28), with six percent interest a year from the filing of the
complaint.

With that modification the judgment of the Court of Appeals is affirmed in all respects. No costs in
this instance.

SO ORDERED.
Castillo v. Security Bank, et. al., G.R. No. 196118, July 30, 2014
G.R. No. 196118 July 30, 2014

LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO, Petitioner,

vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C. CASTILLO,
JR., and TERESITA FLORESCASTILLO, Respondents.

DECISION

PERALTA, J.:

This is a Petition for Review questioning the Decision of the Court of Appeals (CA) dated November
1

26, 2010, as well as its Resolution dated March 17, 2011 in CA-G.R. CV No. 88914. The CA
2

reversed and set aside the Decision of the Regional Trial Court (RTC) of San Pablo City, Laguna,
3

Branch 32, dated October 16, 2006 in Civil Case No. SP-5882 (02), and consequently, upheld the
validity of the real estate mortgage entered into by respondents spouses Leon C. Castillo, Jr. and
Teresita Flores-Castillo, and Security Bank Corporation (SBC).

The facts, as culled from the records, are as follows:

Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings. Leon and Teresita
Flores-Castillo (the Spouses Castillo) were doing business under the name of JRC Poultry Farms.
Sometime in 1994, the Spouses Castillo obtained a loan from respondent SBC in the amount of
₱45,000,000.00. To secure said loan, they executed a real estate mortgage on August 5, 1994 over
eleven (11) parcels of land belonging to different members of the Castillo family and which are all
located in San Pablo City. They also procured a second loan amounting to ₱2,500,000.00, which
4 5

was covered by a mortgage on a land in Pasay City. Subsequently, the Spouses Castillo failed to
settle the loan, prompting SBC to proceed with the foreclosure of the properties. SBC was then
adjudged as the winning bidder in the foreclosure sale held on July 29, 1999. Thereafter, they were
able to redeem the foreclosed properties, withthe exception of the lots covered by Torrens Certificate
of Title(TCT) Nos. 28302 and 28297.

On January 30, 2002, Leonardo filed a complaint for the partial annulment of the real estate
mortgage. He alleged that he owns the property covered by TCT No. 28297 and that the Spouses
Castillo used it as one of the collaterals for a loan without his consent. He contested his supposed
Special Power of Attorney (SPA) in Leon’s favor, claiming that it is falsified. According to him, the
date of issuance of his Community Tax Certificate (CTC) as indicated on the notarization of said
SPA is January 11, 1993, when he only secured the same on May 17, 1993. He also assailed the
foreclosure of the lots under TCT Nos.20030 and 10073 which were still registered in the name of
their deceased father. Lastly, Leonardo attacked SBC’s imposition of penalty and interest on the
loans as being arbitrary and unconscionable.

On the other hand, the Spouses Castillo insisted on the validity of Leonardo’s SPA. They alleged
that they incurred the loan not only for themselves, but also for the other members of the Castillo
family who needed money at that time. Upon receipt of the proceeds of the loan, they distributed the
same to their family members, as agreed upon. However, when the loan became due, their relatives
failed to pay their respective shares such that Leon was forced to use his own money until SBC had
to finally foreclose the mortgage over the lots.
6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in Leonardo’s favor, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Leonardo C. Castillo and against
the defendants SECURITY BANK CORPORATION, and JRC POULTRY FARMS or SPS. LEON C.
CASTILLO, JR. and TERESITA FLORES-CASTILLO declaring as null and void the Real Estate
Mortgage dated August 5, 1994, the Memorandum of Agreement dated October 28, 1997 and the
Certificate of Sale dated August 27, 1999 insofar as plaintiff’s property with Transfer Certificate of
Title No. T-28297 is concerned. The Security Bank Corporation is likewise ordered to return the
ownership of the Transfer Certificate of Title No. T-28297 to plaintiff Leonardo Castillo. Likewise,
defendants spouses Leon C. Castillo, Jr. and Teresita Flores-Castillo are hereby ordered to pay
plaintiff moral damages in the total amount of ₱500,000.00 and exemplary damages of ₱20,000.00.
All other claims for damages and attorney’s fees are DENIED for insufficiency of evidence.

SO ORDERED. 7

Both parties elevated the case to the CA. On November 26, 2010, the CA denied Leonardo’s appeal
and granted that of the Spouses Castillo and SBC. It reversed and set aside the RTC Decision,
essentially ruling that the August 5, 1994 real estate mortgage isvalid. Leonardo filed a Motion for
Reconsideration, but the same was denied for lack of merit.

Hence, Leonardo brought the case to the Court and filed the instant Petition for Review. The main
1âwphi1

issue soughtto be resolved here is whether or not the real estate mortgage constituted over the
property under TCT No. T-28297 is valid and binding.

The Court finds the petition to be without merit.

As a rule, the jurisdiction of the Court over appealed cases from the CA is limited to the review and
revision of errors of law it allegedly committed, as its findings of fact are deemed conclusive. Thus,
the Court is not duty-bound to evaluate and weigh the evidence all over again which were already
considered in the proceedings below, except when, as in this case, the findings of fact of the CAare
contrary to the findings and conclusions of the trial court.8

The following are the legal requisites for a mortgage to be valid:

(1) It must be constituted to secure the fulfillment of a principal obligation;

(2) The mortgagor must be the absolute owner of the thing mortgaged;

(3) The persons constituting the mortgage must have the free disposal of their property, and
in the absence thereof, they should be legally authorized for the purpose. 9

Leonardo asserts that his signature inthe SPA authorizing his brother, Leon, to mortgage his
property covered by TCT No. T-28297 was falsified. He claims that he was in America at the time of
its execution. As proof of the forgery, he focuses on his alleged CTC used for the notarization of the 10

SPA on May 5, 1993 and points out that it appears to have been issued on January 11, 1993 when,
in fact, he only obtained it on May 17, 1993. But it is a settled rule that allegations of forgery, like all
other allegations, must be proved by clear, positive, and convincing evidence by the party alleging it.
It should not be presumed, but must beestablished by comparing the alleged forged signature with
the genuine signatures. Here, Leonardo simply relied on his self-serving declarations and refused
11

to present further corroborative evidence, saying that the falsified document itself is the best
evidence. He did not even bother comparing the alleged forged signature on the SPA with samples
12

of his real and actual signature. What he consistently utilized as lone support for his allegation was
the supposed discrepancy on the date of issuance of his CTC as reflectedon the subject SPA’s
notarial acknowledgment. On the contrary, in view of the great ease with which CTCs are obtained
these days, there is reasonable ground to believe that, as the CA correctly observed, the CTC could
13

have been issued with the space for the date left blank and Leonardo merelyfilled it up to
accommodate his assertions. Also, upon careful examination, the handwriting appearing on the
space for the date of issuance is different from that on the computation of fees, which in turn was
consistent with the rest of the writings on the document. He did not likewise attempt to show any
14

evidence that would back up his claim that at the time of the execution of the SPA on May 5, 1993,
he was actually in America and therefore could not have possibly appeared and signed the
document before the notary.

And even if the Court were to assume, simply for the sake of argument, that Leonardo indeed
secured his CTC only on May 17, 1993, this does not automatically render the SPA invalid. The
appellate court aptly held that defective notarization will simply strip the document of its public
character and reduce it to a private instrument, but nonetheless, binding, provided its validity is
established by preponderance of evidence. Article 1358 of the Civil Code requires that the form of a
15

contract that transmits or extinguishes real rights over immovable property should be in a public
document, yet the failure to observethe proper form does not render the transaction invalid. The 16

necessity of a public document for said contracts is only for convenience; it is not essential for
validity or enforceability. Even a sale of real property, though notcontained in a public instrument or
17

formal writing, is nevertheless valid and binding, for even a verbal contract of sale or real estate
produceslegal effects between the parties. Consequently, when there is a defect in the notarization
18

of a document, the clear and convincing evidentiary standard originally attached to a dulynotarized
document is dispensed with, and the measure to test the validity of such document is preponderance
of evidence. 19

Here, the preponderance ofevidence indubitably tilts in favor of the respondents, still making the
SPA binding between the parties even with the aforementioned assumed irregularity. There are
1âwphi1

several telling circumstances that would clearly demonstrate that Leonardo was aware of the
mortgage and he indeed executed the SPA to entrust Leon with the mortgage of his property. Leon
had inhis possession all the titles covering the eleven (11) properties mortgaged, including that of
Leonardo. Leonardo and the rest of their relatives could not have just blindly ceded their respective
20

TCTs to Leon. It is likewise ridiculous how Leonardo seemed to have been totally oblivious to the
21

status of his property for eight (8) long years, and would only find outabout the mortgage and
foreclosure from a nephew who himself had consented to the mortgage of his own lot. Considering 22

the lapse of time from the alleged forgery on May 5, 1993 and the mortgage on August 5, 1994, to
the foreclosure on July 29, 1999, and to the supposed discovery in 2001, it appears that the suit is a
mere afterthought or a last-ditch effort on Leonardo’s part to extend his hold over his property and to
prevent SBC from consolidating ownership over the same. More importantly, Leonardo himself
admitted on cross-examination that he granted Leon authority to mortgage, only that, according to
him, he thought it was going to be with China Bank, and not SBC. But as the CA noted, there is no
23

mention of a certainbank in the subject SPA with which Leon must specifically deal. Leon, therefore,
was simply acting within the bounds of the SPA’s authority when hemortgaged the lot to SBC.

True, banks and other financing institutions, in entering into mortgage contracts, are expected to
exercise due diligence. The ascertainment of the status or condition of a property offered to it as
24

security for a loan must be a standard and indispensable part of its operations. In this case,
25

however, no evidence was presented to show that SBC was remiss in the exercise of the standard
care and prudence required of it or that it was negligent in accepting the mortgage. SBC could not
26

likewise befaulted for relying on the presumption of regularity of the notarized SPA when it entered
into the subject mortgage agreement.
Finally, the Court finds that the interest and penalty charges imposed by SBC are just, and not
excessive or unconscionable.

Section 47 of The General Banking Law of 2000 thus provides:

27

Section 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate which is security for any loan or other credit
accommodation granted, the mortgagor or debtor whose real property has been sold for the full or
partial payment of his obligation shall have the right within one year after the sale of the real estate,
to redeem the property by paying the amount due under the mortgage deed, with interest thereon at
the rate specified in the mortgage, and all the costs and expenses incurred by the bank or
institutionfrom the sale and custody of said property less the income derived therefrom. However,the
purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have
the right to enter upon and take possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in accordance with law. Any petition in
court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the property in accordance with this provision until, but
not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners
of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their
redemption rights until their expiration. Verily, the redemption price comprises not only the total
28

amount due under the mortgage deed, but also with interest at the rate specified in the mortgage,
and all the foreclosure expenses incurred by the mortgagee bank.

To sustain Leonardo's claim that their payment of ₱45,000,000.00 had already extinguished their
entire obligation with SBC would mean that no interest ever accrued from 1994, when the loan was
availed, up to the time the payment of ₱45,000,000.00 was made in 2000-2001.

SBC's 16% rate of interest is not computed per month, but rather per annum or only 1.33% per
month. In Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City
Branch, the Court held that the interest rate of 24% per annum on a loan of ₱244,000.00 is not
29

considered as unconscionable and excessive. As such, the Court ruled that the debtors cannot
renege on their obligation to comply with what is incumbent upon them under the contract of loan as
they are bound by its stipulations. Also, the 24o/o per annum rate or 2% per month for the penalty
charges imposed on account of default, cannot be considered as skyrocketing. The enforcement of
penalty can be demanded by the creditor in case of non-performance due to the debtor's fault or
fraud. The nonperformance gives rise to the presumption of fault and in order to avoid the penalty,
the debtor has the burden of proving that the failure of the performance was due to either force
majeure or the creditor's own acts. In the instant case, petitioner failed to discharge said burden
30

and thus cannot avoid the payment of the penalty charge agreed upon.

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals,
dated November 26, 2010, as well as its Resolution dated March 17, 2011 in CA-G.R. CV No.
88914, are hereby AFFIRMED.

SO ORDERED.
Sps.Poon v. PRIME SAVINGS BANK, G.R. No. 183794, June 13, 2016
G.R. No. 183794, June 13, 2016

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

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

DECISION

SERENO, C.J.:

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

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

Antecedent Facts

The facts are undisputed.

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

In addition, paragraph 24 of the Contract provides: ChanRoblesVirtualawlibrary

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

The LESSOR shall thereupon have the right to enter into a new contract with another
party. All advanced rentals shall be forfeited in favor of the LESSOR. 6 chanroblesvirtuallawlibrary
Barely three years later, however, the BSP placed respondent under the receivership of
the Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary Board
Resolution No. 22,7 which reads: ChanRoblesVirtualawlibrary

On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift Banks and Non-
Bank Financial Institutions (DTBNBF1), in his memorandum dated January 3, 2000,
which report showed that the Prime Savings Bank, Inc. (a) is unable to pay its liabilities
as they became due in the ordinary course of business; (b) has insufficient realizable
assets as determined by the Bangko Sentral ng Pilipinas to meet its liabilities; (c)
cannot continue in business without involving probable losses to its depositors and
creditors; and (d) has wilfully violated cease and desist orders under Section 37
that has become final, involving acts or transactions which amount to fraud or
a dissipation of the assets of the institution; x x x.8 (Emphasis supplied)
The BSP eventually ordered respondent's liquidation under Monetary Board Resolution
No. 664.9 chanrobleslaw

On 12 May 2000, respondent vacated the leased premises and surrendered them to
petitioners.10 Subsequently, the PDIC issued petitioners a demand letter 11 asking for the
return of the unused advance rental amounting to P3,480,000 on the ground that
paragraph 24 of the lease agreement had become inoperative, because respondent's
closure constituted force majeure. The PDIC likewise invoked the principle of rebus sic
stantibus under Article 1267 of Republic Act No. 386 (Civil Code) as alternative legal
basis for demanding the refund.

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

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

The RTC Ruling

After trial, the RTC ordered the partial rescission of the lease agreement, disposing as
follows:ChanRoblesVirtualawlibrary

WHEREFORE, judgment is hereby entered ordering the partial rescission of the Contract
of Lease dated November 3, 1996 particularly the second paragraph of Par. 24 thereof
and directing the defendant-spouses Jaime and Matilde Poon to return or refund to the
Plaintiff the sum of One Million Seven Hundred Forty Thousand Pesos (P1,740,000)
representing one-half of the unused portion of the advance rentals.

Parties' respective claims for damages and attorney's fees are dismissed.

No costs.13 chanroblesvirtuallawlibrary

The trial court ruled that the second clause in paragraph 24 of the Contract was penal
in nature, and that the clause was a valid contractual agreement. 14 Citing Provident
Savings Bank v. CA15 as legal precedent, it ruled that the premature termination of the
lease due to the BSP's closure of respondent's business was actually involuntary.
Consequently, it would be iniquitous for petitioners to forfeit the entire amount of P
3,480,000.16 Invoking its equity jurisdiction under Article 1229 of the Civil Code, 17 the
trial court limited the forfeiture to only one-half of that amount to answer for
respondent's unpaid utility bills and E-VAT, as well as petitioner's lost business
opportunity from its former bakery business.18 chanrobleslaw

The CA Ruling

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

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

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

Issues

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

COURT RULING

We DENY the Petition.

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

The legal remedy of rescission, however, is by no means limited to the situations

covered by the above provisions. The Civil Code uses rescission in two different
contexts, namely: (1) rescission on account of breach of contract under Article 1191;
and (2) rescission by reason of lesion or economic prejudice under Article 1381. 26 While
the term "rescission" is used in Article 1191, "resolution" was the original term used in
the old Civil Code, on which the article was based. Resolution is a principal action based
on a breach by a party, while rescission under Article 1383 is a subsidiary action limited
to cases of rescission for lesion under Article 1381 of the New Civil Code. 27 chanrobleslaw

It is clear from the allegations in paragraphs 12 and 13 of the Complaint 28 that

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

We now resolve the main issues.

The closure of respondent's business was neither a fortuitous nor an

unforeseen event that rendered the lease agreement functus officio.

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

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

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

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

As an alternative justification for its premature termination of the Contract, respondent

lessee invokes the doctrine of unforeseen event under Article 1267 of the Civil Code,
which provides: ChanRoblesVirtualawlibrary

Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.
The theory of rebus sic stantibus in public international law is often cited as the basis of
the above article. Under this theory, the parties stipulate in light of certain prevailing
conditions, and the theory can be made to apply when these conditions cease to
exist.35 The Court, however, has once cautioned that Article 1267 is not an absolute
application of the principle of rebus sic stantibus, otherwise, it would endanger the
security of contractual relations. After all, parties to a contract are presumed to have
assumed the risks of unfavorable developments. It is only in absolutely exceptional
changes of circumstance, therefore, that equity demands assistance for the debtor. 36 chanrobleslaw
Tagaytay Realty Co., Inc. v. Gacutan37 lays down the requisites for the application of
Article 1267, as follows:

1. The event or change in circumstance could not have been foreseen at the time of
chanRoblesvirtualLawlibrary

the execution of the contract.

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

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

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

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

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

The first and the third requisites, however, are lacking. It must be noted that the lease
agreement was for 10 years. As shown by the unrebutted testimony of Jaime Poon
during trial, the parties had actually considered the possibility of a deterioration or loss
of respondent's business within that period: ChanRoblesVirtualawlibrary

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

The forfeiture clause in the Contract is penal in nature.

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

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

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

Notably, paragraph 5 of the Contract also provides: ChanRoblesVirtualawlibrary

5. It is hereby stipulated that should the leased property be foreclosed by PCI Bank or
any other banking or financial institution, all unused rentals shall be returned by the
LESSOR to the LESSEE; x x x.46 chanroblesvirtuallawlibrary

In effect, the penalty for the premature termination of the Contract works both ways.
As the CA correctly found, the penalty was to compel respondent to complete the 10-
year term of the lease. Petitioners, too, were similarly obliged to ensure the peaceful
use of their building by respondent for the entire duration of the lease under pain of
losing the remaining advance rentals paid by the latter.
The forfeiture clauses of the Contract, therefore, served the two functions of a penal
clause, i.e., (1) to provide for liquidated damages and (2) to strengthen the coercive
force of the obligation by the threat of greater responsibility in case of breach. 47 As the
CA correctly found, the prestation secured by those clauses was the parties' mutual
obligation to observe the fixed term of the lease. For this reason, We sustain the lower
courts' finding that the forfeiture clause in paragraph 24 is a penal clause, even if it is
not expressly labelled as such.

A reduction of the penalty agreed upon by the parties is warranted under

Article 1129 of the Civil Code.

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

If this were an ordinary contest of rights of private contracting parties, respondent

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

It must be noted, however, that this case was initiated by the PDIC in furtherance of its
statutory role as the fiduciary of Prime Savings Bank. 51 As the state-appointed receiver
and liquidator, the PDIC is mandated to recover and conserve the assets of the
foreclosed bank on behalf of the latter's depositors and creditors. 52 In other words, at
stake in this case are not just the rights of petitioners and the correlative liabilities of
respondent lessee. Over and above those rights and liabilities is the interest of innocent
debtors and creditors of a delinquent bank establishment. These overriding
considerations justify the 50% reduction of the penalty agreed upon by petitioners and
respondent lessee in keeping with Article 1229 of the Civil Code, which provides: ChanRoblesVirtualawlibrary

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
The reasonableness of a penalty depends on the circumstances in each case, because
what is iniquitous and unconscionable in one may be totally just and equitable in
another.53 In resolving this issue, courts may consider factors including but not limited
to the type, extent and purpose of the penalty; the nature of the obligation; the mode
of the breach and its consequences; the supervening realities; and the standing and
relationship of the parties.54
chanrobleslaw

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

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

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

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

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED.

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

No costs.

SO ORDERED. chanRoblesvirtualLawlibrary

Breach of Obligations
Honrado vs. GMA Network Films, Inc., G.R. No. 204702, January 14,
2015
G.R. No. 204702 January 14, 2015

RICARDO C. HONRADO, Petitioner,

vs.
GMA NETWORK FILMS, INC., Respondent.

DECISION
CARPIO, J.:

The Case

We review the Decision of the Court of Appeals (CA) ordering petitioner Ricardo C. Honrado
1 2

(petitioner) to pay a sum of money to respondent GMA Network Films, Inc. for breach of contract
and breach of trust.

The Facts

On 11December 1998, respondent GMA Network Films, Inc. (GMA Films) entered into a "TV Rights
Agreement" (Agreement) with petitioner under which petitioner, as licensor of 36 films, granted to
GMA Films, for a fee of ₱60.75 million, the exclusive right to telecast the 36 films for a period of
three years. Under Paragraph 3 of the Agreement, the parties agreed that "all betacam copies of the
[films] should pass through broadcast quality test conducted by GMA-7," the TV station operated by
GMA Network, Inc. (GMA Network), an affiliate of GMA Films. The parties also agreed to submit the
films for review by the Movie and Television Review and Classification Board (MTRCB) and
stipulated on the remedies in the event that MTRCB bans the telecasting ofany of the films
(Paragraph 4):

The PROGRAMME TITLES listed above shall be subject to approval by the Movie and Television
Review and Classification Board (MTRCB) and, in the event of disapproval, LICENSOR [Petitioner]
will either replace the censored PROGRAMME TITLES with another title which is mutually
acceptable to both parties or, failure to do such, a proportionate reduction from the total price shall
either be deducted or refunded whichever is the case by the LICENSOR OR LICENSEE [GMA
Films]. (Emphasis supplied)
3

Two of the films covered by the Agreement were Evangeline Katorse and Bubot for which GMA
Films paid ₱1.5 million each.

In 2003, GMA Films sued petitioner in the Regional Trial Court of Quezon City (trial court) to collect
₱1.6 million representing the fee it paid for Evangeline Katorse (₱1.5 million) and a portion of the fee
it paid for Bubot (₱350,000 ). GMA Films alleged that it rejected Evangeline Katorse because "its
4

running time was too short for telecast" and petitioner only remitted ₱900,000 to the owner of Bubot
5

(Juanita Alano [Alano]), keeping for himself the balance of ₱350,000. GMA Films prayed for the
return of such amount on the theory that an implied trust arose between the parties as petitioner
fraudulently kept it for himself.6

Petitioner denied liability, counter-alleging that after GMA Films rejected Evangeline Katorse, he
replaced it with another film, Winasak na Pangarap, which GMA Films accepted. As proof of such
acceptance, petitioner invoked a certification of GMA Network, dated 30 March 1999, attesting that
such film "is of good broadcast quality" (Film Certification). Regarding the fee GMA Films paid for
7

Bubot, petitioner alleged that he had settled his obligation to Alano. Alternatively, petitioner alleged
that GMA Films, being a stranger to the contracts he entered into with the owners of the films in
question, has no personality to question his compliance with the terms of such contracts. Petitioner
counterclaimed for attorney’s fees.

The Ruling of the Trial Court

The trial court dismissed GMA Films’ complaint and, finding merit in petitioner’s counterclaim,
ordered GMA Films to pay attorney’s fees (₱100,000). The trial court gave credence to petitioner’s
defense that he replaced Evangeline Katorse with Winasak na Pangarap. On the disposal of the fee
GMA Films paid for Bubot, the trial court rejected GMA Films’ theory of implied trust, finding
insufficient GMA Films’ proof that petitioner pocketed any portion of the fee in question.

GMA Films appealed to the CA.

The Ruling of the Court of Appeals

The CA granted GMA Films’ appeal, set aside the trial court’s ruling, and ordered respondent to pay
GMA Films ₱2 million as principal obligation with 12% annual interest, exemplary damages
8

(₱100,000), attorney’s fees (₱200,000), litigation expenses (₱100,000) and the costs. Brushing
aside the trial court’s appreciation of the evidence, the CA found that (1) GMA Films was authorized
under Paragraph 4 of the Agreement to reject Evangeline Katorse, and (2) GMA Films never
accepted Winasak na Pangarap as replacement because it was a "bold" film. 9

On petitioner’s liability for the fee GMA Films paid for Bubot, the CA sustained GMA Films’
contention that petitioner was under obligation to turn over to the film owners the fullamount GMA
Films paid for the films as "nowhere in the TV Rights Agreement does it provide that the licensor is
entitled to any commission x x x [hence] x x x [petitioner] Honrado cannot claim any portion of the
purchase price paid for by x x x GMA Films." The CA concluded that petitioner’s retention of a
10

portion of the fee for Bubot gave rise to an implied trust between him and GMA Films, obligating
petitioner, as trustee, to return to GMA Films, as beneficiary, the amount claimed by the latter.

Hence, this petition. Petitioner prays for the reinstatement of the trial court’s ruling while GMA Films
attacks the petition for lack of merit.

The Issue

The question is whether the CA erred in finding petitioner liable for breach of the Agreement and
breach of trust.

The Ruling of the Court

We grant the petition. We find GMA Films’ complaint without merit and accordingly reinstate the trial
court’s ruling dismissing it with the modification that the award of attorney’s fees is deleted.
Petitioner Committed No Breach of Contract or Trust

MTRCB Disapproval the Stipulated

Basis for Film Replacement

The parties do not quarrel on the meaning of Paragraph 4 of the Agreement which states:

The PROGRAMME TITLES listed [in the Agreement] x x x shall be subject to approval by the Movie
and Television Review and Classification Board (MTRCB) and, in the event of disapproval,
LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title
which is mutually acceptable to both parties or, failure to do such, a proportionate reduction from the
total price shall either be deducted or refunded whichever is the case by the LICENSOR OR
LICENSEE [GMA Films]. (Emphasis supplied)
11

Under this stipulation, what triggersthe rejection and replacement of any film listed in the Agreement
is the "disapproval" of its telecasting by MTRCB.
Nor is there any dispute that GMA Films rejected Evangeline Katorse not because it was
disapproved by MTRCB but because the film’s total running time was too short for telecast
(undertime). Instead of rejecting GMA Films’ demand for falling outside of the terms of Paragraph 4,
petitioner voluntarily acceded to it and replaced such film with Winasak na Pangarap. What is
disputed is whether GMA Films accepted the replacement film offered by petitioner.

Petitioner maintains that the Film Certification issued by GMA Network attesting to the "good
broadcast quality" of Winasak na Pangarap amounted to GMA Films’ acceptance of such film. On
the other hand, GMA Films insists that such clearance pertained only to the technical quality of the
film but not to its content which it rejected because it found the film as "bomba" (bold). The CA,
12

working under the assumption that the ground GMA Films invoked to reject Winasak na Pangarap
was sanctioned under the Agreement, found merit in the latter’s claim. We hold that regardless of
the import of the Film Certification, GMA Films’ rejection of Winasak na Pangarap finds no basis in
the Agreement.

In terms devoid of any ambiguity, Paragraph 4 of the Agreement requires the intervention of
MTRCB, the state censor, before GMA Films can reject a film and require its replacement.
Specifically, Paragraph 4 requires that MTRCB, after reviewing a film listed in the Agreement,
disapprove or X-rate it for telecasting. GMA Films does not allege, and we find no proof on record
indicating, that MTRCB reviewed Winasak na Pangarap and X-rated it. Indeed, GMA Films’ own
witness, Jose Marie Abacan (Abacan), then Vice-President for Program Management of GMA
Network, testified during trial that it was GMA Network which rejected Winasak na Pangarap
because the latter considered the film "bomba." In doing so, GMA Network went beyond its
13

assigned role under the Agreement of screening films to test their broadcast quality and assumed
the function of MTRCB to evaluate the films for the propriety of their content. This runs counter to the
clear terms of Paragraphs 3 and 4 of the Agreement.

Disposal of the Fees Paid to

Petitioner Outside of the Terms

of the Agreement

GMA Films also seeks refund for the balance of the fees it paid to petitioner for Bubot which
petitioner allegedly failed to turn-over to the film’s owner, Alano. Implicit in GMA Films’ claim is the
14

theory that the Agreement obliges petitioner to give to the film owners the entire amount he received
from GMA Films and that his failure to do so gave rise to an implied trust, obliging petitioner to hold
whatever amount he kept in trust for GMA Films. The CA sustained GMA Films’ interpretation, noting
that the Agreement "does not provide that the licensor is entitled to any commission." 15

This is error.

The Agreement, as its full title denotes ("TV Rights Agreement"), is a licensing contract, the essence
of which is the transfer by the licensor (petitioner) to the licensee (GMA Films), for a fee, of the
exclusive right to telecast the films listed in the Agreement. Stipulations for payment of "commission"
to the licensor is incongruous to the nature of such contracts unless the licensor merely acted as
agent of the film owners. Nowhere in the Agreement, however, did the parties stipulate that
petitioner signed the contract in such capacity. On the contrary, the Agreement repeatedly refers to
petitioner as "licensor" and GMA Films as "licensee." Nor did the parties stipulate that the fees paid
by GMA Films for the films listed in the Agreement will be turned over by petitioner to the film
owners. Instead, the Agreement merely provided that the total fees will be paid in three installments
(Paragraph 3). 16
We entertain no doubt that petitioner forged separate contractual arrangements with the owners of
the films listed in the Agreement, spelling out the terms of payment to the latter. Whether or not
petitioner complied with these terms, however, is a matter to which GMA Films holds absolutely no
interest. Being a stranger to such arrangements, GMA Films is no more entitled to complain of any
breach by petitioner of his contracts with the film owners than the film owners are for any breach by
GMA Films of its Agreement with petitioner.

We find it unnecessary to pass upon the question whether an implied trust arose between the
parties, as held by the CA. Such conclusion was grounded on the erroneous assumption that GMA
1âwphi1

Films holds an interest in the disposition of the licensing fees it paid to petitioner.

Award of Attorney's Fees to Petitioner Improper

The trial court awarded attorney's fees to petitioner as it "deemed it just and reasonable" to do so,
17

using the amount provided by petitioner on the witness stand (₱100,000). Undoubtedly, attorney's
fees may be awarded if the trial court "deems it just and equitable." Such ground, however, must be
18

fully elaborated in the body of the ruling. Its mere invocation, without more, negates the nature of
19

attorney's fees as a form of actual damages.

WHEREFORE, we GRANT the petition. The Decision, dated 30 April 2012 and Resolution, dated 19
November 2012, of the Court of Appeals are SET ASIDE. The Decision, dated 5 December 2008, of
the Regional Trial Court of Quezon City (Branch 223) is REINSTATED with the MODIFICATION that
the award of attorney's fees is DELETED.

SO ORDERED.

Excuses for non-performance

Cangco v. MRR, 38 Phil 768
G.R. No. L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,

vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.

Kincaid & Hartigan for appellee.

FISHER, J.:

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

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

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

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

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

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of
Manila to recover damages of the defendant company, founding his action upon the negligence of
the servants and employees of the defendant in placing the sacks of melons upon the platform and
leaving them so placed as to be a menace to the security of passenger alighting from the company's
trains. At the hearing in the Court of First Instance, his Honor, the trial judge, found the facts
substantially as above stated, and drew therefrom his conclusion to the effect that, although
negligence was attributable to the defendant by reason of the fact that the sacks of melons were so
placed as to obstruct passengers passing to and from the cars, nevertheless, the plaintiff himself
had failed to use due caution in alighting from the coach and was therefore precluded form
recovering. Judgment was accordingly entered in favor of the defendant company, and the plaintiff
appealed.
It can not be doubted that the employees of the railroad company were guilty of negligence in piling
these sacks on the platform in the manner above stated; that their presence caused the plaintiff to
fall as he alighted from the train; and that they therefore constituted an effective legal cause of the
injuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the
damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence.
In resolving this problem it is necessary that each of these conceptions of liability, to-wit, the primary
responsibility of the defendant company and the contributory negligence of the plaintiff should be
separately examined.

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

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

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

Upon this point the Court said:

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

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

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

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

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua
and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-
contractual liability of the defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court, after citing the last paragraph
of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and (2) that that
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.

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

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

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

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual

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

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

The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the obligation
upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof
rests upon plaintiff to prove the negligence — if he does not his action fails. But when the facts
averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that
plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his
pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its nonperformance is
sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor

should assume the burden of proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which presupposes the existence of a
contractual obligation, if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

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

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

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

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

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

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

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for the personal injuries caused by the negligence of defendant's chauffeur while driving
defendant's automobile in which defendant was riding at the time. The court found that the damages
were caused by the negligence of the driver of the automobile, but held that the master was not
liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. .
 . . The act complained of must be continued in the presence of the owner for such length of
time that the owner by his acquiescence, makes the driver's acts his own.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Telefast v. Castro, 158 SCRA 445

G.R. No. 73867 February 29, 1988

TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,

vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA CASTRO,
SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERALDA C. FLORO,
AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO, and
HONORABLE INTERMEDIATE APPELLATE COURT, respondents.

PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-70245,
entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast Communication/Philippine Wireless, Inc., Defendant-Appellant."

The facts of the case are as follows:

On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of
the other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C.
Crouch, who was then vacationing in the Philippines, addressed a telegram to plaintiff Ignacio
Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The
telegram was accepted by the defendant in its Dagupan office, for transmission, after payment of the
required fees or charges.

The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in
attendance. Neither the husband nor any of the other children of the deceased, then all residing in
the United States, returned for the burial.

When Sofia returned to the United States, she discovered that the wire she had caused the
defendant to send, had not been received. She and the other plaintiffs thereupon brought action for
damages arising from defendant's breach of contract. The case was filed in the Court of First
Instance of Pangasinan and docketed therein as Civil Case No. 15356. The only defense of the
defendant was that it was unable to transmit the telegram because of "technical and atmospheric
factors beyond its control." No evidence appears on record that defendant ever made any attempt
1

to advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram.

The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay
the plaintiffs (now private respondents) damages, as follows, with interest at 6% per annum:

1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and

P20,000.00 as moral damages.

2. Ignacio Castro Sr., P20,000.00 as moral damages.

3. Ignacio Castro Jr., P20,000.00 as moral damages.

4. Aurora Castro, P10,000.00 moral damages.

5. Salvador Castro, P10,000.00 moral damages.

6. Mario Castro, P10,000.00 moral damages.

7. Conrado Castro, P10,000 moral damages.

8. Esmeralda C. Floro, P20,000.00 moral damages.

9. Agerico Castro, P10,000.00 moral damages.

10. Rolando Castro, P10,000.00 moral damages.

11. Virgilio Castro, P10,000.00 moral damages.

12. Gloria Castro, P10,000.00 moral damages.

Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of
P1,000.00 to each of the plaintiffs and costs. 2

On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but
eliminated the award of P16,000.00 as compensatory damages to Sofia C. Crouch and the award of
P1,000.00 to each of the private respondents as exemplary damages. The award of P20,000.00 as
moral damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also
reduced to P120,000. 00 for each. 3

Petitioner appeals from the judgment of the appellate court, contending that the award of moral
damages should be eliminated as defendant's negligent act was not motivated by "fraud, malice or
recklessness."

In other words, under petitioner's theory, it can only be held liable for P 31.92, the fee or charges
paid by Sofia C. Crouch for the telegram that was never sent to the addressee thereof.

Petitioner's contention is without merit.

Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty
of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable
for damages." Art. 2176 also provides that "whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done."

In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract
whereby, for a fee, petitioner undertook to send said private respondent's message overseas by
telegram. This, petitioner did not do, despite performance by said private respondent of her
obligation by paying the required charges. Petitioner was therefore guilty of contravening its
obligation to said private respondent and is thus liable for damages.

This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in
this regard would result in an inequitous situation where petitioner will only be held liable for the
actual cost of a telegram fixed thirty (30) years ago.

We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate results of the defendant's wrongful act or
omission." (Emphasis supplied).

Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of
the suffering private respondents had to undergo.

As the appellate court properly observed:

[Who] can seriously dispute the shock, the mental anguish and the sorrow that the
overseas children must have suffered upon learning of the death of their mother after
she had already been interred, without being given the opportunity to even make a
choice on whether they wanted to pay her their last respects? There is no doubt that
these emotional sufferings were proximately caused by appellant's omission and
substantive law provides for the justification for the award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch
representing the expenses she incurred when she came to the Philippines from the United States to
testify before the trial court. Had petitioner not been remiss in performing its obligation, there would
have been no need for this suit or for Mrs. Crouch's testimony.

The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in
the amount of P1,000.00 for each of the private respondents, as a warning to all telegram
companies to observe due diligence in transmitting the messages of their customers.

WHEREFORE, the petition is DENIED. The decision appealed from is modified so that petitioner is
held liable to private respondents in the following amounts:

(1) P10,000.00 as moral damages, to each of private respondents;

(2) P1,000.00 as exemplary damages, to each of private respondents;

(3) P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;

(4) P5,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.

Meralco v. Ramoy, G.R. No. 158911 March 4, 2008

G.R. No. 158911 March 4, 2008

MANILA ELECTRIC COMPANY, Petitioner,

vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS,
ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE PANADO, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that
the Decision1 of the Court of Appeals (CA) dated December 16, 2002, ordering petitioner Manila
Electric Company (MERALCO) to pay Leoncio Ramoy2 moral and exemplary damages and
attorney's fees, and the CA Resolution3 dated July 1, 2003, denying petitioner's motion for
reconsideration, be reversed and set aside.

The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized the facts as
culled from the records, thus:

The evidence on record has established that in the year 1987 the National Power Corporation (NPC)
filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally
occupying its properties in Baesa, Quezon City. Among the defendants in the ejectment case was
Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989 after the defendants failed
to file an answer in spite of summons duly served, the MTC Branch 36, Quezon City rendered
judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or remove the
building and structures they built on the land of the plaintiff and to vacate the premises." In the case
of Leoncio Ramoy, the Court found that he was occupying a portion of Lot No. 72-B-2-B with the
exact location of his apartments indicated and encircled in the location map as No. 7. A copy of the
decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131, Record; TSN, July 2,
1993, p. 5).

On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric power
supply to all residential and commercial establishments beneath the NPC transmission lines along
Baesa, Quezon City (Exh. 7, p. 143, Record). Attached to the letter was a list of establishments
affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. 9), as well as a copy of the court
decision (Exh. 2). After deliberating on NPC's letter, Meralco decided to comply with NPC's request
(Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection to all establishments
affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde
Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose
Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).

In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine all the
establishments which are considered under NPC property in view of the fact that "the houses in the
area are very close to each other" (Exh. 12). Shortly thereafter, a joint survey was conducted and the
NPC personnel pointed out the electric meters to be disconnected (Exh. 13; TSN, October 8, 1993,
p. 7; TSN, July 1994, p. 8).

In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected
(Exhibits D to G, with submarkings, pp. 86-87, Record).

Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land
covered by TCT No. 326346, a portion of which was occupied by plaintiffs Rosemarie Ramoy, Ofelia
Durian, Jose Valiza and Cyrene S. Panado as lessees. When the Meralco employees were
disconnecting plaintiffs' power connection, plaintiff Leoncio Ramoy objected by informing the
Meralco foreman that his property was outside the NPC property and pointing out the monuments
showing the boundaries of his property. However, he was threatened and told not to interfere by the
armed men who accompanied the Meralco employees. After the electric power in Ramoy's
apartment was cut off, the plaintiffs-lessees left the premises.

During the ocular inspection ordered by the Court and attended by the parties, it was found out that
the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC
property. This was confirmed by defendant's witness R.P. Monsale III on cross-examination (TSN,
October 13, 1993, pp. 10 and 11). Monsale also admitted that he did not inform his supervisor about
this fact nor did he recommend re-connection of plaintiffs' power supply (Ibid., p. 14).

The record also shows that at the request of NPC, defendant Meralco re-connected the electric
service of four customers previously disconnected none of whom was any of the plaintiffs (Exh. 14).4

The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages,
exemplary damages and attorney's fees. However, the RTC ordered MERALCO to restore the
electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated December 16, 2002, the CA faulted
MERALCO for not requiring from National Power Corporation (NPC) a writ of execution or demolition
and in not coordinating with the court sheriff or other proper officer before complying with the NPC's
request. Thus, the CA held MERALCO liable for moral and exemplary damages and attorney's fees.
MERALCO's motion for reconsideration of the Decision was denied per Resolution dated July 1,
2003.

Hence, herein petition for review on certiorari on the following grounds:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN
IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS.

II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES
THAT THE LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC
SERVICES OF THE RESPONDENTS. 5

The petition is partly meritorious.

MERALCO admits6 that respondents are its customers under a Service Contract whereby it is
obliged to supply respondents with electricity. Nevertheless, upon request of the NPC, MERALCO
disconnected its power supply to respondents on the ground that they were illegally occupying the
NPC's right of way. Under the Service Contract, "[a] customer of electric service must show his right
or proper interest over the property in order that he will be provided with and assured a continuous
electric service."7 MERALCO argues that since there is a Decision of the Metropolitan Trial Court
(MTC) of Quezon City ruling that herein respondents were among the illegal occupants of the NPC's
right of way, MERALCO was justified in cutting off service to respondents.

Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or breach
of contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil
Code which provides:

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

In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court expounded on the nature
of culpa contractual, thus:

"In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering that which may have
been lost or suffered. The remedy serves to preserve the interests of the promissee that may include
his "expectation interest," which is his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been performed, or his "reliance interest,"
which is his interest in being reimbursed for loss caused by reliance on the contract by being put in
as good a position as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred on the
other party. Indeed, agreements can accomplish little, either for their makers or for society, unless
they are made the basis for action. The effect of every infraction is to create a new duty, that is, to
make recompense to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his exercise of
due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing
liability.9 (Emphasis supplied)

Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. The Court emphasized in Ridjo Tape & Chemical
Corporation v. Court of Appeals10 that "as a public utility, MERALCO has the obligation to discharge
its functions with utmost care and diligence."11

The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to
exercise the utmost degree of care and diligence required of it. To repeat, it was not enough for
MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become
final and executory. Verily, only upon finality of said Decision can it be said with conclusiveness that
respondents have no right or proper interest over the subject property, thus, are not entitled to the
services of MERALCO.

Although MERALCO insists that the MTC Decision is final and executory, it never showed any
documentary evidence to support this allegation. Moreover, if it were true that the decision was final
and executory, the most prudent thing for MERALCO to have done was to coordinate with the proper
court officials in determining which structures are covered by said court order. Likewise, there is no
evidence on record to show that this was done by MERALCO.

The utmost care and diligence required of MERALCO necessitates such great degree of prudence
on its part, and failure to exercise the diligence required means that MERALCO was at fault and
negligent in the performance of its obligation. In Ridjo Tape,12 the Court explained:

[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain
obligations towards its customers and any omission on its part to perform such duties would be
prejudicial to its interest. For in the final analysis, the bottom line is that those who do not exercise
such prudence in the discharge of their duties shall be made to bear the consequences of such
oversight.13

This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.

The next question is: Are respondents entitled to moral and exemplary damages and attorney's
fees?

Article 2220 of the Civil Code provides:

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

In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and
his tenants the supply of electricity to which they were entitled under the Service Contract. This is
contrary to public policy because, as discussed above, MERALCO, being a vital public utility, is
expected to exercise utmost care and diligence in the performance of its obligation. It was incumbent
upon MERALCO to do everything within its power to ensure that the improvements built by
respondents are within the NPC’s right of way before disconnecting their power supply. The Court
emphasized in Samar II Electric Cooperative, Inc. v. Quijano14 that:

Electricity is a basic necessity the generation and distribution of which is imbued with public interest,
and its provider is a public utility subject to strict regulation by the State in the exercise of police
power. Failure to comply with these regulations will give rise to the presumption of bad faith
or abuse of right.15 (Emphasis supplied)

Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance of
its obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy testified
that he suffered wounded feelings because of MERALCO's actions.16 Furthermore, due to the lack of
power supply, the lessees of his four apartments on subject lot left the premises.17 Clearly, therefore,
Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the
effects on him of MERALCO's electric service disconnection. His co-respondents Matilde Ramoy,
Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of damages
they suffered.

It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez,
Jr.,18 the Court held thus:

In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint that he
suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed to prove
them during the trial. Indeed, respondent should have taken the witness stand and should have
testified on the mental anguish, serious anxiety, wounded feelings and other emotional and mental
suffering he purportedly suffered to sustain his claim for moral damages. Mere allegations do not
suffice; they must be substantiated by clear and convincing proof. No other person could have
proven such damages except the respondent himself as they were extremely personal to him.

In Keirulf vs. Court of Appeals, we held:

"While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the
amount of indemnity being left to the discretion of the court, it is nevertheless essential that the
claimant should satisfactorily show the existence of the factual basis of damages and its causal
connection to defendant’s acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of mental suffering. Thus, if
the plaintiff fails to take the witness stand and testify as to his/her social humiliation, wounded
feelings and anxiety, moral damages cannot be awarded. In Cocoland Development Corporation vs.
National Labor Relations Commission, the Court held that "additional facts must be pleaded and
proven to warrant the grant of moral damages under the Civil Code, these being, x x x social
humiliation, wounded feelings, grave anxiety, etc. that resulted therefrom."

x x x The award of moral damages must be anchored to a clear showing that respondent actually
experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar
injury. There was no better witness to this experience than respondent himself. Since respondent
failed to testify on the witness stand, the trial court did not have any factual basis to award
moral damages to him.19 (Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded
moral damages.20

With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and
quasi-contracts, the court may award exemplary damages if the defendant, in this case MERALCO,
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the
same Code provides that such damages cannot be recovered as a matter of right and the
adjudication of the same is within the discretion of the court. 1avvphi1

The Court finds that MERALCO fell short of exercising the due diligence required, but its actions
cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Records show that
MERALCO did take some measures, i.e., coordinating with NPC officials and conducting a joint
survey of the subject area, to verify which electric meters should be disconnected although these
measures are not sufficient, considering the degree of diligence required of it. Thus, in this case,
exemplary damages should not be awarded.

Since the Court does not deem it proper to award exemplary damages in this case, then the CA's
award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in
the absence of stipulation, attorney's fees cannot be recovered except in cases provided for in
said Article, to wit:

Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees
is DELETED.

No costs.

SO ORDERED.

Mindanao Terminal v. Phoenix Assurance, G.R. No. 162467 May 8,

2009
G.R. No. 162467 May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.

DECISION

TINGA, J.:

Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure of
the 29 October 20032 Decision of the Court of Appeals and the 26 February 2004 Resolution3 of the
same court denying petitioner’s motion for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage
Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a shipment of 146,288
cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold of the vessel M/V
Mistrau. The vessel was docked at the port of Davao City and the goods were to be transported by it
to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured
the shipment under an "open cargo policy" with private respondent Phoenix Assurance Company of
New York (Phoenix), a non-life insurance company, and private respondent McGee & Co. Inc.
(McGee), the underwriting manager/agent of Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from
the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon
discharge that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of
Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong),
surveyed the extent of the damage of the shipment. In a survey report, it was stated that 16,069
cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged that
they no longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGee’s Marine Claims Insurance Adjuster evaluated the claim and recommended that payment in
the amount of $210,266.43 be made. A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt6 to Phoenix and McGee.

Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the Regional
Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision dated 20 October
1999, held that the only participation of Mindanao Terminal was to load the cargoes on board
the M/V Mistrau under the direction and supervision of the ship’s officers, who would not have
accepted the cargoes on board the vessel and signed the foreman’s report unless they were
properly arranged and tightly secured to withstand voyage across the open seas. Accordingly,
Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it had loaded
and stowed them. Moreover, citing the survey report, it was found by the RTC that the cargoes were
damaged on account of a typhoon which M/V Mistrau had encountered during the voyage. It was
further held that Phoenix and McGee had no cause of action against Mindanao Terminal because
the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. The RTC dismissed the complaint
and awarded the counterclaim of Mindanao Terminal in the amount of ₱83,945.80 as actual
damages and ₱100,000.00 as attorney’s fees.9 The actual damages were awarded as
reimbursement for the expenses incurred by Mindanao Terminal’s lawyer in attending the hearings
in the case wherein he had to travel all the way from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered Mindanao
Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal interest from the
filing of the complaint until fully paid and attorney’s fees of 20% of the claim."11 It sustained Phoenix’s
and McGee’s argument that the damage in the cargoes was the result of improper stowage by
Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the
cause of action of Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil
Code.12

Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its 26
February 200414 resolution. Hence, the present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao Terminal
under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have to
be answered: first, whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the
same extraordinary degree of diligence in the conduct of its business as required by law for common
carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed the degree of
diligence required by law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and careless loading and stowing of the
cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only
been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service
between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action
in light of the Court’s consistent ruling that the act that breaks the contract may be also a tort.17 In
fine, a liability for tort may arise even under a contract, where tort is that which breaches the
contract18 . In the present case, Phoenix and McGee are not suing for damages for injuries arising
from the breach of the contract of service but from the alleged negligent manner by which Mindanao
Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on
the part of the defendant should be sufficient to establish a cause of action arising from quasi-
delict.19

The resolution of the two remaining issues is determinative of the ultimate result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected of
a good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring
company which was charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific
provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring
company or one who is charged only with the loading and stowing of cargoes. It was neither alleged
nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.

imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes.
The case of Summa Insurance Corporation v. CA, which involved the issue of whether an arrastre
operator is legally liable for the loss of a shipment in its custody and the extent of its liability, is
inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned by the National
Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party." The shipment, including a bundle of PC 8 U blades, was discharged from the vessel to
the custody of the private respondent, the exclusive arrastre operator at the South Harbor.
Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship's
checker and a representative of private respondent. When Semirara inspected the shipment at
house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court
observed:

x x x The relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of shipped
goods and the common carrier, or that between a depositor and a warehouseman[22 ]. In the
performance of its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman as enunciated under
Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being
the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take
good care of the goods and to turn them over to the party entitled to their possession.
(Emphasis supplied)23

There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which refers
to hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment
of the consignee or shipper and the ship's tackle. The responsibility of the arrastre operator lasts
until the delivery of the cargo to the consignee. The service is usually performed by longshoremen.
On the other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or
between the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon
the loading and stowing of the cargo in the vessel. 1avvphi1

It is not disputed that Mindanao Terminal was performing purely stevedoring function while the
private respondent in the Summa case was performing arrastre function. In the present case,
Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes
from the pier to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte
Produce. A stevedore is not a common carrier for it does not transport goods or passengers; it is not
akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes
would not have a far reaching public ramification as that of a common carrier and a warehouseman;
the public is adequately protected by our laws on contract and on quasi-delict. The public policy
considerations in legally imposing upon a common carrier or a warehouseman a higher degree of
diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of
cargoes for its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that Mindanao
Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise or there is
any doubt on which side the evidence preponderates the party having the burden of proof fails upon
that issue. That is to say, if the evidence touching a disputed fact is equally balanced, or if it does not
produce a just, rational belief of its existence, or if it leaves the mind in a state of perplexity, the party
holding the affirmative as to such fact must fail.261avvphi1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of
Appeals did not make any new findings of fact when it reversed the decision of the trial court. The
only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.29 It was not
disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in
lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry
standard.30

It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte
Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessel’s hold, prepared by Del Monte Produce and the officers
of M/V Mistrau.31 The loading and stowing was done under the direction and supervision of the ship
officers. The vessel’s officer would order the closing of the hatches only if the loading was done
correctly after a final inspection.32 The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to withstand the voyage in
open seas. They would order the stevedore to rectify any error in its loading and stowing. A
foreman’s report, as proof of work done on board the vessel, was prepared by the checkers of
Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied
that the cargoes were properly loaded.33

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey
report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey
report,36 found that the cause of the damage was improper stowage37 due to the manner the cargoes
were arranged such that there were no spaces between cartons, the use of cardboards as support
system, and the use of small rope to tie the cartons together but not by the negligent conduct of
Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment38 before us, the latter is merely a stevedoring company which was tasked by Del Monte to
load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V
Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. In other words, the work of the stevedore was under the
supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it
was because of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V
Mistrau during its voyage, which caused the shipments in the cargo hold to collapse, shift and bruise
in extensive extent.39 Even the deposition of Byeong was not supported by the conclusion in the
survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that damage occurred aboard the
carrying vessel during sea transit, being caused by ship’s heavy rolling and pitching under
boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
1994 as described in the sea protest.40

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading
and stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant of the
petition is in order.

However, the Court finds no basis for the award of attorney’s fees in favor of petitioner. None of the
lawphil.net

circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not
an unfounded civil action against the plaintiff as there is no showing that it was instituted for the
mere purpose of vexation or injury. It is not sound public policy to set a premium to the right to
litigate where such right is exercised in good faith, even if erroneously.41 Likewise, the RTC erred in
awarding ₱83,945.80 actual damages to Mindanao Terminal. Although actual expenses were
incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of
Mindanao Terminal incurred expenses for plane fare, hotel accommodations and food, as well as
other miscellaneous expenses, as he attended the trials coming all the way from Manila. But there is
no showing that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the
protracted trial of the case necessitating the incurrence of expenditures.42

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No.
66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil
Case No. 25,311.97 is hereby REINSTATED MINUS the awards of ₱100,000.00 as attorney’s fees
and ₱83,945.80 as actual damages.

SO ORDERED.

Jimenez v. City of Manila, 150 SCRA 510

G.R. No. 71049 May 29, 1987

BERNARDINO JIMENEZ, petitioner,

vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.
PARAS, J.:

This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate Court in AC-G.R. No.
013887-CV Bernardino Jimenez v. Asiatic Integrated Corporation and City of Manila, reversing the decision ** of the Court of First Instance
of Manila, Branch XXII in Civil Case No. 96390 between the same parties, but only insofar as holding Asiatic Integrated Corporation solely
liable for damages and attorney's fees instead of making the City of Manila jointly and solidarily liable with it as prayed for by the petitioner
and (2) the resolution of the same Appellate Court denying his Partial Motion for Reconsideration (Rollo, p. 2).

The dispositive portion of the Intermediate Appellate Court's decision is as follows:

WHEREFORE, the decision appealed from is hereby REVERSED. A new one is

hereby entered ordering the defendant Asiatic Integrated Corporation to pay the
plaintiff P221.90 actual medical expenses, P900.00 for the amount paid for the
operation and management of a school bus, P20,000.00 as moral damages due to
pains, sufferings and sleepless nights and P l0,000.00 as attorney's fees.

SO ORDERED. (p. 20, Rollo)

The findings of respondent Appellate Court are as follows:

The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15, 1974 he,
together with his neighbors, went to Sta. Ana public market to buy "bagoong" at the time when the
public market was flooded with ankle deep rainwater. After purchasing the "bagoong" he turned
around to return home but he stepped on an uncovered opening which could not be seen because of
the dirty rainwater, causing a dirty and rusty four- inch nail, stuck inside the uncovered opening, to
pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a half inches. After
administering first aid treatment at a nearby drugstore, his companions helped him hobble home. He
felt ill and developed fever and he had to be carried to Dr. Juanita Mascardo. Despite the medicine
administered to him by the latter, his left leg swelled with great pain. He was then rushed to the
Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and
severe pain.

Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days. His
injury prevented him from attending to the school buses he is operating. As a result, he had to
engage the services of one Bienvenido Valdez to supervise his business for an aggregate
compensation of nine hundred pesos (P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-
20).

Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose
administration the Sta. Ana Public Market had been placed by virtue of a Management and
Operating Contract (Rollo, p. 47).

The lower court decided in favor of respondents, the dispositive portion of the decision reading:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against

the plaintiff dismissing the complaint with costs against the plaintiff. For lack of
sufficient evidence, the counterclaims of the defendants are likewise dismissed.
(Decision, Civil Case No. 96390, Rollo, p. 42).

As above stated, on appeal, the Intermediate Appellate Court held the Asiatic Integrated Corporation
liable for damages but absolved respondent City of Manila.
Hence this petition.

The lone assignment of error raised in this petition is on whether or not the Intermediate Appellate
Court erred in not ruling that respondent City of Manila should be jointly and severally liable with
Asiatic Integrated Corporation for the injuries petitioner suffered.

In compliance with the resolution of July 1, 1985 of the First Division of this Court (Rollo, p. 29)
respondent City of Manila filed its comment on August 13, 1985 (Rollo, p. 34) while petitioner filed its
reply on August 21, 1985 (Reno, p. 51).

Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave due course to the
petition and required both parties to submit simultaneous memoranda

Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while respondent filed its
memorandum on October 24, 1985 (Rollo, p. 82).

In the resolution of October 13, 1986, this case was transferred to the Second Division of this Court,
the same having been assigned to a member of said Division (Rollo, p. 92).

The petition is impressed with merit.

As correctly found by the Intermediate Appellate Court, there is no doubt that the plaintiff suffered
injuries when he fell into a drainage opening without any cover in the Sta. Ana Public Market.
Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated Corporation
tries to minimize the extent of the injuries, claiming that it was only a small puncture and that as a
war veteran, plaintiff's hospitalization at the War Veteran's Hospital was free. (Decision, AC-G.R. CV
No. 01387, Rollo, p. 6).

Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the
petitioner because under the Management and Operating Contract, Asiatic Integrated Corporation
assumed all responsibility for damages which may be suffered by third persons for any cause
attributable to it.

It has also been argued that the City of Manila cannot be held liable under Article 1, Section 4 of
Republic Act No. 409 as amended (Revised Charter of Manila) which provides:

The City shall not be liable or held for damages or injuries to persons or property
arising from the failure of the Mayor, the Municipal Board, or any other City Officer, to
enforce the provisions of this chapter, or any other law or ordinance, or from
negligence of said Mayor, Municipal Board, or any other officers while enforcing or
attempting to enforce said provisions.

This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272 [1968])
where the Supreme Court squarely ruled that Republic Act No. 409 establishes a general rule
regulating the liability of the City of Manila for "damages or injury to persons or property arising from
the failure of city officers" to enforce the provisions of said Act, "or any other law or ordinance or
from negligence" of the City "Mayor, Municipal Board, or other officers while enforcing or attempting
to enforce said provisions."

Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that:
 Provinces, cities and municipalities shall be liable for damages for the death of, or
injuries suffered by any person by reason of defective conditions of roads, streets,
bridges, public buildings and other public works under their control or supervision.

constitutes a particular prescription making "provinces, cities and municipalities ... liable for damages
for the death of, or injury suffered by any person by reason" — specifically — "of the defective
condition of roads, streets, bridges, public buildings, and other public works under their control or
supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in
general, regardless of the object, thereof, while Article 2189 of the Civil Code governs liability due to
"defective streets, public buildings and other public works" in particular and is therefore decisive on
this specific case.

In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it is
not necessary for the liability therein established to attach, that the defective public works belong to
the province, city or municipality from which responsibility is exacted. What said article requires is
that the province, city or municipality has either "control or supervision" over the public building in
question.

In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management
and Operating Contract between respondent City and Asiatic Integrated Corporation remained under
the control of the former.

For one thing, said contract is explicit in this regard, when it provides:

II

That immediately after the execution of this contract, the SECOND PARTY shall start
the painting, cleaning, sanitizing and repair of the public markets and talipapas and
within ninety (90) days thereof, the SECOND PARTY shall submit a program of
improvement, development, rehabilitation and reconstruction of the city public
markets and talipapas subject to prior approval of the FIRST PARTY. (Rollo, p. 44)

xxx xxx xxx

VI

That all present personnel of the City public markets and talipapas shall be retained
by the SECOND PARTY as long as their services remain satisfactory and they shall
be extended the same rights and privileges as heretofore enjoyed by them. Provided,
however, that the SECOND PARTY shall have the right, subject to prior approval of
the FIRST PARTY to discharge any of the present employees for cause. (Rollo, p.
45).

VII

That the SECOND PARTY may from time to time be required by the FIRST PARTY,
or his duly authorized representative or representatives, to report, on the activities
and operation of the City public markets and talipapas and the facilities and
conveniences installed therein, particularly as to their cost of construction, operation
and maintenance in connection with the stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject public market was admitted by Mayor
Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads:

These cases arose from the controversy over the Management and Operating
Contract entered into on December 28, 1972 by and between the City of Manila and
the Asiatic Integrated Corporation, whereby in consideration of a fixed service fee,
the City hired the services of the said corporation to undertake the physical
management, maintenance, rehabilitation and development of the City's public
markets and' Talipapas' subject to the control and supervision of the City.

xxx xxx xxx

It is believed that there is nothing incongruous in the exercise of these powers vis-a-
vis the existence of the contract, inasmuch as the City retains the power of
supervision and control over its public markets and talipapas under the terms of the
contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).

In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary
duty is to take direct supervision and control of that particular market, more specifically, to check the
safety of the place for the public.

Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the City of Manila
testified as follows:

Court This market master is an employee of the City of Manila?

Mr. Ymson Yes, Your Honor.

Q What are his functions?

A Direct supervision and control over the market area assigned to

him."(T.s.n.,pp. 41-42, Hearing of May 20, 1977.)

xxx xxx xxx

Court As far as you know there is or is there any specific employee

assigned with the task of seeing to it that the Sta. Ana Market is safe
for the public?

Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has its
own market master. The primary duty of that market master is to
make the direct supervision and control of that particular market, the
check or verifying whether the place is safe for public safety is vested
in the market master. (T.s.n., pp. 2425, Hearing of July 27, 1977.)
(Emphasis supplied.) (Rollo, p. 76).

Finally, Section 30 (g) of the Local Tax Code as amended, provides:

The treasurer shall exercise direct and immediate supervision administration and
control over public markets and the personnel thereof, including those whose duties
 concern the maintenance and upkeep of the market and ordinances and other
pertinent rules and regulations. (Emphasis supplied.) (Rollo, p. 76)

The contention of respondent City of Manila that petitioner should not have ventured to go to Sta.
Ana Public Market during a stormy weather is indeed untenable. As observed by respondent Court
of Appeals, it is an error for the trial court to attribute the negligence to herein petitioner. More
specifically stated, the findings of appellate court are as follows:

... The trial court even chastised the plaintiff for going to market on a rainy day just to
buy bagoong. A customer in a store has the right to assume that the owner will
comply with his duty to keep the premises safe for customers. If he ventures to the
store on the basis of such assumption and is injured because the owner did not
comply with his duty, no negligence can be imputed to the customer. (Decision, AC-
G. R. CV No. 01387, Rollo, p. 19).

As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of
a good father of a family. (Art. 1173 of the Civil Code).

There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the
public market reasonably safe for people frequenting the place for their marketing needs.

While it may be conceded that the fulfillment of such duties is extremely difficult during storms and
floods, it must however, be admitted that ordinary precautions could have been taken during good
weather to minimize the dangers to life and limb under those difficult circumstances.

For instance, the drainage hole could have been placed under the stalls instead of on the passage
ways. Even more important is the fact, that the City should have seen to it that the openings were
covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already
uncovered, and five (5) months after the incident happened, the opening was still uncovered. (Rollo,
pp. 57; 59). Moreover, while there are findings that during floods the vendors remove the iron grills to
hasten the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17), there is no showing that
such practice has ever been prohibited, much less penalized by the City of Manila. Neither was it
shown that any sign had been placed thereabouts to warn passersby of the impending danger.

To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article
2189 of the Civil Code, respondent City having retained control and supervision over the Sta. Ana
Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts

Petitioner had the right to assume that there were no openings in the middle of the passageways
and if any, that they were adequately covered. Had the opening been covered, petitioner could not
have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury
suffered, the City is therefore liable for the injury suffered by the peti- 4 petitioner.

Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily
liable under Article 2194 of the Civil Code.

PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED, making the
City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221.90
actual medical expenses, P900.00 for the amount paid for the operation and management of the
school bus, P20,000.00 as moral damages due to pain, sufferings and sleepless nights and
P10,000.00 as attorney's fees.
SO ORDERED.

Nakpil & Sons v. CA, 144 SCRA 596; 160 SCRA 334
G.R. No. L-47851 October 3, 1986

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,

vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and
the PHILIPPINE BAR ASSOCIATION, respondents.

G.R. No. L-47863 October 3, 1986

THE UNITED CONSTRUCTION CO., INC., petitioner,

vs.
COURT OF APPEALS, ET AL., respondents.

G.R. No. L-47896 October 3, 1986

PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,

vs.
COURT OF APPEALS, ET AL., respondents.

PARAS, J.:

These are petitions for review on certiorari of the November 28, 1977 decision of the Court of
Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of
Manila, Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order
of the lower court dated December 8, 1971. The Court of Appeals in modifying the decision of
the lower court included an award of an additional amount of P200,000.00 to the Philippine
Bar Association to be paid jointly and severally by the defendant United Construction Co.
and by the third-party defendants Juan F. Nakpil and Sons and Juan F. Nakpil.

The dispositive portion of the modified decision of the lower court reads:

WHEREFORE, judgment is hereby rendered:

(a) Ordering defendant United Construction Co., Inc. and third-party

defendants (except Roman Ozaeta) to pay the plaintiff, jointly and severally,
the sum of P989,335.68 with interest at the legal rate from November 29, 1968,
the date of the filing of the complaint until full payment;

(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

(c) Dismissing the third-party complaint;

 (d) Dismissing the defendant's and third-party defendants' counterclaims for
lack of merit;

(e) Ordering defendant United Construction Co., Inc. and third-party

defendants (except Roman Ozaeta) to pay the costs in equal shares.

SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, the judgment appealed from is modified to include an award of

P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with
interest at the legal rate from November 29, 1968 until full payment to be paid
jointly and severally by defendant United Construction Co., Inc. and third party
defendants (except Roman Ozaeta). In all other respects, the judgment dated
September 21, 1971 as modified in the December 8, 1971 Order of the lower
court is hereby affirmed with COSTS to be paid by the defendant and third
party defendant (except Roman Ozaeta) in equal shares.

SO ORDERED.

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J.
Carlos in L-47863 seek the reversal of the decision of the Court of Appeals, among other
things, for exoneration from liability while petitioner Philippine Bar Association in L-47896
seeks the modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss
of the PBA building plus four (4) times such amount as damages resulting in increased cost
of the building, P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.

These petitions arising from the same case filed in the Court of First Instance of Manila were
consolidated by this Court in the resolution of May 10, 1978 requiring the respective
respondents to comment. (Rollo, L-47851, p. 172).

The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-
348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:

The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under

the Corporation Law, decided to construct an office building on its 840 square meters lot
located at the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction
was undertaken by the United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general manager of said corporation. The
proposal was approved by plaintiff's board of directors and signed by its president Roman
Ozaeta, a third-party defendant in this case. The plans and specifications for the building
were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.

In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its
environs and the building in question sustained major damage. The front columns of the
building buckled, causing the building to tilt forward dangerously. The tenants vacated the
building in view of its precarious condition. As a temporary remedial measure, the building
was shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages
arising from the partial collapse of the building against United Construction, Inc. and its
President and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the
collapse of the building was accused by defects in the construction, the failure of the
contractors to follow plans and specifications and violations by the defendants of the terms
of the contract.

Defendants in turn filed a third-party complaint against the architects who prepared the plans
and specifications, alleging in essence that the collapse of the building was due to the
defects in the said plans and specifications. Roman Ozaeta, the then president of the plaintiff
Bar Association was included as a third-party defendant for damages for having included
Juan J. Carlos, President of the United Construction Co., Inc. as party defendant.

On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F.
Nakpil presented a written stipulation which reads:

1. That in relation to defendants' answer with counterclaims and third- party

complaints and the third-party defendants Nakpil & Sons' answer thereto, the
plaintiff need not amend its complaint by including the said Juan F. Nakpil &
Sons and Juan F. Nakpil personally as parties defendant.

2. That in the event (unexpected by the undersigned) that the Court should find
after the trial that the above-named defendants Juan J. Carlos and United
Construction Co., Inc. are free from any blame and liability for the collapse of
the PBA Building, and should further find that the collapse of said building was
due to defects and/or inadequacy of the plans, designs, and specifications p
by the third-party defendants, or in the event that the Court may find Juan F.
Nakpil and Sons and/or Juan F. Nakpil contributorily negligent or in any way
jointly and solidarily liable with the defendants, judgment may be rendered in
whole or in part. as the case may be, against Juan F. Nakpil & Sons and/or
Juan F. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's
complaint has been duly amended by including the said Juan F. Nakpil & Sons
and Juan F. Nakpil as parties defendant and by alleging causes of action
against them including, among others, the defects or inadequacy of the plans,
designs, and specifications prepared by them and/or failure in the performance
of their contract with plaintiff.

3. Both parties hereby jointly petition this Honorable Court to approve this
stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).

Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which
among others, the parties agreed to refer the technical issues involved in the case to a
Commissioner. Mr. Andres O. Hizon, who was ultimately appointed by the trial court,
assumed his office as Commissioner, charged with the duty to try the following issues:

1. Whether the damage sustained by the PBA building during the August 2,
1968 earthquake had been caused, directly or indirectly, by:

(a) The inadequacies or defects in the plans and specifications prepared by

third-party defendants;
 (b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage sustained;

(c) The alleged failure of defendants to observe the requisite quality of

materials and workmanship in the construction of the building;

(d) The alleged failure to exercise the requisite degree of supervision expected
of the architect, the contractor and/or the owner of the building;

(e) An act of God or a fortuitous event; and

(f) Any other cause not herein above specified.

2. If the cause of the damage suffered by the building arose from a

combination of the above-enumerated factors, the degree or proportion in
which each individual factor contributed to the damage sustained;

3. Whether the building is now a total loss and should be completely

demolished or whether it may still be repaired and restored to a tenantable
condition. In the latter case, the determination of the cost of such restoration
or repair, and the value of any remaining construction, such as the foundation,
which may still be utilized or availed of (Record on Appeal, pp. 275-276; Rollo,
L-47851, p. 169).

Thus, the issues of this case were divided into technical issues and non-technical issues. As
aforestated the technical issues were referred to the Commissioner. The non-technical issues
were tried by the Court.

Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may
topple down in case of a strong earthquake. The motions were opposed by the defendants
and the matter was referred to the Commissioner. Finally, on April 30, 1979 the building was
authorized to be demolished at the expense of the plaintiff, but not another earthquake of
high intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970,
caused further damage to the property. The actual demolition was undertaken by the buyer of
the damaged building. (Record on Appeal, pp. 278-280; Ibid.)

After the protracted hearings, the Commissioner eventually submitted his report on
September 25, 1970 with the findings that while the damage sustained by the PBA building
was caused directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3
they were also caused by the defects in the plans and specifications prepared by the third-
party defendants' architects, deviations from said plans and specifications by the defendant
contractors and failure of the latter to observe the requisite workmanship in the construction
of the building and of the contractors, architects and even the owners to exercise the
requisite degree of supervision in the construction of subject building.

All the parties registered their objections to aforesaid findings which in turn were answered
by the Commissioner.

The trial court agreed with the findings of the Commissioner except as to the holding that the
owner is charged with full nine supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which was
modified by the Intermediate Appellate Court on November 28, 1977.

All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence,
these petitions.

On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers,
and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the liability of architects when a
building collapses and to submit likewise a critical analysis with computations on the
divergent views on the design and plans as submitted by the experts procured by the parties.
The motion having been granted, the amicus curiae were granted a period of 60 days within
which to submit their position.

After the parties had all filed their comments, We gave due course to the petitions in Our
Resolution of July 21, 1978.

The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.

The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not
defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion
that the defects in the plans and specifications indeed existed.

Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No.
4131) and the 1966 Asep Code, the Commissioner added that even if it can be proved that the
defects in the construction alone (and not in the plans and design) caused the damage to the
building, still the deficiency in the original design and jack of specific provisions against
torsion in the original plans and the overload on the ground floor columns (found by an the
experts including the original designer) certainly contributed to the damage which occurred.
(Ibid, p. 174).

In their respective briefs petitioners, among others, raised the following assignments of
errors: Philippine Bar Association claimed that the measure of damages should not be
limited to P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss
of rentals while United Construction Co., Inc. and the Nakpils claimed that it was an act of
God that caused the failure of the building which should exempt them from responsibility and
not the defective construction, poor workmanship, deviations from plans and specifications
and other imperfections in the case of United Construction Co., Inc. or the deficiencies in the
design, plans and specifications prepared by petitioners in the case of the Nakpils. Both
UCCI and the Nakpils object to the payment of the additional amount of P200,000.00 imposed
by the Court of Appeals. UCCI also claimed that it should be reimbursed the expenses of
shoring the building in the amount of P13,661.28 while the Nakpils opposed the payment of
damages jointly and solidarity with UCCI.

The pivotal issue in this case is whether or not an act of God-an unusually strong
earthquake-which caused the failure of the building, exempts from liability, parties who are
otherwise liable because of their negligence.

The applicable law governing the rights and liabilities of the parties herein is Article 1723 of
the New Civil Code, which provides:
 Art. 1723. The engineer or architect who drew up the plans and specifications
for a building is liable for damages if within fifteen years from the completion
of the structure the same should collapse by reason of a defect in those plans
and specifications, or due to the defects in the ground. The contractor is
likewise responsible for the damage if the edifice fags within the same period
on account of defects in the construction or the use of materials of inferior
quality furnished by him, or due to any violation of the terms of the contract. If
the engineer or architect supervises the construction, he shall be solidarily
liable with the contractor.

Acceptance of the building, after completion, does not imply waiver of any of
the causes of action by reason of any defect mentioned in the preceding
paragraph.

The action must be brought within ten years following the collapse of the
building.

On the other hand, the general rule is that no person shall be responsible for events which
could not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil
Code).

An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to
have been expected, could have been prevented. (1 Corpus Juris 1174).

There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of
God.

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an
obligation due to an "act of God," the following must concur: (a) the cause of the breach of
the obligation must be independent of the will of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138
SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527;
Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of the
tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. When the effect, the cause of which
is to be considered, is found to be in part the result of the participation of man, whether it be
from active intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to the acts of God. (1 Corpus
Juris, pp. 1174-1175).

Thus it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate
cause of the damage was the act of God. To be exempt from liability for loss because of an
act of God, he must be free from any previous negligence or misconduct by which that loss
or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129;
Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604;
Lasam v. Smith, 45 Phil. 657).

The negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans
and specifications. and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the defects in the construction and
in the plans and specifications were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this reason the defendant and
third-party defendants cannot claim exemption from liability. (Decision, Court of Appeals, pp.
30-31).

It is well settled that the findings of facts of the Court of Appeals are conclusive on the
parties and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs.
Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding
grounded entirely on speculation, surmise and conjectures; (2) the inference made is
manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on
misapprehension of facts; (5) the findings of fact are conflicting , (6) the Court of Appeals
went beyond the issues of the case and its findings are contrary to the admissions of both
appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289,
291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the
Court of Appeals are contrary to those of the trial court; (8) said findings of facts are
conclusions without citation of specific evidence on which they are based; (9) the facts set
forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals,
July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised
on the supposed absence of evidence and is contradicted by evidence on record (Salazar vs.
Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).

It is evident that the case at bar does not fall under any of the exceptions above-mentioned.
On the contrary, the records show that the lower court spared no effort in arriving at the
correct appreciation of facts by the referral of technical issues to a Commissioner chosen by
the parties whose findings and conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the Supreme Court.

In any event, the relevant and logical observations of the trial court as affirmed by the Court
of Appeals that "while it is not possible to state with certainty that the building would not
have collapsed were those defects not present, the fact remains that several buildings in the
same area withstood the earthquake to which the building of the plaintiff was similarly
subjected," cannot be ignored.

The next issue to be resolved is the amount of damages to be awarded to the PBA for the
partial collapse (and eventual complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on the report of the
Commissioner that the total amount required to repair the PBA building and to restore it to
tenantable condition was P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus unrealized rental income
for one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an
additional sum of P200,000.00 representing the damage suffered by the PBA building as a
result of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92).

The PBA in its brief insists that the proper award should be P1,830,000.00 representing the
total value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the
NAKPILS and UNITED question the additional award of P200,000.00 in favor of the PBA (L-
47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further
urges that the unrealized rental income awarded to it should not be limited to a period of one-
half year but should be computed on a continuing basis at the rate of P178,671.76 a year until
the judgment for the principal amount shall have been satisfied L- 47896, PBA's No. 11
Assignment of Errors, p. 19).

The collapse of the PBA building as a result of the August 2, 1968 earthquake was only
partial and it is undisputed that the building could then still be repaired and restored to its
tenantable condition. The PBA, however, in view of its lack of needed funding, was unable,
thru no fault of its own, to have the building repaired. UNITED, on the other hand, spent
P13,661.28 to shore up the building after the August 2, 1968 earthquake (L-47896, CA
Decision, p. 46). Because of the earthquake on April 7, 1970, the trial court after the needed
consultations, authorized the total demolition of the building (L-47896, Vol. 1, pp. 53-54).

There should be no question that the NAKPILS and UNITED are liable for the damage
resulting from the partial and eventual collapse of the PBA building as a result of the
earthquakes.

We quote with approval the following from the erudite decision penned by Justice Hugo E.
Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of
the Court of Appeals:

There is no question that an earthquake and other forces of nature such as

cyclones, drought, floods, lightning, and perils of the sea are acts of God. It
does not necessarily follow, however, that specific losses and suffering
resulting from the occurrence of these natural force are also acts of God. We
are not convinced on the basis of the evidence on record that from the
thousands of structures in Manila, God singled out the blameless PBA building
in Intramuros and around six or seven other buildings in various parts of the
city for collapse or severe damage and that God alone was responsible for the
damages and losses thus suffered.

The record is replete with evidence of defects and deficiencies in the designs
and plans, defective construction, poor workmanship, deviation from plans
and specifications and other imperfections. These deficiencies are attributable
to negligent men and not to a perfect God.

The act-of-God arguments of the defendants- appellants and third party

defendants-appellants presented in their briefs are premised on legal
generalizations or speculations and on theological fatalism both of which
ignore the plain facts. The lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the
August 2, 1968 earthquake was of such an overwhelming and destructive
character that by its own force and independent of the particular negligence
alleged, the injury would have been produced. If we follow this line of
speculative reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of Manila would
have toppled down. Following the same line of reasoning, Nakpil and Sons
alleges that the designs were adequate in accordance with pre-August 2, 1968
knowledge and appear inadequate only in the light of engineering information
acquired after the earthquake. If this were so, hundreds of ancient buildings
which survived the earthquake better than the two-year old PBA building must
have been designed and constructed by architects and contractors whose
knowledge and foresight were unexplainably auspicious and prophetic.
Fortunately, the facts on record allow a more down to earth explanation of the
collapse. The failure of the PBA building, as a unique and distinct construction
with no reference or comparison to other buildings, to weather the severe
earthquake forces was traced to design deficiencies and defective
construction, factors which are neither mysterious nor esoteric. The
theological allusion of appellant United that God acts in mysterious ways His
wonders to perform impresses us to be inappropriate. The evidence reveals
defects and deficiencies in design and construction. There is no mystery about
these acts of negligence. The collapse of the PBA building was no wonder
performed by God. It was a result of the imperfections in the work of the
architects and the people in the construction company. More relevant to our
mind is the lesson from the parable of the wise man in the Sermon on the
Mount "which built his house upon a rock; and the rain descended and the
floods came and the winds blew and beat upon that house; and it fen not; for it
was founded upon a rock" and of the "foolish upon the sand. And the rain
descended and man which built his house the floods came, and the winds
blew, and beat upon that house; and it fell and great was the fall of it. (St.
Matthew 7: 24-27)." The requirement that a building should withstand rains,
floods, winds, earthquakes, and natural forces is precisely the reason why we
have professional experts like architects, and engineers. Designs and
constructions vary under varying circumstances and conditions but the
requirement to design and build well does not change.

The findings of the lower Court on the cause of the collapse are more rational
and accurate. Instead of laying the blame solely on the motions and forces
generated by the earthquake, it also examined the ability of the PBA building,
as designed and constructed, to withstand and successfully weather those
forces.

The evidence sufficiently supports a conclusion that the negligence and fault
of both United and Nakpil and Sons, not a mysterious act of an inscrutable
God, were responsible for the damages. The Report of the Commissioner,
Plaintiff's Objections to the Report, Third Party Defendants' Objections to the
Report, Defendants' Objections to the Report, Commissioner's Answer to the
various Objections, Plaintiffs' Reply to the Commissioner's Answer,
Defendants' Reply to the Commissioner's Answer, Counter-Reply to
Defendants' Reply, and Third-Party Defendants' Reply to the Commissioner's
Report not to mention the exhibits and the testimonies show that the main
arguments raised on appeal were already raised during the trial and fully
considered by the lower Court. A reiteration of these same arguments on
appeal fails to convince us that we should reverse or disturb the lower Court's
factual findings and its conclusions drawn from the facts, among them:

The Commissioner also found merit in the allegations of the defendants as to

the physical evidence before and after the earthquake showing the inadequacy
of design, to wit:

Physical evidence before the earthquake providing (sic) inadequacy of design;

1. inadequate design was the cause of the failure of the building.

2. Sun-baffles on the two sides and in front of the building;

a. Increase the inertia forces that move the building laterally toward the Manila
Fire Department.

b. Create another stiffness imbalance.

3. The embedded 4" diameter cast iron down spout on all exterior columns
reduces the cross-sectional area of each of the columns and the strength
thereof.

4. Two front corners, A7 and D7 columns were very much less reinforced.

Physical Evidence After the Earthquake, Proving Inadequacy of design;

1. Column A7 suffered the severest fracture and maximum sagging. Also D7.

2. There are more damages in the front part of the building than towards the
rear, not only in columns but also in slabs.

3. Building leaned and sagged more on the front part of the building.

4. Floors showed maximum sagging on the sides and toward the front corner
parts of the building.

5. There was a lateral displacement of the building of about 8", Maximum

sagging occurs at the column A7 where the floor is lower by 80 cm. than the
highest slab level.

6. Slab at the corner column D7 sagged by 38 cm.

The Commissioner concluded that there were deficiencies or defects in the

design, plans and specifications of the PBA building which involved
appreciable risks with respect to the accidental forces which may result from
earthquake shocks. He conceded, however, that the fact that those
deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for
earthquake forces mitigates in a large measure the responsibility or liability of
the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion of
the Commissioner's report, voiced opposition to the same on the grounds that
(a) the finding is based on a basic erroneous conception as to the design
concept of the building, to wit, that the design is essentially that of a heavy
rectangular box on stilts with shear wan at one end; (b) the finding that there
were defects and a deficiency in the design of the building would at best be
based on an approximation and, therefore, rightly belonged to the realm of
speculation, rather than of certainty and could very possibly be outright error;
(c) the Commissioner has failed to back up or support his finding with
extensive, complex and highly specialized computations and analyzes which
he himself emphasizes are necessary in the determination of such a highly
technical question; and (d) the Commissioner has analyzed the design of the
PBA building not in the light of existing and available earthquake engineering
knowledge at the time of the preparation of the design, but in the light of recent
and current standards.

The Commissioner answered the said objections alleging that third-party

defendants' objections were based on estimates or exhibits not presented
during the hearing that the resort to engineering references posterior to the
date of the preparation of the plans was induced by the third-party defendants
themselves who submitted computations of the third-party defendants are
erroneous.

The issue presently considered is admittedly a technical one of the highest

degree. It involves questions not within the ordinary competence of the bench
and the bar to resolve by themselves. Counsel for the third-party defendants
has aptly remarked that "engineering, although dealing in mathematics, is not
an exact science and that the present knowledge as to the nature of
earthquakes and the behaviour of forces generated by them still leaves much
to be desired; so much so "that the experts of the different parties, who are all
engineers, cannot agree on what equation to use, as to what earthquake co-
efficients are, on the codes to be used and even as to the type of structure that
the PBA building (is) was (p. 29, Memo, of third- party defendants before the
Commissioner).

The difficulty expected by the Court if tills technical matter were to be tried and
inquired into by the Court itself, coupled with the intrinsic nature of the
questions involved therein, constituted the reason for the reference of the said
issues to a Commissioner whose qualifications and experience have eminently
qualified him for the task, and whose competence had not been questioned by
the parties until he submitted his report. Within the pardonable limit of the
Court's ability to comprehend the meaning of the Commissioner's report on
this issue, and the objections voiced to the same, the Court sees no
compelling reasons to disturb the findings of the Commissioner that there
were defects and deficiencies in the design, plans and specifications prepared
by third-party defendants, and that said defects and deficiencies involved
appreciable risks with respect to the accidental forces which may result from
earthquake shocks.

(2) (a) The deviations, if any, made by the defendants from the plans and
specifications, and how said deviations contributed to the damage sustained
by the building.
(b) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building.

These two issues, being interrelated with each other, will be discussed
together.

The findings of the Commissioner on these issues were as follows:

We now turn to the construction of the PBA Building and the alleged
deficiencies or defects in the construction and violations or deviations from
the plans and specifications. All these may be summarized as follows:

a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.

(1) Wrongful and defective placing of reinforcing bars.

(2) Absence of effective and desirable integration of the 3 bars in the cluster.

(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires
no larger than 1 inch.

(4) Reinforcement assembly is not concentric with the column, eccentricity

being 3" off when on one face the main bars are only 1 1/2' from the surface.

(5) Prevalence of honeycombs,

(6) Contraband construction joints,

(7) Absence, or omission, or over spacing of spiral hoops,

(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5,

ground floor,

(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground
floor,

(10) Undergraduate concrete is evident,

(11) Big cavity in core of Column 2A-4, second floor,

(12) Columns buckled at different planes. Columns buckled worst where there
are no spirals or where spirals are cut. Columns suffered worst displacement
where the eccentricity of the columnar reinforcement assembly is more acute.

b. Summary of alleged defects as reported by Engr. Antonio Avecilla.

Columns are first (or ground) floor, unless otherwise stated.

(1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers,

(2) Column D5 — No spiral up to a height of 22" from the ground floor,

(3) Column D6 — Spacing of spiral over 4 l/2,

(4) Column D7 — Lack of lateral ties,

(5) Column C7 — Absence of spiral to a height of 20" from the ground level,
Spirals are at 2" from the exterior column face and 6" from the inner column
face,

(6) Column B6 — Lack of spiral on 2 feet below the floor beams,

(7) Column B5 — Lack of spirals at a distance of 26' below the beam,

(8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals are
uneven 2" to 4",

(9) Column A3 — Lack of lateral ties,

(10) Column A4 — Spirals cut off and welded to two separate clustered vertical
bars,

(11) Column A4 — (second floor Column is completely hollow to a height of 30"

(12) Column A5 — Spirals were cut from the floor level to the bottom of the
spandrel beam to a height of 6 feet,

(13) Column A6 — No spirals up to a height of 30' above the ground floor level,

(14) Column A7— Lack of lateralties or spirals,

c. Summary of alleged defects as reported by the experts of the Third-Party

defendants.

Ground floor columns.

(1) Column A4 — Spirals are cut,

(2) Column A5 — Spirals are cut,

(3) Column A6 — At lower 18" spirals are absent,

(4) Column A7 — Ties are too far apart,

(5) Column B5 — At upper fourth of column spirals are either absent or

improperly spliced,

(6) Column B6 — At upper 2 feet spirals are absent,

(7) Column B7 — At upper fourth of column spirals missing or improperly
spliced.

(8) Column C7— Spirals are absent at lowest 18"

(9) Column D5 — At lowest 2 feet spirals are absent,

(10) Column D6 — Spirals are too far apart and apparently improperly spliced,

(11) Column D7 — Lateral ties are too far apart, spaced 16" on centers.

There is merit in many of these allegations. The explanations given by the

engineering experts for the defendants are either contrary to general principles
of engineering design for reinforced concrete or not applicable to the
requirements for ductility and strength of reinforced concrete in earthquake-
resistant design and construction.

We shall first classify and consider defects which may have appreciable
bearing or relation to' the earthquake-resistant property of the building.

As heretofore mentioned, details which insure ductility at or near the

connections between columns and girders are desirable in earthquake
resistant design and construction. The omission of spirals and ties or hoops at
the bottom and/or tops of columns contributed greatly to the loss of
earthquake-resistant strength. The plans and specifications required that these
spirals and ties be carried from the floor level to the bottom reinforcement of
the deeper beam (p. 1, Specifications, p. 970, Reference 11). There were several
clear evidences where this was not done especially in some of the ground floor
columns which failed.

There were also unmistakable evidences that the spacings of the spirals and
ties in the columns were in many cases greater than those called for in the
plans and specifications resulting again in loss of earthquake-resistant
strength. The assertion of the engineering experts for the defendants that the
improper spacings and the cutting of the spirals did not result in loss of
strength in the column cannot be maintained and is certainly contrary to the
general principles of column design and construction. And even granting that
there be no loss in strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will certainly result in the
loss of the plastic range or ductility in the column and it is precisely this
plastic range or ductility which is desirable and needed for earthquake-
resistant strength.

There is no excuse for the cavity or hollow portion in the column A4, second
floor, and although this column did not fail, this is certainly an evidence on the
part of the contractor of poor construction.

The effect of eccentricities in the columns which were measured at about 2 1/2
inches maximum may be approximated in relation to column loads and column
and beam moments. The main effect of eccentricity is to change the beam or
girder span. The effect on the measured eccentricity of 2 inches, therefore, is
to increase or diminish the column load by a maximum of about 1% and to
increase or diminish the column or beam movements by about a maximum of
2%. While these can certainly be absorbed within the factor of safety, they
nevertheless diminish said factor of safety.

The cutting of the spirals in column A5, ground floor is the subject of great
contention between the parties and deserves special consideration.

The proper placing of the main reinforcements and spirals in column A5,
ground floor, is the responsibility of the general contractor which is the UCCI.
The burden of proof, therefore, that this cutting was done by others is upon the
defendants. Other than a strong allegation and assertion that it is the plumber
or his men who may have done the cutting (and this was flatly denied by the
plumber) no conclusive proof was presented. The engineering experts for the
defendants asserted that they could have no motivation for cutting the bar
because they can simply replace the spirals by wrapping around a new set of
spirals. This is not quite correct. There is evidence to show that the pouring of
concrete for columns was sometimes done through the beam and girder
reinforcements which were already in place as in the case of column A4
second floor. If the reinforcement for the girder and column is to subsequently
wrap around the spirals, this would not do for the elasticity of steel would
prevent the making of tight column spirals and loose or improper spirals would
result. The proper way is to produce correct spirals down from the top of the
main column bars, a procedure which can not be done if either the beam or
girder reinforcement is already in place. The engineering experts for the
defendants strongly assert and apparently believe that the cutting of the
spirals did not materially diminish the strength of the column. This belief
together with the difficulty of slipping the spirals on the top of the column once
the beam reinforcement is in place may be a sufficient motivation for the
cutting of the spirals themselves. The defendants, therefore, should be held
responsible for the consequences arising from the loss of strength or ductility
in column A5 which may have contributed to the damages sustained by the
building.

The lack of proper length of splicing of spirals was also proven in the visible
spirals of the columns where spalling of the concrete cover had taken place.
This lack of proper splicing contributed in a small measure to the loss of
strength.

The effects of all the other proven and visible defects although nor can
certainly be accumulated so that they can contribute to an appreciable loss in
earthquake-resistant strength. The engineering experts for the defendants
submitted an estimate on some of these defects in the amount of a few
percent. If accumulated, therefore, including the effect of eccentricity in the
column the loss in strength due to these minor defects may run to as much as
ten percent.

To recapitulate: the omission or lack of spirals and ties at the bottom and/or at
the top of some of the ground floor columns contributed greatly to the collapse
of the PBA building since it is at these points where the greater part of the
failure occurred. The liability for the cutting of the spirals in column A5, ground
floor, in the considered opinion of the Commissioner rests on the shoulders of
 the defendants and the loss of strength in this column contributed to the
damage which occurred.

It is reasonable to conclude, therefore, that the proven defects, deficiencies

and violations of the plans and specifications of the PBA building contributed
to the damages which resulted during the earthquake of August 2, 1968 and
the vice of these defects and deficiencies is that they not only increase but
also aggravate the weakness mentioned in the design of the structure. In other
words, these defects and deficiencies not only tend to add but also to multiply
the effects of the shortcomings in the design of the building. We may say,
therefore, that the defects and deficiencies in the construction contributed
greatly to the damage which occurred.

Since the execution and supervision of the construction work in the hands of
the contractor is direct and positive, the presence of existence of all the major
defects and deficiencies noted and proven manifests an element of negligence
which may amount to imprudence in the construction work. (pp. 42-49,
Commissioners Report).

As the parties most directly concerned with this portion of the Commissioner's report, the
defendants voiced their objections to the same on the grounds that the Commissioner
should have specified the defects found by him to be "meritorious"; that the Commissioner
failed to indicate the number of cases where the spirals and ties were not carried from the
floor level to the bottom reinforcement of the deeper beam, or where the spacing of the
spirals and ties in the columns were greater than that called for in the specifications; that the
hollow in column A4, second floor, the eccentricities in the columns, the lack of proper
length of splicing of spirals, and the cut in the spirals in column A5, ground floor, did not
aggravate or contribute to the damage suffered by the building; that the defects in the
construction were within the tolerable margin of safety; and that the cutting of the spirals in
column A5, ground floor, was done by the plumber or his men, and not by the defendants.

Answering the said objections, the Commissioner stated that, since many of the defects were
minor only the totality of the defects was considered. As regards the objection as to failure to
state the number of cases where the spirals and ties were not carried from the floor level to
the bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the
first one without spirals for 03 inches at the top, and in the latter, there were no spirals for 10
inches at the bottom. The Commissioner likewise specified the first storey columns where
the spacings were greater than that called for in the specifications to be columns B-5, B-6, C-
7, C-6, C-5, D-5 and B-7. The objection to the failure of the Commissioner to specify the
number of columns where there was lack of proper length of splicing of spirals, the
Commissioner mentioned groundfloor columns B-6 and B-5 where all the splices were less
than 1-1/2 turns and were not welded, resulting in some loss of strength which could be
critical near the ends of the columns. He answered the supposition of the defendants that the
spirals and the ties must have been looted, by calling attention to the fact that the missing
spirals and ties were only in two out of the 25 columns, which rendered said supposition to
be improbable.

The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate
or contribute to the damage, but averred that it is "evidence of poor construction." On the
claim that the eccentricity could be absorbed within the factor of safety, the Commissioner
answered that, while the same may be true, it also contributed to or aggravated the damage
suffered by the building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered
by the Commissioner by reiterating the observation in his report that irrespective of who did
the cutting of the spirals, the defendants should be held liable for the same as the general
contractor of the building. The Commissioner further stated that the loss of strength of the
cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the
spiral containment in the column and resulted in the loss of strength, as evidenced by the
actual failure of this column.

Again, the Court concurs in the findings of the Commissioner on these issues and fails to
find any sufficient cause to disregard or modify the same. As found by the Commissioner,
the "deviations made by the defendants from the plans and specifications caused indirectly
the damage sustained and that those deviations not only added but also aggravated the
damage caused by the defects in the plans and specifications prepared by third-party
defendants. (Rollo, Vol. I, pp. 128-142)

The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and
the third-party defendants in effecting the plans, designs, specifications, and construction of
the PBA building and We hold such negligence as equivalent to bad faith in the performance
of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380)
which may be in point in this case reads:

One who negligently creates a dangerous condition cannot escape liability for the natural
and probable consequences thereof, although the act of a third person, or an act of God for
which he is not responsible, intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad faith, without which the damage
would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special
and environmental circumstances of this case, We deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the third-party defendants (with
the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in
favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception of attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality
of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon afore-mentioned amounts from finality until paid. Solidary
costs against the defendant and third-party defendants (except Roman Ozaeta).

SO ORDERED.

Gilat Satellite Networks, Ltd. v. UCPB, G.R. No.189563, April 7, 2014

G.R. No. 189563 April 7, 2014
GILAT SATELLITE NETWORKS, LTD., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.

DECISION

SERENO, CJ:

This is an appeal via a Petition for Review on Certiorari filed 6 November 2009 assailing the
1

Decision and Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed
2 3

the Decision of the Regional Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02-461,
4

ordering respondent to pay petitioner a sum of money.

The antecedent facts, as culled from the CA, are as follows:

On September 15, 1999, One Virtual placed with GILAT a purchase order for various
telecommunications equipment (sic), accessories, spares, services and software, at a total purchase
price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars
(US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual promised to pay
a portion thereof totalling US$1.2 Million in accordance with the payment schedule dated 22
November 1999. To ensure the prompt payment of this amount, it obtained defendant UCPB
General Insurance Co., Inc.’s surety bond dated 3 December 1999, in favor of GILAT.

During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to
One Virtual the purchased products and equipment, as evidenced by airway bills/Bill of Lading
(Exhibits "F", "F-1" to "F-8"). All of the equipment (including the software components for which
payment was secured by the surety bond, was shipped by GILAT and duly received by One Virtual.
Under an endorsement dated December 23, 1999 (Exhibit "E"), the surety issued, with One Virtual’s
conformity, an amendment to the surety bond, Annex "A" thereof, correcting its expiry date from May
30, 2001 to July 30, 2001.

One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on
the due date of May 30, 2000 in accordance with the payment schedule attached as Annex "A" to
the surety bond, prompting GILAT to write the surety defendant UCPB on June 5, 2000, a demand
letter (Exhibit "G") for payment of the said amount of US$400,000.00. No part of the amount set forth
in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual likewise
failed to pay on the succeeding payment instalment date of 30 November 2000 as set out in Annex
"A" of the surety bond, prompting GILAT to send a second demand letter dated January 24, 2001,
for the payment of the full amount of US$1,200,000.00 guaranteed under the surety bond, plus
interests and expenses (Exhibits "H") and which letter was received by the defendant surety on
January 25, 2001. However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a
part thereof, hence, the instant complaint." (Emphases in the original)
5

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint against respondent
6

UCPB General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond,
plus interests and expenses. After due hearing, the RTC rendered its Decision, the dispositive
7

portion of which is herein quoted:

WHEREFORE, premises considered, the Court hereby renders judgment for the plaintiff, and
against the defendant, ordering, to wit:
 1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred
Thousand Dollars (US$1,200,000.00) representing the principal debt under the Surety Bond,
with legal interest thereon at the rate of 12% per annum computed from the time the
judgment becomes final and executory until the obligation is fully settled; and

2. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars
and Four Cents (US$44,004.04) representing attorney’s fees and litigation expenses.

Accordingly, defendant’s counterclaim is hereby dismissed for want of merit.

SO ORDERED. (Emphasis in the original)

In so ruling, the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the
subject equipments [sic] and the same was installed. Even with the delivery and installation made,
One Virtual failed to pay any of the payments agreed upon. Demand notwithstanding, defendant
failed and refused and continued to fail and refused to settle the obligation." 8

Considering that its liability was indeed that of a surety, as "spelled out in the Surety Bond executed
by and between One Virtual as Principal, UCPB as Surety and GILAT as Creditor/Bond
Obligee," respondent agreed and bound itself to pay in accordance with the Payment Milestones.
9

This obligation was not made dependent on any condition outside the terms and conditions of the
Surety Bond and Payment Milestones. 10

Insofar as the interests were concerned, the RTC denied petitioner’s claim on the premise that while
a surety can be held liable for interest even if it becomes more onerous than the principal obligation,
the surety shall only accrue when the delay or refusal to pay the principal obligation is without any
justifiable cause. Here, respondent failed to pay its surety obligation because of the advice of its
11

principal (One Virtual) not to pay. The RTC then obligated respondent to pay petitioner the amount
12

of USD1,200,000.00 representing the principal debt under the Surety Bond, with legal interest at the
rate of 12% per annum computed from the time the judgment becomes final and executory, and
USD44,004.04 representing attorney’s fees and litigation expenses.

On 18 October 2007, respondent appealed to the CA. The appellate court rendered a Decision in
13 14

the following manner:

WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial court’s Decision
dated December 28, 2006 is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and One
Virtual are ordered to proceed to arbitration, the outcome of which shall necessary bind the parties,
including the surety, defendant-appellant United Coconut Planters Bank General Insurance Co., Inc.

SO ORDERED. (Emphasis in the original)

The CA ruled that in "enforcing a surety contract, the ‘complementary-contracts-construed-together’

doctrine finds application." According to this doctrine, the accessory contract must be construed with
the principal agreement. In this case, the appellate court considered the Purchase Agreement
15

entered into between petitioner and One Virtual as the principal contract, whose stipulations are
16

also binding on the parties to the suretyship. Bearing in mind the arbitration clause contained in the
17

Purchase Agreement and pursuant to the policy of the courts to encourage alternative dispute
18

resolution methods, the trial court’s Decision was vacated; petitioner and One Virtual were ordered
19

to proceed to arbitration.
On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument.
The motion was denied for lack of merit in a Resolution issued by the CA on 16 September 2009.
20

Hence, the instant Petition.

On 31 August 2010, respondent filed a Comment on the Petition for Review. On 24 November
21

2010, petitioner filed a Reply. 22

ISSUES

From the foregoing, we reduce the issues to the following:

1. Whether or not the CA erred in dismissing the case and ordering petitioner and One
Virtual to arbitrate; and

2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by
respondent of its obligation under the Suretyship Agreement.

THE COURT’S RULING

The existence of a suretyship agreement does not give the surety the right to intervene in the
principal contract, nor can an arbitration clause between the buyer and the seller be invoked by a
non-party such as the surety.

Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party
entitled to it applies for this relief. This referral, however, can only be demanded by one who is a
23

party to the arbitration agreement. Considering that neither petitioner nor One Virtual has asked for
24

a referral, there is no basis for the CA’s order to arbitrate.

Moreover, Articles 1216 and 2047 of the Civil Code clearly provide that the creditor may proceed
25

against the surety without having first sued the principal debtor. Even the Surety Agreement itself
26

states that respondent becomes liable upon "mere failure of the Principal to make such prompt
payment." Thus, petitioner should not be ordered to make a separate claim against One Virtual (via
27

arbitration) before proceeding against respondent. 28

On the other hand, respondent maintains that a surety contract is merely an accessory contract,
which cannot exist without a valid obligation. Thus, the surety may avail itself of all the defenses
29

available to the principal debtor and inherent in the debt – that is, the right to invoke the arbitration
30

clause in the Purchase Agreement.

We agree with petitioner.

In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of the
principal debtor. This undertaking makes a surety agreement an ancillary contract, as it presupposes
the existence of a principal contract. Nevertheless, although the contract of a surety is in essence
31

secondary only to a valid principal obligation, its liability to the creditor or "promise" of the principal is
said to be direct, primary and absolute; in other words, a surety is directly and equally bound with the
principal. He becomes liable for the debt and duty of the principal obligor, even without possessing
32

a direct or personal interest in the obligations constituted by the latter. Thus, a surety is not entitled
33

to a separate notice of default or to the benefit of excussion. It may in fact be sued separately or
34

together with the principal debtor. 35

After a thorough examination of the pieces of evidence presented by both parties, the RTC found
36

that petitioner had delivered all the goods to One Virtual and installed them. Despite these
compliances, One Virtual still failed to pay its obligation, triggering respondent’s liability to petitioner
37

as the former’s surety. In other words, the failure of One Virtual, as the principal debtor, to fulfill its
1âwphi1

monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the
surety.

Consequently, we cannot sustain respondent’s claim that the Purchase Agreement, being the
principal contract to which the Suretyship Agreement is accessory, must take precedence over
arbitration as the preferred mode of settling disputes.

First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd., that "[the]38

acceptance [of a surety agreement], however, does not change in any material way the creditor’s
relationship with the principal debtor nor does it make the surety an active party to the principal
creditor-debtor relationship. In other words, the acceptance does not give the surety the right to
intervene in the principal contract. The surety’s role arises only upon the debtor’s default, at which
time, it can be directly held liable by the creditor for payment as a solidary obligor." Hence, the surety
remains a stranger to the Purchase Agreement. We agree with petitioner that respondent cannot
invoke in its favor the arbitration clause in the Purchase Agreement, because it is not a party to that
contract. An arbitration agreement being contractual in nature, it is binding only on the parties
39 40

thereto, as well as their assigns and heirs. 41

Second, Section 24 of Republic Act No. 9285 is clear in stating that a referral to arbitration may only
42

take place "if at least one party so requests not later than the pre-trial conference, or upon the
request of both parties thereafter." Respondent has not presented even an iota of evidence to show
that either petitioner or One Virtual submitted its contesting claim for arbitration.

Third, sureties do not insure the solvency of the debtor, but rather the debt itself. They are
43

contracted precisely to mitigate risks of non-performance on the part of the obligor. This
responsibility necessarily places a surety on the same level as that of the principal debtor. The 44

effect is that the creditor is given the right to directly proceed against either principal debtor or surety.
This is the reason why excussion cannot be invoked. To require the creditor to proceed to
45

arbitration would render the very essence of suretyship nugatory and diminish its value in
commerce. At any rate, as we have held in Palmares v. Court of Appeals, "if the surety is
46

dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may
pay the debt himself and become subrogated to all the rights and remedies of the creditor."

Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in
the payment of the latter’s obligation, provided that the delay is inexcusable.

Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per
annum from the time of its first demand on respondent on 5 June 2000 or at most, from the second
demand on 24 January 2001 because of the latter’s delay in discharging its monetary
obligation. Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from
47

the time it demanded the fulfilment of respondent’s obligation under the suretyship contract.
Significantly, respondent does not contest this point, but instead argues that it is only liable for legal
interest of 6% per annum from the date of petitioner’s last demand on 24 January 2001.

In rejecting petitioner’s position, the RTC stated that interests may only accrue when the delay or the
refusal of a party to pay is without any justifiable cause. In this case, respondent’s failure to heed
48

the demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings
as stated in the Purchase Agreement. The CA, however, made no pronouncement on this matter.
49
We sustain petitioner.

Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money,
and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest."

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation, and the latter fails to comply. Delay, as used in Article 1169, is
50

synonymous with default or mora, which means delay in the fulfilment of obligations. It is the
51

nonfulfillment of an obligation with respect to time. In order for the debtor (in this case, the surety) to
52

be in default, it is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially. 53

Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The increased liability is not because
54

of the contract, but because of the default and the necessity of judicial collection.55

However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri-la
Hotel, citing RCPI v. Verchez, we held thus:
56 57

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from liability for any kind of misperformance of
the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract
confers upon the injured party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests of the promissee that may include his
"expectation interest," which is his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been performed, or his "reliance interest,"
which is his interest in being reimbursed for loss caused by reliance on the contract by being put in
as good a position as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred on the
other party. Indeed, agreements can accomplish little, either for their makers or for society, unless
they are made the basis for action. The effect of every infraction is to create a new duty, that is, to
make RECOMPENSE to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his exercise of
due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability.
(Emphasis ours)

We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed
justified by the circumstances – that is, One Virtual’s advice regarding petitioner’s alleged breach of
obligations. The lower court’s Decision itself belied this contention when it said that "plaintiff is not
disputing that it did not complete commissioning work on one of the two systems because One
Virtual at that time is already in default and has not paid GILAT." Assuming arguendo that the
58

commissioning work was not completed, respondent has no one to blame but its principal, One
Virtual; if only it had paid its obligation on time, petitioner would not have been forced to stop
operations. Moreover, the deposition of Mr. Erez Antebi, vice president of Gilat, repeatedly stated
that petitioner had delivered all equipment, including the licensed software; and that the equipment
had been installed and in fact, gone into operation. Notwithstanding these compliances, respondent
59

still failed to pay.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from
the time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the
provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an
extra-judicial demand before an action for performance was filed, interest on the amount due begins
to run, not from the date of the filing of the complaint, but from the date of that extra-judicial
demand. Considering that respondent failed to pay its obligation on 30 May 2000 in accordance
60

with the Purchase Agreement, and that the extrajudicial demand of petitioner was sent on 5 June
2000, we agree with the latter that interest must start to run from the time petitioner sent its first
61

demand letter (5 June 2000), because the obligation was already due and demandable at that time.

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames, which62

modified the guidelines established in Eastern Shipping Lines v. CA in relation to Bangko Sentral-
63

Monetary Board Circular No. 799 (Series of 2013), to wit:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
1âwphi1

the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

Applying the above-discussed concepts and in the absence of an agreement as to interests, we are
hereby compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000,
its first date of extra judicial demand, until the satisfaction of the debt in accordance with the revised
guidelines enunciated in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of
the Regional Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as
the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the
rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship
Contract and Purchase Agreement.

SO ORDERED.

Rivera vs. Spouses Chua, G.R. No. 184458, January 14, 2015
G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S. VIOLETA

CHUA, Respondents.
 [G.R. NO. 184472]

SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO

RIVERA, Respondent.

DECISION

PEREZ, J.:

Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules
of Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which
affirmed with modification the separate rulings of the Manila City trial courts, the
Regional Trial Court, Branch 17 in Civil Case No. 02-105256 2 and the Metropolitan Trial
Court (MeTC), Branch 30, in Civil Case No. 163661, 3 a case for collection of a sum of
money due a promissory note. While all three (3) lower courts upheld the validity and
authenticity of the promissory note as duly signed by the obligor, Rodrigo Rivera
(Rivera), petitioner in G.R. No. 184458, the appellate court modified the trial courts’
consistent awards: (1) the stipulated interest rate of sixty percent (60%) reduced to
twelve percent (12%) per annum computed from the date of judicial or extrajudicial
demand, and (2) reinstatement of the award of attorney’s fees also in a reduced
amount of P50,000.00.

In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory
note and questions the entire ruling of the lower courts. On the other hand, petitioners
in G.R. No. 184472, Spouses Salvador and Violeta Chua (Spouses Chua), take
exception to the appellate court’s reduction of the stipulated interest rate of sixty
percent (60%) to twelve percent (12%) per annum.

We proceed to the facts.

The parties were friends of long standing having known each other since 1973: Rivera
and Salvador are kumpadres, the former is the godfather of the Spouses Chua’s son.

On 24 February 1995, Rivera obtained a loan from the Spouses Chua: chanroblesvirtuallawlibrary

PROMISSORY NOTE

120,000.00

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C.

CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine
Currency (P120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (P120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the
sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until
the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further sum
equivalent to twenty percent (20%) of the total amount due and payable as and for
attorney’s fees which in no case shall be less than P5,000.00 and to pay in addition the
cost of suit and other incidental litigation expense.

Any action which may arise in connection with this note shall be brought in the proper
Court of the City of Manila.

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

In October 1998, almost three years from the date of payment stipulated in the
promissory note, Rivera, as partial payment for the loan, issued and delivered to the
Spouses Chua, as payee, a check numbered 012467, dated 30 December 1998, drawn
against Rivera’s current account with the Philippine Commercial International Bank
(PCIB) in the amount of P25,000.00.

On 21 December 1998, the Spouses Chua received another check presumably issued by
Rivera, likewise drawn against Rivera’s PCIB current account, numbered 013224, duly
signed and dated, but blank as to payee and amount. Ostensibly, as per understanding
by the parties, PCIB Check No. 013224 was issued in the amount of P133,454.00 with
“cash” as payee. Purportedly, both checks were simply partial payment for Rivera’s loan
in the principal amount of P120,000.00.

Upon presentment for payment, the two checks were dishonored for the reason
“account closed.”

As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00
covering the principal of P120,000.00 plus five percent (5%) interest per month from 1
January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC,
Branch 30, Manila and docketed as Civil Case No. 163661.

In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never
executed the subject Promissory Note; (2) in all instances when he obtained a loan
from the Spouses Chua, the loans were always covered by a security; (3) at the time of
the filing of the complaint, he still had an existing indebtedness to the Spouses Chua,
secured by a real estate mortgage, but not yet in default; (4) PCIB Check No. 132224
signed by him which he delivered to the Spouses Chua on 21 December 1998, should
have been issued in the amount of only P1,300.00, representing the amount he
received from the Spouses Chua’s saleslady; (5) contrary to the supposed agreement,
the Spouses Chua presented the check for payment in the amount of P133,454.00; and
(6) there was no demand for payment of the amount of P120,000.00 prior to the
encashment of PCIB Check No. 0132224. 5 chanRoblesvirtualLawlibrary

In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.

The MeTC summarized the testimonies of both parties’ respective witnesses: chanroblesvirtuallawlibrary

[The spouses Chua’s] evidence include[s] documentary evidence and oral evidence
(consisting of the testimonies of [the spouses] Chua and NBI Senior Documents
Examiner Antonio Magbojos). x x x

xxxx

Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI
document examiner (1989); NBI Senior Document Examiner (1994 to the date he
testified); registered criminologist; graduate of 18th Basic Training Course [i]n
Questioned Document Examination conducted by the NBI; twice attended a seminar on
US Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended a
seminar on Effective Methodology in Teaching and Instructional design conducted by
the NBI Academy; seminar lecturer on Questioned Documents, Signature Verification
and/or Detection; had examined more than a hundred thousand questioned documents
at the time he testified.

Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera]
appearing in the Promissory Note and compared the signature thereon with the
specimen signatures of [Rivera] appearing on several documents. After a thorough
study, examination, and comparison of the signature on the questioned document
(Promissory Note) and the specimen signatures on the documents submitted to him, he
concluded that the questioned signature appearing in the Promissory Note and the
specimen signatures of [Rivera] appearing on the other documents submitted were
written by one and the same person. In connection with his findings, Magbojos
prepared Questioned Documents Report No. 712-1000 dated 8 January 2001, with the
following conclusion: “The questioned and the standard specimen signatures
RODGRIGO RIVERA were written by one and the same person.”

[Rivera] testified as follows: he and [respondent] Salvador are “kumpadres;” in May

1998, he obtained a loan from [respondent] Salvador and executed a real estate
mortgage over a parcel of land in favor of [respondent Salvador] as collateral; aside
from this loan, in October, 1998 he borrowed P25,000.00 from Salvador and issued
PCIB Check No. 126407 dated 30 December 1998; he expressly denied execution of the
Promissory Note dated 24 February 1995 and alleged that the signature appearing
thereon was not his signature; [respondent Salvador’s] claim that PCIB Check No.
0132224 was partial payment for the Promissory Note was not true, the truth being
that he delivered the check to [respondent Salvador] with the space for amount left
blank as he and [respondent] Salvador had agreed that the latter was to fill it in with
the amount of ?1,300.00 which amount he owed [the spouses Chua]; however, on 29
December 1998 [respondent] Salvador called him and told him that he had written
P133,454.00 instead of P1,300.00; x x x. To rebut the testimony of NBI Senior
Document Examiner Magbojos, [Rivera] reiterated his averment that the signature
appearing on the Promissory Note was not his signature and that he did not execute the
Promissory Note.6

After trial, the MeTC ruled in favor of the Spouses Chua: chanroblesvirtuallawlibrary
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal interest
at the rate of 12% percent per annum from 11 June 1999, as actual and compensatory
damages; 20% of the whole amount due as attorney’s fees. 7

On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the
MeTC, but deleted the award of attorney’s fees to the Spouses Chua: chanroblesvirtuallawlibrary

WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted, the
rest of the Decision dated October 21, 2002 is hereby AFFIRMED.8

Both trial courts found the Promissory Note as authentic and validly bore the signature
of Rivera.

Undaunted, Rivera appealed to the Court of Appeals which affirmed Rivera’s liability
under the Promissory Note, reduced the imposition of interest on the loan from 60% to
12% per annum, and reinstated the award of attorney’s fees in favor of the Spouses
Chua: chanroblesvirtuallawlibrary

WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to

the MODIFICATION that the interest rate of 60% per annum is hereby reduced to
12% per annum and the award of attorney’s fees is reinstated at the reduced amount
of P50,000.00 Costs against [Rivera].9

Hence, these consolidated petitions for review on certiorari of Rivera in G.R. No.
184458 and the Spouses Chua in G.R. No. 184472, respectively raising the following
issues: chanroblesvirtuallawlibrary

A. In G.R. No. 184458

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE

RULING OF THE RTC AND M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE
EXECUTED BY [RIVERA].

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

DEMAND IS NO LONGER NECESSARY AND IN APPLYING THE PROVISIONS OF THE
NEGOTIABLE INSTRUMENTS LAW.

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

ATTORNEY’S FEES DESPITE THE FACT THAT THE SAME HAS NO BASIS IN FACT AND IN
LAW AND DESPITE THE FACT THAT [THE SPOUSES CHUA] DID NOT APPEAL FROM THE
DECISION OF THE RTC DELETING THE AWARD OF ATTORNEY’S FEES.10 chanRoblesvirtualLawlibrary

B. In G.R. No. 184472

[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL

ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST
RATE FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT THAT
RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID STIPULATED
RATE OF INTEREST IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE,
INEQUITABLE, ILLEGAL, IMMORAL OR VOID.11

As early as 15 December 2008, we already disposed of G.R. No. 184472 and denied the
petition, via a Minute Resolution, for failure to sufficiently show any reversible error in
the ruling of the appellate court specifically concerning the correct rate of interest on
Rivera’s indebtedness under the Promissory Note.12 chanRoblesvirtualLawlibrary

On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.

Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera
questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.

Rivera continues to deny that he executed the Promissory Note; he claims that given
his friendship with the Spouses Chua who were money lenders, he has been able to
maintain a loan account with them. However, each of these loan transactions was
respectively “secured by checks or sufficient collateral.”

Rivera points out that the Spouses Chua “never demanded payment for the loan nor
interest thereof (sic) from [Rivera] for almost four (4) years from the time of the
alleged default in payment [i.e., after December 31, 1995].”13 chanRoblesvirtualLawlibrary

On the issue of the supposed forgery of the promissory note, we are not inclined to
depart from the lower courts’ uniform rulings that Rivera indeed signed it.

Rivera offers no evidence for his asseveration that his signature on the promissory note
was forged, only that the signature is not his and varies from his usual signature. He
likewise makes a confusing defense of having previously obtained loans from the
Spouses Chua who were money lenders and who had allowed him a period of “almost
four (4) years” before demanding payment of the loan under the Promissory Note.

First, we cannot give credence to such a naked claim of forgery over the testimony of
the National Bureau of Investigation (NBI) handwriting expert on the integrity of the
promissory note.

On that score, the appellate court aptly disabled Rivera’s contention: chanroblesvirtuallawlibrary

[Rivera] failed to adduce clear and convincing evidence that the signature on the
promissory note is a forgery. The fact of forgery cannot be presumed but must be
proved by clear, positive and convincing evidence. Mere variance of signatures cannot
be considered as conclusive proof that the same was forged. Save for the denial of
Rivera that the signature on the note was not his, there is nothing in the records to
support his claim of forgery. And while it is true that resort to experts is not mandatory
or indispensable to the examination of alleged forged documents, the opinions of
handwriting experts are nevertheless helpful in the court’s determination of a
document’s authenticity.

To be sure, a bare denial will not suffice to overcome the positive value of the
promissory note and the testimony of the NBI witness. In fact, even a perfunctory
comparison of the signatures offered in evidence would lead to the conclusion that the
signatures were made by one and the same person.

It is a basic rule in civil cases that the party having the burden of proof must establish
his case by preponderance of evidence, which simply means “evidence which is of
greater weight, or more convincing than that which is offered in opposition to it.”

Evaluating the evidence on record, we are convinced that [the Spouses Chua] have
established a prima facie case in their favor, hence, the burden of evidence has shifted
to [Rivera] to prove his allegation of forgery. Unfortunately for [Rivera], he failed to
substantiate his defense.14

Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties. 15 A review of such findings
by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower court's inference from its factual
findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record.16 None of these exceptions obtains in this instance.
There is no reason to depart from the separate factual findings of the three (3) lower
courts on the validity of Rivera’s signature reflected in the Promissory Note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in
his Answer to the plaintiff’s claim or cause of action, upon which issue is joined,
whether they relate to the whole case or only to certain issues in the case. 17 chanRoblesvirtualLawlibrary

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the
testimony of a handwriting expert from the NBI. While it is true that resort to experts is
not mandatory or indispensable to the examination or the comparison of handwriting,
the trial courts in this case, on its own, using the handwriting expert testimony only as
an aid, found the disputed document valid.18 chanRoblesvirtualLawlibrary

Hence, the MeTC ruled that: chanroblesvirtuallawlibrary

[Rivera] executed the Promissory Note after consideration of the following: categorical
statement of [respondent] Salvador that [Rivera] signed the Promissory Note before
him, in his ([Rivera’s]) house; the conclusion of NBI Senior Documents Examiner that
the questioned signature (appearing on the Promissory Note) and standard specimen
signatures “Rodrigo Rivera” “were written by one and the same person”; actual view at
the hearing of the enlarged photographs of the questioned signature and the standard
specimen signatures.19

Specifically, Rivera insists that: “[i]f that promissory note indeed exists, it is beyond
logic for a money lender to extend another loan on May 4, 1998 secured by a real
estate mortgage, when he was already in default and has not been paying any interest
for a loan incurred in February 1995.”20 chanRoblesvirtualLawlibrary

We disagree.

It is likewise likely that precisely because of the long standing friendship of the parties
as “kumpadres,” Rivera was allowed another loan, albeit this time secured by a real
estate mortgage, which will cover Rivera’s loan should Rivera fail to pay. There is
nothing inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other,
secured by only a Promissory Note.

Also completely plausible is that given the relationship between the parties, Rivera was
allowed a substantial amount of time before the Spouses Chua demanded payment of
the obligation due under the Promissory Note.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery
and a discordant defense to assail the authenticity and validity of the Promissory Note.
Although the burden of proof rested on the Spouses Chua having instituted the civil
case and after they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense. 21 Consequently, Rivera failed to
discharge the burden of evidence, refute the existence of the Promissory Note duly
signed by him and subsequently, that he did not fail to pay his obligation thereunder.
On the whole, there was no question left on where the respective evidence of the
parties preponderated—in favor of plaintiffs, the Spouses Chua.

Rivera next argues that even assuming the validity of the Promissory Note, demand
was still necessary in order to charge him liable thereunder. Rivera argues that it was
grave error on the part of the appellate court to apply Section 70 of the Negotiable
Instruments Law (NIL).22 chanRoblesvirtualLawlibrary

We agree that the subject promissory note is not a negotiable instrument and the
provisions of the NIL do not apply to this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable instrument: chanroblesvirtuallawlibrary

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

On the other hand, Section 184 of the NIL defines what negotiable promissory note
is:
chanroblesvirtuallawlibrary

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note is
drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua
as payees.

However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore
outside the coverage of Section 70 of the NIL which provides that presentment for
payment is not necessary to charge the person liable on the instrument, Rivera is still
liable under the terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already
incurred in delay when he failed to pay the amount of P120,000.00 due to the Spouses
Chua on 31 December 1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides: chanroblesvirtuallawlibrary

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.

However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis
supplied)

There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for
the creation of the obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it
must further state expressly that after the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of interest: chanroblesvirtuallawlibrary

It is agreed and understood that failure on my part to pay the amount of (P120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the
sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until
the entire obligation is fully paid for.23

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the
“date of default” until the entire obligation is fully paid for. The parties evidently agreed
that the maturity of the obligation at a date certain, 31 December 1995, will give rise to
the obligation to pay interest. The Promissory Note expressly provided that after 31
December 1995, default commences and the stipulation on payment of interest starts.

The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for
the stipulated interest which the Promissory Note says is equivalent to 5% a month. In
sum, until 31 December 1995, demand was not necessary before Rivera could be held
liable for the principal amount of P120,000.00. Thereafter, on 1 January 1996, upon
default, Rivera became liable to pay the Spouses Chua damages, in the form of
stipulated interest.

The liability for damages of those who default, including those who are guilty of delay,
in the performance of their obligations is laid down on Article 1170 24 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an

indemnity for damages when the obligor incurs in delay: chanroblesvirtuallawlibrary

Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent per annum. (Emphasis supplied)

Article 2209 is specifically applicable in this instance where: (1) the obligation is for a
sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or
before 31 December 1995; and (3) the Promissory Note provides for an indemnity for
damages upon default of Rivera which is the payment of a 5% monthly interest from
the date of default.

We do not consider the stipulation on payment of interest in this case as a penal clause
although Rivera, as obligor, assumed to pay additional 5% monthly interest on the
principal amount of P120,000.00 upon default.

Article 1226 of the Civil Code provides: chanroblesvirtuallawlibrary

Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance,
if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.

The penal clause is generally undertaken to insure performance and works as either, or
both, punishment and reparation. It is an exception to the general rules on recovery of
losses and damages. As an exception to the general rule, a penal clause must be
specifically set forth in the obligation.25
chanRoblesvirtualLawlibrary

In high relief, the stipulation in the Promissory Note is designated as payment of

interest, not as a penal clause, and is simply an indemnity for damages incurred by the
Spouses Chua because Rivera defaulted in the payment of the amount of P120,000.00.
The measure of damages for the Rivera’s delay is limited to the interest stipulated in
the Promissory Note. In apt instances, in default of stipulation, the interest is that
provided by law.26 chanRoblesvirtualLawlibrary

In this instance, the parties stipulated that in case of default, Rivera will pay interest at
the rate of 5% a month or 60% per annum. On this score, the appellate court ruled: chanroblesvirtuallawlibrary

It bears emphasizing that the undertaking based on the note clearly states the date of
payment to be 31 December 1995. Given this circumstance, demand by the creditor is
no longer necessary in order that delay may exist since the contract itself already
expressly so declares. The mere failure of [Spouses Chua] to immediately demand or
collect payment of the value of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error when it imposed interest
from 1 January 1996 on the ratiocination that [Spouses Chua] were relieved from
making demand under Article 1169 of the Civil Code.

xxxx

As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. Since the interest rate
agreed upon is void, the parties are considered to have no stipulation regarding the
interest rate, thus, the rate of interest should be 12% per annum computed from the
date of judicial or extrajudicial demand.[27 chanRoblesvirtualLawlibrary

The appellate court found the 5% a month or 60% per annum interest rate, on top of
the legal interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous
and unconscionable.

Significantly, the issue on payment of interest has been squarely disposed of in G.R.
No. 184472 denying the petition of the Spouses Chua for failure to sufficiently show any
reversible error in the ruling of the appellate court, specifically the reduction of the
interest rate imposed on Rivera’s indebtedness under the Promissory Note. Ultimately,
the denial of the petition in G.R. No. 184472 is res judicata in its concept of “bar by
prior judgment” on whether the Court of Appeals correctly reduced the interest rate
stipulated in the Promissory Note.

Res judicata applies in the concept of “bar by prior judgment” if the following requisites
concur: (1) the former judgment or order must be final; (2) the judgment or order
must be on the merits; (3) the decision must have been rendered by a court having
jurisdiction over the subject matter and the parties; and (4) there must be, between
the first and the second action, identity of parties, of subject matter and of causes of
action.28
chanRoblesvirtualLawlibrary

In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties
and subject matter raising specifically errors in the Decision of the Court of Appeals.
Where the Court of Appeals’ disposition on the propriety of the reduction of the interest
rate was raised by the Spouses Chua in G.R. No. 184472, our ruling thereon affirming
the Court of Appeals is a “bar by prior judgment.”

At the time interest accrued from 1 January 1996, the date of default under the
Promissory Note, the then prevailing rate of legal interest was 12% per annum under
Central Bank (CB) Circular No. 416 in cases involving the loan or forbearance of
money.29 Thus, the legal interest accruing from the Promissory Note is 12% per
annum from the date of default on 1 January 1996.

However, the 12% per annum rate of legal interest is only applicable until 30 June
2013, before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular
No. 799, Series of 2013 reducing the rate of legal interest to 6% per annum. Pursuant
to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is prospectively applied
from 1 July 2013. In short, the applicable rate of legal interest from 1 January 1996,
the date when Rivera defaulted, to date when this Decision becomes final and executor
is divided into two periods reflecting two rates of legal interest: (1) 12% per
annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July
2013 to date when this Decision becomes final and executory.

As for the legal interest accruing from 11 June 1999, when judicial demand was made,
to the date when this Decision becomes final and executory, such is likewise divided
into two periods: (1) 12% per annum from 11 June 1999, the date of judicial demand
to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this Decision
becomes final and executor.31 We base this imposition of interest on interest due
earning legal interest on Article 2212 of the Civil Code which provides that “interest
due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent on this point.”

From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to
the Spouses Chua could already be determined with reasonable certainty given the
wording of the Promissory Note.32 chanRoblesvirtualLawlibrary

We cite our recent ruling in Nacar v. Gallery Frames:33 chanRoblesvirtualLawlibrary

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on “Damages” of the Civil Code govern in determining the
measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
ChanRoblesVirtualawlibrary

1. When the obligation is breached, and it consists in the

payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest
shall be 6% per annum to be computed from default, i.e.,
 from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of

money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money

becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6%
per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance
of credit.

And, in addition to the above, judgments that have become final

and executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed
therein. (Emphasis supplied)

On the reinstatement of the award of attorney’s fees based on the stipulation in the
Promissory Note, we agree with the reduction thereof but not the ratiocination of the
appellate court that the attorney’s fees are in the nature of liquidated damages or
penalty. The interest imposed in the Promissory Note already answers as liquidated
damages for Rivera’s default in paying his obligation. We award attorney’s fees, albeit
in a reduced amount, in recognition that the Spouses Chua were compelled to litigate
and incurred expenses to protect their interests.34 Thus, the award of P50,000.00 as
attorney’s fees is proper.

For clarity and to obviate confusion, we chart the breakdown of the total amount owed
by Rivera to the Spouses Chua: chanroblesvirtuallawlibrary

Face value of Stipulated Interest A & B Interest due earning Attorney’s Total
the Promissory legal interest A & B fees Amount
Note
February 24, A. January 1, 1996 to A. June 11, 1999 (date Wholesale
1995 to June 30, 2013 of judicial demand) to amount
December 31, June 30, 2013
1995 B. July 1 2013 to date B. July 1, 2013 to date
when this Decision when this Decision
becomes final and becomes final and
executory executory
P120,000.00 A. 12 % per annum on A. 12% per annum on P50,000.00 Total
the principal amount of the total amount of amount of
P120,000.00 column 2 Columns 1-4
B. 6% per annum on the B. 6% per annum on the
principal amount of total amount of column
P120,000.00 235

The total amount owing to the Spouses Chua set forth in this Decision shall further earn
legal interest at the rate of 6% per annum computed from its finality until full payment
thereof, the interim period being deemed to be a forbearance of credit. chanrobleslaw

WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of
Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo Rivera is ordered to
pay respondents Spouse Salvador and Violeta Chua the following: chanroblesvirtuallawlibrary

(1) the principal amount of P120,000.00;

(2) legal interest of 12% per annum of the principal amount of P120,000.00 reckoned from 1
January 1996 until 30 June 2013;
(3) legal interest of 6% per annum of the principal amount of P120,000.00 form 1 July 2013 to
date when this Decision becomes final and executory;
(4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999, date of
judicial demand, to 30 June 2013, as interest due earning legal interest;
(5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date
when this Decision becomes final and executor, as interest due earning legal interest;
(6) Attorney’s fees in the amount of P50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the finality of this
Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.

SO ORDERED. cralawlawlibrary
Solar Harvest, Inc. v. Davao Corrugated Carton Corp., G.R. No. 176868
July 26, 2010
Agcaoili v. GSIS, 165 SCRA 1
Arrieta v. Naric, 10 SCRA 79
Sicam v. Jorge, G.R. No. 159617 August 8, 2007
NPC v. CA, 161 SCRA 334
Fil-Estate v. Sps. Ronquillo, G.R. No. 185798, January 13, 2014
TMBI v. Feb Mitsui and Manalastas, G.R. No. 194121, July 11, 2016
Sanico and Castro Case
BPI v. Quiaoit GR 199562
Judicial remedies
Universal Food Corp. v. CA, 33 SCRA 1
Magdalena Estate v. Myrick, 71 Phil 344
UP v. de los Angeles, 35 SCRA 102
Zulueta v. Mariano, 111 SCRA 206
Palay, Inc. v. Clave, 124 SCRA 638
Angeles v. Calasanz, 135 SCRA 323
Boysaw v. Interphil Promotions, 148 SCRA 635
Pilipinas Bank v. IAC, 151 SCRA 546
Central Bank v. CA, 139 SCRA 46
Unlad Resources Developmentv. Dragon, G.R. No. 149338 July 28,
2008
Swire Realty Dev’t Corp. vs. Jayne Yu, G.R. No. 207133, March 9,
2015
Olivarez Realty v. Castillo, G.R. No. 196251, July 9, 2014
NCLPI v. Lica and PROTON, G.R. No. 176986; January 13, 2016
Sps Batalla v. Prudential, GR 200676
Saddul v. Losloso GR 205093
Modes of Extinguishment of Obligation
Saura v. DBP, 44 SCRA 445
Payment or performance
NPC v. Ibrahim, et al., G.R. No. 175863, February 18, 2015
Land Bank of the Philippines v. Alfredo Ong, G.R. No. 190755, Nov.
24, 2010
J.M. Tuason v. Javier, 31 SCRA 829
Legarda v. Saldaña, 55 SCRA 324
Azcona v. Jamandre, 151 SCRA 317
Arañas v. Tutaan, 127 SCRA 828
Kalalo v. Luz, 34 SCRA 337
Ponce v. CA, 90 SCRA 533
New Pacific Timber v. Señeris, 101 SCRA 686
Roman Catholic Bishop of Malolos, Inc. v. IAC, 191 SCRA 411, Nov.
16, 1990
Tibajia, Jr. v. CA, 223 SCRA 163, January 4, 1993
Bognot v. RRI Lending Corp., G.R. No. 180144 September 24, 2014
Velasco v. Meralco, 42 SCRA 556
Commissioner v. Burgos, 96 SCRA 831
Filipino Pipe & Foundry Corp. v. NAWASA, 161 SCRA 32
Del Rosario v. Shell, 164 SCRA 556
Special Forms of Payment
Filinvest v. Phil Acetylene, 111 SCRA 421
Citizens Surety v. CA, 162 SCRA 738
PNB v. DEE, Antipolo Properties, Inc., (now Prime East Properties,
Inc.)
and AFP-RSBS, Inc., G.R. No. 182128, February 19, 2014
Soco v. Militante, 123 SCRA 160
Immaculata v. Navarro, 160 SCRA 211
Del Carmen v. Spouses Sabordo, G.R. No. 181723, August 11, 2014
Dalton v. FGR Realty, G.R. No. 172577 19 January 2011
Loss of the thing due or Impossibility of Performance
People v. Franklin, 39 SCRA 363
Laguna v. Manabat, 58 SCRA 650
Occeña v. Jabson, 73 SCRA 637
Compensation
Gan Tion v. CA, 28 SCRA 235
PNB v. Ong Acero, 148 SCRA 166
Francia v. IAC, 162 SCRA 753
Republic v. de los Angeles, 98 SCRA 103
Solinap v. del Rosario, 123 SCRA 640
Sycip v. CA, 134 SCRA 317
Cia Maritima v. CA, 135 SCRA 593
Int’l. Corporate Bank v. IAC, 163 SCRA 296
Mindanao Portland Cement v. CA, 120 SCRA 930
Bank of the Philippines v. CA, G.R. No. 136202 January 25, 2007
Union Bank v. DBP, G.R. No.191555, January 20, 2014
Novation
Fua v. Yap, 74 Phil 287
Japan Airlines v. Simangan, G.R. No. 170141, April 2008
Anamer Salazar v. J.Y. Brothers Marketing Corp., G.R. No. 171998,
Oct. 20, 2010
Metropolitan Bank vs. Rural Bank of Gerona, Inc., G.R. No. 159097,
July 5, 2010
Arco Pulp and Paper Co., Inc. and Santos v. Lim, G.R. No. 206806, June
25, 2014
Millar v. CA, 38 SCRA 642
Sandico v. Piguing, 42 SCRA 322
NPC v. Dayrit, 125 SCRA 849
Integrated Construction v. Relova, 146 SCRA 360
Cochingyan v. R & B Surety, 151 SCRA 339
Balila v. IAC, 155 SCRA 262
People’s Bnk v. Syvel’s, 164 SCRA 247
Rodriguez v. Reyes, 37 SCRA 195
Odiamar v. Odiamar Valencia, G.R. No. 213582, June 28, 2017