II. Quasi-Delict, A. Elements

PHILIPPINE REPORTS ANNOTATED VOLUME 037
8/8/15, 6:24 AM
[No. 12219. March 15, 1918.]

AMADO PICART, plaintiff and appellant, vs. FRANK
SMITH, jr., defendant and appellee.
1. NEGLIGENCE; CRITERION
FOR
DETERMINING
EXISTENCE
OF
NEGLI-GENCE.The
test
for
determining whether a person is negligent in doing an act
whereby injury or damage results to the person or property
of another is this: Would a prudent man, in the position of
the person to whom negligence is attributed, foresee harm
to the person injured as a reasonable consequence of the
course about to be pursued. If so, the law imposes a duty on
the actor to refrain from that course or to take precaution
against its mischievous results, and the failure to do so con
810
810
PHILIPPINE REPORTS ANNOTATED

Picart vs. Smith.
stitutes negligence. Reasonable foresight of harm, followed
by the ignoring of the admonition born of this prevision, is
the constitutive f act in negligence.
2. ID.; CONTRIBUTORY NEGLIGENCE; SUCCESSIVE
NEGLIGENT ACTS.Where both parties are guilty of
negligence, but the negligent act of one succeeds that of the
other by an appreciable interval of time, the one who has
the last reasonable opportunity to avoid the impending
harm and fails to do so is chargeable with the consequences,
without reference to the prior negligence of the other party.
3. ID.; ID.; ID.; CASE AT BAR.The plaintiff was riding a
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pony on a bridge, Seeing an automobile ahead he

improperly pulled his horse over to the railing on the right.
The driver of the automobile, however, guided his car
toward the plaintiff without diminution of speed until he
was only a few feet away. He then turned to the right but
passed so closely to the horse that the latter being
frightened, jumped around and was killed by the passing
car. Held: That although the plaintiff was guilty of
negligence in being on the wrong side of the bridge, the
defendant was nevertheless civilly liable for the legal
damages resulting from the collision, as he had a fair
opportunity to avoid the accident af ter he realized the
situation created by the negligence of the plaintiff and failed
to avail himself of that opportunity; while the plaintiff could
by no means then place himself in a position of greater
safety.
APPEAL from a judgment of the Court of First Instance of

La Union. Camus, J.
The facts are stated in the opinion of the court.
Alejo Mabanag for appellant.
G. E. Campbell for appellee.
STREET, J.:
In this action the plaintiff, Amado Picart, seeks to recover
of the defendant, Frank Smith, jr., the sum of P31,100, as
damages alleged to have been caused by an automobile
driven by the defendant. From a judgment of the Court of
First Instance of the Province of La Union absolving the
defendant from liability the plaintiff has appealed.
The occurrence which gave rise to the institution of this
action took place on December 12, 1912, on the Carlatan
Bridge, at San Fernando, La Union. It appears that upon
811
VOL. 37, MARCH 15, 1918.
811
Picart vs. Smith.

the occasion in question the plaintiff was riding on his pony
over said bridge. Before he had gotten half way across, the
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defendant approached from the opposite direction in an

automobile, going at the rate of about ten or twelve miles
per hour. As the defendant neared the bridge he saw a
horseman on it and blew his horn to give warning of his
approach. He continued his course and after he had taken
the bridge he gave two more successive blasts, as it
appeared to him that the man on horseback before him was
not observing the rule of the road.
The plaintiff, it appears, saw the automobile coming and
heard the warning signals. However, being perturbed by
the novelty of the apparition or the rapidity of the
approach, he pulled the pony closely up against the railing
on the right side of the bridge instead of going to the left.
He says that the reason he did this was that he thought he
did not have sufficient time to get over to the other side.
The bridge is shown to have a length of about 75 meters
and a width of 4.80 meters. As the automobile approached,
the defendant guided it toward his left, that being the
proper side of the road for the machine. In so doing the
defendant assumed that the horseman would move to the
other side. The pony had not as yet exhibited fright, and
the rider had made no sign for the automobile to stop.
Seeing that the pony was apparently quiet, the defendant,
instead of veering to the right while yet some distance
away or slowing down, continued to approach directly
toward the horse without diminution of speed. When he
had gotten quite near, there being then no possibility of the
horse getting across to the other side, the defendant
quickly turned his car sufficiently to the right to escape
hitting the horse alongside of the railing where it was then
standing; but in so doing the automobile passed in such
close proximity to the animal that it became frightened and
turned its body across the bridge with its head toward the
railing. In so doing, it was struck on the hock of the left
hind leg by the flange of the car and the limb was broken.
The horse fell and its rider was thrown off with some
812
812

Picart vs. Smith.
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violence. From the evidence adduced in the case we believe

that when the accident occurred the free space where the
pony stood between the automobile and the railing of the
bridge was probably less than one and one half meters. As
a result of its injuries the horse died. The plaintiff received
contusions which caused temporary unconsciousness and
required medical attention for several days.
The question presented for decision is whether or not
the defendant in maneuvering his car in the manner above
described was guilty of negligence such as gives rise to a
civil obligation to repair the damage done; and we are of
the opinion that he is so liable. As the defendant started
across the bridge, he had the right to assume that the horse
and rider would pass over to the proper side; but as he
moved toward the center of the bridge it was demonstrated
to his eyes that this would not be done; and he must in a
moment have perceived that it was too late for the horse to
cross with safety in front of the moving vehicle. In the
nature of things this change of situation occurred while the
automobile was yet some distance away; and from this
moment it was not longer within the power of the plaintiff
to escape being run down by going to a place of greater
safety. The control of the situation had then passed entirely
to the defendant; and it was his duty either to bring his car
to an immediate stop or, seeing that there were no other
persons on the bridge, to take the other side and pass
sufficiently far away from the horse to avoid the danger of
collision. Instead of doing this, the defendant ran straight
on until he was almost upon the horse. He was, we think,
deceived into doing this by the fact that the horse had not
yet exhibited fright. But in view of the known nature of
horses, there was an appreciable risk that, if the animal in
question was unacquainted with automobiles, he might get
excited and jump under the conditions which here
confronted him. When the defendant exposed the horse and
rider to this danger he was, in our opinion, negligent in the
eye of the law.
813
VOL. 37, MARCH 15, 1918.
813
Picart vs. Smith.

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The test by which to determine the existence of negligence

in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then
he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct
of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the
situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of
a prudent man in a given situation must of course be
always determined in the light of human experience and in
view of the f facts involved in the particular case. Abstract
speculation cannot here be of much value but this much
can be profitably said: Reasonable men govern their
conduct by the circumstances which are before them or
known to them. They are not, and are not supposed to be,
omniscient of the future. Hence they can be expected to
take care only when there is something bef fore them to
suggest or warn of danger. Could a prudent man, in the
case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor
to take precautions to guard against that harm. Reasonable
foresight of harm, followed by the ignoring of the
suggestion born of this prevision, is always necessary
before negligence can be held to exist. Stated in these
terms, the proper criterion for determining the existence of
negligence in a given case is this: Conduct is said to be
negligent when a prudent man in the position of the
tortfeasor would have foreseen that an effect harmful to
another was sufficiently probable to warrant his foregoing
the conduct or guarding against its consequences.
Applying this test to the conduct of the defendant in the
present case we think that negligence is clearly
established.
814
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814
8/8/15, 6:24 AM

Picart vs. Smith.
A prudent man, placed in the position of the defendant,

would, in our opinion, have recognized that the course
which he was pursuing was fraught with risk, and would
therefore have foreseen harm to the horse and rider as a
reasonable consequence of that course. Under these
circumstances the law imposed on the defendant the duty
to guard against the threatened harm.
It goes without saying that the plaintiff himself was not
free from fault, for he was guilty of antecedent negligence
in planting himself on the wrong side of the road. But as
we have already stated, the defendant was also negligent;
and in such case the problem always is to discover which
agent is immediately and directly responsible. It will be
noted that the negligent acts of the two parties were not
contemporaneous, since the negligence of the defendant
succeeded the negligence of the plaintiff by an appreciable
interval. Under these circumstances the law is that the
person who has the last fair chance to avoid the impending
harm and f ails to do so is chargeable with the
consequences, without reference to the prior negligence of
the other party.
The decision in the case of Rakes vs. Atlantic, Gulf and
Pacific Co. (7 Phil. Rep., 359) should perhaps be mentioned
in this connection. This Court there held that while
contributory negligence on the part of the person injured
did not constitute a bar to recovery, it could be received in
evidence to reduce the damages which would otherwise
have been assessed wholly against the other party. The
defendant company had there employed the plaintiff, a
laborer, to assist in transporting iron rails from a barge in
Manila harbor to the company's yards located not far away.
The rails were conveyed upon cars which were hauled
along a narrow track. At a certain spot near the water's
edge the track gave way by reason of the combined effect of
the weight of the car and the insecurity of the road bed.
The car was in consequence upset; the rails slid off; and the
plaintiff's leg was caught and broken. It appeared in
evidence that the accident was due to the effects of a
typhoon
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815
VOL. 37, MARCH 15, 1918.
815
Picart vs. Smith.

which had dislodged one of the supports of the track. The
court found that the defendant company was negligent in
having failed to repair the bed of the track and also that
the plaintiff was, at the moment of the accident, guilty of
contributory negligence in walking at the side of the car
instead 'of being in front or behind. It was held that while
the defendant was liable to the plaintiff by reason of its
negligence in having failed to keep the track in proper
repair, nevertheless the amount of the damages should be
reduced on account of the contributory negligence of the
plaintiff. As will be seen the defendant's negligence in that
case consisted in an omission only. The liability of the
company arose from its responsibility for the dangerous
condition of its track. In a case like the one now before us,
where the defendant was actually present and operating
the automobile which caused the damage, we do not f feel
constrained to attempt to weigh the negligence of the
respective parties in order to apportion the damage
according to the degree of their relative fault. It is enough
to say that the negligence of the def fendant was in this
case the immediate and determining cause of the accident
and that the antecedent negligence of the plaintiff was a
more remote factor in the case.
A point of minor importance in the case is indicated in
the special defense pleaded in the defendant's answer, to
the effect that the subject matter of the action had been
previously adjudicated in the court of a justice of the peace.
In this connection it appears that soon after the accident in
question occurred, the plaintiff caused criminal proceedings
to be instituted before a justice of the peace charging the
defendant with the infliction of serious injuries (lesiones
graves). At the preliminary investigation the defendant was
discharged by the magistrate and the proceedings were
dismissed. Conceding that the acquittal of the def fendant
at a trial upon the merits in a criminal prosecution for the
offense mentioned would be res adjudicata upon the
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question of his civil liability arising from negligencea

point upon which it is unnecessary to express an opinion
the action of
816
816

Picart vs. Smith.
the justice of the peace in dismissing the criminal

proceeding upon the preliminary hearing can have no such
effect. (See U. S. vs. Banzuela and Banzuela, 31 Phil. Rep.,
564.)
From what has been said it results that the judgment of
the lower court must be reversed, and judgment is here
rendered that the plaintiff recover of the defendant the
sum of two hundred pesos (P200), with costs of both
instances. The sum here awarded is estimated to include
the value of the horse, medical expenses of the plaintiff, the
loss or damage occasioned to articles of -his apparel, and
lawful interest on the whole to the date of this recovery.
The other damages claimed by the plaintiff are remote or
otherwise of such character as not to be recoverable. So
ordered.
Arellano, C. J., Torres, Carson, Araullo, Avancea, and
Fisher, JJ., concur.
Johnson, J., reserves his vote.
MALCOLM, J., concurring:
After mature deliberation, I have finally decided to concur
with the judgment in this case. I do so because of my
understanding of the "last clear chance" rule of the law of
negligence as particularly applied to automobile accidents.
This rule cannot be invoked where the negligence of the
plaintiff is concurrent with that of the defendant. Again, if
a traveller when he reaches the point of collision is in a
situation to extricate himself and avoid injury, his
negligence at that point will prevent a recovery. But Justice
Street finds as a fact that the negligent act of the
defendant succeeded that of the plaintiff by an appreciable
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interval of time, and that at that moment the plaintiff had

no opportunity to avoid the accident. Consequently, the
"last clear chance" rule is applicable. In other words, when
a traveller has reached a point where he cannot extricate
himself and vigilance on his part will not avert the injury,
his negligence in reaching that position becomes the
condition and not the proximate cause of the injury and
will not preclude a recovery. (Note especially Aiken vs.
Metcalf [1917], 102 Atl., 330.)
Judgment reversed.
817
VOL. 37, MARCH 15, 1918.
817
Lim vs. Singian and Soler
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VOL. 39, FEBRUARY 4, 1919.
8/8/15, 6:25 AM
587
Daywalt vs. Corporacin de PP. Agustinos Recoletos.

[No. 13505. February 4, 1919.]
GEO. W. DAYWALT, plaintiff and appellant, vs. LA
CORPORACIN DE LOS PADRES AGUSTINOS
RECOLETOS ET AL., defendants and appellees.
1. CONTRACTS; DAMAGES FOR BREACH; LIABILITY OF
THIRD PARTY.Whatever may be the character of the
liability, if any, which a stranger to a contract may incur by
advising or assisting one of the parties to evade
performance, he cannot become more extensively liable in
damages for the nonperformance of the contract than the
party in whose behalf he intermeddles.
2. ID.; ID.; MEASURE OF DAMAGES FOR BREACH OF
CONTRACT.The damages recoverable upon breach of
contract are, primarily, the ordinary, natural and in a sense
the necessary damage resulting from the breach. Other
damages, known as special damages, are recoverable where
it appears that the particular conditions which made such
damages a probable consequence of the breach were known
to the delinquent party at the time the contract was made.
This proposition must be understood with the qualification
that, if the damages are in the legal sense remote or
speculative, knowledge of the special conditions which
render such damages possible will not make them
recoverable. Special damages of this character cannot be
recovered unless made the subject of special stipulation.
3. ID. ; ID. ; ID. ; DAMAGES FOR BREACH OF CONTRACT
FOR SALE OF LAND.The damages ordinarily
recoverable against a vendor
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588
588

for failure to deliver land which he has contracted to deliver
is the value of the use and occupation of the land for the
time during which it is wrongfully withheld.

Manila. Ostrand, J.
C. C. Cohn and Thos. D. Aitken for appellant.
Crossfield & O'Brien for appellee.
STREET, J.:
In the year 1902, Teodorica Endencia, an unmarried
woman, resident in the Province of Mindoro, executed a
contract whereby she obligated herself to convey to Geo. W.
Daywalt, .a tract of land situated in the barrio of
Mangarin, municipality of Bulalacao, now San Jose, in said
province. It was agreed that a deed should be executed as
soon as the title to the land should be perf ected by
proceedings in the Court of Land Registration and a
Torrens certificate should be procured therefor in the name
of Teodorica Endencia. A decree recognizing the right ,of
Teodorica as owner was entered in said court in August
1906, but the Torrens certificate was not issued until later.
The parties, however, met immediately upon the entering
of this decree and made a new contract with a view to
carrying their original agreement into effect. This new
contract was executed in the form of a deed of conveyance
and bears date of August 16, 1906. The stipulated price
was fixed at P4,000, and the area of the land enclosed in
the boundaries defined in the contract was stated to be 452
hectares and a fraction.
The second contract was not immediately carried into
effect for the reason that the Torrens certificate was not yet
obtainable and in fact said certificate was not issued until
the period of performance contemplated in the contract had
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expired. Accordingly, upon October 3, 1908, the parties

entered into still another agreement, superseding the old,
by which Teodorica Endencia agreed, upon
589
589

receiving the Torrens title to the land in question, to deliver
the same to the Hongkong and Shanghai Bank in Manila,
to be forwarded to the Crocker National Bank in San
Francisco, where it was to be delivered to the plaintiff upon
payment of a balance of P3,100.
The Torrens certificate was in time issued to Teodorica
Endencia, but in the course of the proceedings relative to
the registration of the land, it was f ound by official survey
that the area of the tract inclosed in the boundaries stated
in the contract was about 1,248 hectares instead of 452
hectares as stated in the contract. In view of this
development Teodorica Endencia became reluctant to
transfer the whole tract to the purchaser, asserting that
she never intended to sell so large an amount of land and
that she had been misinformed as to its area.
This attitude of hers led to litigation in which Daywalt
finally succeeded, upon appeal to the Supreme Court, in
obtaining a decree for specific performance; and Teodorica
Endencia was ordered to convey the entire tract of land to
Daywalt pursuant to the contract of October 3, 1908, which
contract was declared to be in full force and effect. This
decree appears to have
become finally effective in the early
1
part of the year 1914.
The defendant, La Corporacin de los Padres Recoletos,
is a religious corporation, with its domicile in the city of
Manila. Said corporation was formerly the owner of a large
tract of land, known as the San Jose Estate, on the island
of Mindoro, which was sold to the Government of the
Philippine Islands in the year 1909. The same corporation
was at this time also the owner of another estate on the
same island immediately adjacent to the land which
Teoderica Endencia had sold to Geo. W. Daywalt; and for
many years the Recoletos Fathers had maintained large
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herds of cattle on the farms referred to. Their

representative, charged with the management of these
farms, was
____________
1
Daywalt vs. Endencia, R. G. No. 7331, decided November 16, 1912,
not published.
590
590

father Isidoro Sanz, himself a member of the order. Father
Sanz had long been well acquainted with Teodorica
Endencia and exerted over her an influence and
ascendency due to his religious character as well as to the
personal friendship which existed between them. Teodorica
appears to be a woman of little personal force, easily
subject to influence, and upon all the important matters of
business was accustomed to seek, and was given, the advice
of Father Sanz and other members of his order with whom
she came in contact.
Father Sanz was fully aware of the existence of the
contract of 1902 by which Teodorica Endencia agreed to sell
her land to the plaintiff as well as of the later important
developments connected with the history of that contract
and the contract - substituted successively for it; and in
particular Father Sanz, as well as other members of the
defendant corporation, knew of the existence of the contract
of October 3, 1908, which, as we have already seen, finally
fixed the rights of the parties to the property in question.
When the Torrens certificate was finally issued in 1909 in
favor of Teodorica Endencia, she delivered it for
safekeeping to the defendant corporation, and it was then
taken to Manila where it remained in the custody and
under the control of P. Juan Labarga the procurador and
chief official of the defendant corporation, until the delivery
thereof to the plaintiff was made compulsory by reason of
the decree of the Supreme Court in 1914.
When the defendant corporation sold the San Jose
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Estate, it was necessary to bring the cattle off of that

property; and, in the first half of 1909, some 2,368 head
were removed to the estate of the corporation immediately
adjacent to the property which the plaintiff had purchased
from Teodorica Endencia. As Teodorica still retained
possession of said property Father Sanz entered into an
arrangement with her whereby large numbers of cattle
belonging to the def endant corporation were pastured
upon said land during a period extending from June 1,
1909, to May 1, 1914.
591
591

Under the first cause stated in the complaint in the present
action the plaintiff seeks to recover from the defendant
corporation the sum of P24,000, as damages for the use and
occupation of the land in question by reason of the
pasturing of cattle thereon during the period stated. The
trial court came to the conclusion that the defendant
corporation was liable for damages by reason of the use and
occupation of the premises in the manner stated; and fixed
the amount to be recovered at P2,497. The plaintiff
appealed and has assigned error to this part of the
judgment of the court below, insisting that damages should
have been awarded in a much larger sum and at least to
the full extent of P24,000, the amount claimed in the
complaint.
As the def endant did not appeal, the propriety of
allowing damages f or the use and occupation of the land to
the extent of P2,497, the mount awarded, is not now in
question; and the only thing here to be considered, in
connection with this branch of the case, is whether the
damages allowed under this head should be increased. The
trial court rightly ignored the fact that the defendant
corporation had paid Teodorica Endencia f or use and
occupation of the same land during the period in question
at the rate of P425 per annum, inasmuch as the final
decree of this court in the action for specific performance is
conclusive against her right, and as the defendant
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corporation had notice of the rights of the plaintiff under

his contract of purchase, it can not be permitted that the
corporation should escape liability in this action by proving
payment of rent to a person other than, the true owner.
With ref erence to the rate at which compensation
should be estimated the trial court came to the following
conclusion:
"As to the rate of the compensation, the plaintiff contends that the
defendant corporation maintained at least one thousand head of
cattle on the land and that the pasturage was of the value of forty
centavos per head monthly, or P4,800 annually, for the whole tract.
The court can not accept this view. It is rather improbable that
1,248 hec592
592

tares of wild Mindoro land would furnish sufficient pasturage for

one thousand head of cattle during the entire year, and, considering
the locality, the rate of forty centavos per head monthly seems too
high. The evidence shows that after having recovered possession of
the land the plaintiff rented it to the defendant corporation for fifty
centavos per hectare annually, the tenant to pay the taxes on the
land, and this appears to be a reasonable rent. There is ,no reason
to suppose that the land was worth more for grazing purposes
during the period -from 1909 to 1913, than it was at the later
period. Upon this basis the plaintiff is entitled to damages in. the
sum of P2,497, and is under no obligation to reimburse the
defendants for the land taxes paid by either f them during the
period the land was occupied by the defendant corporation. It may
be mentioned in this connection that the Lontok tract adjoining the
land in question and containing over three thousand hectares
appears to have been leased for only P1,000 a year, plus the taxes."
From this it will be seen that the trial court estimated the
rental value of the land for grazing purposes at 50 centavos
per hectare per annum, and roughly adopted the period of
four years as the time for which compensation at that rate
should be made. As the. court had already found that the
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defendant was liable for these damages from June, 1, 1909,

to May 1, 1914, or a period of four years and eleven
months, there seems some ground for the contention made
in the appellant's first assignment of error that the court's
computation was erroneous, even accepting the rule upon
which the damages were assessed, as it is manifest that at
the rate of 50 centavos per hectare per annum, the
damages for f our years and eleven months would be
P3,090.
Notwithstanding this circumstance, we are of the
opinion that the damages assessed are sufficient to
compensate the plaintiff for the use and occupation of the
land during the whole time it was used. There is evidence
in the record strongly tending to show that the wrongful
use of the
593
593

land by the defendant was not continuous throughout the
year but was confined mostly to the season when the f
orage obtainable on the land of the defendant corporation
was not sufficient to maintain its cattle, for which reason it
became necessary to allow them to go over to pasture on
the land in question; and it is not clear that the whole of
the land was used f or pasturage at any time.
Considerations of this character probably led the trial court
to adopt four years as roughly being the period during
which compensation should be allowed. But whether this
was advertently done or not, we see no sufficient reason, in
the uncertainty of the record with reference to the number
of the cattle grazed and the period when the land was used,
for substituting our guess for the estimate made by the
trial court. In the second cause of action stated in the
complaint
the plaintiff seeks to recover f rom the def endant
corporation the sum of P500,000, as damages, on the
ground that said corporation, for its own selfish purposes,
unlawfully induced Teodorica Endencia to refrain from the
performance of her contract f or the sale of the land in
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question and to withhold delivery to the plaintiff of the

Torrens title, and further, maliciously and without
reasonable cause, maintained her in her defense to the
action of specific performance which was finally decided in
favor of the plaintiff in this court. The cause of action here
stated is based on a liability derived from the wrongful
interference of the defendant in the performance of the
contract between the plaintiff and Teodorica Endencia; and
the large damages laid in the complaint were, according to
the proof submitted by the plaintiff, incurred as a result of
a combination of circumstances of the following nature: In
1911, it appears, the plaintiff, as the owner of the land
which he had bought from Teodorica Endencia entered into
a contract (Exhibit C) with S. B. Wakefield, of San
Francisco, for the sale and disposal of said lands to a sugar
growing and milling enterprise, the successful launching of
which depended on the ability of
594
594

Daywalt to get possession of the land and the Torrens
certificate of title. In order to accomplish this end, the
plaintiff returned to the Philippine Islands, communicated
his arrangement to the defendant, and made repeated
efforts to secure the registered title for delivery in
compliance with said agreement with Wakefield. Teodorica
Endencia seems to have yielded her consent to the
consummation of her contract, but the Torrens title was
then in the possession of Padre Juan Labarga in Manila,
who refused to deliver the document. Teodorica also was in
the end prevailed upon to stand out against the perf
ormance of her contract with the plaintiff with the result
that the plaintiff was kept out of possession until the
Wakefield project for the establishment of a large sugar
growing and milling enterprise fell through. In the light of
what has happened in recent years in the sugar industry,
we feel justified in saying that the project above referred to,
if carried into effect, must inevitably have proved a great
success.
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The determination of the issue presented in this second

cause of action requires a consideration of two points. The
first is whether a person who is not a party to a contract for
the sale of land makes himself liable for damages ,to the
vendee, beyond the value of the use and occupation, by
colluding with the vendor and maintaining him in the
effort to resist an action for specific performance. The
second is whether the damages which the plaintiff seeks to
recover under this head are too remote and speculative to
be the subject of recovery.
As preliminary to a consideration of the first of these
questions, we deem it well to dispose of the contention that
the members of the defendant corporation, in advising and
prompting Teodorica Endencia not to comply with the
contract of sale, were actuated by improper and malicious
motives. The trial court found that this contention was not
sustained, observing that while it was true that the
circumstances pointed to an entire sympathy on the part
595
595

of the defendant corporation with the efforts of Teodorica
Endencia to defeat the plaintiff's claim to the land, the fact
that its officials may have advised her not to carry the
contract into effect would not constitute actionable
interference with such contract. It may be added that when
one considers the hardship that the ultimate performance
of that contract entailed on the vendor, and the doubt in
which the issue was involvedto the extent that the
decision of the Court of the First Instance was unfavorable
to the plaintiff and the Supreme Court itself was divided
the attitude of the defendant corporation, as exhibited in
the conduct of its procurador, Juan Labarga, and other
members of the order of the Recollect Fathers, is not
difficult to understand. To our mind a fair conclusion on
this feature of the case is that father Juan Labarga and his
associates believed in good faith that the contract could not
be enf orced and that Teodorica would be wronged if it
should be carried into effect. Any advice or assistance
Page 9 of 22
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which they may have given was, therefore, prompted by no

mean or improper motive. It is not, in our opinion, to be
denied that Teodorica would have surrendered the
documents of title and given possession of the land but for
the influence and promptings of members of the defendant
corporation. But we do not credit the idea that they were in
any degree influenced to the giving of such advice by the
desire to secure to themselves the paltry privilege of
grazing their cattle upon the land in question to the
prejudice of the just rights of the plaintiff.
The attorney for the plaintiff maintains that, by
interfering in the performance of the contract in question
and obstructing the plaintiff in his efforts to secure the
certificate of title to the land, the defendant corporation
made itself a co-participant with Teodorica Endencia in the
breach of said contract; and inasmuch as father Juan
Labarga, at the time of said unlawful intervention between
the contracting parties, was fully aware of the existence of
the contract (Exhibit C) which the plaintiff had made with
596
596

S. B. Wakefield, of San Francisco, it is insisted that the
defendant corporation is liable for the loss consequent upon
the failure of the project outlined in said contract.
In this connection reliance is placed by the plaintiff upon
certain American and English decisions in which it is held
that a person who is a stranger to a contract may, by an
unjustifiable interference in the performance thereof,
render himself liable f or the damages consequent upon
non-performance. It is said that the doctrine of these cases
was recognized by this court in Gilchrist vs. Cuddy (29
Phil. Rep., 542); and we have been earnestly pressed to
extend the rule there enunciated to the situation here
presented. Somewhat more than half a century ago the
English Court of the Queen's Bench saw its way clear to
permit an action for damages to be maintained against a
stranger to a contract wrongfully interfering in its
performance. The leading case on this subject is Lumley vs.
Page 10 of 22
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Gye ([1853], 2 El. & Bl., 216). It there appeared that the
plaintiff, as manager of a theatre, had entered into a
contract with Miss Johanna Wagner, an opera singer,
whereby she bound herself for a period to sing in the
plaintiff's theatre and nowhere else. The defendant,
knowing of the existence of this contract, and, as the
declaration alleged, "maliciously intending to injure the
plaintiff," enticed and procured Miss Wagner to leave the
plaintiff's employment. It was held that the plaintiff was
entitled to recover damages. The right which was here
recognized had its origin in a rule, long familiar to the
courts of the common law, to the effect that any person who
entices a servant from his employment is liable in damages
to the master. The master's interest in the service rendered
by his employee is here considered as a distinct subject of
juridical right. It being thus accepted that it is a legal
wrong to break up a relation of personal service, the
question now arose whether it is illegal for one person to
interfere with any contract relation subsisting between
others. Prior to the decision of Lumley vs. Gye [supra] it
had been supposed that the liability here
597
597

under consideration was limited to the cases of the
enticement of menial servants, apprentices, and others to
whom the English Statutes of Laborers were applicable.
But in the case cited the majority of the judges concurred
in the opinion that the principle extended to all cases of
hiring. This doctrine was f ollowed by the Court of Appeal
in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in
Temperton vs. Russell ([1893], 1 Q. B., 715), it was held
that the right of action for maliciously procuring a breach
of contract is not confined to contracts f or personal
services, but extends to contracts in general. In that case
the contract which the defendant had procured to be
breached was a contract for the supply of building material.
Malice in some form is generally supposed to be an
essential ingredient in cases of interf erence with contract
Page 11 of 22
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relations. But upon the authorities it is enough if the

wrongdoer, having knowledge of the existence of the
contract relation, in bad faith sets about to break it. up.
Whether his motive is to benefit himself or gratify his spite
by working mischief to the employer is immaterial. Malice
in the sense of ill-will or spite is not essential.
Upon the question as to what constitutes legal
justification, a good illustration was put in the leading
case. If a party enters into contract to go for another upon a
journey to a remote and unhealthful climate, and a third
person, with a bona fide purpose of benefiting the one who
is under contract to go, dissuades him from the step, no
action will lie.. But if the advice is not disinterested and
the persuasion is used for "the indirect purpose of
benefiting the defendant at the expense of the plaintiff,"
the intermedler is liable if his advice is taken and the
contract broken.
The doctrine embodied in the cases just cited has
sometimes been found useful, in the complicated relations
of modern industry, as a means of restraining the activities
of labor unions and industrial societies when improperly
engaged in the promotion of strikes. An illustration of the
application of the doctrine in question in a case of this kind
598
598

is found in South Wales Miners Federation vs. Glamorgan
Coal Co. ([1905], A. C., 239). It there appeared that certain
miners employed in the plaintiff's collieries, acting under
the order of the executive council of the defendant
federation, violated their contract with the plaintiff by
abstaining from work on certain days. The federation and
council acted without any actual malice or ill-will towards
the plaintiff, and the only object of the order in question
was that the price of coal might thereby be kept up, a factor
which affected the miner's wage scale. It was held that no
sufficient justification was shown and that the federation
was liable.
In the United States, the rule established in England by
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Lumley vs. Gye [supra] and subsequent cases is commonly

accepted, though in a few of the States the broad idea that
a stranger to a contract can be held liable Upon it is
rejected, and in these jurisdictions the doctrine, if accepted
at all, is limited to the situation where the contract is
strictly for personal service. (Boyson vs. Thorn, 98 Cal.,
578; Chambers & Marshall vs. Baldwin 91 Ky., 121;
Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel
Co. vs. Hudson Bros. Com. Co., 138 Mo.; 439.)
It should be observed in this connection that, according
to the English and American authorities, no question can
be made as to the liability of one who interf eres with a
contract existing between others by means which, under
known legal canons, can be denominated an unlawful
means. Thus, if performance is prevented by force,
intimidation, coercion, or threats, or by false or defamatory
statements, or by nuisance or riot, the person using such
unlawful means is, under all the authorities, liable for the
damage which ensues. And in jurisdictions where the
doctrine of Lumley vs. Gye [supra] is rejected, no liability
can arise from a meddlesome and malicious interference
with a contract relation unless some such unlawful means
as those just indicated are used. (See cases last above
cited.)
This brings us to the decision made by this court in
599
599

Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared
that one Cuddy, the owner of a cinematographic film, let it
under a rental contract to the plaintiff Gilchrist for a
specified period of time. In violation of the terms of this
agreement, Cuddy proceeded to turn over the film also
under a rental contract, to the defendants Espejo and
Zaldarriaga. Gilchrist thereupon restored to the Court of
First. Instance and procured an injunction restraining the
defendants from exhibiting the film in question in their
theater during the period specified in the contract of Cuddy
with Gilchrist. Upon appeal to this court it was in effect
Page 13 of 22
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held that the injunction was not improperly granted,

although the defendants did not, at the time their contract
was made, know the identity of the plaintiff as the person
holding the prior contract but did know of the existence of a
contract in f avor of someone. It was also said arguendo,
that the defendants would have been liable in damages
under article 1902 of the Civil Code, if the action had been
brought by the plaintiff to recover damages. The force of
the opinion is, we think, somewhat weakened by the
criticism contained in the concurring opinion, wherein it is
said that the question of breach of contract by inducement
was not really involved in the case. Taking the decision
upon the point which was really decided, it is authority for
the proposition that one who buys something which he
knows has been sold to some other person can be restrained
from using that thing to the prejudice of the person having
the prior and better right.
Translated into terms applicable to the case at bar, the
decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542),
indicates that the def endant corporation, having notice of
the sale of the land in question to Daywalt, might have
been enjoined by the latter from using the property for
grazing its cattle thereon. That the defendant corporation
is also liable in this action for the damage resulting to the
plaintiff from the wrongful use and occupation of the
property has also been already determined. But it will be
observed
600
600

that in order to sustain this liability it is not necessary to
resort to any subtle exegesis relative to the liability of a
stranger to a contract for unlawful interference in the
performance thereof. It is enough that defendant used the
property with notice that the plaintiff had a prior and
better right.
Article 1902 of the Civil Code declares that any person
who by an act or omission, characterized by fault or
negligence, causes damage to another shall be liable for the
Page 14 of 22
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damage so done. Ignoring so much of this article as relates

to liability f or negligence, we take the rule to be that a
person is liable for damage done to another by any culpable
act; and by "culpable act" we mean any act which is
blameworthy when judged by accepted legal standards. The
idea thus expressed is undoubtedly broad enough to include
any rational conception of liability for the tortious acts
likely to be developed in any society. Thus considered, it
cannot be said that the doctrine of Lumley vs. Gye [supra]
and related cases is repugnant to the principles of the civil
law.
Nevertheless, it must be admitted that the codes and
jurisprudence of the civil law furnish a somewhat
uncongenial field in which to propagate the idea that a
stranger to a contract may be sued for the breach thereof.
Article 1257 of the Civil Code declares that contracts are
binding only between the parties and their privies. In
conformity with this it has been held that a stranger to a
contract has no right of action for the nonfulfillment of the
contract except in the case especially contemplated in the
second paragraph of the same article. (Uy Tam and Uy Yet
vs. Leonard, 30 Phil. Rep., 471.) As observed by this court
in Manila Railroad Co. vs. Compaa Trasatlntica, R. G.
No. 11318 (38 Phil. Rep., 875), a contract, when effectually
entered into between certain parties, determines not only
the character and extent of the liability of the contracting
parties but also the person or entity by whom the
obligation is exigible. The same idea should. apparently be
ap601
601

plicable with respect to the person against whom the
obligation of the contract may be enforced; for it is evident
that there must be a certain mutuality in the obligation,
and if the stranger to a contract is not permitted to sue to
enforce it, he cannot consistently be held liable upon it.
If the two antagonistic ideas which we have just brought
into juxtaposition are capable of reconciliation, the process
Page 15 of 22
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must be accomplished by distinguishing clearly between

the right of action arising from the improper interference
with the contract by a stranger thereto, considered as an
independent act generative of civil liability, and the right of
action ex contractu against a party to the contract resulting
from the breach thereof. However, we do not propose here
to pursue the matter further, inasmuch as, for reasons
presently to be stated, we are of the opinion that neither
the doctrine of Lumley vs. Gye [supra] nor the application
made of it by this court in Gilchrist vs. Cuddy (29 Phil.
Rep., 542), affords any basis for the recovery of the
damages which the plaintiff is supposed to have suffered by
reason of his inability to comply with the terms of the
Wakefield contract.
Whatever may be the character of the liability which a
stranger to a contract may incur by advising or assisting
one of the parties to evade performance, there is one
proposition upon which all must agree. This is, that the
stranger cannot become more extensively liable in damages
for the nonperformance of the contract than the party in
whose behalf he intermeddles. To hold the stranger liable
for damages in excess of those that could be recovered
against the immediate party to the contract would lead to
results at once grotesque and unjust. In the case at bar, as
Teodorica Endencia was the party directly bound by the
contract, it is obvious that the liability of the defendant
corporation, even admitting that it has made itself
coparticipant in the breach of the contract, can in no event
exceed hers. This leads us to consider at this point the
extent of the liability of Teodorica Endencia to the plaintiff
by reason of her failure
602
602

to surrender the certificate of title and to place the plaintiff
in possession.
It should in the first place be noted that the liability of
Teodorica Endencia for damages resulting from the breach
of her contract with Daywalt was a proper subject for
Page 16 of 22
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adjudication in the action for specific performance which

Daywalt instituted against her in 1909 and which was
litigated by him to a successful conclusion in this court, but
without obtaining any special adjudication with referrence
to damages. Indemnification for damages resulting from
the breach of a contract is a right inseparably annexed to
every action for the fulfilment of the obligation (art. 1124,
Civil Code); and it is clear that if damages are not sought
or recovered in the action to enforce performance they
cannot be recovered in an independent action. As to
Teodorica Endencia, therefore, it should be considered that
the right of action to recover damages for the breach of the
contract in question was exhausted in the prior suit.
However, her attorneys have not seen fit to interpose the
defense of res judicata in her behalf; and as the defendant
corporation was not a party to that action, and such
defense could not in any event be of any avail to it, we
proceed to consider the question of the liability of Teodorica
Endencia for damages without reference to this point.
The most that can be said with reference to the conduct
of Teodorica Endencia is that she refused to carry out a
contract for the sale of certain land and resisted to the last
an action for specific performance in court. The result was
that the plaintiff was prevented during a period of several
years from exerting that control over the property which he
was entitled to exert and was meanwhile unable to dispose
of the property advantageously. Now, what is the measure
of damages for the wrongful detention of real property by
the vender after the time has come for him to place the
purchaser in possession?
The damages ordinarily and normally recoverable
against a vendor for f ailure to deliver land which he has
contracted
603
603

to deliver is the value of the use and occupation of the land
for the time during which it is wrongfully withheld. And of
course where the purchaser has not paid the purchase
Page 17 of 22
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money, a deduction may be made in respect to the interest

on the money which constitutes the purchase price.
Substantially the same rule holds with respect to the
liability of a landlord who fails to put his tenant in
possession pursuant to a contract of lease. The measure of
damages is the value of the leasehold interest, or use and
occupation, less the stipulated rent, where this has not
been paid. The rule that the measure of damages f or the
wrongf ul detention of land is normally to be found in the
value of use and occupation is, we believe, one of the things
that may be considered certain in the law (39 Cyc., 1630; 24
Cyc., 1052; Sedgewick on Damages, Ninth ed., sec. 185.)
almost as wellsettled, indeed, as the rule that the measure
of damages for the wrongful detention of money is to be f
ound in the interest.
We recognize the possibility that more extensive
damages may be recovered where, at the time of the
creation of the contractual obligation, the vendor, or lessor,
is aware of the use to which the purchaser or lessee desires
to put the property which is the subject of the contract, and
the contract is made with the eyes of the vendor or lessor
open to the possibility of the damage which may result to
the other party from his own failure to give possession. The
case before us is not of this character, inasmuch as at the
time when the rights of the parties under the contract were
determined, nothing was known to any of them about the
San Francisco capitalist who would be willing to back the
project portrayed in Exhibit C.
The extent of the liability for the breach of a contract
must be determined in the light of the situation in
existence at the time the contract is made; and the
damages ordinarily recoverable are in all events limited to
such as might be reasonably foreseen in the light of the
facts then known to the contracting parties. Where the
purchaser desires
604
604

to protect himself, in the contingency of the failure of the
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vendor promptly to give possession, from the possibility of

incurring other damages than such as are incident to the
normal value of the use and occupation, he should cause to
be inserted in the contract a clause providing f or
stipulated amount to be paid upon failure of the vendor to
give possession; and no case has been called to our
attention where, in the absence of such a stipulation,
damages have been held to be recoverable by the purchaser
in excess of the normal value of use and occupation. On the
contrary, the most fundamental conceptions of the law
relative to the assessment of damages are inconsistent with
such idea.
The principles governing this branch of the law were
profoundly considered in the case of Hadley vs. Baxendale
(9 Exch., 341), decided in the English Court of Exchequer
in 1854; and a few words relative to the principles
governing the recovery of damages, as expounded in that
decision, will here be found instructive. The decision in
that case is considered a leading authority in the
jurisprudence of the common law. The plaintiffs in that
case were proprietors of a mill in Gloucester, which was
propelled by steam, and which was engaged in grinding
and supplying meal and flour to customers. The shaft of the
engine got broken, and it became necessary that the broken
shaft be sent to an engineer or foundry man at Greenwich,
to serve as a model for casting or manufacturing another
that would fit into the machinery. The broken shaft could
be delivered at Greenwich on the second day after its
receipt by the carrier It was delivered to the defendants,
who were common carriers engaged in that business
between these points, and who had told plaintiffs it would
be delivered at Greenwich on the second day after its
delivery to them, if delivered at a given hour. The carriers
were informed that the mill was stopped, but were not
informed of the special purpose for which the broken shaft
was desired to be forwarded. They were not told the mill
would remain idle until the new shaft would be returned,
or that the new shaft could not
605
605
Page 19 of 22
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be manufactured at Greenwich until the broken one
arrived to serve as a model. There was delay beyond the
two days in delivering the broken shaft at Greenwich, and
a corresponding delay in starting the mill. No explanation
of the delay was offered by the carriers. The suit was
brought to recover damages for the lost profits of the mill,
caused by the delay in delivering the broken shaft. It was
held that the plaintiff could not recover.
The discusion contained in the opinion of the court in
that case leads to the conclusion that the damages
recoverable in case of the breach of a contract are two sorts,
namely, (1) the ordinary, natural, and in a sense necessary
damage; and (2) special damages.
Ordinary damages is found in all breaches of contract
where there are no special circumstances to distinguish the
case specially from other contracts. The consideration paid
for an unperformed promise is an instance of this sort of
damage. In all such cases the damages recoverable are
such- as naturally and generally would result from such a
breach, "according to the usual course of things." In cases
involving only ordinary damage no discussion is ever
indulged as to whether that damage was contemplated or
not. This is conclusively presumed from the immediateness
and inevitableness of the damage, and the recovery of such
damage follows as a necessary legal consequence of the
breach. Ordinary damage is assumed as a matter of law to
be within the contemplation of the parties.
Special damage, on the other hand, is such as follows
less directly from the breach than ordinary damage. It is
only found in case where some external condition, apart
from the actual terms to the contract exists or intervenes,
as it were, to give a turn to affairs and to increase damage
in a way that the promisor, without actual notice of that
external condition, could not reasonably be expected to
foresee. Concerning this sort of damage, Hadley vs.
Baxendale (1854) [supra] lays down the definite and just
rule that before such damage can be recovered the plaintiff
must
606
Page 20 of 22
606
8/8/15, 6:25 AM

show that the particular condition which made the damage
a possible and likely consequence of the breach was known
to the defendant at the time the contract was made.
The statement that special damages may be recovered
where the likelihood of such damages flowing from the
breach of the contract is contemplated and foreseen by the
parties needs to be supplemented by a proposition which,
though not enunciated in Hadley vs. Baxendale, is yet
clearly to be drawn from subsequent cases. This is that
where the damage which a plaintiff seeks to recover as
special damage is so far speculative as to be in
contemplation of law remote, notification of the special
conditions which make that damage possible cannot render
the defendant liable therefor. To bring damages which
would ordinarily be treated as remote within the category
of recoverable special damages, it is necessary that the
condition should be made the subject of contract in such
sense as to become an express or implied term of the
engagement. Horne vs. Midland R. Co. (L. R., 8 C. P., 131)
is a case where the damage which was sought to be
recovered as special damage was really remote, and some
of the judges rightly placed the disallowance of the damage
on the ground that to make such damage recoverable, it
must so far have been within the contemplation of the
parties as to form at least an implied term of the contract.
But others proceeded on the idea that the notice given to
the defendant was not sufficiently full and definite. The
result was the same in either view. The facts in that case
were as follows: The plaintiffs, shoe manufacturers at K,
were under contract to supply by a certain day shoes to a
firm in London for the French government. They delivered
the shoes to a carrier in sufficient time f or the goods to
reach London at the time stipulated in the contract and
informed the railroad agent that the shoes would be thrown
back upon their hands if they did not reach the destination
in time. The defendants negligently failed to forward the
good in due season. The sale was therefore lost, and the
market having fallen, the plaintiffs had to sell at a loss.
Page 21 of 22
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607
607
Ahern vs. Julian.

In the preceding discussion we have considered the
plaintiff's right chiefly as against Teodorica Endencia; and
what has been said suffices in our opinion to demonstrate
that the damages laid under the second cause of action in
the complaint could not be recovered from her, first,
because the damages in question are special damages
which were not within contemplation of the parties when
the contract was made, and secondly, because said damages
are too remote to be the subject of recovery. This conclusion
is also necessarily fatal to the right of the plaintiff to
recover such damages from the defendant corporation, for,
as already suggested, by advising Teodorica not to perform
the contract, said corporation could in no event render
itself more extensively liable than the principal in the
contract.
Our conclusion is that the judgment of the trial court
should be affirmed, and it is so ordered, with costs against
the appellant.
Arellano, C. J., Torres, Carson, Araullo, Malcolm,
Avancea, and Moir, JJ., concur.
Judgment affirmed.
____________
Page 22 of 22
SUPREME COURT REPORTS ANNOTATED VOLUME 018
VOL. 18, SEPTEMBER 28, 1966
8/8/15, 6:26 AM
155
Air France vs. Carrascoso

No. L-21438. September 28, 1966.
AIR FRANCE, petitioner, vs.. RAFAEL CARRASCOSO and
the HONORABLE COURT OF APPEALS, respondents.
Common carriers; Contracts; First class tickets.A written
document speaks a uniform language; the spoken word could be
notoriously unreliable. If only to achieve stability in the relations
between passenger and air carrier, adherence to the terms of a
ticket is desirable.
Same; Damages; Moral damages; Trial; Bad faith in breach of
contract of carriage.Where at the start of the trial, respondent's
counsel placed petitioner on guard that he intended to prove that,
while sitting in the plane in Bangkok, the respondent was ousted
.by petitioner's manager, who gave his seat to a white man, and
evidence of bad faith in the fulfillment of the contract was
presented without objection on the part of the petitioner, it is
therefore unnecessary to inquire as to whether or not there is
sufficient averment in the complaint to justify an award for moral
damages. Deficiency in the complaint, if any, was cured by the
evidence.
Same; Exemplary damages.The New Civil Code gives the
court ample power to grant exemplary damages in contracts and
quasi-contracts. The only condition is that defendant should have
acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. The manner of ejectment of respondent Carrascoso from
his first class seat fits into this legal precept.
Same; Attorney's fees.The right to attorney's fees is fully
established. The grant of exemplary damages justifies a similar
judgment for attorney's fees. The least that can be said is that the
courts below felt that it is but just and equitable that attorneys fees
http://www.central.com.ph/sfsreader/session/0000014f0a44fefb80927b04000a0094004f00ee/p/AMG863/?username=Guest
Page 1 of 21
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be given. We do not intend to break tradition that discretion well

exercisedas it was hereshould not be disturbed.
156
156
SUPREME COURT REPORTS ANNOTATED

PETITION for review by certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
Lichauco, Picazo & Agcaoili for petitioner.
Bengzon, Villegas & Zarraga for respondent R.
Carrascoso.
SANCHEZ, J.:
1
The Court of First Instance of Manila sentenced petitioner

to' pay respondent Rafael Carrascoso P25,000.00 by way of
moral damages; P10,000.00 as exemplary damages;
P393.20 representing the difference in fare between first
class and tourist class for the portion of the trip BangkokRome, these various amounts with interest at the legal
rate, from the date of the filing of the complaint until paid;
plus P3,000.002 for attorneys' fees; and the costs of suit.
On appeal, the Court of Appeals slightly reduced the
amount of refund on Carrascoso's plane ticket from
P393.20 to P383.10, and voted to affirm the appealed
decision "in all other respects'', with costs against
petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as "fully
supported by the evidence of record", are:
"Plaintiff, a civil engineer, was a member of a group of 48 Filipino
pilgrims that left Manila for Lourdes on March 30, 1958:
On March 28, 1958, the defendant, Air France, through its
authorized agent, Philippine Air Lines, Inc., issued to plaintiff a
'first class' round trip airplane ticket from Manila to Rome. From
Manila to Bangkok, plaintiff travelled in 'first class', but at
Bangkok, the Manager of the defendant airline forced plaintiff to
vacate the 'first class' seat that he was occupying because, in the
Page 2 of 21
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words of the witness Ernesto G. Cuento, there was a 'white man',

who, the Manager alleged, had a 'better right' to the seat. When
asked to vacate his 'first class' seat, the plaintiff, as was to be
expected, refused, and
_______________
1
Civil Case No. 38810, "Rafael Carrascoso, plaintiff, vs. Air France,
defendant," R.A., pp. 79-80.

2
C.A.-G.R. No. 26522-R, "Rafael Carrascoso, plaintiff-appellee, vs. Air
France, defendant-appellant."
157
157

told defendant's Manager that his seat would be taken over his
dead body; a commotion ensued, and, according to said Ernesto G,
Cuento, 'many of the Filipino passengers got nervous in the tourist
class; when they found out that Mr. Carrascoso was having a hot
discussion with the white man [manager], they came all across to
Mr. Carrascoso and pacified Mr. Carrascoso to give his seat to the
white man' (Transcript, p. 12, Hearing of May 26, 1959); and
3
plaintiff reluctantly gave his 'first class' seat. in the plane."
1. The trust of the relief4 petitioner now seeks is that we

review "all the findings" of respondent Court of Appeals.
Petitioner charges that respondent court failed to make
complete findings of fact on all the issues properly laid
before it. We are asked to consider- facts favorable to
petitioner, and then, to overturn the appellate court's
decision.
Coming into focus is the constitutional mandate that
"No decision shall be rendered by any court of record
without expressing therein clearly 5and distinctly the facts
and the law on which it is based". This is echoed in the
statutory demand that a judgment determining the merits
of the case shall state "clearly6 and distinctly the facts and
the law on which it is based" ; and that "Every decision of
the Court of Appeals shall contain complete
findings of fact
7
on all issues properly raised before it".
A decision with absolutely nothing to support it is a
Page 3 of 21
8/8/15, 6:26 AM
nullity. It is open to direct attack. The law, however, solely

insists that a decision state the "essential ultimate
facts"
9
upon which the court's conclusion is drawn, A court of
justice is not hidebound
to write in its decision every bit
10
and piece of evidence presented by one party
________________
3
Appendix A, petitioner's brief, pp. 146-147. See also R.A., pp. 66-67.
Petitioner's brief, p. 142.
Section 12, Article VIII, Constitution.
Section 1, Rule 36, Rules of Court. See also Section 2, Rule 120, in
reference to judgments in criminal cases.

7
Sec. 4, Rule 51; Sec. 33(2), Judiciary Act of 1948, as amended.

Edwards vs. McCoy, 22 Phil. 598, 601; Yangco vs. Court of First
Instance of Manila, et al., 29 Phil. 183, 191.

9
Braga vs. Millora, 3) Phil. 458, 465.
10
Id.
158
158

and the other upon the issues raised. Neither is it to be

burdened with the obligation "to specify in the
sentence the
11
facts" which a party "considered as proved". This is but a
part of the mental process from which the Court draws the
essential ultimate facts. A decision is not to be so clogged
with details such that prolixity, if not confusion, may
result. So long as the decision of the Court of Appeals
contains the necessary facts to warrant its conclusions, it is
no error for said court to withhold therefrom "any specific finding of facts with respect to the evidence for the
defense". Because, as 12
this Court well observed, "There is no
law that so requires". Indeed, "the mere failure to specify
(in the decision) the contentions of the appellant and the
reasons for refusing to believe them is not sufficient to hold
the same contrary to the requirements of the provisions of
law and the Constitution". It is in this setting. that in
Manigque, it was held that the mere fact that the findings
Page 4 of 21
8/8/15, 6:26 AM
"were based entirely on the evidence for the prosecution

without taking into consideration or even mentioning the
appellant's side in the controversy as shown
by his own
13
testimony", would not vitiate the judgment. If the court
did not recite in the decision the testimony of each witness
for, or each item of evidence presented by, the defeated
party, it does not mean that the court
has overlooked such
14
testimony or such item of evidence. At any rate, the legal
presumptions are that official duty has been regularly
performed, and that all the matters within an issue
in a
15
case were laid before the court and passed upon by it.
Findings of fact,
which the Court of Appeals is required
*
to make, maybe defined as "the written statement of the
ultimate facts as found by the court 'x 'x 'x and essential to
support the decision and judgment rendered
_______________
11
Aringo vs. Arena, 14 Phil. 263, 266; emphasis supplied.
12
Reyes vs. People, 71 Phil. 598, 600.
13
People vs. Manigque, 35 O.G., No. 94, pp. 1682, 1683, citing Section
133 of the Code of Civil Procedure and Section 12, Art. VIII,
Constitution, supra.
14
Badger, et al. vs. Boyd, 65 S.W. (2d), pp. 601, 610.
15
Section 5, (m) and (o), Rule 131, Rules of Court
*Editor's
Note: Should read may be.

159
159

16
thereon". They consist of the court's "conclusions"

with
17
respect to the determinative facts in issue". A question of
law, upon the other hand. has been declared as "one which
does not call for an examination of the
probative value of
18
the evidence presented by the parties."
2. By statute, "only questions of law may be raised" in
an appeal
by certiorari from a judgment of the Court of
19
Appeals. That judgment is conclusive as to the facts. It is
not appropriately the business of this
Court to alter the
20
facts or to review the questions of fact.
Page 5 of 21
8/8/15, 6:26 AM
With these guideposts, we now face the problem of

whether the findings of fact of the Court of Appeals support
its judgment.
3. Was Carrascoso entitled to the first class seat he
claims?
It is conceded in all quarters that on March 28, 1958 he
paid to and received from petitioner a first class ticket. But
petitioner asserts that said ticket did not represent the
true and complete intent and agreement of the parties; that
said respondent knew that he did not have confirmed
reservations for first class on any specific flight, although
he had tourist class protection; that, accordingly, the
issuance of a first class ticket was no guarantee that he
would have a first class ride, but that such would depend
upon the availability of first class seats.
These are matters which petitioner has thoroughly
presented and discussed in its brief before the Court of
Appeals under its third assignment of error, which reads:
"The trial court erred in finding that plaintiff had
confirmed reservations for, and a right to, first class seats
on the 'definite' segments of his journey, particularly
_______________
16
In re Good's Estate, 266 P. (2d), pp. 719, 729.
17
Badger, et al. vs. Boyd, supra.
18
Goduco vs. Court of Appeals, et al., L-17647, February 28, 1964,
19
Section 2, Rule 45, Rules of Court, formerly Section 2, Rule 46 of the
Rules of Court.
20
Medel, et al. vs. Calasanz, et al., L-14835, August 31, 1960;
Astraquillo, et al. vs. Javier, et al., L-20034, January 30, 1965.

160
160

21
that from Saigon to Beirut".

And, the Court of Appeals disposed of this contention
thus:
"Defendant seems to capitalize on the argument that the issuance of
Page 6 of 21
8/8/15, 6:26 AM
a first-class ticket was no guarantee that the passenger to whom

the same had been issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet to make
arrangements upon arrival at every station for the necessary firstclass reservation. We are not impressed by such a reasoning. We
cannot understand how a reputable firm like defendant airplane
company could have the indiscretion to give out tickets it never
meant to honor at all. It received the corresponding amount in
payment of first-class tickets and yet it allowed the passenger to be
at the mercy of its employees. It is more in keeping with the
ordinary course of business that the company should know whether
22
or not the tickets it issues are to be honored or not."
Not that the Court of Appeals is alone. The trial court

similarly disposed of petitioner's contention, thus:
"On the fact that plaintiff paid for, and was issued a
'First class' ticket, there can be no question. Apart from his
testimony, see plaintiff's Exhibits 'A, 'A-1', 'B', 'B-1', 'B-2',
'C' and 'C-1', and defendant's own witness. Rafael Altonaga,
confirmed plaintiff's testimony and testified as follows:
Q. In these tickets there are marks 'O.K.' From what you
know, what does this O.K. mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A, Yes, 'first class'. (Transcript, p. 169)
x
"Defendant tried to prove by the testimony of its witnesses

Luis Zaldariaga and Rafael Altonaga that although
plaintiff paid for, and was issued a 'first class' airplane
ticket, the ticket was subject to confirmation in Hongkong.
The court cannot give credit to the testimony of said
witnesses. Oral evidence cannot prevail over written
evidence. and plaintiffs Exhibits 'A', 'A-1', 'B', 'B-1' 'C' and
'C-1' belie the testimony of said witnesses, and clearly show
that the plaintiff was issued, and paid for, a first class
ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own
wit-
Page 7 of 21
8/8/15, 6:26 AM
_______________
21
Petitioner's brief in the Court of Appeals, pp, 82-98.
22
Decision of the Court of Appeals, Appendix A, petitioner's brief, pp.
148-149,
161
161

ness Rafael Altonaga testified that the reservation for a
'first class' accommodation for the plaintiff was confirmed.
The court cannot believe that after such confirmation
defendant had a verbal understanding with plaintiff that
the 'first class' ticket issued to him by23defendant wouild be
subject to confirmation in Hongkong."
We have heretofore adverted to the fact that except for a
slight difference of a few pesos in the amount refunded on
Carrascoso's ticket, the decision of the Court of First
Instance was affirmed by the Court of Appeals in all other
respects. We hold the view that such a judgment of
24
affirmance has merged the judgment of the lower court.
Implicit in that affirmance is a determination by the Court
of Appeals that the proceeding in the Court of Firts
Instance was free from prejudicial error and "all questions
raised by the assignments of error and all questions that
might have been raised are to be regarded as finally
adjudicated against the appellant". So also, the judgment
25
affirmed "must be regarded as free from all error". We
reached this policy construction because nothing in the
decision of the Court of Appeals on this point would suggest
that its findings of fact are in any way at war with those of
the trial court. Nor was said affirmance by the Court of
Appeals upon a ground or grounds different from those
which26were made the basis of the conclusions of the trial
court.
If, as petitioner underscores, a first-class-ticket holder is
not entitled to a first class set, nothwithstanding the fact
that seat availability in apecific flights is therein
confirmed, then an air passenger is placed in the hollow of
the hands of an airline. What security then can a passenger
Page 8 of 21
8/8/15, 6:26 AM
have? it will always be an easy matter for an airline aided

by its employees, to strike out the very stipulations in the
ticket, and say that there was a verbal agreement to the
contrary. What if the passenger hada a
_______________
23
R.A., pp. 67, 73
24
5 B C.J.S., p. 295 ; 3 Am. Jur. 678.
25
3 Am. Jur., pp. 677-678.
26
See Garcia Valdez vs. Seteraa Tuason, 40 Phil. 943, 951.

162
162

schedule to fulfill? We have long learned that, as a rule, a

written document speaks a uniform language; that spoken
word could be notoriously unreliable. If only to achieve
stability in the relations between passenger and air carrier,
adherence to the ticket so issued is desirable. Such is the
case here. The lower courts refused to believe the oral
evidence intended to defeat the covenants in the ticket.
The foregoing are the considerations which point to the
conclusion that there are facts upon which the Court of
Appeals predicated the finding that respondent Carrascoso
had a first class ticket and was entitled to a first class seat
at Bangkok, 27
which is a stopover in the Saigon to Beirut leg
of the flight. We perceive no "welter of distortions by the
Court of Appeals of petitioner's
statement of Its position",
28
as charged by petitioner.
Nor do we subscribe to
petitioner's accusation that respondent Carrascoso
"surreptitiously
took a first class seat to provoke an
29
issue". And this because, as petitioner states, Carrascoso
went to see the Manager at his office in Bangkok "to
confirm my seat and 30because from Saigon I) was told again
to see the Manager". Why, then, was he allowed to take a
first class seat in the plane at Bangkok, if he had no seat?
Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral
damages. Petitioner's trenchant claim is that Carrascoso's
Page 9 of 21
8/8/15, 6:26 AM
action is planted upon breach of contract; that to authorize

an award for moral damages there must be
______________
27
Carrascosos ticket, according to petitioner (brief, pp. 7-8), shows:
Segment or leg
Carrier
1. Manila to Hongkong
PAL
2. Hongkong to Saigon
3. Saigon to Beirut
Flight No. Date of Departure

300A
March 30
VN(Air Vietnam)
693
March 31
AF (Air France)
245
March 31
28
Petitioner's brief, p. 50; see also id., pp. 37 and 46.
29
Id., p. 103.
30
Ibid., p. 102.
163
163

31
an averment of fraud or bad 'f aith ; and that the decision

of the Court of Appeals fails to make a finding of bad faith.
The pivotal allegations in the complaint bearing on this
issue are:
"3. That x x x plaintiff entered into a contract of air
carriage with the Philippine Air Lines for a
valuable consideration, the latter acting as general
agents for and in behalf of the defendant, under
which said contract, plaintiff was entitled to, as
defendant agreed to furnish plaintiff, First Class
passage on defendant's plane during the entire
duration of plaintiff's tour of Europe with
Hongkong as starting point up to and until
plaintiffs return trip to Manila, x x x.
4. That, during the first two legs of the trip from
Hongkong to Saigon and from Saigon to Bangkok,
defendant furnished to the plaintiff First Class
accommodation but only after protestations,
arguments and/or insistence were made by the
plaintiff with defendant's employees.
Page 10 of 21
8/8/15, 6:26 AM
5. That finally, defendant failed to provide First Class

passage, but instead furnished plaintiff only Tourist
Class accommodations from Bangkok to Teheran
and/or Casablanca, x x x the plaintiff has been
compelled by defendant's employees to leave the
First Class accommodation berths at Bangkok after
he was already seated.
6. That consequently, the plaintiff, desiring no
repetition
of
the
inconvenience
and
embarrassments brought by defendant's breach of
contract was forced to take a Pan American World
Airways32 plane on his return trip from Madrid to
Manila.
x
x
x
x
x
x
x
x
x
2. That likewise, as a result of defendant's failure to
furnish First Class accommodations aforesaid.
plaintiff suffered inconveniences, embarrassments,
and humiliations, thereby causing plaintiff mental
anguish, serious anxiety, wounded feelings, social
humiliation, and the like injury, resulting
in moral
33
damages in the amount of P30,000.00."
x
The foregoing, in our opinion, substantially aver: First,

That there was a contract to furnish plaintiff a first
_______________
31
Article 2220, Civil Code reads: "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 'f raudulently
or in bad faith."
32
R.A., p. 2-4; italics supplied.
33
R.A., p. 5; second cause of action.

164
164

Page 11 of 21
8/8/15, 6:26 AM
class
passage
covering,
amongst
others,
the
BangkokTeheran leg; Second, That said contract was
breached when petitioner failed to furnish first class
transportation at Bangkok; and Third, That there was bad
faith when petitioner's employee compelled Carrascoso to
leave his first class accommodation berth "after he was
already seated" and to take a seat in the tourist class, by
reason
of
which
he
suffered
inconvenience,
embarrassments and humiliations, thereby causing him
mental anguish, serious anxiety, wounded feelings and
social humiliation, resulting in moral damages. It is true
that there is no specific mention of the term bad faith in
the complaint. But, the inference of bad faith is there, it
may be 34drawn from the facts and circumstances set forth
therein. The contract was averred to establish the relation
between the parties. But the stress of the action is put on
wrongf ul expulsion.
Quite apart from the foregoing is that (a) right at the
start of the trial, respondent's counsel placed petitioner on
guard on what Carrascoso intended to prove: That while
sitting in the plane in Bangkok, Carrascoso was ousted by
35
petitioner's manager who gave his seat to a white man;
and (b) evidence of bad faith' in the fulfillment of the
contract was presented without objection on the part of the
petitioner. It is, therefore, unnecessary to inquire as to
whether or not there is sufficient averment in the
complaint to justify an award for moral damages.
Deficiency in the complaint, if any, was cured by the
evidence. An amendment
thereof to conform to the evidence
36
is not even required. On the question of bad
_______________
34
Copeland vs, Dunehoo, et al., 138 S.E., 267, 270. See also 25 C.J.S.,
pp. 758-759; 15 Am. Jur., pp. 766-767.

35
Statement of Attorney Villegas for respondent Carrascoso in open
court, Respondent's brief, p. 33.

36
Section 5, Rule 10, Rules of Court, in part reads: ''SEC. 5.
Amendment to conform to or authorize presentation of evidence.When

issues not raised by the pleadings are tried by express or implied consent
of the parties, they shall be treated in all respects, as if they had been
raised in the pleadings. Such amendment of the pleadings as may be
Page 12 of 21
8/8/15, 6:26 AM
necessary to cause them to conform to the evidence and to raise these

issues may be made upon motion of any party at any time, even after
judgment; but failure so to amend does not affect
165
165

faith, the Court of Appeals declared:
"That the plaintiff was forced out of his seat in the first class
compartment of the plane belonging to the defendant Air France
while at Bangkok, and was transferred to the tourist class not only
without his consent but against his will, has been sufficiently
established by plaintiff in his testimony before the court,
corroborated by the corresponding entry made by the purser of the
plane in his notebook which notation reads as follows:
'First-class passenger was forced to go to the tourist class against his
will, and that the captain refused to intervene',
and by the testimony of an eye-witness, Ernesto G. Cuento, who

was a co-passenger. The captain of the plane who was asked by the
manager of defendant company at Bangkok to intervene even
refused to do so. It is noteworthy that no one on behalf of defendant
ever contradicted or denied this evidence for the plaintiff. It could
have been easy for defendant to present its manager at Bangkok to
testify at the trial of the case, or yet to secure his disposition; but
37
defendant did neither.
The Court of Appeals further stated

"Neither is there evidence as to whether or not a prior reservation
was made by the white man. Hence, if the employees of the
defendant at Bangkok sold a first-class ticket to him when all the
seats had already been taken, surely the plaintiff should not have
been picked out as the one to suffer the consequences and to be
subjected to the humiliation and indignity of being ejected from his
seat in the presence of others. Instead of explaining to the white
man the improvidence committed by defendant's employees, the
manager adopted the more drastic step of ousting the plaintiff who
was then safely ensconsced in his rightful seat. We are
Page 13 of 21
8/8/15, 6:26 AM
strengthened in our belief that this probably was what happened

there, by the testimony of defendant's witness Rafael Altonaga who,
when asked to explain the meaning of the letters 'O.K.' appearing
on the tickets of plaintiff, said 'that the space is confirmed' for first
class. Likewise, Zenaida Faustino, another witness for defendant,
who was the chief of the Reservation Office of defendant, testified
as follows:
'Q. How does the person in the ticket-issuing office
_______________
the result of the trial of these issues. 'x x x"; Co Tiamco vs. Diaz, etc., et al.,
75 Phil. 672, 679; J.M. Tuason ,& Co., Inc., etc. vs. Bolaos, 95 Phil. 106, 110.
37
Decision, Court of Appeals, Appendix A of petitioner's brief, pp, 147-148.
166
166

know what reservation the passenger has arranged with you ?

A. They call us up by phone and ask for the confirmation.' (t.s.n., p.
247, June 19, 1959)
In this connection, we quote with approval what the trial

Judge has said on this point:
'Why did the, using the .words of witness Ernesto G. Cuento, 'white
man' have a 'better right' to the seat occupied by Mr. Carrascoso ?
The record is silent. The defendant airline did not prove 'any better',
nay, any right on the part of the 'white man' to the 'First class' seat
that the plaintiff was occupying and for which he paid and was
issued a corresponding 'first class' ticket.
'lf there was a justified reason for the action of the defendant's
Manager in Bangkok, the defendant could have easily proven it by
having taken the testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that evidence willfully
suppressed would be adverse if produced [Sec. 69, par (e), Rules of
Court] ; and, under the circumstances, the Court is constrained to
find, as it does find. that the Manager of the defendant airline in
Bangkok not merely asked but threatened the plaintiff to throw him
out of the plane if he did not give up his 'first class seat because the
Page 14 of 21
8/8/15, 6:26 AM
said Manager wanted to accommodate, using the words of the

38
witness Ernesto G. Cuento, the 'white man'."
It is really correct to say that the Court of Appeals in the

quoted portion first transcribed did not use the term "bad
faith". But can it be doubted that the recital of facts therein
points to bad faith ? The manager not only prevented
Carrascoso from enjoying his right to a first class seat;
worse, he imposed his arbitrary will; he forcibly ejected him
from his seat, made him suffer the humiliation of having to
go to the tourist class compartmentjust to give way to
another passenger whose right thereto has not been
established. Certainly, this is bad faith. Unless, of course,
bad faith has assumed a meaning different from what is
understood in law. For, "bad faith" contemplates a "state of
mind affirmatively operating with furtive design or with
some motive of self_______________
38
Decision of the Court of Appeals, Appendix A of petitioner's brief,
pp. 147-151.
167
167

39
interest or ill will or for ulterior purpose, "

And if the foregoing were not yet sufficient, there is the
express finding of bad faith in the judgment of the Court of
First Instance, thus:
"The evidence shows that defendant violated its contract of
transportation with plaintiff in bad faith, with the aggravating
circumstances that defendant's Manager in Bangkok went to the
extent of threatening the plaintiff in the presence of many
passengers to have him thrown out of the airplane to give the 'first
class' seat that he was occupying to, again using the words of the
witness Ernesto G. Cuento, a 'white man' whom he (defendant's
Manager) wished to accommodate, and the defendant has not
proven that this 'white man' had any 'better right' to occupy the
Page 15 of 21
8/8/15, 6:26 AM
'first class' seat that the plaintiff was occupying, duly paid for, and
for which the corresponding 'first class' ticket was issued by the
40
defendant to him."
5. The responsibility of an employer for the tortious act of

41
its employees need not be essayed. It is well settled in law.
For the willful malevolent act of petitioner's manager,
petitioner, his employer, must answer. Article 21 of the
Civil Code says:
"ART. 21. Any person who wilfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage."
In parallel circumstances, we applied the foregoing legal

precept; and, we held that upon the provisions of Article
42
2219 (10), Civil Code, moral damages are recoverable.
6. A contract to transport passengers is quite different
in
43
kind and degree from any other contractual relation. And
this, because of the relation which an air-carrier sustains
with the public. Its business is mainly with the travelling
public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore,
generates a relation attended with
_______________
39
Words ,& Phrases, Perm. Ed., Vol. 5, p. 13, citing Warfield Natural
Gas Co. vs. Allen, 59 S.W. (2d) 534, 538.

40
R.A., p. 74; italics supplied.
41
Article 2180, Civil Code.
42
Philippine Refining Co. vs. Garcia, et al., L-21871 and L-21962,
September 27, 1966.

43
See Section 4, Chapter 3, Title VIII, Civil Code.

168
168

a public duty. Neglect or malfeasance of the carrier's

employees, naturally, could give ground for an action for
damages.
Page 16 of 21
8/8/15, 6:26 AM
Passengers do not contract merely for transportation.

They have a right to be treated by the carriers employees
with kindness, respect, courtesy and due consideration.
They are entitled to be protected against personal
misconduct, injurious language, indignities and abuses
from such employees. So it is, that any rule or discourteous
conduct on the part of employees towards a passenger
gives
44
the latter an action for damages against the
carrier.
45
Thus, "Where a steamship company had accepted a
passenger's check, it was a breach of contract and a tort,
giving a right of action for its agent in the presence of third
persons to falsely notify her that the check was worthless
and demand payment under threat of ejection, though the
46
language used was not insulting and she was not ejected."
And this, because, altho the relation of passenger and
carrier is "contractual both in origin and nature"
nevertheless
"the act that breaks the contract may be also
47
a tort". And in another case, "Where a passenger on a
railroad train, when the conductor came to collect his fare
tendered him the cash fare to a point where the train was
scheduled not to stop, and told him that as soon as the
train reached such point he would pay the cash fare from
that point to destination, there was nothing in the conduct
of the passenger which justified the conductor in using
48
insulting language to him, as by calling him a lunatic."
and the Supreme Court of South Carolina there held the
carrier liable for the mental suffering of said passenger.
Petitioner's contract with Carrascoso is one attended
_______________
44
4. R.C.L., pp. 1174-1175.
45
An air carrier is a common carrier; and air transportation is similar
or analogous to land and water transportation. Mendoza vs. Philippine

Air Lines, Inc., 90 Phil. 836, 841-842.
46
Austro-American S.S. Co. vs. Thomas, 248 F. 231.
47
Id., p. 233.
48
Lipman vs. Atlantic Coast Line R. Co., 93 S.E. 714, 716.

169
169
Page 17 of 21
8/8/15, 6:26 AM

with public duty. The stress of Carrascoso's action as we
have said, is placed upon his wrongful expulsion. This is a
violation of public duty by the petitioner air carriera case
of quasi-delict. Damages are proper.
7. Petitioner draws our attention to respondent
Carrascoso's testimony, thus
"Q. You mentioned about an attendant. Who is that
attendant and purser?
A.
When we left alreadythat was already in the tripI

could not help it. So one of the flight attendants
approached me and requested 'f rom me my ticket and
I said, What for? and she said, "We will note that you
transferred to the tourist class'. I said, 'Nothing of
that kind. That is tantamount to acc epting my
transfer.' And I also said, 'You are not going to note
anything there because I am protesting to this
transfer'.
Q.
Was she able to note it?
A.
No, because I) did not give my ticket.
Q.
About that purser ?
A.
Well, the seats there are so close that you feel

uncomfortable and you don't have enough leg room, I
stood up and I went to the pantry that was next to me
and the purser was there. He told me, 'I have recorded
the incident in my notebook.' He read it and
translated it to mebecause it was recorded in
French'First class passenger was forced to go to the
tourist class against his will, and that the captain
refused to intervene.'
Mr. VALTE
'I move to strike out the last part of the testimony of
the witness because the best evidence would be the
notes. Your Honor.
COURT
'I will allow that as part of his testimony."
49
Petitioner charges that the finding of the Court of Appeals

Page 18 of 21
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that the purser made an entry in his notebook reading

"First class passenger was forced to go to the tourist class
against his will, and that the captain ref used to intervene
is predicated upon evidence [Carrascoso's testimony above]
which is incompetent. We do not think
_______________
49
Petitioner's brief, pp. 104-105.

170
170

so. The subject of inquiry is not the entry, but the ouster
incident. Testimony on the entry does not come within the
proscription49aof the best evidence rule. Such testimony is
admissible.
Besides, from a reading of the transcript just quoted,
when the dialogue happened, the impact of the startling
occurrence was still fresh and continued to be felt. The
excitement had not as yet died down, Statements then, in
this environment, are admissible as part of the res gestae.50
For, they grow "out of the nervous excitement
and mental
51
and physical condition of the declarant". The utterance of
the purser regarding his entry in the notebook was
spontaneous, and related to the circumstances of the
ouster
52
incident. Its trustworthiness has been guaranteed. It thus
escapes the operation of the hearsay rule. It forms part of
the res gestae.
At all events, the entry was made outside the
Philippines. And, by an employee of petitioner. It would
have been an easy matter for petitioner to have
contradicted Carrascoso's testimony. If it were really true
that no such entry was made, the deposition of the purser
could have cleared up the matter.
We, therefore, hold that the transcribed testimony of
Carrascoso is admissible in evidence.
8. Exemplary damages are well awarded. The Civil Code
gives the court ample power to grant exemplary damages
. in contracts and quasi-contracts. The only condition is
Page 19 of 21
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that defendant should have "acted in a wanton,

fraudulent,
53
reckless, oppressive, or malevolent manner". The manner
of ejectment of respondent Carrascoso from his first class
seat fits into this
legal precept. And this, in addition to
54
moral damages.
9. The right to attorney's fees is fully established. The
_______________
49a
V Moran, Comments on the Rules of Court, 1963 ed., p. 76.
50
Section 36, Rule 130, Rules of Court.
51
IV Martin, Rules of Court in the Philippines/ 1963 ed., 324.
52
Ibid.
53
54

171
171
Mercy's Inc. vs. Verde

grant of exemplary damages justifies a similar judgment
for attorneys' fees. The least that can be said is that the
courts below felt that it
is but just and equitable that
55
attorneys' fees be given. We do not intend to break faith
with the tradition that discretion well exercisedas it was
hereshould not be disturbed.
10. Questioned as excessive are the amounts decreed by
both the trial court and the Court of Appeals, thus:
P25,000.00 as moral damages; P10,000.00, by way of
exemplary damages, and P3,000.00 as attorneys' fees. The
task of
fixing these amounts is primarily with the trial
56
court. The Court of Appeals did not interfere with the
same. The dictates of good sense suggest that we give our
imprimatur thereto. Because, the facts
and circumstances
57
point to the reasonableness thereof.
On balance, we say that the judgment of the Court of
Appeals does not suffer from reversible error. We
accordingly vote to affirm the same. Costs against
petitioner. So ordered,
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon,
Page 20 of 21
8/8/15, 6:26 AM
Regala. Makalintal, Zaldivar and Castro. JJ. concur.

Bengzon, J.P., J., did not take part.
Decision affirmed.
Note.See Northwest Airlines, Inc. vs. Cuenca, L-22424,
Aug. 31, 1965 and the annotation under Lopez vs. Pan
American World Airways, L-22415, March 30, 1966, 16
Supreme Court Reports Annotated 431, 445.
______________
Page 21 of 21
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[No. 9356. February 18, 1915.]

C. S. GILCHRIST, plaintiff and appellee, vs. E. A. CUDDY
ET AL., defendants. JOSE FERNANDEZ ESPEJO and
MARIANO ZALDARRIAGA, appellants.
1. DAMAGES; INTERFERENCE WITH CONTRACTS BY
STRANGERS.The interference with lawful contracts by
strangers thereto gives rise to an action for damages in
favor of the injured person. The law does not require that
the responsible person shall have known the identity of the
injured person.
543
543
Gilchrist vs. Cuddy.

2. INJUNCTION;
WHEN
IT
ISSUES;
GENERAL
DOCTRINE.The general doctrine as to when injunction
issues, as stated in Devesa vs. Arbes (13 Phil. Rep., 273),
affirmed.
3. ID.;
INTERFERENCE
WITH
CONTRACTS
BY
STRANGERS.The interference with lawful contracts by
strangers thereto does not of itself give the injured person a
remedy by injunction.
4. ID.; WHEN INJUNCTION ISSUES.Courts usually grant
an injunction where the profits of the injured person are
derived from his contractual relations with a large and
indefinite number of individuals, thus reducing him to the
necessity of proving in an action against the tort feasor that
the latter is responsible in each case for the broken contract,
http://www.central.com.ph/sfsreader/session/0000014f0a45b83a0bfc1fda000a0094004f00ee/p/ALF940/?username=Guest
Page 1 of 23
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or else obliging him to institute individual suits against

each contracting party, and so exposing him to a multiplicity
of suits.
5. ID.; ID.; FACTS OF THIS CASE.The defendants induced
the owner of a cinematograph film to break his contract of
lease with a theater owner and lease the film to them, with
the avowed purpose of exhibiting it in another theater in the
same city. As the profits of the lessee depended upon the
patronage of the public and hence the task of estimating his
damages with accuracy would be quite difficult if not
impossible: Held, That injunction against further
interference with the contract was properly issued.
6. APPEAL; REVIEW OF EVIDENCE.In order that this
court may review the evidence on appeal, it is necessary
that all the evidence be brought up. This is the duty of the
appellant. and upon his failure to perform it, we decline to
review the evidence, but rely entirely upon the pleadings
and findings of fact of the trial court and examine only
assigned errors of law. This rule is subject to some
exceptions, but the present case is not within any of them.
7. EVIDENCE; JUDICIAL NOTICE; CINEMATOGRAPH.
Judicial notice taken of the general character of a
cinematograph or motionpicture theater.

Iloilo. Powell, J.
C. Lozano for appellants.
Bruce, Lawrence, Ross & Block for appellee.
TRENT, J.:
An appeal by the defendants, Jose Fernandez Espejo and
Mariano Zaldarriaga, from a judgment of the Court of
544
544

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First Instance of Iloilo, dismissing their cross-complaint

upon the merits for damages against the plaintiff for the
alleged wrongful issuance of a mandatory and a
preliminary injunction,
Upon the application of the appellee an ex parte
mandatory injunction was issued on the 22d of May, 1913,
directing the defendant, E. A. Cuddy, to send to the
appellee a certain cinematograph film called "Zigomar" in
compliance with an alleged contract which had been
entered into between these two parties, and at the same
time an ex parte preliminary injunction was issued
restraining the appellants from receiving and exhibiting in
their theater the Zigomar until further orders of the court.
On the 26th of that month the appellants appeared and
moved the court to dissolve the preliminary injunction.
This motion was denied, after hearing, on the same day. On
June 5 the appellants filed their answer, wherein they
denied all of the allegations in the complaint and by way of
a cross-complaint asked for damages in the sum of P800 for
the wrongful issuance of the preliminary injunction. When
the case was called for trial on August 6, the appellee
moved for the dismissal of the complaint "for the reason
that there is no further necessity for the maintenance of
the injunction." The motion was granted without objection
as to Cuddy and denied as to the appellants in order to give
them an oppor.tunity to prove that the injunctions were
wrongfully issued and the amount of damages suffered by
reason thereof.
The pertinent part of the trial court's findings of fact in
this case is as follows:
"It appears in this case that Cuddy was the owner of the film
Zigomar and that on the 24th of April he rented it to C. S. Gilchrist
for a week for P125, and it was to be delivered on the 26th of May,
the week beginning that day. A few days prior to this Cuddy sent
the money back to Gilchrist, which he had forwarded to him in
Manila, saying that he had made other arrangements with his film.
The other arrangements was the rental to these defendants Espejo
and his partner for P350 for the week and the in545
545
Page 3 of 23
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junction was asked by Gilchrist against these parties from showing
it for the week beginning the 26th of May.
"It appears from the testimony in this case, conclusively, that
Cuddy willfuly violated his contract, he being the owner of the
picture, with Gilchrist because the defendants had offered him more
for the same period. Mr. Espejo at the trial on the permanent
injunction on the 26th of May admitted that he knew that Cuddy
was the owner of the film. He was trying to get it through his
agents Pathe Brothers in Manila. He is the agent of the same
concern in Iloilo. There is in evidence in this case on the trial today
as well as on the 28th of May, letters showing that the Pathe
Brothers in Manila advised this man on two different occasions not
to contend for this film Zigomar because the rental price was
prohibitive and assured him also that he could not' get the film for
about six weeks. The last of these letters was written on the 26th of
April, which showed conclusively that he knew they had to get this
film from Cuddy and from this letter that the agent in Manila could
not get it, but he made Cuddy an offer himself and Cuddy accepted
it because he was paying about three times as much as he had
contracted with Gilchrist for. Therefore, in the opinion of this court,
the defendants failed signally to show the injunction against the
defendants was wrongfully procured."
The appellants duly excepted to the order of the court

denying their motion for new trial on the ground that the
evidence was insufficient to justify the decision rendered.
There is lacking f rom the record before us the deposition of
the defendant Cuddy, which apparently throws light upon a
contract entered into between him and the plaintiff
Gilchrist. The contents of this deposition are discussed at
length in the brief of the appellants and an endeavor is
made to show that no such contract was entered into. The
trial court, which had this deposition before it, f ound that
there was a contract between Cuddy and Gilchrist. Not
having the deposition in question before- us, it is imposible
to say
546
546
Page 4 of 23
8/8/15, 6:26 AM

how strongly it militates against this finding of fact. By a
series of decisions we have construed sections 143 and 497
(2) of the Code of Civil Procedure to require the production
of all the evidence in this court. This is the duty of the
appellant and, upon his failure to perform it, we decline to
proceed with. a review of the evidence. In such cases we
rely entirely upon the pleadings and the findings of fact of
the trial court and examine only such assigned errors as
raise- questions of law. (Ferrer vs. Neri Abejuela, 9 Phil.
Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619; Salvacion vs.
Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell & Co.,
15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236;
Olsen & Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep.,
102; Blum vs. Barretto, 19 Phil. Rep., 161; Cuyugan vs.
Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep.,
147; Mans vs. Garry, 20 Phil. Rep., 134.) It is true that
some of the more recent of these cases make exceptions to
the general rule. Thus, in Olsen & Co. vs. Matson, Lord &
Belser Co. (19 Phil. Rep., 102), that portion of the evidence
before us tended to show that grave injustice might result
from a strict reliance upon the findings of fact contained in
the judgment appealed from. We, therefore, gave the
appellant an opportunity to explain the omission. But we
required that such explanation must show a satisfactory
reason for the omission, and that the missing portion of the
evidence must be submitted within sixty days or cause
shown f or f ailing to do so. The other cases making
exceptions to the rule are based upon peculiar
circumstances which will seldom arise in practice and need
not here be set forth, for the reason that they are wholly
inapplicable to the present case. The appellants would be
entitled to indulgence only under the doctrine of the Olsen
case. But f rom that portion of the record before us, we are
not inclined to believe that the missing deposition would be
sufficient to justify us in reversing the findings of fact of
the trial court that the contract in question had been made.
There is in the record not only the positive and detailed
testimony of Gilchrist to this effect,
547
Page 5 of 23
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547

but there is also a letter of apology f rom Cuddy to Gilchrist
in which the former enters into a lengthy explanation of his
reasons for leasing the film to another party. The latter
could only have been called forth by a broken contract with
Gilchrist to lease the film to him. We, therefore, fail to find
any reason for overlooking the omission of the defendants
to bring up the missing portion of the evidence and,
adhering to the general rule above referred to, proceed to
examine the questions of law raised by the appellants.
From the above-quoted findings of fact it is clear that
Cuddy, a resident of Manila, was the owner of the
"Zigomar;" that Gilchrist was the owner of a cinematograph
theater in Iloilo; that in accordance with the terms of the
contract entered into between Cuddy and Gilchrist the
former leased to the latter the "Zigomar" for exhibition in
his (Gilchrist's) theater for the week beginning May 26,
1913; and that Cuddy willfully violated his contract in
order that he might accept the appellants' offer of P350 for
the film for the same period. Did the appellants know that
they were inducing Cuddy to violate his contract with a
third party when they induced him to accept the P350?
Espejo admitted that he knew that Cuddy was the owner of
the film. He received a letter from his agents in Manila
dated April 26, assuring him that he could not get the film
for about six weeks. The arrangements between Cuddy and
the appellants f or the exhibition of the film by the latter on
the 26th of May were perfected after April 26, so that the
six weeks would include and extend beyond May 26. The
appellants must necessarily have known at the time they
made their offer to Cuddy that the latter had booked or
contracted the film for six weeks from April 26. Therefore,
the inevitable conclusion is that the appellants knowingly
induced Cuddy to violate his contract with another person.
But there is no specific finding that the appellants knew
the identity of the other party, So we must assume that
they did not know that Gilchrist was the person who had
contracted for the film.
The appellants take the position that if the preliminary
Page 6 of 23
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548
548

injunction had not been issued against them they could

have exhibited the film in their theater for a number of
days beginning May 26, and could have also subleased it to
other theater owners in the nearby towns and, by so doing,
could have cleared, during the life of their contract with
Cuddy, the amount claimed as damages. Taking this view
of the case, it will be unnecessary for us to inquire whether
the mandatory injunction against Cuddy was properly
issued or not. No question is raised with reference to the
issuance of that injunction. The right on the part of
Gilchrist to enter into a contract with Cuddy for the lease
of the film must be fully recognized and admitted by all.
That Cuddy was liable in an action for damages for the
breach of that contract, there can be no doubt. Were the
appellants likewise liable for interfering with the contract
between Gilchrist and Cuddy, they not knowing at the time
the identity of one of the contracting parties? The
appellants claim that they had a right to do what they did.
The ground upon which the appellants base this contention
is, that there was no valid and binding contract between
Cuddy and Gilchrist and that, therefore, they had a right to
compete with Gilchrist for the lease of the film, the right to
compete being a justification for their acts. If there had
been no contract between Cuddy and Gilchrist this defense
would be tenable, but the mere right to compete could not
justify the appellants in intentionally inducing Cuddy to
take away the appellee's contractual rights.
Chief Justice Wells in Walker vs. Cronin (107 Mass.,
555), said: "Everyone has a right to enjoy the fruits and
advantages of his own enterprise, industry, skill and credit.
He has no right to be protected against competition; but he
has a right to be free from malicious and wanton
interference, disturbance or annoyance. If disturbance or
loss come as a result of competition, or the exercise of like
rights by others, it is damnum absque injuria, unless some
superior right by contract or otherwise is interfered with."
Page 7 of 23
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In Read vs. Friendly Society of Operative Stonemasons

([1902] 2 K. B., 88), Darling, J., said: "I think the plain549
549

tiff has a cause of action against the defendants, unless the
court is satisfied that, when they interfered with the
contractual rights of plaintiff, the defendants had a
sufficient justification for their interf erence; * *' * for it is
not a justification that 'they acted bona fide in the best
interests of the society of masons,' i. e., in their own
interests. Nor is it enough that 'they were not actuated by
improper motives.' I think their sufficient justification for
interference with plaintiff's right must be an equal or
superior right in themselves, and that no one can legally
excuse himself to a man, of whose contract he has procured
the breach, on the ground that he acted on a wrong
understanding of his own rights, or without malice, or bona
fide, or in the best interests of himself, or even that he
acted as an altruist, seeking only the good of another and
careless of his own advantage." (Quoted with approval in
Beekman vs. Marsters, 195 Mass., 205.)
It is said that the ground on which the liability of a third
party for interfering with a contract between others rests,
is that the interference was malicious. The contrary view,
however, is taken by the Supreme Court of the United
States in the case of Angle vs. Railway Co. (151 U. S., 1).
The only motive for interference by the third party in that
case was the desire to make a profit to the injury of one of
the parties of the contract. There was no malice in the case
beyond the desire to make an unlawf ul gain to the
detriment of one of the contracting parties.
In the case at bar the only motive f or the interf erence
with the Gilchrist-Cuddy contract on the part of the
appellants was a desire to make a profit by exhibiting the
film in their theater. There was no malice beyond this
desire; but this fact does not relieve them of the legal
liability for interfering with that contract and causing its
breach. It is, therefore, clear, under the above authorities,
Page 8 of 23
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that they were liable to Gilchrist for the damages caused by

their acts, unless they are relieved from such liability by
reason of the fact that they did not know at the time the
identity of the original lessee (Gilchrist) of the film.
550
550

The liability of the appellants arises from unlawful acts

and not from contractual obligations, as they were under
no such obligations to induce Cuddy to violate his contract
with Gilchrist. So that if the action of Gilchrist had been
one for damages, it would be governed by chapter 2, title
16, book 4 of the Civil Code. Article 1902 of that code
provides that a person who, by act or omission. causes
damage to another when there is fault or negligence, shall
be obliged to repair the damage so done. There is nothing
in this article which requires as a condition precedent to
the liability of a tortfeasor that he must know the identity
of a person to whom he causes damage. In fact, the chapter
wherein this article is found clearly shows that no such
knowledge is required in order that the injured party may
recover for the damage suffered.
But the fact that the appellants' interference with the
Gilchrist contract was actionable did not of itself entitle
Gilchrist to sue out an injunction against them. The
allowance of this remedy must be justified under section
164 of the Code of Civil Procedure, which specifies the
circumstances under which an injunction may issue. Upon
the general doctrine of injunction we said in Devesa vs.
Arbes (13 Phil. Rep., 273) :
"An injunction is a 'special remedy' adopted in that code (Act No.
190) from American practice, and originally borrowed from English
legal procedure, which was there issued by the authority and under
the seal of a court of equity, and limited, as in other cases where
equitable relief is sought, to cases where there is no 'plain,
adequate, and complete remedy at law,' which 'will not be granted
while the rights between the parties are undetermined, except in
extraordinary cases where material and irreparable injury will be
Page 9 of 23
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done,' which cannot be compensated in damages, and where there

will be no adequate remedy, and which will not, as a rule, be
granted, to take property out of the possession of one party and put it
into that of another whose title has not been established by law."
We subsequently affirmed the doctrine of the Devesa case

551
551

in Palafox vs. Madamba (19 Phil. Rep., 444), and we take
this occasion of again affirming it, believing, as we do, that
the indiscriminate use of injuctions should be discouraged.
Does the f act that the appellants did not know at the
time the identity of the original lessee of the film militate
against Gilchrist's right to a preliminary injunction,
although the appellants incurred civil liability for damages
for such interference? In the examination of the
adjudicated cases, where in injunctions have been issued to
restrain wrongful interference with contracts by strangers
to such contracts, we have been unable to find any case
where this precise question was involved, as in all of those
cases which we have examined, the identity of both of the
contracting parties was known to the tort-f easors. We
might say, however, that this fact does not seem to have
been a controlling feature in those cases. There is nothing
in section 164 of the Code of Civil Procedure which
indicates, even remotely, that before an injunction may
issue restraining the wrongful interference with contracts
by strangers, the strangers must know the identity of both
parties. It would seem that this is not essential, as
injunctions
frequently
issue
against
municipal
corporations, public service corporations, public officers,
and others to restrain the commission of acts which would
tend to injuriously affect the rights of persons whose
identity the respondents could not possibly have known
beforehand. This court has held that in a proper case
injunction will issue at the instance of a private citizen to
restrain ultra vires acts of public officials. (Severino vs.
Governor-General, 16 Phil. Rep., 366.) So we proceed to the
Page 10 of 23
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determination of the main question of whether or not the

preliminary injunction ought to have been issued in this
case.
As a rule, injunctions are denied to those who have an
adequate remedy at law. Where the choice is between the
ordinary and the extraordinary processes of law, and the
former are sufficient, the rule will not permit the use of the
latter. (In re Debs, 158 U. S., 564.) If the injury is
irreparable, the ordinary process is inadequate. In Wahle
vs.
552
552

Reinbach (76 III., 322), the supreme court of Illinois

approved a definition of the term "irreparable injury" in the
following language: "By 'irreparable injury' is not meant
such injury as is beyond the possibility of repair, or beyond
possible compensation in damages, nor necessarily great
injury or great damage, but that species of injury, whether
great or small, that ought not to be submitted to on the one
hand or inflicted on the other; and, because it is so large on
the one hand, or so small on the other, is of such constant
and frequent recurrence that no fair or reasonable redress
can be had therefor in a court of law." (Quoted with
approval in Nashville R. R. Co. vs. McConnell, 82 Fed., 65.)
The case at bar is somewhat novel, as the only contract
which was broken was that between Cuddy and Gilchrist,
and the profits of the appellee depended upon the
patronage of the public, for which it is conceded the
appellants were at liberty to compete by all fair and
legitimate means. As remarked in the case of the "ticket
scalpers" (82 Fed., 65), the novelty of the facts does not
deter the application of equitable principles. This court
takes judicial notice of the general character of a
cinematograph or motion-picture theater. It is a quite
modern form of the play house, wherein, by means of an
apparatus known as a cinematograph or kinematograph, a
series of views- representing closely successive phases of a
moving object, are exhibited in rapid sequence, giving a
Page 11 of 23
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picture which, owing to the persistence of vision, appears to

the observer to be in continuous motion. (The Encyclopedia
Britannica, vol. 6, p. 374.) The subjects which have lent
themselves to the art of the photographer in this manner
have increased enormously in recent years, as well as have
the places where such exhibitions are given. The
attendance, and, consequently, the receipts, at one of these
cinematograph or motion-picture theaters depends in no
small degree upon the excellence of the photographs, and it
is quite common for the proprietor of the theater to secure
an especially attractive exhibit as his "feature film" and
advertise it as such in order to attract the public. This
feature film is depended upon to secure a
553
553

larger attendance than if its place on the program were
filled by other films of mediocre quality. It is evident that
the failure to exhibit the f eature film will reduce the
receipts of the theater,
Hence, Gilchrist was facing the Immediate prospect of
diminished profits by reason of the fact that the appellants
had induced Cuddy to rent to them the film Gilchrist had
counted upon as his feature film. It is quite apparent that
to estimate with any degree of accuracy the damages which
Gilchrist would likely suffer from such an event would be
quite difficult if not impossible. If he allowed the appellants
to exhibit the film in Iloilo, it would be useless for him to
exhibit it again, as the desire of the public to witness the
production would have been already satisfied. In this
extremity, the appellee applied for and was granted, as we
have indicated, a mandatory injunction against Cuddy
requiring him to deliver the Zigomar to Gilchrist, and a
preliminary injunction against the appellants restraining
them from exhibiting that film in their theater during the
week he (Gilchrist) had a right to exhibit it, These
Injunctions saved the plaintiff harmless from damages due
to the unwarranted interference of the defendants, as well
as the difficult task which would have been set for the
Page 12 of 23
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court of estimating them in case the appellants had been

allowed to carry out their illegal plans, As to whether or
not the mandatory injunction should have been issued, we
are not, as we have said, called upon to determine. So far
as the preliminary injunction issued against the appellants
is concerned, which prohibited them f rom exhibiting the
Zigomar during the week which Gilchrist desired to exhibit
it, we are of the opinion that the circumstances justified the
issuance of that injunction in the discretion of the court.
We are not lacking in authority to support our
conclusion that the court was justified in issuing the
preliminary injunction against the appellants, Upon the
precise question as to whether injunction will issue to
restrain wrongful interference with contracts by strangers
to such contracts, it may be said that courts in the United
States have usually
554
554

granted such relief where the profits of the injured person

are derived from his contractual relations with a large and
indefinite number of individuals, thus reducing him to the
necessity of proving in an action against the tort-feasor
that the latter was responsible in each case for the broken
contract, or else obliging him to institute individual suits
against each contracting party and so exposing him to a
multiplicity of suits. Sperry & Hutchinson Co. vs.
Mechanics' Clothing Co. (128 Fed., 800); Sperry &
Hutchinson Co. vs. Louis Weber & Co. (161 Fed., 219);
Sperry & Hutchinson Co. vs. Pommer (199 Fed., 309); were
all cases wherein the respondents were inducing retail
merchants to break their contracts with the company for
the sale of the latters' trading stamps. Injunction issued in
each case restraining the respondents from interfering with
such contracts.
In the case of the Nashville R. R. Co. vs. McConnell (82
Fed., 65), the court, among other things, said: "One who
wrongfully interferes in a contract between others, and, f or
the purpose of gain to himself induces one of the parties to
Page 13 of 23
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break it, is liable to the party in jured thereby; and his

continued interference may be ground for an injunction
where the injuries resulting will be irreparable."
In Hamby & Toomer vs. Georgia Iron & Coal. Co. (127
Ga., 792), it appears that the respondents were interfering
in a contract for prison labor, and the result would be, if
they were successful, the shutting down of the petitioner's
plant for an indefinite time. The court held that although
there was no contention that the respondents were
insolvent, the trial court did not abuse its discretion in
granting a preliminary injunction against the respondents.
In Beekman vs. Marsters (195 Mass., 205), the plaintiff
had obtained from the Jamestown Hotel Corporation,
conducting a hotel within the grounds of the Jamestown
Exposition, a contract whereby he was made their exclusive
agent for the New England States to solicit patronage for
the hotel. The defendant induced the hotel corporation to
break their contract with the plaintiff in order to allow him
to
555
555

act also as their agent in the New England States. The
court held that an action for damages would not have
afforded the plaintiff adequate relief, and that an
injunction was proper compelling the defendant to desist f
rom further interference with the plaintiff's exclusive
contract with the hotel company.
In Citizens' Light, Heat & Power Co. vs. Montgomery
Light & Water Power Co. (171 Fed;, 553), the court, while
admitting that there are some authorities to the contrary,
held that the current authority in the United States and
England is that:
"The violation of a legal right committed knowingly is a cause of
action, and that it is a violation of a legal right to interfere with
contractual relations recognized by law, if there be no sufficient
justification for the interference. (Quinn vs. Leatham, supra, 510;
Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct, 240; 38 L.
Page 14 of 23
8/8/15, 6:26 AM
Ed., 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840; Rice vs.
Manley, 66 N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N. R. R.
Co., 207 U S., 205; 28 Sup. Ct, 91; 52 L. Ed., 171; Beekman vs.
Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N. S.], 201; 122
Am. St. Rep., 232; South Wales Miners' Fed. vs. Glamorgan Coal
Co., Appeal Cases, 1905, p. 239.)"
See also Nims on Unfair Business Competition, pp. 351

371.
In 3 Elliott on Contracts, section 2511, it is said:
"Injunction is the proper remedy to prevent a wrongful
interference with contracts by strangers to such contracts
where the legal remedy is insufficient and the resulting
injury is irreparable. And where there is a malicious interf
erence with lawful and valid contracts a permanent
injunction will ordinarily issue without proof of express
malice. So, an injunction may be issued where the
complainant and the defendant were business rivals and
the defendant had induced the customers of the
complainant to break their contracts with him by agreeing
to indemnify them against liability for damages. So, an
employee who breaks his con556
556

tract of employment may be enjoined from inducing other

employees to break their contracts and enter into new
contracts with a new employer of the servant who first
broke his contract. But the remedy by injunction cannot be
used to restrain a legitimate competition, though such
competition would involve the violation of a contract. Nor
will equity ordinarily enjoin employees who have quit the
service of their employer from attempting by proper
argument to persuade others from taking their places so
long as they do not resort to f orce or intimidation or
obstruct the public thoroughfares."
Beekman vs. Marsters, supra, is practically on all fours
with the case at bar in that there was only one contract in
question and the profits of the injured person depended
Page 15 of 23
8/8/15, 6:26 AM
upon the patronage of the public. Hamby & Toomer vs.

Georgia Iron & Coal Co., supra, is also similar to the case
at bar in that there was only one contract, the interference
of which was stopped by injunction.
For the foregoing reasons the judgment is affirmed, with
costs, against the appellants.
Arellano, C. J., Torres, Carson, and Araullo, JJ.,
concur.
MORELAND, J., concurring:
The court seems to be of the opinion that the action is one
for a permanent injunction; whereas, under my view of the
case, it is one for specific performance. The facts are
simple. C. S. Gilchrist, the plaintiff, proprietor of the Eagle
Theater of Iloilo, contracted with E. A. Cuddy, one of the
def endants, of Manila, f or a film entitled "Zigomar or
Eelskin, 3d series," to be exhibited in his theater in Iloilo
during the week beginning May 26, 1913. Later, the
defendants Espejo and Zaldarriaga, who were also
operating a theater in Iloilo, representing Pathe Freres,
also obtained from Cuddy a contract for the exhibition of
the film aforesaid in their theater in Iloilo during the same
week.
The plaintiff commenced this action against Cuddy and
the defendants Espejo and Zaldarriaga for the specific
performance of the contract with Cuddy. The complaint
557
557

prays "that the court, by a mandatory injunction, order
Cuddy to deliver, on the 24th of May, 1913, in accordance
with the af oresaid contract, the said film 'Zigomar, 3d
series, or Eelskin,' to the plaintiff Gilchrist, in accordance
with the terms of the agreement, so that plaintiff can
exhibit the same during the last week beginning May 26,
1913, in the Eagle Theater, in Iloilo; that the court issue a
preliminary injunction against the defendants Espejo and
Page 16 of 23
8/8/15, 6:26 AM
Zaldarriaga prohibiting them from receiving, exhibiting, or

using said film in Iloilo during the last week of May, 1913,
or at any other time prior to the delivery to the plaintiff;
that, on the trial, said injunction be made perpetual and
that Cuddy be ordered and commanded to specifically
perform his contract with the plaintiff."
On the filing of the complaint the plaintiff made an
application for a mandatory injunction compelling the
defendant Cuddy to deliver to plaintiff the film in question
by mailing it to him f rom Manila on the 24th of May so
that it would reach Iloilo f or exhibition on the 26th; and f
or a preliminary restraining order against the other two def
endants prohibiting them from receiving or exhibiting the
said film prior to its exhibition by plaintiff.
The court, on this application, entered an order which
provided that Cuddy should "not send said film 'Zigomar,
3d series, or Eelskin,' to the defendants Espejo and
Zaldarriaga and that he should send it to the plaintiff,
Gilchrist, on the 24th day of May, 1913, in the mail for
IIoilo." This order was duly served on the defendants,
including Cuddy, in whose possession the film still was,
and, in compliance therewith Cuddy mailed the film to the
plaintiff at Iloilo on the 24th of May. The latter duly
received it and exhibited it without molestation during the
week beginning the 26th of May in accordance with the
contract which he claimed to have made with Cuddy.
The defendants Espejo and Zaldarriaga having received
due notice of the issuance of the mandatory injunction and
restraining order of the 22d of May, appeared before the
court on the 26th of May and moved that the court vacate
558
558

so much of the order as prohibited them from receiving and

exhibiting the film. In other words, while the order of the
22d of May was composed of two parts, one a mandatory
order for immediate specific performance of the plaintiff's
contract with the defendant Cuddy, and the other a
preliminary restraining order directed to Espejo and
Page 17 of 23
8/8/15, 6:26 AM
Zaldarriaga prohibiting them from receiving and exhibiting

the film during the week beginning the 26th of May, their
motion of the 26th of May referred exclusively to the
injunction against them and touched in no way that portion
of the order which required the immediate performance by
Cuddy of his contract with Gilchrist. Indeed, the
defendants Espejo and Zaldarriaga did not even except to
the order requiring Cuddy to specifically perform his
agreement with the plaintiff nor did they in any way make
an objection to or show their disapproval of it. It was not
excepted to or appealed from and is not before this court for
review.
The motion of Espejo and Zaldarriaga to vacate the
injunction restraining them from receiving the film was
denied on the 26th of May. After the termination of the
week beginning May 26, and after the exhibition of the film
by the plaintiff in accordance with the alleged contract with
Cuddy, the plaintiff came into court and moved that, in
view of the f act that he had already obtained all that he
desired to obtain or could obtain by his action, namely, the
exhibition of the film in question during the week
beginning May 26th, there was no reason for continuing it
and moved for its dismissal. To this motion Cuddy
consented and the action was dismissed as to him. But the
other defendants objected to the dismissal of the action on
the ground that they desired to present to the court
evidence showing the damages which they had suffered by
reason of the issuance of the preliminary injunction
prohibiting them from receiving and exhibiting the film in
question during the week beginning May 26. The court
sustained their objection and declined to dismiss the action
as to them, and, on the 8th of August, heard the evidence
as to damages. He denied defendants the relief asked for
and dismissed their claim
559
559

for damages. They thereupon took an appeal from that
order, and that is the appeal which we have now before us
Page 18 of 23
8/8/15, 6:26 AM
and which is the subject of the opinion of the court with

which I am concurring.
We thus have this strange condition:
An action for specific performance of a contract to
deliver a film for exhibition during a given time. A
preliminary mandatory injunction ordering the delivery of
the film in accordance with the contract. The delivery of the
film in accordance with the preliminary mandatory
injunction. The actual exhibition of the film during the
time specified in the contract. No objection to the issuance
of the mandatory injunction, to the delivery of the film, or
to the exhibition thereof. The dismissal of the action
against the party with whom the plaintiff made the
contract on the ground that the plaintiff had obtained full
relief by means of the so-called preliminary remedy by
virtue of which the contract was actually specifically
performed before the action was tried. No objection or
exception to the order requiring the specific performance of
the contract.
Under such conditions it is possible for the defendants
Espejo and Zaldarriaga to secure damages for the wrongful
issuance of the preliminary injunction directed against
them even though it be admitted that it was erroneously
issued and that there was no ground therefor whatever? It
seems to me that it is not. - At the time this action was
begun the film, as we have seen, was in the possession of
Cuddy and, while in his possession, he complied with a
command of the court to deliver it to the plaintiff. In
pursuance of that command he delivered it to plaintiff, who
used it during the time specified in his contract with
Cuddy; or, in other words, he made such use of it as he
desired and then returned it to Cuddy. This order and the
delivery of the film under it were made in an action in
which the defendants Espejo and Zaldarriaga were parties,
without objection, on their part and without objection or
exception to the order. The film having been delivered to
defendants' competitor, the plaintiff, under a decree of the
court to which they made no ob560
560
Page 19 of 23
8/8/15, 6:26 AM

jection and took no exception and from which they have not
appealed, what injury can they show by reason of the
injunction restraining them from making use of the film? If
they themselves, by their conduct, permitted the plaintiff to
make it impossible for them to gain possession of the film
and to use it, then the preliminary injunction produced no
injury for the reason that no harm can result from
restraining a party from doing a thing which, without such
restraint, it would be impossible for him to do. Moreover,
the order for the delivery of the film to plaintiff was a
complete determination of the rights of the parties to the
film which, while the court had no right to make,
nevertheless, was valid and binding on all the parties, none
of them objecting or taking exception thereto. Being a
complete determination of the rights of the parties to the
action, it should have been the first point attacked by the
defendants, as it foreclosed them completely and, if left in
force, eliminated every def ense. This order was made on
May 22d and was not excepted to or appealed from. On the
8th of August following the defendants appealed from the
order dismissing their claim to damages but the order for
the delivery of the film to plaintiff was final at that time
and is now conclusive on this court.
Section 143 of the Code of Civil Procedure, providing for
appeals by bill of exceptions, provides that "upon the
rendition of final judgment disposing of the action, either
party shall have the right to perfect a bill of exceptions for
a review by the Supreme Court of all rulings, orders, and
judgments made in the action, to which the party has duly
excepted at the time of making such ruling, order, or
judgment." While the order for the delivery of the film to
plaintiff was in one sense a preliminary order, it was in
reality a final determination of the rights of the parties to
the film, as it ordered the delivery thereof to plaintiff for
his use. If it had been duly excepted to, its validity could
have been attacked in an appeal from the final judgment
thereafter entered in the action. Not having been excepted
to as required by the section just referred to, it became
561
Page 20 of 23
8/8/15, 6:26 AM
561

final and conclusive on all the parties to the action, and
when, on the 8th day of August f ollowing, the defendants
presented their claim for damages based on the alleged
wrongful issuance of a temporary restraining order, the
whole foundation of their claim had disappeared by virtue
of the fact that the execution of the order of the 22d of May
had left nothing for them to litigate. The trial court, on the
8th of August, would have been fully justified in ref using
to hear the def endants on their claim f or damages. Their
right thereto had been adjudicated on the 22d of May and
that adjudication had been duly put into execution without
protest, objection or exception, and was, therefore, final
and conclusive on them on the 8th of August.
I have presented this concurring opinion in an attempt
to prevent confusion, if any, which might arise from the
theory on which the court decides this case. It seems to me
impossible that the action can be one for a permanent
injunction. The very nature of the case demonstrates that a
permanent injunction is out of the question. The only thing
that plaintiff desired was to be permitted to use the film f
or the week beginning the 26th of May. With the
termination of that week his rights expired. After that time
Cuddy was perfectly free to turn the film over to the
defendants Espejo and Zaldarriaga for exhibition at any
time. An injunction' permanently prohibiting the
defendants from exhibiting the film in Iloilo would.have
been unjustifiable, as it was something that plaintiff did
not ask for and did not want; and would have been an
invasion of the rights of Cuddy as, after the termination of
the week beginning May 26, he was at liberty, under his
contract with plaintiff, to rent the film to the defendants
Espejo and Zaldarriaga and permit its exhibition in Iloilo
at any time. The plaintiff never asked to have defendants
permanently enjoined from exhibiting the film in Iloilo and
no party to the action has suggested such a thing.
The action is one-for specific performance purely; and
while the court granted plaintiff rights which should have
been granted only after a trial of the action, nevertheless,
Page 21 of 23
8/8/15, 6:26 AM
562
562

such rights having been granted before trial and none of

the defendants having made objection or taken exception
thereto, and the order granting them having become final,
such order became a final determination of the action, by
reason of the nature of the action itself, the rights of the
parties became thereby finally determined and the
defendants Espejo and Zaldarriaga, being parties to the
action, were precluded from further litigation relative to
the subject matter of the controversy.
No damages are claimed by reason of the issuance of the
mandatory injunction under which the film was delivered
to plaintiff and used by him during the week beginning the
26th of May. While the opinion says in the first paragraph
that the action is "for damages against the plaintiff for the
alleged wrongful issuance of a mandatory and preliminary
injunction," the opinion also says in a later portion that "it
will be unnecessary for us to inquire whether the
mandatory injunction against Cuddy was properly issued
or not. No question is raised with reference to the issuance
of that injunction;" and still later it is also stated that "as
to whether or not the mandatory injunction should have
been issued, we are not, as we have said, called upon to
determine." I repeat that no objection was made by the
defendants to the issuance of the mandatory injunction, no
exception was taken to the order on which it was issued
and no appeal has been taken therefrom. That order is now
final and conclusive and was at the time this appeal was
taken. That being so, the rights of the defendants were
foreclosed thereby. The defendants Espejo and Zaldarriaga
cannot now be heard to say that they were damaged by the
issuance of the preliminary restraining injunction issued
on the same day as the mandatory injunction.
From what has been said it is clear, it seems to me, that
the question of a breach of contract by inducement, which
is substantially the only question discussed and decided, is
not in the case in reality and, in my judgment, should not
Page 22 of 23
8/8/15, 6:26 AM
be touched upon. Courts will not proceed with a litigation

and discuss and decide question which might possibly be
in563
563
Casaas vs. Walt and Villaruz.

volved in the case when it clearly appears that there
remains nothing about which to litigate, the whole subject
matter of the original action having been settled and the
parties having no real controversy to present, At the time
the defendants Espejo and Zaldarriaga offered their claim
for damages arising out of the wrongful issuance of the
restraining order, there was nothing between them and the
plaintiff to litigate, the rightfulness of plaintiff's demand
having already been finally adjudicated and determined in
the same action.
Judgment affirmed.
_____________
Page 23 of 23
8/8/15, 6:28 AM
VOL. 20, AUGUST 10, 1967
987
Board of Liquidators vs, Kalaw

No. L-18805. August 14, 1967,
1
THE BOARD OF LIQUIDATORS

representing THE
GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES, plaintiff-appellant,
vs. HEIRS OF
2
MAXIMO M. KALAW, JUAN BOCAR,
ESTATE OF THE
3
DECEASED CASIMIRO GARCIA, and LEONOR MOLL,
defendants-appellees.
Courts; Judgment; Appeals.An appellate court may base its
decision of affirmance of the judgment below on a point or points
ignored by the trial court on which said court was in error.
Corporations; Three methods of winding up corporate affairs.
Accepted in this jurisdiction are three methods by which a
corporation may wind up its affairs: (1) under Section 3, Rule 104,
of the Rules of Court (which superseded Section 66 of the
Corporation Law), whereby, upon voluntary dissolution of a
corporation, the court may direct "such disposi-
_______________
1
Original plaintiff, National Coconut Corporation, was dissolved on
November 24, 1950 by the President's Executive Order 372, which created the
Board of Liquidators. Hence, the substitution of party plaintiff.
2
Defendant Maximo M. Kalaw died in March of 1965 before trial.
Substituted for defendant Casimiro Garcia, deceased.
988
http://www.central.com.ph/sfsreader/session/0000014f0a470156f9dec1e9000a0094004f00ee/p/AME597/?username=Guest
Page 1 of 31
988
8/8/15, 6:28 AM

Board of Liquidators vs. Kalaw
tion of its assets as justice requires, and may appoint a receiver to

collect such assets and pay the debts of the corporation"; (2) under
Section 77 of the Corporation Law, whereby a corporation whose
corporate existence is terminated, "shall nevertheless be continued
as a body corporate for three years after the time when it would
have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually to settle
and close its affairs, to dispose of and convey its property and to
divide its capital stock, but not for the purpose of continuing the
business for which it was established"; and (3) under Section 78 of
the Corporation Law, by virtue of which the corporation, within the
three-year period just mentioned, "is authorized and empowered to
convey all of its property to trustees for the benefit of members,
stockholders, creditors, and others interested,"
Board of Liquidators; Trustee for government.By Executive
Order No. 372, the government, the sole stockholder, abolished the
National Coconut Corporation (NACOCO) and placed its assets in
the hands of the Board of Liquidators. The Board thus became the
trustee on behalf of the government. It was an express trust. The
legal interest became vested in the trustee, the Board of
Liquidators. The beneficial interest remained with the sole
stockholder, the government. The Board took the place of the
dissolved government corporations after the expiration of the
statutory three-year period for the liquidation of their affairs.
Same; No term for life of Board.No time limit has been
tacked to the existence of the Board of Liquidators and its function
of closing the affairs of various government corporations. Its term of
life is not fixed.
Same; Right of Board of Liquidators to proceed as
partyplaintiff; Case at bar.At no time had the government
withdrawn the property. or the authority to continue the present
suit, from the Board of Liquidators. Hence, the Board can prosecute
this case to its final conclusion. The provisions of Section 78 of the
Corporation Law, the third method of winding up corporate affairs,
find application. The Board has personality to proceed as partyplaintiff in this case.
Settlement of decedent's estate; Actions; Actions that survive;
Page 2 of 31
8/8/15, 6:28 AM
Executors and administrators.The actions that survive against a

decedent's executors or administrators are: (1) actions to recover
real and personal property from the estate; (2) actions to enforce a
lien thereon; and (3) actions to recover damages for an injury to
person or property. A suit to recover damages, based on the alleged
tortious acts of the manager of a government corporation, survives.
It is not a mere money claim that is extinguished upon the death of
a party.
989
VOL 20, AUGUST 14, 1967
989

Corporations; Implied authority of corporate officer to enter into
contracts.A corporate officer, entrusted with the general
management and control of its business, has implied authority to
make any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the
corporation. As such officer, he may, without any special authority
from the Board of Directors, perform all acts of an ordinary nature,
which by usage or necessity are incident to his office, and may bind
the corporation by contracts in matters arising in the usual course
of business.
Same; Where similar acts of manager were approved by
directors.Where similar acts have been approved by the directors
as a matter of general practice, custom, and policy, the general
manager may bind the company without formal authorization of the
board of directors. In varying language, existence of such authority
is established by proof of the course of business, the usages and
practices of the company and by the knowledge which the board of
directors has, or must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation. Where the
practice of the corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading activities for
and in Nacoco's behalf without prior board approval, and the board
itself, by its acts and through acquiescence, practically laid aside
the by-law requirement of prior approval, the contracts of the
general manager, under the given circumstances, are valid
corporate acts.
Page 3 of 31
8/8/15, 6:28 AM
Same; Ratification by corporation of unauthorized contract of

its officers.Ratification by a corporation of an unauthorized act or
contract by its officers or others relates back to the time of the act
or contract ratified and is equivalent to original authority. The
corporation and the other party to the transaction are in precisely
the same position as if the act or contract had been authorized at
the time. The adoption or ratif ication of a contract by a corporation
is nothing more nor less than the making of an original contract.
The theory of corporate ratification is predicated on the right of a
corporation to contract, and any ratification or adoption is
equivalent to a grant of prior authority.
Contracts; Bad faith.Bad faith does not simply connote bad
judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of a
known duty through some motive or interest or ill-will; it partakes
of the nature of fraud.
Damages; Damnum absque injuria.The present case is one of
damnum absque injuria. Conjunction of damage and wrong is here
absent. There cannot be an actionable wrong if either one or the
other is wanting.
990
990


Manila, Enriquez, J.
Simeon M. Gopengco for plaintiff-appellant.
L. H. Hernandez, Emma Quisumbing, Fernando and
Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo
& Belo for defendants-appellees.
SANCHEZ, J.:
The National Coconut Corporation (NACOCO, for short)
was chartered as a non-profit governmental organization
on May 7, 1940 by Commonwealth Act 518 avowedly for
the protection, preservation and development of the
coconut industry in the Philippines, On August 1, 1946,
Page 4 of 31
8/8/15, 6:28 AM
NACOCO's charter was amended [Republic Act 5] to grant

that corporation the express power "to buy, sell, barter,
export, and in any other manner deal in, coconut, copra,
and dessicated coconut, as well as their by-products, and to
act as agent, broker or commission merchant of the
producers, dealers or merchants" thereof. The charter
amendment was enacted to stabilize copra prices, to serve
coconut producers by securing advantageous prices for
them, to cut down to a minimum, if not altogether
4
eliminate, the margin of middlemen, mostly aliens.
General manager and board chairman was Maximo M.
Kalaw; defendants Juan Bocar and Casimiro Garcia were
members of the Board; defendant Leonor Moll became
director only on December 22, 1947,
NACOCO, after the passage of Republic Act 5, embarked
on copra trading activities. Amongst the scores of contracts
executed by general manager Kalaw are the disputed
contracts, for the delivery of copra, viz:
(a) July 30, 1947: Alexander Adamson & Co., for 2,000
long tons, $167.00 per ton, f.o.b., delivery: August
and September, 1947. This contract was later
assigned to Louis Dreyfus & Co. (Overseas) Ltd.
_______________
4
Explanatory Note of House Bill 295, 1st Session, 2nd Congress, later
Republic Act 5; Congressional Record, House of Representatives, July 22,

1946; Minutes of the NACOCO Directors' Meeting of July 2, 1946, Exh,
4-Heirs.
991
VOL 20, AUGUST 14, 1967
991

(b) August 14, 1947: Alexander Adamson & Co., for
2,000 long tons $145.00 per long ton, f .o.b.,
Philippine ports, to be shipped: September-October,
1947. This contract was also assigned to Louis
Dreyfus & Co. (Overseas) Ltd.
(c) August 22, 1947: Pacific Vegetable Co., for 3,000
Page 5 of 31
8/8/15, 6:28 AM
tons, $137.50 per ton, delivery: September, 1947.

(d) September 5, 1947: Spencer Kellog & Sons, for
1,000 long tons, $160.00 per ton, c.i.f., Los Angeles,
California, delivery: November, 1947.
(e) September 9, 1947: Franklin Baker Division of
General Foods Corporation, for 1,500 long tons,
$164,00 per ton, c.i.f., New York, to be shipped in
November, 1947.
(f) September 12, 1947: Louis Dreyfus & Co.
(Overseas) Ltd., for 3,000 long tons, $154.00 per
ton, f.o.b., 3 Philippine ports, delivery: November,
1947.
(g) September 13, 1947: Juan Cojuangco, for 2,000
tons, $175.00 per ton, delivery: November and
December, 1947. This contract was assigned to
Pacific Vegetable Co.
(h) October 27, 1947: Fairwood & Co., for 1,000 tons,
$210.00 per short ton, c.i.f., Pacific ports, delivery:
December, 1947 and January, 1948. This contract
was assigned to Pacific Vegetable Co.
(i) October 28, 1947: Fairwood & Co., for 1,000 tons,
$210.00 per short ton, c.i.f., Pacific ports, delivery:
January. 1948, This contract was assigned to Pacific
Vegetable Co.
An unhappy chain of events conspired to deter NACOCO
from fulfilling these contracts. Nature supervened. Four
devastating typhoons visited the Philippines: the first in
October, the second and third in November, and the fourth
in December, 1947. Coconut trees throughout the country
suffered extensive damage. Copra production decreased.
Prices spiralled. Warehouses were destroyed. Cash
requirements doubled. Deprivation of export facilities
increased the time necessary to accumulate shiploads of
copra. Quick turnovers became impossible, financing a
problem.
When it became clear that the contracts would be
unprofitable, Kalaw submitted them to the board for
approval. It was not until December 22, 1947 when the
membership was completed. Defendant Moll took her oath
on that date.
Page 6 of 31
8/8/15, 6:28 AM
992
992

A meeting was then held. Kalaw made a full disclosure of

the situation, apprised the board of the impending heavy
losses. No action was taken on the contracts. Neither did
the board vote thereon at the meeting of January 7, 1948
following. Then, on January 11, 1948, President Roxas
made a statement that the NACOCO head did his best to
avert the losses, emphasized that government concerns
faced the same risks that confronted private companies,
that NACOCO was recouping its losses, and that Kalaw
was to remain in his post. Not long thereafter, that is, on
January 30, 1948, the board met again with Kalaw, Bocar,
Garcia and Moll in attendance. They unanimously
approved the contracts hereinbefore enumerated.
As was to be expected, NACOCO but partially performed
the contracts, as follows:
Buyers
Tons Delivered Undelivered
Pacific Vegetable Oil
2,386.45
4,613.55
Spencer Kellog
None
1,000
Franklin Baker
1,000
500
Louis Dreyfus
800
2,200
Louis Dreyfus (Adamson con

tract of July 30, 1947)
1,150
850
Louis Dreyfus (Adamson Contract of August 14, 1947)
1,755
245
T O T A L S
7,091.45
9,408.55
The buyers threatened damage suits. Some of the claims

were settled, viz: Pacific Vegetable Oil Co., in copra
delivered by NACOCO, P539,000.00; Franklin Baker
Corporation, P78,210.00; Spencer Kellog & Sons,
P159,040.00.
But one buyer, Louis Dreyfus & Co. (Overseas) Ltd., did
in fact sue before the Court of First Instance of Manila,
Page 7 of 31
8/8/15, 6:28 AM
upon claims as follows: For the undelivered copra under

the July 30 contract (Civil Case 4459); P287,028.00; for the
balance on the August 14 contract (Civil Case 4398),
P75,098.63; for that per the September 12 contract reduced
to judgment (Civil Case 4322, appealed to this Court in L2829), P447,908.40. These cases culminated in an out-ofcourt amicable settlement when the Kalaw management
was already out. The corporation thereunder
993
VOL 20, AUGUST 14, 1967
993

paid Dreyfus P567,024.52 representing 70% of the total
claims. With particular reference to the Dreyfus claims,
NACOCO put up the defenses that: (1) the contracts were
void because Louis Dreyfus & Co. (Overseas) Ltd. did not
have license to do business here; and (2) failure to deliver
was due to force majeure, the typhoons. To project the utter
unreasonableness of this compromise, we reproduce 'in
haec verba this finding below:
"x x x However, in similar cases brought by the same claimant
[Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for
non-delivery of copra also involving a claim of P345,654.68 wherein
defendant set up same defenses as above, plaintiff accepted a
promise of P5,000.00 only (Exhs. 31 & 32Heirs.) Following the same
proportion, the claim of Dreyfus against NACOCO should have been
compromised for only P10,000.00, if at all. Now, why should
defendants be held liable for the large sum paid as compromise by
the Board of Liquidators? This is just a sample to show how unjust
it would be to hold defendants liable for the readiness with which
the Board of Liquidators disposed of the NACOCO funds, although
there was much possibility of successfully resisting the claims, or at
least settlement for nominal sums like what happened in the Syjuco
5
case."
All the settlements sum up to P1,343,274.52.

In this suit started in February, 1949, NACOCO seeks to
recover the above sum of P1,343,274.52 from general
manager and board chairman Maximo M. Kalaw, and
Page 8 of 31
8/8/15, 6:28 AM
directors Juan Bocar, Casimiro Garcia and Leonor Moll. It

charges Kalaw with negligence under Article 1902 of the
old Civil Code (now Article 2176, new Civil Code); and
defendant board members, including Kalaw, with bad faith
and/or breach of trust for having approved the contracts.
The fifth amended complaint, on which this case was tried,
was filed on July 2, 1959. Defendants resisted the action
upon defenses hereinafter in this opinion to be discussed.
The lower court came out with a judgment dismissing
the complaint without costs as well as defendants'
counterclaims, except that plaintiff was ordered to pay the
heirs of Maximo Kalaw the sum of P2,601.94 for unpaid
salaries and cash deposit due the deceased Kalaw from
NACOCO. Plaintiff appealed direct to this Court.
________________
5
R.A., p. 238; Italics supplied.

994
994

Plaintiff's brief did not question the judgment on Kalaw's

counterclaim for the sum of P2,601.94.
Right at the outset, two preliminary questions raised
before, but adversely decided by, the court below, arrest our
attention. On appeal, defendants renew their bid. And this,
upon established jurisprudence that an appellate court
may base its decision of affirmance of the judgment below
on a point or points ignored
by the trial court or in which
6
said court was in error.
1. First of the threshold questions is that advanced by
defendants that plaintiff Board of Liquidators has lost its
legal personality to continue with this suit.
Accepted in this jurisdiction are three methods by which
a corporation may wind up its affairs: (1) under Section 3,
Rule 104, of the Rules of Court
[which superseded Section
7
66 of the Corporation Law] whereby, upon voluntary
dissolution of a corporation, the court may direct "such
disposition of its assets as justice requires, and may
Page 9 of 31
8/8/15, 6:28 AM
appoint a receiver to collect such assets and pay the debts

of the corporation;" (2) under Section 77 of the Corporation
Law, whereby a corporation whose corporate existence is
terminated, "shall nevertheless be continued as a body
corporate for three years after the time when it would have
been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually
to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the
purpose of continuing the business for which it was
established"; and (3) under Section 78 of the Corporation
Law, by virtue of which the corporation, within the
threeyear period just mentioned, "is authorized and
empowered to convey all of its property to trustees for the
benefit of 8members, stockholders, creditors, and others
interested."
It is defendants' pose that their case comes within the
coverage of the second method. They reason out that suit
_______________
6
Garcia Valdez vs. Tuason, 40 Phil. 943, 951-952; Lucero vs. Guzman,
45 Phil. 852, 879; Relativo vs. Castro, 76 Phil. 563, 567-568.

7
III Agbayani, Corporation Law, 1964 ed., p. 1679.
Government vs. Wise & Co., Ltd. (C.A.), 37 O.G. No. 26, pp. 545, 546.
995
VOL 20, AUGUST 14. 1967
995

der 372, dated November 24, 1950, NACOCO, together
with other government-owned corporations, was abolished,
and the Board of Liquidators was entrusted with the
function of settling and closing its affairs; and that, since
the threeyear period has elapsed, the Board of Liquidators
may not now continue with, and prosecute, the present case
to its conclusion, because Executive Order 372 provides in
Section 1 thereof that
"SECTION 1. The National Abaca and Other Fibers Corporation,
the National Coconut Corporation, the National Tobacco
Page 10 of 31
8/8/15, 6:28 AM
Corporation, the National Food Products Corporation and the

former enemy-owned or controlled corporations or associations, xxx
are hereby abolished. The said corporations shall be liquidated in
accordance with law, the provisions of this Order, and/or in such
manner as the President of the Philippines may direct; Provided,
however, That each of the said corporations shall nevertheless be
continued as a body corporate for a period of three (3) years from
the effective date of this Executive Order for the purpose of
prosecuting and defending suits by or against it and of enabling the
Board of Liquidators gradually to settle and close its affairs, to
dispose of and convey its property in the manner hereinafter
provided."
Citing Mr. Justice Fisher, defendants proceed to argue that

even where it may be found impossible within the 3-year
period to reduce disputed claims to judgment, nonetheless,
"suits by or against a corporation abate when it ceases to be
an entity capable of suing or being sued" (Fisher, The
Philippine Law of Stock Corporations, pp. 390-391). Corpus
Juris Secundum likewise is authority for the statement
that "[t]he dissolution of a corporation ends its existence so
that there must be statutory authority for prolongation
of
9
its life even for purposes of pending litigation" and that
suit "cannot be continued or revived; nor can a valid
judgment be rendered therein, and a judgment, if rendered,
is not only
erroneous, but void and subject to collateral
10
attack." So it is, that abatement of pending actions follows
as a matter of course
upon the expiration of the legal period
11
for liquidation, unless the statute mere_______________
9
10 C.J.S., p. 1503; italics supplied.
10
1 C.J.S., p. 141.
11
Id., p. 143; 16 Fletcher, p. 901. 995

996
996

ly requires a commencement of suit within the added

Page 11 of 31
8/8/15, 6:28 AM
12
time. For,
the court cannot extend the time alloted by
13
statute.
We, however, express the view that the executive order
abolishing NACOCO and creating the Board of Liquidators
should be examined in context. The proviso in Section 1 of
Executive Order 372, whereby the corporate existence of
NACOCO was continued for a period of three years from
the effectivity of the order for "the purpose of prosecuting
and defending suits by or against it and of enabling the
Board of Liquidators gradually to settle and close its
affairs, to dispose of and convey its property in the manner
hereinafter provided", is to be read not as an isolated
provision but in conjunction with the whole. So reading, it
will be readily observed that no time limit has been tacked
to the existence of the Board of Liquidators and its function
of closing the affairs of the-various governmentowned
corporations, including NACOCO.
By Section 2 of the executive order, while the boards of
directors of the various corporations were abolished, their
powers and functions and duties under existing laws were
to be assumed and exercised by the Board of Liquidators,
The President thought it best to do away with the boards of
directors of the defunct corporations; at the same time,
however, the President had chosen to see to it that the
Board of Liquidators step into the vacuum. And nowhere in
the executive order was there any mention of the lifespan
of the Board of Liquidators. A glance at the other
provisions of the executive order buttresses our conclusion.
Thus, liquidation by the Board of Liquidators may, under
section 1, proceed in accordance with law, the provisions of
the executive order, "and/or in such manner as the
President of the Philippines may direct" By Section 4, when
any property, fund, or project is transferred to any
governmental instrumentality "for administration or
continuance of any project," the necessary funds therefor
shall be taken from the corresponding special fund created
in Section 5. Section 5, in turn, talks of special funds
established from
_______________
12
16 Fletcher, p. 902.
Page 12 of 31
13
8/8/15, 6:28 AM
Service & Wright Lumber Co. vs. Sumpter Valley Ry. Co., 152 P.
262, 265.
997
VOL 20, AUGUST 14, 1967
997

the "net proceeds of the liquidation" of the various
corporations abolished. And by Section 7, fifty per centum
of the fees collected from the copra standardization and
inspection service shall accrue "to the special fund created
in section 5 hereof for the rehabilitation and development
of the coconut industry." Implicit in all these, is that the
term of life of the Board of Liquidators is without time
limit. Contemporary history gives us the fact that the
Board of Liquidators still exists as an office with officials
and numerous employees continuing the job of liquidation
and prosecution of several court actions.
Not that our views on the power of the Board of
Liquidators to proceed to the final determination of the
present case is without jurisprudential support. The first
judicial test before this Court is National Abaca and Other
Fibers Corporation vs. Pore, L-16779, August 16, 1961. In
that case, the corporation, already dissolved, commenced
suit within the three-year extended period for liquidation.
That suit was for recovery of money advanced to defendant
for the purchase of hemp in behalf of the corporation. She
failed to account for that money. Defendant moved to
dismiss, questioned the corporation's capacity to sue. The
lower court ordered plaintiff to include as co-party plaintiff,
The Board of Liquidators, to which the corporation's
liquidation was entrusted by Executive Order 372. Plaintiff
failed to effect inclusion. The lower court dismissed the
suit. Plaintiff moved to reconsider. Ground: excusable
negligence. in that its counsel prepared the amended
complaint, as directed, and instructed the board's incoming
and outgoing correspondence clerk, Mrs. Receda Vda. de
Ocampo, to mail the original thereof to the court and a copy
of the same to defendant's counsel. She mailed the copy to
the latter but f ailed to send the original to the court. This
motion was rejected below. Plaintiff came to this Court on
Page 13 of 31
8/8/15, 6:28 AM
appeal. We there said that "the rule appears to be well

settled that, in the absence of statutory provision to the
contrary, pending actions by or against a corporation are
abated upon expiration of the period allowed by law for the
liquidation of its affairs." We there noted that "[o]ur
Corporation Law contains no provision authorizing a
corporation, after three (3) years from the expiration of its
998
998

lifetime, to continue in its corporate name actions

14
instituted by it within said period of three (3) years."
However, these precepts notwithstanding, we, in effect,
held in that case that the Board of Liquidators escapes f
rom the operation thereof for the reason that "[o]bviously,
the complete loss of plaintiffs corporate existence after the
expiration of the period of three (3) years for the settlement
of its affairs is what impelled the President to create a
Board of Liquidators, to continue15the management of such
matters as may then be pending." We accordingly directed
the record of said case to be returned to the lower court,
with instructions to admit plaintiff's amended complaint to
include, as party plaintiff, the Board of Liquidators.
Defendants' position is vulnerable to attack from
another direction.
By Executive Order 372, the government, the sole
stockholder, abolished NACOCO, and placed its assets in
the hands of the Board of Liquidators. The Board of
Liquidators thus became the trustee on behalf of the
government. It was an express trust. The legal interest
became vested in the trusteethe Board of Liquidators.
The beneficial interest remained with the sole stockholder
the government. At no time had the government
withdrawn the property, or the authority to continue the
present suit, from the Board of Liquidators. If for this
reason alone, we cannot stay the hand of the Board of
Liquidators16 from prosecuting this case to its final
conclusion.
The provisions of Section 78 of the
Corporation Lawthe third method of winding up
Page 14 of 31
8/8/15, 6:28 AM
corporate affairsfind application.

We, accordingly, rule that the Board of Liquidators has
personality to proceed as party-plaintiff in this case.
2. Defendants' second poser is that the action is
unenforceable against the heirs of Kalaw.
Appellee
heirs of Kalaw raised in their motion to
17
dismiss, which was overruled, and in their nineteenth
special
_______________
14
Citing Sumera vs. Valencia, 67 Phil. 721, 726-727.
15
Italics ours.
16
See: Section 3, Rule 3, Rules of Court.
17
Record on Appeal, pp. 21-25.

999
VOL. 20, AUGUST 14, 1967
999

defense, that plaintiff's action is personal to the deceased
Maximo M. Kalaw, and18 may not be deemed to have
survived after his death. They say that the controlling
19
statute is Section 5, Rule 87, of the 1940 Rules of Court,
which provides that "[a]ll claims for money against the
decedent, arising from contract, express or implied", must
be filed in the estate proceedings of the deceased. We
disagree.
The suit here revolves around the alleged negligent acts
of Kalaw for having entered into the questioned contracts
without prior approval of the board of directors, to the
damage and prejudice of plaintiff; and is against Kalaw
and the other directors for having subsequently approved
the said contracts in bad faith. and/or breach of trust."
Clearly then, the present case is not a mere action for the
recovery of money nor a claim for money arising from
contract, The suit involves alleged tortious acts. And the
action is embraced in suits filed "to recover damages for an
injury to
person or property, real or personal", which
20
survive.
The leading expositor of the law on this point is Aguas
Page 15 of 31
8/8/15, 6:28 AM
vs. Llemos, L-18107; August 30, 1962. There, plaintiffs

sought to recover damages from defendant Llemos. The
complaint averred that Llemos had served plaintiff by
registered mail with a copy of a petition for a writ of
possession in Civil Case 4824 of the Court of First Instance
at Catbalogan, Samar. with notice that the same would be
submitted to the Samar court on February 23, 1960 at 8:00
a.m.; that in view of the copy and notice served, plaintiffs
proceeded to the said court of Samar from their residence
in Manila accompanied by their lawyers, only to discover
that no such petition had been filed; and that defendant
Llemos maliciously failed to appear in court, so that
plaintiffs' expenditure and trouble turned out to be in vain,
causing them mental anguish and undue embarrassment.
Defendant died before he could answer the complaint.
Upon leave of court, plaintiffs amended their complaint to
include the heirs of the deceased. The heirs moved to
dismiss. The
_______________
18
Id., p. 154.
19
Now Section 5, Rule 86.
20
Section 1, Rule 88 of the 1940 Rules of Court; now Section 1 Rule
87, Revised Rules of Court.

1000
1000

court dismissed the complaint on the ground that the legal

representative, and not the heirs, should have been made
the party defendant; and that, anyway, the action being for
recovery of money, testate or intestate proceedings should
be initiated and the claim filed therein. This Court, thru
Mr. Justice Jose B. L. Reyes, there declared:
"Plaintiffs argue with considerable cogency that contrasting the
correlated provisions of the Rules of Court, those concerning claims
that are barred if not filed in the estate settlement proceedings
(Rule 87, sec. 5) and those defining actions that survive and may be
Page 16 of 31
8/8/15, 6:28 AM
prosecuted against the executor or administrator (Rule 88, see. 1), it

is apparent that actions for damages caused by tortious conduct of a
defendant (as in the case at bar) survive the death of the latter.
Under Rule 87, section 5, the actions that are abated by death are:
(1) claims for funeral expenses and those for the last sickness of the
decedent; (2) judgments for money; and (3) 'all claims for money
against the decedent, arising from contract express or implied.'
None of these includes that of the plaintiffs-appellants; for it is not
enough that the claim against the deceased party be for money, but
it must arise from 'contract express or implied', and these words
(also used by the Rules in connection with attachments and derived
from the common law) were construed in Leung Ben vs. O'Brien, 38
Phil. 182. 189194,
'to include all purely personal obligations other than
those which have their source in delict or tort.'
Upon the other hand, Rule 88, section 1, enumerates

actions that survive against a decedent's executors or
administrators, and they are: (1) actions to recover real and
personal property from the estate; (2) actions to enforce a
lien thereon; and (3) actions to recover damages for an
injury to person or property. The present suit is one for
damages under the last class, it having been held that
'injury to property' is not limited to injuries to specific
property, but extends to other wrongs by which personal
estate is injured or diminished (Baker vs. Crandall, 47 Am.
Rep. 126; also 171 A.L.R., 1395). To maliciously cause a
party to incur unnecessary expenses, as charged in this
case, is certainly injury to that party's property (Javier vs.
Araneta, L-4369, Aug. 31, 1953)."
The ruling in the preceding case was hammered out of
facts comparable to those of the present. No cogent reason
exists why we should break away from the views just
expressed. And, the conclusion remains: Action against the
Kalaw heirs and, for the matter, against the Estate of
Casimiro Garcia survives.
1001
VOL 20, AUGUST 14. 1967
1001
Page 17 of 31
8/8/15, 6:28 AM
The preliminaries out of the way, we now go to the core of

the controversy.
3. Plaintiff levelled a major attack on the lower court's
holding that Kalaw justifiedly entered into the
controverted contracts without the prior approval of the
corporation's directorate, Plaintiff leans heavily on
NACOCO's corporate by-laws. Article IV (b), Chapter III
thereof, recites, as amongst the duties of the general
manager, the obligation: "(b) To perform or execute on
behalf of the Corporation upon prior approval of the Board,
all contracts necessary and essential to the proper
accomplishment f or which the Corporation was organized."
Not of de minimis importance in a proper approach to
the problem at hand, is the nature of a general manager's
position in the corporate structure. A rule that has gained
acceptance through the years is that a corporate officer
"intrusted with the general management and control of its
business, has implied authority to make any contract or do
any other act which is necessary or appropriate to21 the
conduct of the ordinary business of the corporation." As
such officer, "he may, without any special authority from
the Board of Directors perform all acts of an ordinary
nature, which by usage or necessity are incident to his
office, and may bind the corporation by contracts
in
22
matters arising in the usual course of business."
The problem, therefore, is whether the case at bar is to
be taken out of the general concept of the powers of a
general manager, given the cited provision of the NACOCO
'by-laws requiring prior directorate approval of NACOCO
contracts.
The peculiar nature of copra trading, at this point,
deserves express articulation. Ordinary in this enterprise
are copra sales for future delivery. The movement of the
market requires that sales agreements be entered into,
even
_______________
21
2 Fletcher Cyclopedia Corporations, p. 607. See: Yu Chuck vs. Kong
Li Po, 46 Phil. 608, 614.

22
Sparks vs. Despatch Transfer Co., 15 S.W. 417, 413; Pacific Concrete
Products Corporation vs. Dimmick, 289 P. 2d 501, 504; Massachusetts
Page 18 of 31
8/8/15, 6:28 AM
Bonding & Ins. Co. vs. Transamerican Freight Lines, 281 N.W. 584, 588589; Sealy Oil Mill & Mfg. Co. vs. Bishop Mfg. Co., 235 S.W. 850, 852.
1002
1002

though the goods are not yet in the hands of the seller.
Known in business parlance as forward sales, it is
concededly the practice of the trade. A certain amount of
speculation is inherent in the undertaking. NACOCO was
much more conservative than the exporters with big
capital. This short-selling was inevitable at the time in the
light of other factors such as availability of vessels, the
quantity required before being accepted for loading, the
labor needed to prepare and sack the copra for market. To
NACOCO, forward sales were a necessity. Copra could not
stay long in its hands; it would lose weight, its value
decrease. Above all, NACOCO's limited funds necessitated
a quick turnover. Copra contracts then had to be executed
on short noticeat times within twenty-four hours. To be
appreciated then is the difficulty of calling a formal
meeting of the board.
Such were the environmental circumstances when
Kalaw went into copra trading.
Long before the disputed contracts came into being,
Kalaw contractedby himself alone as general manager
for forward sales of copra. For the fiscal year ending June
30, 1947, Kalaw signed some 60 such contracts for the sale
of copra to divers parties. During that period, from those
copra sales, NACOCO reaped a gross profit of
P3,631,181.48. So pleased was NACOCO's board of
directors that, on December 5, 1946, in Kalaw's absence, it
voted to grant him a special bonus "in recognition of the
signal achievement rendered by him in putting the
Corporation's business on a self-sufficient basis within a
few months after assuming office, despite numerous
handicaps and difficulties."
These previous contracts, it should be stressed, were
signed by Kalaw without prior authority from the board.
Said contracts were known all along to the board members.
Page 19 of 31
8/8/15, 6:28 AM
Nothing was said by them. The aforesaid contracts stand to

prove one thing: Obviously, NACOCO board met the
difficulties attendant to forward sales by leaving the
adoption of means to end, to the sound discretion of
NACOCO's general manager Maximo M. Kalaw.
Liberally spread on the record are instances of contracts
executed by NACOCO's general manager and submitted to
1003
VOL. 20, AUGUST 14, 1967
1003

the board after their consummation, not before. These
agreements were not Kalaw's alone. One at least was
executed by a predecessor way back in 1940, soon after
NACOCO was chartered. It was a contract of lease
executed on November 16, 1940 by the then general
manager and board chairman, Maximo Rodriguez, and A.
Soriano y Cia., for the lease of a space in Soriano Building.
On November 14, 1946, NACOCO, thru its general
manager Kalaw, sold 3,000 tons of copra to the Food
Ministry, London, thru Sebastian Palanca. On December
22, 1947, when the controversy over the present contracts
cropped up, the board voted to approve a lease contract
previously executed between Kalaw and Fidel Isberto and
Ulpiana Isberto covering a warehouse of the latter. On the
same date, the board gave its nod to a contract for renewal
of the services of Dr. Manuel L. Roxas. In fact, also on that
date, the board requested Kalaw to report for action all
copra contracts signed by him "at the meeting immediately
following the signing of the contracts" This practice was
observed in a later instance when, on January 7, 1948, the
board approved two previous contracts for the sale of 1,000
tons of copra each to a certain "SCAP" and a certain
"GNAPO".
And more. On December 19,1946, the board resolved to
ratify the brokerage commission of 2% of Smith, Bell and
Co., Ltd., in the sale of 4,300 long tons of copra to the
French Government. Such ratification was necessary
because, as stated by Kalaw in that same meeting, "under
an existing resolution he is authorized to give a brokerage
Page 20 of 31
8/8/15, 6:28 AM
fee of only 1% on sales of copra made through brokers." On

January 15, 1947, the brokerage fee agreements of 1-% on
three export contracts, and 2% on three others, for the sale
of copra were approved by the board with a proviso
authorizing the general manager to pay a commission up to
the amount of 1-% "without further action by the Board"
On February 5, 1947, the brokerage fee of 2% of J.
Cojuangco & Co. on the sale of 2,000 tons of copra was
favorably acted upon by the board. On March 19, 1947, a
2% brokerage commission was similarly approved by the
board for Pacific Trading Corporation on the sale of 2,000
tons of copra.
1004
1004

It is to be noted in the foregoing cases that only the

brokerage fee agreements were passed upon by the board,
not the sales contracts themselves. And even those fee
agreements were submitted only when the commission
exceeded the ceiling fixed by the board.
Knowledge by the board is also discernible from other
recorded instances.
When the board met on May 10. 1947. the directors
discussed the copra situation: There was a slow downward
trend but belief was entertained that the nadir might have
already been reached and an improvement in prices was
expected. In view thereof, Kalaw informed the board that
"he intends to wait until he
has signed contracts to sell
23
before starting to buy copra."
In the board meeting of July 29, 1947, Kalaw reported
on the copra price conditions then current: The copra
market appeared to have become fairly steady; it was not
expected that copra prices would again rise very high as in
the unprecedented boom during January-April, 1947; the
prices seemed to oscillate between $140 to $150 per ton; a
radical rise or decrease was not indicated by the trends.
Kalaw continued to say that "the Corporation has been
closing contracts for the sale of copra generally
with a
24
margin of P5.00 to P7.00 per hundred kilos."
Page 21 of 31
8/8/15, 6:28 AM
We now lift the following excerpts from the minutes of

that same board meeting of July 29, 1947:
"521. In connection with the buying and selling of copra the Board
inquired whether it is the practice of the Management to close
contracts of sale first before buying. The General Manager replied
that this practice is generally followed but that it is not always
possible to do so for two reasons:
(1) The role of the Nacoco to stabilize the prices of copra
requires that it should not cease buying even when it does
not have actual contracts of sale since the suspension of
buying by the Nacoco will result in middlemen taking
advantage of the temporary inactivity of the Corporation to
lower the prices to the detriment of the producers.
(2) The movement of the market is such that it may not be
practical always to wait for the consummation of contracts
of sale before beginning to buy copra.
_______________
23
Italics supplied.
24
Italics supplied.
1005
VOL. 20, AUGUST 14, 1967
1005

The General Manager explained that in this connection a certain
amount of speculation is unavoidable. However, he said that the
Nacoco is much more conservative than the other big exporters in
25
this respect."
Settled jurisprudence has it that where similar acts have

been approved by the directors as a matter of general
practice, custom, and policy, the general manager may bind
the company
without formal authorization of the board of
26
directors. In varying language, existence of such authority
is established, by proof of the course of business, the usages
and practices of the company and by the knowledge which
the board of directors has, or must be presumed to have, of
Page 22 of 31
8/8/15, 6:28 AM
acts and doings of 27its subordinates in and about the affairs

of the corporation. So also,
"x x x authority to act for and bind a corporation may be presumed f
rom acts of recognition in other instances where the power was in
28
fact exercised."
"x x x Thus, when, in the usual course of business of a
corporation, an officer has been allowed in his official capacity to
manage its affairs, his authority to represent the corporation may
be implied from the manner in which he has been permitted by the
29
directors to manage its business."
In the case at bar, the practice of the corporation has been

to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in
NACOCO's behalf without prior board approval. If the
bylaws were to be literally followed, the board should give
its stamp of prior approval on all corporate contracts. But
that board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior
approval.
Under the given circumstances, the Kalaw contracts are
valid corporate acts.
_______________
25
Italics supplied.
26
Harris vs. H. C. Talton Wholesale Grocery Co., 123 So. 480.
27
Van Denburgh vs. Tungsten Reef Mines Co., 67 P. (2d) 360, 361,
citing First National Fin. Corp. vs. Five-O Drilling Co., 289 P. 844, 845.
28
Mclntosh vs. Dakota Trust Co., 204 N.W. 818, 824.
29
Murphy vs. W. H. & F. W. Cane, 82 Atl. 854, 856. See Martin vs.
Webb, 110 U.S. 7, 14-15, 28 L. ed. 49, 52. See also Victory Investment
Corporation vs. Muskogee Electric T. Co., 150 F, 2d, 889, 893,
1006
1006

4. But if more were required, we need but turn to the

board's ratification of the contracts in dispute on January
Page 23 of 31
8/8/15, 6:28 AM
30, 1948, though it is our (and the lower court's) belief that
ratification here is nothing more than a mere formality.
Authorities, great in number, are one in the idea that
"ratification by a corporation of an unauthorized act or
contract by its officers or others relates back to the time of
the act or contract ratified, and is equivalent to original
authority;" and that " [t]he corporation and the other party
to the transaction are in precisely the.same position30as if
the act or contract had been authorized at the time." The
language of one case is expressive: "The adoption or
ratification of a contract by a corporation is nothing more
or less than the making of an original contract. The theory
of corporate ratification is predicated on the right of a
corporation to contract, and any ratif ication
or adoption is
31
equivalent to a grant of prior authority."
Indeed, our law pronounces that " [r] atification cleanses
the contract 32from all its' defects from the moment it was
constituted." By corporate confirmation, the contracts
executed by Kalaw are
thus purged of whatever vice or
33
defect they may have.
In sum, a case is here presented whereunder, even in the
face of an express by-law requirement of prior approval, the
law on corporations is not to be held so rigid and inflexible
as to fail to recognize equitable considerations. And, the
conclusion inevitably is that the embattled contracts
remain valid.
5. It would be difficult, even with hostile eyes; to read
the record in terms of "bad faith and/or breach of trust" in
the board's ratification of the contracts without prior
approval of the board. For, in reality, all that we have on
the government's side of the scale is that the board knew
that the contracts so confirmed would cause heavy losses.
_______________
30
2 Fletcher, p. 858, citing cases.
31
Kridelbaugh vs. Aldrehn Theatres Co., 191 N.W. 803, 804, citing
cases; italics supplied.

32
Article 1313, old Civil Code; now Article 1396, new Civil Code.
33
Tagaytay Development Co. vs. Osorio, 69 Phil. 180, 184.

1007
Page 24 of 31
VOL 20, AUGUST 14, 1967
8/8/15, 6:28 AM
1007

As we have earlier expressed, Kalaw had authority to
execute the contracts without need of prior approval.
Everybody, including Kalaw himself, thought so, and for a
long time. Doubts were first thrown on the way only when
the contracts turned out to be unprofitable for NACOCO.
Rightf ully had it been said that bad f aith does not
simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty thru some
motive34 or interest or ill will; it partakes of the nature of
fraud. Applying this precept to the given facts herein, we
find that there was no "dishonest purpose," or "some moral
obliquity," or "conscious doing of wrong," or "breach of a
known. duty," or "some motive or interest or ill will" that
"partakes of the nature of fraud."
Nor was it even intimated here that the NACOCO
directors acted f or personal reasons, or to serve their own
private interests,
or to pocket money at the expense of the
35
corporation. We have had occasion to affirm that bad faith
contemplates a "state of mind affirmatively operating with
furtive design or with some
motive of self-interest or ill will
36
or for ulterior purposes." Briggs vs. Spaulding, 141 U.S.
132, 148-149, 35 L. ed. 662, 669, quotes with approval from
Judge Sharswood (in Spering's App., 71 Pa. 11), the
following: "Upon a close examination of all the reported
cases, although there are many dicta not easily
reconcilable, yet I have found no judgment or decree which
has held directors to account, except when they have
themselves been personally guilty of some f raud on the
corporation, or have known and connived at some fraud in
others, or where such fraud might have been prevented had
they given ordinary attention to their duties. x x x."
Plaintiff did not even dare charge its defendant-directors
with any of these malevolent acts.
Obviously, the board thought that to jettison Kalaw's
contracts would contravene basic dictates of fairness. They
_______________
Page 25 of 31
8/8/15, 6:28 AM
34
Spiegel vs. Beacon Participations, 8 N.E. (2d) 895, 907, citing cases.
35
See: 3 Fletcher, Sec. 850, pp. 162-166.
36
Air France vs. Carrascoso, L-21438, September 28, 1966.

1008
1008

did not think of raising their voice in protest against past

contracts which brought in enormous profits to the
corporation. By the same token, fair dealing disagrees with
the idea that similar contracts, when unprofitable, should
not merit the same treatment. Profit or loss resulting f rom
business ventures is no justification for turning one's back
on contracts entered into. The truth, then, of the matter is
thatin the words of the trial courtthe ratif ication of
the contracts was "an act of simple justice and fairness to
the general manager and the best interest of the
corporation whose prestige would have been seriously
impaired by a rejection by the37 board of those contracts
which proved disadvantageous."
38
The directors are not liable.
6. To what then may we trace the damage suffered by
NACOCO.
The facts yield the answer. Four typhoons wreaked
havoc then on our copra-producing regions. Result: Copra
production was impaired, prices spiralled, warehouses
destroyed. Quick turnovers could not be expected.
NACOCO was not alone in this misfortune. The record
discloses that private traders, old, experienced, with bigger
f acilities, were not spared; also suff ered tremendous
losses. Roughly estimated, eleven principal trading
concerns ,did, run losses to about P10,300,000,00.
Plaintiff's witness Sisenando Barretto, head of the copra
marketing department of NACOCO, observed that from
late 1947 to early
1948 "there were many; who lost money
39
in ,the trade." NACOCO was not immune from such usual
business risk,
The typhoons were known to plaintiff, In fact, NACOCO
resisted the; suits filed by Louis Dreyfus & Co. by pleading
in its answers force majeure as an affirmative defense, and
Page 26 of 31
8/8/15, 6:28 AM
there vehemently asserted that "as a result of the said

typhoons, extensive damage was caused to -the coconut
trees in the copra producing regions of the Philippines and
according to estimates of competent authorities,
_______________
37
R.A., pp. 234-235. :
38
3 Fletcher, pp. 450-452, citing cases. Cf. Angeles vs. Santos, 64 Phil.
697, 707.
39
Tr., p. 30, August 29, 1960.

1009
VOL 20, AUGUST 14, 1967
1009

it will take about one year until the coconut producing
regions will be able to produce their normal coconut yield
and it will take some time until the price of copra will
reach normal levels;" and that "it had never been the
intention of the contracting parties in entering into the
contract in question that, in the event of a sharp rise in the
price of copra in the Philippine market produce by force
majeure or by causes beyond defendant's control, the
defendant should buy the copra contracted for at exorbitant
prices far 40beyond the buying price of the plaintiff under the
contract."
A high regard for formal judicial admissions made in
court pleadings would suffice to deter us from permitting
plaintiff to stray away therefrom, to charge now that the
damage suffered was because of Kalaw's negligence, or for
that matter,
by reason of the board's ratification of the
41
contracts,
42
Indeed, were it not for the typhoons, NACOCO could
have, with ease, met its contractual obligations. Stock
accessibility was no problem. NACOCO had 90 buying
agencies spread throughout the islands. It could purchase
2,000 tons of copra a day, The various contracts involved
delivery of but 16,500 tons over a five-month period.
Despite the typhoons, NACOCO was still able to deliver a
little short of 50% of the tonnage required under the
Page 27 of 31
8/8/15, 6:28 AM
contracts.
As the trial court correctly observed, this is a case of
damnum absque injuria. Conjunction of damage and wrong
is here absent. There cannot be43 an actionable wrong if
either one or the other is wanting.
_______________
40
See Exhibit 29-Heirs, NACOCO's Second Amended Answer in Civil
Case 4322, Court of First Instance of Manila, entitled "Louis Dreyfus &
Co. (Overseas) Limited, plaintiff vs. National Coconut Corporation,
defendant."
41
Section 2, Rule 129, Rules of Court; 20 Am. Jur., pp. 469-470.
42
The time for delivery of copra under the July 30, 1947 contract was
extended. Fifth Amended Complaint, R.A., p, 15. See also Exhibit 26Heirs.
43
Churchill and Tait vs. Rafferty, 32 Phil. 580, 605; Ladrera vs.
Secretary of Agriculture and Natural Resources, L13385, April 28, 1960.

1010
1010

7. On top of all these, is that no assertion is made and no

proof is presented which would link Kalaw's actsratified
by the boardto a matrix for defraudation of the
government. Kalaw is clear
of the stigma of bad faith.
44
Plaintiff's corporate counsel concedes that Kalaw all along
thought that he had authority to enter into the contracts;
that he did so in the best interests of the corporation; that
he entered into the contracts in pursuance of an overall
policy to stabilize prices, to free the producers from the
clutches of the middlemen. The prices for which NACOCO
contracted in the disputed agreements, were at a level
calculated to produce profits and higher than those
prevailing in the local market. Plaintiff's witness, Barretto,
categorically stated that "it would be f oolish to think that
one would sign (a) contract when you are going to lose
money" and that no contract
was executed "at a price
45
unsafe for the Nacoco." Really, on the basis of prices then
prevailing, NACOCO envisioned a profit of around
Page 28 of 31
8/8/15, 6:28 AM
46
P752,440.00.
Kalaw's acts were not the result of haphazard decisions
either. Kalaw invariably consulted with NACOCO's Chief
Buyer, Sisenando Barretto, or the Assistant General
Manager. The dailies and quotations from abroad were
guideposts to him.
Of course, Kalaw could not have been an insurer of prof
its. He could not be expected to predict the coming of
unpredictable typhoons. And even as typhoons supervened,
Kalaw was not remissed in his duty. He exerted efforts to
stave off losses. He asked the Philippine National Bank to
implement its commitment to extend a P400,000.00 loan.
The bank did not release the loan, not even the sum of
P200,000.00, which, in October, 1947, was approved by the
bank's board of directors. In frustration, on December 12,
1947, Kalaw turned to the President, complained about the
bank's short-sighted policy. In the
_______________
44
Memorandum of Government Corporate Counsel Marcial P.
Lichauco dated February 9, 1949, addressed to the Secretary of Justice, 8

days after the original complaint herein was filed in court. R.A., pp. 69,
90-112.
45
Tr., pp. 18, 29, August 29, 1960.
46
See Exhibit 20-Heirs.

1011
VOL. 20, AUGUST 14, 1967
1011

end, nothing came out of the negotiations with the bank.
NACOCO eventually faltered in its contractual obligations.
That Kalaw cannot be tagged with. crassa negligentia or
as much as simple negligence, would seem to be supported
by the fact that even as the contracts were being
questioned in Congress and in the NACOCO board itself,
President Roxas defended the actuations of Kalaw. On
December 27, 1947, President Roxas expressed his desire
"that the Board of Directors should reelect Hon. Maximo M.
Page 29 of 31
8/8/15, 6:28 AM
Kalaw as General
Manager of the National Coconut
47
Corporation." And, on January 7, 1948, at a time when
the contracts had already been openly disputed, the board,
at its regular meeting, appointed Maximo M. Kalaw as
acting general manager of the corporation.
Well may we profit from the following passage from
Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092,
May 18, 1962:
"'They (the directors) hold such office charged with the duty to act
for the corporation according to their best judgment, and in so doing
they cannot be controlled in the reasonable exercise and
performance of such duty. Whether the business of a corporation
should be operated at a loss during a business depression, or closed
down at a smaller loss, is a purely business and economic problem
to be determined by the directors of the corporation, and not by the
court. It is a well-known rule of law that questions of policy of
management are left solely to the honest decision of officers and
directors of a corporation, and the court is without authority to
substitute its judgment for the judgment of the board of directors:
the board is the business manager of the corporation, and so long as
it acts in good faith its orders are not reviewable by the courts.'
48
(Fletcher on Corporations, Vol. 2, p. 390.)"
Kalaw's good faith, and49 that of the other directors, clinch

the case for defendants.
Viewed in the light of the entire record, the judgment
under review must be, as it is hereby, affirmed.
Without costs. So ordered.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar,
Castro and Angeles, JJ., concur.
_______________
47
Exhibit 25-Heirs.
48
Italics supplied.
49
3 Fletcher, pp. 450-452, supra.

1012
1012

In re Avancea
Page 30 of 31
8/8/15, 6:28 AM
Concepcion, C.J., and Dizon, J., are on official leave.

Fernando, J., did not take part.
Judgment affirmed.
oOo
Page 31 of 31
168
8/8/15, 6:29 AM

Farolan vs. Solmac Marketing Corporation
G.R. No. 83589. March 13, 1991.
RAMON FAROLAN as ACTING COMMISSIONER OF

CUSTOMS, and GUILLERMO PARAYNO, as CHIEF OF
CUSTOMS INTELLIGENCE and INVESTIGATION
DIVISION, petitioners, vs. SOLMAC MARKETING
CORPORATION, and COURT OF APPEALS, respondents.
Damages; Good Faith, defined; Good faith refers to a state of the
mind which is manifested by the acts of the individual concerned. It
consists of the honest intention to abstain from taking an
unconscionable and unscrupulous advantage of another.The
respondent court committed a reversible error in overruling the
trial courts finding that: x x x with reference to the claim of
plaintiff to damages, actual and exemplary, and attorneys fees, the
Court finds it difficult to discredit or disregard totally the
defendants defense of good faith premised on the excuse that they
were all the time awaiting clarification of the Board of Investments
on the matter: We hold that this finding of the trial court is correct
for good faith is always presumed and it is upon him who alleges
the contrary that the burden of proof lies. In Abando v. Lozada, we
defined good faith as refer[ring] to a state of the mind which is
manifested by the acts of the individual concerned. It consists of the
honest intention to abstain from taking an unconscionable and
unscrupulous advantage of another. It is the opposite of fraud, and
its absence should be established by convincing evidence.
Same; Same; Public Officers; Mistakes concededly committed by
public officers are not actionable absent any clear showing that they
were motivated by malice or gross negligence amounting to bad
faith.But even granting that the petitioners committed a mistake
in withholding the release of the subject importation because indeed
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it was composed of OPP film scraps, contrary to the evidence

submitted by the National Institute of Science and Technology that
the same was pure oriented OPP, nonetheless, it is the duty of the
Court to see to it that public officers are not hampered in the
performance of their duties or in making decisions for fear of
personal liability for damages due to honest mistake. Whatever
damage they may have caused as a result of such an erroneous
interpretation, if any at all, is in the nature of a damnum absque
injuria. Mistakes concededly committed
_______________
*
SECOND DIVISION.
169
VOL. 195, MARCH 13, 1991
169

by public officers are not actionable absent any clear showing that
they were motivated by malice or gross negligence amounting to
bad faith. After all, even under the law of public officers, the acts of
the petitioners are protected by the presumption of good faith.
PETITION for certiorari to review the resolution of the

Court of Appeals. Lantin, J.
Dakila F. Castro & Associates for private respondent.
SARMIENTO, J.:
This petition for review on certiorari, instituted by the
Solicitor General on behalf of the public officers-petitioners,1
seek the nullification and setting aside of the Resolution
dated May 25, 1988 of the Court of Appeals in CA-G.R. No.
SP-10509, entitled Solmac Marketing Corporation vs.
Ramon Farolan, Acting Commissioner of Customs, and
Guillermo Parayno, Chief of Customs Intelligence and
Page 2 of 15
8/8/15, 6:29 AM
Investigation Division, which adjudged these public

officers to pay solidarily and in their private personal
capacities respondent Solmac Marketing Corporation
temperate damages in the sum of P100,000.00, exemplary
damages in the sum of P50,000.00, and P25,000.00, as
attorneys fees and expenses of litigation. This challenged
2
resolution of the respondent court modified its decision of
July 27, 1987 by reducing into halves the original awards
of P100,000.00 and P50,000.00 for exemplary damages and
attorneys fees and litigation expenses, respectively,
keeping intact the original grant of P100,000.00 in the
concept of temperate damages. (Strangely, the first name of
petitioner Farolan stated in the assailed resolution, as well
as in the decision, of the respondent court is Damian
when it should be Ramon, his correct given name. Strictly
speaking, petitioner Ramon Farolan could not be held
liable under these decision and resolution for he is not the
one adjudged to pay the huge damages but a different
person.
_______________
1
Lantin, M., J., ponente, with Reyes, M.T. and Martinez, A.M., JJ.,
concurring.
2
Grio-Aquino, C., J., ponente, with Reyes, M.T. and Lantin, J.M.,
JJ., concurring.
170
170

Nonetheless, that is of no moment now considering the

disposition of this ponencia.)
The relevant facts, as culled from the records, are as
follows:
At the time of the commission of the acts complained of
by the private respondent, which was the subject of the
latters petition for mandamus and injunction filed with the
Regional Trial Court (RTC) of Manila in Civil Case No. 8423537, petitioner Ramon Farolan was then the Acting
Commissioner of Customs while petitioner Guillermo
Page 3 of 15
8/8/15, 6:29 AM
Parayno was then the Acting Chief, Customs Intelligence

and Investigation Division. They were thus sued in their
official capacities as officers in the government as clearly
indicated in the title of the case in the lower courts and
even here in this Court. Nevertheless, they were both held
personally liable for the awarded damages (s)ince the
detention of the goods by the defendants (petitioners
herein) was irregular and devoid of legal basis, hence, not3
done in the regular performance of official duty x x x.
However, as adverted to at the outset, in the dispositive
portion of the challenged resolution, the one held
personally liable is a Damian Farolan and not the
petitioner, Ramon Farolan. Also as earlier mentioned, we
will ignore that gross error.
Private respondent Solmac Marketing Corporation is a
corporation organized and existing under the laws of the
Philippines. It was the assignee, transferee, and owner of
an importation of Clojus Recycling Plastic Products of
202,204 kilograms of what is technically known as
polypropylene film, valued at US$69,250.05.
Polypropylene is a substance resembling polyethelyne
which is one of a group of partially crystalline lightweight
thermoplastics used chiefly in making
fibers, films, and
4
molded and extruded products.
Without defect,
polypropylene film is sold at a much higher price as prime
quality film. Once rejected as defective due to blemishes,
discoloration, defective winding, holes, etc., polypropylene
film is sold at a relatively cheap price without guarantee or
return, and the buyer takes the risk as to whether
he can
5
recover an average 30% to 50% usable matter.
_______________
3
Decision, CA-G.R. SP No. 10509; rollo, 40.
Websters Third New International Dictionary.
Letter of Edward Keller of Mobil (Phils.) to Collector of Customs,

171
VOL. 195, MARCH 13, 1991
171
Page 4 of 15
8/8/15, 6:29 AM
This latter kind of polypropylene is known as OPP film

waste/ scrap and this is what respondent SOLMAC claimed
the Clojus shipment to be.
The subject importation, consisting of seventeen (17)
containers, arrived in December 1981. Upon application for
entry, the Bureau of Customs asked respondent SOLMAC
for its authority from any government agency to import the
goods described in the bill of lading. Respondent SOLMAC
presented a Board of Investment (BOI) authority for
polypropylene film scrap. However, upon examination of
the shipment by the National Institute of Science and
Technology (NIST), it turned out that the fibers of the
importation were oriented in such a way
that the materials
6
were stronger than OPP film scrap. In other words, the
Clojus shipment was not OPP film scrap, as declared by the
assignee respondent SOLMAC to the Bureau of Customs
and BOI Governor Lilia R. Bautista, but oriented
polypropylene the importation of which is restricted, if not
prohibited, under Letter of Instructions (LOI) No. 658-B.
Specifically, Sections 1 and 2 of LOI No. 658-B provide that:
xxx xxx xxx
1. The importation of cellophane shall be allowed only for
quantities and types of cellophane that cannot be produced
by Philippine Cellophane Film Corporation. The Board of
Investments shall issue guidelines regulating such
importations.
2. The Collector of Customs shall see to the apprehension of all
illegal
importations
of
cellophane
and
oriented
polypropylene (OPP) and the dumping of imported stock lots
of cellophane and OPP.
xxx xxx xxx
Considering that the shipment was different from what

had been authorized by the BOI and by law, petitioners
Parayno and Farolan withheld the release of the subject
importation.
On June 7, 1982, petitioner Parayno, then Chief of
Customs Intelligence and Investigation Division, wrote the
BOI asking for the latters advice on whether or not the
subject importation
Page 5 of 15
8/8/15, 6:29 AM
_______________
dated May 7, 1982; Original Record, 27.
6
Exhibit 5 for the defendants, now the petitioners herein; Original
Record, 56.
172
172

7
may be released. A series of exchange of correspondence

between the BOI and the Bureau of Customs, on one hand,
and between the late Dakila Castro, counsel for the private
respondent, and the BOI and the Bureau of Customs, on
the other, ensued, to wit:
xxx xxx xxx
4. In a letter dated August 17, 1982, the BOI agreed that the
subject imports may be released but that holes may be
drilled on them by the Bureau of Customs prior to their
release.
5. On January 20, 1983, (the late) Atty. Dakila Castro, (then)
counsel of private respondent wrote to petitioner
Commissioner Farolan of Customs asking for the release of
the importation. The importation was not released, however,
on the ground that holes had to be drilled on them first.
6. Atty. Dakila Castro then wrote a letter dated October 6,
1983, to BOI Governor Hermenigildo Zayco stressing the
reasons why the subject importation should be released
without drilling of holes.
7. On November 8, 1983, BOI Governor H. Zayco wrote a letter
to the Bureau of Customs stating that the subject goods
may be released without drilling of holes inasmuch as the
goods arrived prior to the endorsement on August 17, 1982
to the drilling of holes on all importations of waste/scrap
films.
8. On February 1, 1984, petitioner Commissioner Farolan
wrote the BOI requesting for definite guidelines regarding
the disposition of importations of Oriented Polypropylene
(OPP) and Polypropylene (PP) then being held at the
Bureau of Customs.
Page 6 of 15
8/8/15, 6:29 AM
9. On March 12, 1984, Minister Roberto Ongpin of Trade, the

8
BOI Chairman, wrote his reply to petitioner Farolan x x x.
(This reply of Minister Ongpin is copied in full infra.)
On March 26, 1984, respondent Solmac filed the action for

mandamus and injunction with the RTC as above
mentioned. It prayed for the unconditional release of the
subject importation. It also prayed for actual damages,
exemplary damages, and attorneys fees. As prayed for, the
trial court issued a writ of preliminary injunction.
After hearing on the merits, the RTC rendered a
decision on
_______________
7
Exhibit Q for the plaintiff, now the private respondent; Original
Record, 36.
8
Rollo, 18-19.
173
VOL. 195, MARCH 13, 1991
173

February 5, 1985, the dispositive portion of which reads as
follows:
Premises considered, judgment is hereby rendered ordering
defendants to release the subject importation immediately without
drilling of holes, subject only to the normal requirements of the
customs processing for such release to be done with utmost dispatch
as time is of the essence; and the preliminary injunction hereto
issued is hereby made permanent until actual physical release of
the merchandise and without pronouncement as to costs.
9
SO ORDERED.
From the decision of the trial court, Solmac, the plaintiff

below and the private respondent herein, appealed to the
Court of Appeals only insofar as to the denial of the award
of damages is concerned. On the other hand, the petitioners
did not appeal from this decision. They did not see any
need to appeal because as far as they were concerned, they
Page 7 of 15
8/8/15, 6:29 AM
had already complied with their duty. They had already

ordered the release of the importation without drilling of
holes, as in fact it was so released, in compliance with the
advice to effect such immediate release contained in a
letter of BOI dated October 9, 1984, to Commissioner
Farolan. Thus, to stress, even before the RTC rendered its
decision on February 5,
1984, the Clojus shipment of OPP
10
was already released to the private respondent in its
capacity as assignee of the same. Be that as it may, the
private respondent filed its appeal demanding that the
petitioners be held, in their personal and private capacities,
liable for damages despite the finding of lack of bad faith
on the part of the public officers.
After 11due proceedings, the Court of Appeals rendered a
decision on July 27, 1987, the dispositive portion of which
reads as follows:
_______________
9
Original Record, 228-238, penned by Judge Florencio B. Cabanos,
Branch LIV, Manila, RTC.

10
Rollo, 25.
11
Grio-Aquino, C., J., ponente, with Reyes, M.T. and Lantin, J.M.,
JJ., concurring.
174
174

WHEREFORE, the appealed judgment is modified by ordering the

defendants Ramon Farolan and Guillermo Parayno solidarily, in
their personal capacity, to pay the plaintiff temperate damages in
the sum of P100,000, exemplary damages in the sum of P100,000
and P50,000 as attorneys fees and expenses of litigation. Costs
against the defendants.
SO ORDERED.
On August 14, 1987, the petitioners filed a motion for

reconsideration of the decision of the Court of Appeals.
On May 25, 1988, the Court of Appeals issued its
resolution modifying the award of damages, to wit:
Page 8 of 15
8/8/15, 6:29 AM
temperate damages in the sum of P100,000.00, exemplary

damages in the sum of P50,000.00, and P25,000.00 as
attorneys fees and expenses of litigation. The respondent
court explained the reduction of the awards for exemplary
damages and attorneys fees and expenses of litigation in
this wise:
3. In our decision of July 27, 1987, We awarded to plaintiffappellant P100,000 as temperate damages, P100,000.00 as
exemplary damages, and P50,000.00 as attorneys fees and expenses
of litigation. Under Art. 2233 of the Civil Code, recovery of
exemplary damages is not a matter of right but depends upon the
discretion of the court. Under Article 2208 of the Civil Code,
attorneys fees and expenses of litigation must always be
reasonable. In view of these provisions of the law, and since the
award of temperate damages is only P100,000.00, the amount of
exemplary damages may not be at par as temperate damages. An
award of P50,000.00, as exemplary damages may already serve the
purpose, i.e., as an example for the public good. Likewise, the
attorneys fees and expenses of litigation have to be reduced to 25%
of the amount of temperate damages, or P25,000.00, if the same
have to be reasonable. The reduction in the amount of exemplary
damages, and attorneys fees and expenses of litigation would be in
12
accord with justice and fairness.
The petitioners now come to this Court, again by the

Solicitor General, assigning the following errors allegedly
committed by the respondent court:
I
_______________
12
Decision in CA-G.R. No. SP 10509, Court of Appeals; rollo, 34.

175
VOL. 195, MARCH 13, 1991
175

The Court of Appeals erred in disregarding the finding of the trial
court that the defense of good faith of petitioners (defendants)
cannot be discredited.
Page 9 of 15
8/8/15, 6:29 AM
II
The Court of Appeals erred in adjudging petitioners liable to pay
temperate damages, exemplary damages, attorneys fees and
13
expenses of litigation.
These two issues boil down to a single question, i.e.,

whether or not the petitioners acted in good faith in not
immediately releasing the questioned importation, or,
simply, can they be held liable, in their personal and
private capacities, for damages to the private respondent.
We rule for the petitioners.
The respondent court committed a reversible error in
overruling the trial courts finding that:
x x x with reference to the claim of plaintiff to damages, actual and
exemplary, and attorneys fees, the Court finds it difficult to
discredit or disregard totally the defendants defense of good faith
premised on the excuse that they were all the time awaiting
14
clarification of the Board of Investments on the matter:
We hold that this finding of the trial court is correct for

good faith is always presumed and it is upon him 15who
alleges the contrary
that the burden of proof lies. In
16
Abando v. Lozada, we defined good faith as refer[ring] to
a state of the mind which is manifested by the acts of the
individual concerned. It consists of the honest intention to
abstain from taking an unconscion_______________
13
Rollo, 22.
14
Decision in Civil Case No. 84-23537, supra, 237.
15
Article 527, New Civil Code. Rule 131, sec. 5(a), Revised Rules of
Court; U.S. vs. Rafinan, 1 Phil. 294; see also Guillen vs. Court of
Appeals, G.R. No. 83175, December 4, 1989, 799.
16
G.R. 82564, October 13, 1989, 178 SCRA 509; emphasis in the
original, citing Hilario vs. Galvez, 45494-R, August 19, 1971.

176
176

Page 10 of 15
8/8/15, 6:29 AM
able and unscrupulous advantage of another. It is the

opposite of fraud, and its absence should be established by
convincing evidence.
We had reviewed the evidence on record carefully and
we did not see any clear and convincing proof showing the
alleged bad faith of the petitioners. On the contrary, the
record is replete with evidence bolstering the petitioners
claim of good faith. First, there was the report of the
National Institute of Science and Technology (NIST) dated
January 25, 1982 that, contrary to what the respondent
claimed, the subject importation was not OPP film scraps
but oriented polypropylene, a plastic product of stronger
material, whose importation to the Philippines
was
17
restricted, if not prohibited, under LOI 658-B. It was on
the strength of this finding that the petitioners withheld
the release of the subject importation for being contrary to
law. Second, the petitioners testified that, on many
occasions, the Bureau of Customs sought the advice of the
BOI on 18 whether the subject importation might be
released. Third, petitioner Parayno also testified during
the trial that up to that time (of the trial) there was no
clear-cut policy on the part of the BOI regarding the entry
into the Philippines of oriented polypropylene (OPP), as the
letters of BOI Governors Tordesillas and Zayco of
November 8, 1983 and September 24, 1982, respectively,
ordering the release of the subject importation did not
clarify the BOI policy on the matter. He then testified on
the letter of the BOI Chairman Roberto Ongpin dated
March 12, 1984, which states in full:
Thank you for your letter of 1 February 1984 on the subject of
various importations of Oriented Polypropylene (OPP) and
Polypropylene (PP) withheld by Customs and the confusion over the
disposition of such imports.
I have discussed the matter with Vice-Chairman Tordesillas and
Governor Zayco of the Board of Investments and the following is
their explanation:
1. On 22 June 1982, the BOI ruled that importation of OPP/PP
film scraps intended for recycling or repelletizing did not
fall within
_______________
Page 11 of 15
17
Rollo, 23.
18
Id., 60.
8/8/15, 6:29 AM
177
VOL. 195, MARCH 13, 1991
177

the purview of LOI 658-B.
2. On 17 August 1982, the BOI agreed that holes could be
drilled on subject film imports to prevent their use for other
purposes.
3. For importations authorized prior to 22 June 1982, the
drilling of holes should depend on purpose for which the
importations was approved by the BOI that is, for direct
packaging use or for recycling/ repelletizing into raw
material. The exemption from drilling of holes on Solmac
Marketings importation under Certificates of Authority
issued on 1 April 1982 and 5 May 1982 and on Clojus
importation authorized in 1982 were endorsed by the BOI
on the premise that these were not intended for
recycling/repelletizing.
Should your office have any doubts as to the authorized intended
use of any imported lots of OPP/PP film scraps that you have
confiscated, we have no objection to the drilling of holes to ensure
that these are indeed recycled.
I have requested Governor Zayco to contact your office in order to
19
offer any further assistance which you may require.
It can be seen from all the foregoing that even the highest
officers (Chairman Ongpin, Vice-Chairman Tordesillas, and
Governor Zayco) of the BOI themselves were not in
agreement as to what proper course to take on the subject
of the various importations of Oriented Polypropylene
(OPP) and Polypropylene (PP) withheld by the Bureau of
Customs. The conflicting recommendations of the BOI on
this score prompted the petitioners to seek final
clarification from the former with regard to its policy on
these importations. This resulted in the inevitable delay in
the release of the Clojus shipment, one of the several of
such importations. The confusion over the disposition of
Page 12 of 15
8/8/15, 6:29 AM
this particular importation obviates bad faith. Thus the

trial courts finding that the petitioners acted in good faith
in not immediately releasing the Clojus shipment pending
a definitive policy of the BOI on this matter is correct. It is
supported by substantial evidence on record, independent
of the presumption of good faith, which as stated earlier,
was not successfully rebutted.
When a public officer takes his oath of office, he binds
himself to perform the duties of his office faithfully and to
use reasonable skill and diligence, and to act primarily for
the benefit of the public. Thus, in the discharge of his
duties, he is to use that
_______________
19
Rollo, 122; emphasis in the copied text.

178
178

prudence, caution, and attention which careful men use in

the management of their affairs. In the case at bar,
prudence dictated that petitioners first obtain from the BOI
the latters definite guidelines regarding the disposition of
the various importations of oriented polypropylene (OPP)
and polypropylene (PP) then being withheld at the Bureau
of Customs. These cellophane/film products were competing
with locally manufactured polypropylene and oriented
polypropylene as raw materials which were then already
sufficient to meet local demands, hence, their importation
was restricted, if not prohibited under LOI 658-B.
Consequently, the petitioners can not be said to have acted
in bad faith in not immediately releasing the import goods
without first obtaining the necessary clarificatory
guidelines from the BOI. As public officers, the petitioners
had the duty to see to it that the law they were tasked to
implement, i.e., LOI 658-B, was faithfully complied with.
But even granting that the petitioners committed a
mistake in withholding the release of the subject
importation because indeed it was composed of OPP film
Page 13 of 15
8/8/15, 6:29 AM
20
scraps,
contrary to the evidence submitted by the
National Institute of Science and Technology that the same
was pure oriented OPP, nonetheless, it is the duty of the
Court to see to it that public officers are not hampered in
the performance of their duties or in making decisions for
fear of personal liability for damages due to honest
mistake. Whatever damage they may have caused as a
result of such an erroneous interpretation, if any at all, is
in the nature of a damnum absque injuria. Mistakes
concededly committed by public officers are not actionable
absent any clear showing that they were motivated
by
21
malice or gross negligence amounting to bad faith. After
all, even under the law of public officers, the acts of the
petitioners
are protected by the presumption of good
22
faith.
In the same vein, the presumption, disputable though it
may
_______________
20
Decision in Civil Case No. 84-23537, Regional Trial Court of Manila.
21
Dale Sanders, et al. v. Hon. Regino T. Veridiano II, etc., et al., G.R.
No. L-46930, June 19, 1988, 162 SCRA 88 (1988).

22
Supra.
179
VOL. 195, MARCH 13, 1991
179
Hellenic Philippine Shipping, Inc. vs. Siete

23
be, that an official duty has been regularly performed

applies in favor of the petitioners. Omnia praesumuntur
rite et solemniter esse acta. (All things are presumed to be
correctly and solemnly done.) It was private respondents
burden to overcome this juris tantum presumption. We are
not persuaded that it has been able to do so.
WHEREFORE, the petition is hereby GRANTED, the
assailed Resolution of the respondent court, in CA-G.R. SP
No. 10509, dated May 25, 1988, is SET ASIDE and
ANNULLED. No costs.
SO ORDERED.
Page 14 of 15
8/8/15, 6:29 AM
Melencio-Herrera (Chairman), Paras, Padilla and

Regalado, JJ., concur.
Petition granted. Resolution annulled and set aside.
Note.Public officials are not liable for damages for
performing their duties required by law and absent bad
faith. (Mabutol vs. Pascual, 124 SCRA 869.)
o0o
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II. Quasi-Delict, A. Elements

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II. Quasi-Delict, A. Elements

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PHILIPPINE REPORTS ANNOTATED VOLUME 037

[No. 12219. March 15, 1918.]

PHILIPPINE REPORTS ANNOTATED

PHILIPPINE REPORTS ANNOTATED VOLUME 037

pony on a bridge, Seeing an automobile ahead he

APPEAL from a judgment of the Court of First Instance of

VOL. 37, MARCH 15, 1918.

Picart vs. Smith.

PHILIPPINE REPORTS ANNOTATED VOLUME 037

defendant approached from the opposite direction in an

PHILIPPINE REPORTS ANNOTATED

PHILIPPINE REPORTS ANNOTATED VOLUME 037

violence. From the evidence adduced in the case we believe

VOL. 37, MARCH 15, 1918.

Picart vs. Smith.

PHILIPPINE REPORTS ANNOTATED VOLUME 037

The test by which to determine the existence of negligence

PHILIPPINE REPORTS ANNOTATED VOLUME 037

PHILIPPINE REPORTS ANNOTATED

A prudent man, placed in the position of the defendant,

PHILIPPINE REPORTS ANNOTATED VOLUME 037

VOL. 37, MARCH 15, 1918.

Picart vs. Smith.

PHILIPPINE REPORTS ANNOTATED VOLUME 037

question of his civil liability arising from negligencea

PHILIPPINE REPORTS ANNOTATED

the justice of the peace in dismissing the criminal

PHILIPPINE REPORTS ANNOTATED VOLUME 037

interval of time, and that at that moment the plaintiff had

VOL. 37, MARCH 15, 1918.

Lim vs. Singian and Soler

Copyright 2015 Central Book Supply, Inc. All rights reserved.

PHILIPPINE REPORTS ANNOTATED VOLUME 039

VOL. 39, FEBRUARY 4, 1919.

Daywalt vs. Corporacin de PP. Agustinos Recoletos.

PHILIPPINE REPORTS ANNOTATED VOLUME 039

PHILIPPINE REPORTS ANNOTATED

APPEAL from a judgment of the Court of First Instance of

PHILIPPINE REPORTS ANNOTATED VOLUME 039

expired. Accordingly, upon October 3, 1908, the parties

VOL. 39, FEBRUARY 4, 1919.

Daywalt vs. Corporacin de PP. Agustinos Recoletos.

PHILIPPINE REPORTS ANNOTATED VOLUME 039

herds of cattle on the farms referred to. Their

Daywalt vs. Endencia, R. G. No. 7331, decided November 16, 1912,

PHILIPPINE REPORTS ANNOTATED

Daywalt vs. Corporacin de PP. Agustinos Recoletos.

PHILIPPINE REPORTS ANNOTATED VOLUME 039

Estate, it was necessary to bring the cattle off of that

VOL. 39, FEBRUARY 4, 1919.

Daywalt vs. Corporacin de PP. Agustinos Recoletos.

PHILIPPINE REPORTS ANNOTATED VOLUME 039

corporation had notice of the rights of the plaintiff under

PHILIPPINE REPORTS ANNOTATED

tares of wild Mindoro land would furnish sufficient pasturage for

PHILIPPINE REPORTS ANNOTATED VOLUME 039

defendant was liable for these damages from June, 1, 1909,

VOL. 39, FEBRUARY 4, 1919.

Daywalt vs. Corporacin de PP. Agustinos Recoletos.

PHILIPPINE REPORTS ANNOTATED VOLUME 039

question and to withhold delivery to the plaintiff of the

PHILIPPINE REPORTS ANNOTATED

Daywalt vs. Corporacin de PP. Agustinos Recoletos.

PHILIPPINE REPORTS ANNOTATED VOLUME 039