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JUAN F. VILLARROEL, vs.

BERNARDINO ESTRADA
G.R. No. L-47362 December 19, 1940
FACTS: On May 9 1912, Alejandra F. Callao mother of herein petitioner obtained from the Sps
Mariano Estrada and Severina a loan of 1000 pesos payable in 6 years. Alejandra died leaving
petitioner as the sole heir. The Sps Mariano Estrada and Severina died as well leaving the
respondent as the sole heir. On Aug 9 1930, petitioner signed a document assuming the obligation
to pay the respondent 1000 plus 12% per annum interest. Hence the action filed to recover said
amount.
The CFI ruled in favor of the respondent ordering the petitioner to pay 1000 plus interest of 12% per
annum to be counted from Aug 9 1930.

ISSUE: Whether or not the present action may prosper notwithstanding the prescription of the action
to recover the original debt?
HELD: Yes. The present action is not based on the original debt contracted by petitioner’s mother –
which has already prescribed – but on petitioner’s undertaking on Aug 9 1930 to assume the original
obligation. For the petitioner who is the sole heir of the original debtor with rights to the latter’s
inheritance, the debt legally contracted by his mother even if it has already lost enforceability due to
prescription, has become a moral obligation which is a sufficient consideration to make the obligation
he voluntarily assumedon Aug 9 1930 enforceable and legally demandable.

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

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,
vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-appellees.

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

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

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

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

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

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

GR: It is thus readily seen that an element of natural obligation before it can be cognizable by the
court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has
been voluntary performance. But here there has been no voluntary performance. In fact, the court
cannot order the performance.

From the legal point of view a bonus is not a demandable and enforceable obligation. It is so when it
is made a part of the wage or salary compensation. Philippine Education Co. vs. CIR and the Union
of Philippine Education Co., Employees

H. E. Heacock vs. National Labor Union, et al.

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

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

DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First
Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
VILLAFUERTE, respondents.

the validity of a promissory note which was executed in consideration of a previous promissory note
the enforcement of which had been barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan
from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the
sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said date whereby
they bound themselves jointly and severally to pay the account in ten (10) equal yearly amortizations.
As the obligation remained outstanding and unpaid even after the lapse of the aforesaid ten-year
period, Confesor, who was by then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the
same on or before June 15, 1961

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint FOR
PAYMENT.

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

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the creditor.
But a new contract recognizing and assuming the prescribed debt would be valid and
enforceable ... . 1

Thus, it has been held —

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

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

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

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

However, the court a quo held that in signing the promissory note alone, respondent Confesor ALSO
BIND HER WIFE.

Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As
such administrator, all debts and obligations contracted by the husband for the benefit of the
conjugal partnership, are chargeable to the conjugal partnership. 5 No doubt, in this case, respondent
Confesor signed the second promissory note for the benefit of the conjugal partnership. Hence the
conjugal partnership is liable for this obligation.

G.R. No. L-3756 June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-
appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the
SAGRADA ORDEN, in whose name the title was registered before the war. On January 4, 1943,
during the Japanese military occupation, the land was acquired by a Japanese corporation. After
liberation, on April 4, 1946, the Alien Property Custodian of the United States of America took
possession, control, and custody thereof under section 12 of the Trading with the Enemy Act, 40
Stat., 411, for the reason that it belonged to an enemy national. During the year 1946 the property
was occupied by the Copra Export Management Company under a custodianship agreement with
United States Alien Property Custodian (Exhibit G), and when it vacated the property it was occupied
by the NATIONAL COCONUT CORP. The Philippine Government made representations with the
Office Alien Property Custodian for the use of property by the Government. On March 31, 1947, the
defendant was authorized to repair the warehouse on the land, and actually spent thereon the
repairs the sum of P26,898.27. In 1948, defendant leased one-third of the warehouse to one
Dioscoro Sarile at a monthly rental of P500, which was later raised to P1,000 a month. Sarile did not
pay the rents, so action was brought against him. It is not shown, however, if the judgment was ever
executed.

Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as
this was denied, it brought an action in court to annul the sale of property of Taiwan Tekkosho, and
recover its possession. The Republic of the Philippines was allowed to intervene in the action. The
case did not come for trial because the parties presented a joint petition in which it is claimed by
plaintiff that the sale in favor of the Taiwan Tekkosho was null and void because it was executed
under threats, duress, and intimidation, and it was agreed that the title issued in the name of the
Taiwan Tekkosho be cancelled and the original title of plaintiff re-issued;

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

But there is another ground why the claim or rentals can not be made against defendant-appellant.
There was no agreement between the Alien Property Custodian and the defendant-appellant for the
latter to pay rentals on the property. The existence of an implied agreement to that effect is contrary
to the circumstances. The copra Export Management Company, which preceded the defendant-
appellant, in the possession and use of the property, does not appear to have paid rentals therefor,
as it occupied it by what the parties denominated a "custodianship agreement," and there is no
provision therein for the payment of rentals or of any compensation for its custody and or occupation

and the use. The Trading with the Enemy Act, as originally enacted, was purely a measure of
conversation, hence, it is very unlikely that rentals were demanded for the use of the property. When
the National coconut Corporation succeeded the Copra Export Management Company in the
possession and use of the property, it must have been also free from payment of rentals, especially
as it was Government corporation, and steps where then being taken by the Philippine Government
to secure the property for the National Coconut Corporation. So that the circumstances do not justify
the finding that there was an implied agreement that the defendant-appellant was to pay for the use
and occupation of the premises at all.

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

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

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay
rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the
judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by
the depositor.2

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized
and existing under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the
owner of China Golden Bridge Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the
mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account, as required by the PLRA.13 Since Liu Chiu
Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her.14

respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account15 with an initial
deposit of US$14,000.00.16

petitioner issued a "Hold Out" order against respondents’ accounts.17

METROBANK filed before the Office of the Prosecutor of Manila a criminal case for Estafa through
False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents against respondent
Rosales.19

Petitioner accused respondent Rosales and an unidentified woman as the ones responsible for the
unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar account with
petitioner’s Escolta Branch.20Petitioner alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang;21

that in the afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch to
inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her
dollar deposits in cash;

that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in the amount of
US$75,000.00;25 that on March 3, 2003, respondents opened a dollar account with petitioner; and
that the bank later discovered that the serial numbers of the dollar notes deposited by respondents
in the amount of US$11,800.00 were the same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal
from the dollar account of Liu Chiu Fang.27

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

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages.

The "Hold Out" clause does not apply to the instant case.

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

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

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been
rendered against respondent Rosales.

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

Respondents are entitled to moral and
exemplary damages and attorney’s fees. 1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of the reason for the "Hold Out."82 Third,
the order was issued prior to the filing of the criminal complaint. Records show that the "Hold Out"
order was issued on July 31, 2003,83 while the criminal complaint was filed only on September 3,
2003.84 All these taken together lead us to conclude that petitioner acted in bad faith when it
breached its contract with respondents. As we see it then, respondents are entitled to moral
damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis.
We need not belabor the fact that the banking industry is impressed with public interest.87 As
such, "the highest degree of diligence is expected, and high standards of integrity and performance
are even required of it."88 It must therefore "treat the accounts of its depositors with meticulous care
and always to have in mind the fiduciary nature of its relationship with them."89 For failing to do this,
an award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 220890 of the Civil
Code.

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

000. On the other hand. attorney's fees of P100. to indemnify them for whatever would be adjudged in favor of petitioner. Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned amounts. the attorney's fees and expenses of litigation must be reasonable.00. one of the security guards on duty at the school premises on August 18. Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. Respondents. . Imperial (Imperial). and to pay attorney's fees and cost of the suit. G. and its president.R. the dispositive portion of which reads: FEU and Edilberto de Jesus. the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Col.000. 1996.8 trial court rendered a decision in favor of petitioner.25 for actual damages with 12% interest per annum from the filing of the complaint until fully paid. petitioner. (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. Galaxy Management and Development Corp. if any. 2008 JOSEPH SALUDAGA. 179337 April 30. He was eventually released considering that no formal complaint was filed against him. (10) When at least double judicial costs are awarded.00 and cost of the suit. In all cases. The antecedent facts are as follows: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete).000. moral damages of P300. exemplary damages of P500. (9) In a separate civil action to recover civil liability arising from a crime. respondents. filed a Third-Party Complaint7 against Galaxy Development and Management Corporation (Galaxy).SALUDAGA WAS RUSH TO THE HOSPITAL. in turn. (8) In actions for indemnity under workmen's compensation and employer's liability laws.00. FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of FEU. . Rosete was brought to the police station where he explained that the shooting was accidental. No.298. Petitioner thereafter filed a complaint for damages against FEU AND ITS PRESIDENT on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. in his capacity as president of FEU to pay jointly and severally Joseph Saludaga the amount of P35. vs.

Certainly.0. no evidence as to the qualifications of Rosete as a security guard for the university was offered. when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises. Under this contract. there is established a contract between them. The pertinent portions of petitioner's Complaint read: 6. In order to avoid liability. the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. When plaintiff enrolled with defendant FEU. prima facie. Indeed. we find that respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. a corresponding right of relief. resulting in bilateral obligations which both parties are bound to comply with.Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning environment. certain documents about Galaxy were presented during trial. 11. For its part.16and that they complied with their obligation to ensure a safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy. a contract was entered into between them.15 In the instant case. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. however.14 It is settled that in culpa contractual. defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises In Philippine School of Business Administration v. the mere proof of the existence of the contract and the failure of its compliance justify. 12. there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. the defendants or any of their representative did not bother to visit and inquire about his condition.13 we held that: When an academic institution accepts students for enrollment. no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. we find that. . On the other hand. the student covenants to abide by the school's academic requirements and observe its rules and regulations. respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee. however. Necessarily. At the time of plaintiff's confinement. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement.0. Defendants are responsible for ensuring the safety of its students while the latter are within the University premises. After a thorough review of the records. Court of Appeals.0.

17 Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. psychiatric test results. and moral shock resulting from the shooting incident23 justify the award of moral damages.18 In the instant case. 201 files. When the effect is found to be partly the result of a person's participation .22 The testimony of petitioner about his physical suffering.20 After this Decision becomes final and executory. and other vital documents enumerated in its contract with Galaxy. respondents must show that no negligence or misconduct was committed that may have occasioned the loss. serious anxiety. the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. One's negligence may have concurred with an act of God in producing damage and injury to another. attorney's fees and litigation expenses in the amount of P50.25 However.00. reckless. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss.25 for his hospitalization and other medical expenses. Accordingly. As such. Likewise.19 While the trial court correctly imposed interest on said amount. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts. It was not proven that they examined the clearances. nonetheless.21 In the absence thereof. Such interest shall continue to run from the filing of the complaint until the finality of this Decision. Hence. Nonetheless. the proper rate of legal interest is six percent (6%) per annum of the amount demanded. fraudulent. Consequently. v. such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts. there is no hard and fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar circumstances. In order for force majeure to be considered. moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. for breach of contract due to negligence in providing a safe learning environment.000.00 as temperate damages is awarded to petitioner. As regards the award of moral damages. the applicable rate shall be twelve percent (12%) per annum until its satisfaction.26 we held that: . temperate damages under Art.000. Inc. showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. The other expenses being claimed by petitioner. However. Agcolicol. neglect or failure to act . In Powton Conglomerate.Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. however. mental anguish. We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of P100.the whole occurrence is humanized and removed from the rules applicable to acts of God.298. fright. the award of exemplary damages is deleted considering the absence of proof that respondents acted in a wanton. respondent FEU is liable to petitioner for damages. respondents' defense of force majeure must fail. oppressive. it was established that petitioner spent P35.000.whether by active intervention. no actual damages may be awarded. We note that the trial court held respondent De Jesus solidarily liable with respondent FEU.00 as part of damages is reasonable in view of Article 2208 of the Civil Code. the amount of P20. or malevolent manner.

corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. such that. Personal liability of a corporate director. or when there is a conflict of interest resulting in damages to the corporation. 2180. the duty to observe the diligence of a good father of a family cannot be demanded from the said client: … [I]t is settled in our jurisdiction that where the security agency. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions.28 As held in Mercury Drug Corporation v. having knowledge thereof. does not forthwith file with the corporate secretary his written objection thereto. respondent De Jesus should not be held solidarily liable with respondent FEU. and not the client. the employer of such guards or watchmen is such agency. hence. also holds respondents vicariously liable under Article 2180 of the Civil Code. Libunao:29 In Soliman. save for certain exceptions. as a rule. (2) he consents to the issuance of watered down stocks or who. [A] corporation is invested by law with a personality separate and distinct from those of the persons composing it. only when . xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks. even though the former are not engaged in any business or industry. The latter was employed by Galaxy. Incidentally. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. (3) he agrees to hold himself personally and solidarily liable with the corporation. in the alternative. hires and assigns the work of its watchmen or security guards. 2180 of the Civil Code because respondents are not the employers of Rosete. They cannot be construed as the element of control as to treat respondents as the employers of Rosete.30 we held that where the security agency recruits. but also for those of persons for whom one is responsible. or when he is guilty of bad faith or gross negligence in directing its affairs. or (4) he is made by a specific provision of law personally answerable for his corporate action. recruits. since the latter has no hand in selecting the security guards. although the main cause of action in the instant case is the breach of the school-student contract. trustee or officer along (although not necessarily) with the corporation may so validly attach.(1) he assents to a patently unlawful act of the corporation. which provides: Art. as here. the agency is the . Tuazon.27 None of the foregoing exceptions was established in the instant case. v. petitioner. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. Jr. hires and assigns the works of its watchmen or security guards to a client. Thus. its stockholders or other persons.

No. was blottered in the office of the Davao City Police Department. and not to the clients or customers of such agency.. it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. the duty to observe the diligence of a good father of a family in the selection of the guards cannot. causing the same to fall into a ditch along J.R.P. defendant-appellee. abandoning his post as such security guard on duty inside the plaintiff's compound.. COMMANDO SECURITY SERVICE AGENCY.35 G. As a general rule. approval. Unlike respondent De Jesus. however."5 the car of plaintiff's customer. consent. Davao City by reason of which the plaintiff's complaint for qualified theft against said driver. and while so driving said car in one of the City streets lost control of said car.31 For these acts of negligence and for having supplied respondent FEU with an unqualified security guard. without questioning the amount of the actual damages incurred by plaintiff. we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security agency. xxxx The fact that a client company may give instructions or directions to the security guards assigned to it. L-36840 May 22. by itself. .M. Laurel St. that its liability "shall not exceed one thousand (P1. which resulted to the latter's breach of obligation to petitioner.000. "without any authority. meritorious and must be granted. vs. which had been left with plaintiff for servicing and maintenance. Joseph Luy. render the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. defendant's security guard on duty at plaintiff's premises. Liability for illegal or harmful acts committed by the security guards attaches to the employer agency. 1973 PEOPLE'S CAR INC. a client or customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it. employer of such guards or watchmen. Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their contract whereunder defendant assumed "sole responsibility for the acts done during their watch hours" by its guards. 1970 at around 1:00 A. in the ordinary course of events. whereas defendant contended. knowledge or orders of the plaintiff and/or defendant brought out of the compound of the plaintiff a car belonging to its customer. be demanded from the client whose premises or property are protected by the security guards. plaintiff-appellant.. On April 5. It was Imperial who assured petitioner that his medical expenses will be shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his family were no longer interested in filing a formal complaint against them. does not. and drove said car for a place or places unknown.00) pesos per guard post" under paragraph 4 of their contract.

489. which had been entrusted into its custody. could hardly create any goodwill for plaintiff's business. during the watch hours" provided that the same is duly reported by plaintiff within 24 hours of the occurrence and the guard's negligence is verified after proper investigation with the attendance of both contracting parties. thereby directly causing plaintiff to incur actual damages in the total amount of P8." is by its own terms applicable only for loss or damage 'through the negligenceof its guards . in the same way that defendant's baseless attempt to evade fully discharging its contractual liability to plaintiff cannot be expected to have brought it more business.489. Worse.10 as and by way of reimbursement of the stipulated actual damages and expenses. that "under the Guard Service Contract it was not liable for the damage but the defendant" — since the customer could not hold defendant to account for the damages as he had no privity of contract with defendant." defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs premises a customer's car. as well as the costs of suit in both instances. ACCORDINGLY. to the third parties arising from the acts or omissions done by the guards during their tour of duty.10. Said paragraph is manifestly inapplicable to the stipulated facts of record.. as per the trial court's view.. robbery.. aside from its ethical deficiency among others. which had been caused directly by the unlawful and wrongful acts of defendant's security guard in breach of their contract. Plaintiff therefore was in law justified in making good such damages and relying in turn on defendant to honor its contract and indemnify it for such undisputed damages." Plaintiff in law could not tell its customer. instead of defendant. lost control of it on the highway causing it to fall into a ditch. which limits defendant's liability for the amount of loss or damage to any property of plaintiff to "P1.Paragraph 4 of the contract. Civil Code. It is so ordered. "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. notwithstanding his plainly valid claim. through its assigned security guards. since under paragraph 5 of their contract it "assumed the responsibility for the proper performance by the guards employed of their duties and (contracted to) be solely responsible for the acts done during their watch hours" and "specifically released (plaintiff) from any and all liabilities . .000. vandalism and all other unlawful acts of any person or persons. the administration of justice is prejudiced. Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus incurred.." Plaintiff was in law liable to its customer for the damages caused the customer's car. since the court dockets are unduly burdened with unnecessary litigation.00 per guard post. which involve neither property of plaintiff that has been lost or damaged at its premises nor mere negligence of defendant's security guard on duty. complying with its contractual undertaking 'to safeguard and protect the business premises of (plaintiff) from theft. Such an approach of telling the adverse party to go to court. Here. As ordained in Article 1159. the judgment appealed from is hereby reversed and judgment is hereby rendered sentencing defendant-appellee to pay plaintiff-appellant the sum of P8.

but also because. the plaintiff countered that.. defendants-appellees. M. INC.00 on said land having an area of more or less since defendants-appellees are being benefited by said improvements. 12 of the complaint states that the defendants promised and agreed to cede.400. the plaintiff cannot claim good faith and mistake as to the title of the land. such agreement is not enforceable as it is not in writing and subscribed by the party charged.R.781. it is not a privy to the plaintiff's agreement to assist the Deudors n improving the 50 quinones. that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in question on the strength of an "informacion posesoria" ) plaintiff made permanent improvements valued at P30. Inc. the plaintiff has already performed his part of the agreement.. the same should have been made in good faith and under the mistake as to title. Plaintiff's cause of action is premised inter alia. by holding and utilizing the improvements introduced by him. 1964.\ Defendant J.. Inc.000 square meters of land in consideration of certain services to be rendered then. The allegation in par. 2. and GREGORIO ARANETA. the date of the approval of the compromise agreement.G. that the Statute of Frauds cannot be invoked by defendants. and his complaint was filed on January 24. plaintiff-appellant. The Court can take judicial notice of the fact that the tract of land supposedly improved by the plaintiff had been registered way back in 1914 in the name of the predecessors-in-interest of defendant J. M. transfer and convey unto the plaintiff the 3. On the other hand. Furthermore.400. 2(e) of Article 1403 of the Civil Code. M. Under the provisions of See. he. Such being the case. it is clear that the alleged agreement involves an interest in real property. INC. 1963. the defendants are unjustly enriching and benefiting at the expense of the plaintiff. Tuason & Co. insofar as the plaintiffs claim for the reimbursement of the amounts of P38. and that his action has not prescribed for the reason that defendants had ten years to comply and only after the said ten years did his cause of action accrue. TUASON & COMPANY.74 is concerned.. insisting that Article 2142 of the applicable to his case. On the issue of statute of limitations. the Court believes that same is applicable to the instant case.00 and P7. he is entitled to reimbursement from them of said amounts Plaintiff opposed the motion. not only because Article 1403 of the Civil Code refers only to "sale of real property or of an interest therein" and not to promises to convey real property like the one supposedly promised by defendants to him. No. Said this Honorable Court (at p. hence the agreement has already been partly executed and not merely executory within the contemplation of the Statute. Tuason & Co. in order that the alleged improvement may he considered a lien or charge on the property. claimed that. J. and that said improvements constitute a lien or charge of the property itself On the issue of statute of fraud. vs. Order): It is found that the defendants are not parties to the supposed express contract entered into by and between the plaintiff and the Deudors for the clearing and improvement of the 50 quinones. the Court holds that the plaintiff's action has prescribed. ten years after March 16. L-23749 April 29. 1977 FAUSTINO CRUZ. on the theory of unjust enrichment under Article 2142 of the civil Code: . that is.

the Court ruled as follows: On the issue of statute of fraud. it has been uniformly held that the statute of frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT NOT WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED: SAME ACTION TO ENFORCE. ART. it is clear then the agreement between the parties mentioned in paragraph 12 (supra) of the complaint has already been fully EXECUTED ON ONE PART. 19. 12 of the complaint states that the defendants promised and agree to cede. MS.000 SQ. Paragraph 12 states thus: From the foregoing. give every-one his due and observe honesty and good faith. transfer and convey unto the plaintiff. 3.000 square meters of land in consideration of certain services to be rendered then. Civil Code). 2(e) of Article 1403 of the Civil Code. Regarding the applicability of the statute of frauds (Art. namely by the plaintiff. Every person must. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3. 2142. Under the provisions of Sec. such agreement is not enforceable as it is not in writing and subscribed by the party charged. II. The allegation in par. The Statute of Frauds is CLEARLY inapplicable to this case: At page 2 of this Honorable Court's order dated 13 August 1964. THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO. — The statute of frauds has been uniformly interpreted to be applicable to executory and not to . It is clear that the alleged agreement involves an interest in real property. shall reproduce not only paragraph 12 of the complaint but also the other pertinent paragraphs therein contained. in the exercise of his rights and in the performance of his duties. the complaint states a cause of action against the defendants. the Court believes that same is applicable to the instant Case. While it is true that there was no agreement between plaintiff and defendants herein for the improvement of the 50 quinones since the latter are presently enjoying and utilizing the benefits brought about through plaintiff's labor and expenses. 1403. Certain lawful voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shill be unjustly enriched or benefited at the expense of another. Article 19 of the same Code enjoins that: ART. act with justice. that the Same bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or obligations which do not arise from contracts. To bring this issue in sharper focus. defendants should pay and reimburse him therefor under the principle that 'no one may enrich himself at the expense of another.' In this posture. Further. as we can readily see from the title thereof (Title XVII). We respectfully draw the attention of this Honorable Court to the fact that ARTICLE 2142 (SUPRA) DEALS WITH QUASI-CONTRACTS or situations WHERE THERE IS NO CONTRACT BETWEEN THE PARTIES TO THE ACTION. In like vein.

. . states: 2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY PERFORMED ARE WITHOUT THE STATUE. Emphasis supplied). (At pp. over the 3. There having been full performance of the contract on plaintiff's part. at p. III. in mots cases. That in or about the middle of 1963. 1962 Ed. In view of the foregoing.. on the theory that there is a wide field for the commission of frauds in executory contracts which can only be prevented by requiring them to be in writing.000 sq. ms. This fact is further projected in paragraph 15 of the complaint where plaintiff states.000 sq.. The statute has been enacted to prevent fraud. ms. complaint. It is neither applicable to executed contracts nor to contracts partially performed.. Thus Mr. Justice Moran in his 'Comments on the Rules of Court'. a facts which is reduced to a minimum in executed contracts because the intention of the parties becomes apparent buy their execution and execution. we respectfully submit that this Honorable court erred in holding that the statute of frauds is applicable to plaintiff's claim over the 3. Vol. Vol. The reason is simple. concluded the right the parties. Emphasis supplied). Tolentino's Civil Code of the Philippines. 564-565. plaintiff demanded of said defendants that they execute the Deed of Conveyance in his favor and deliver the title certificate in his name. Authorities in support of the foregoing rule are legion. The statute of frauds is applicable only to executory contracts. completed or contracts. .000 sq. the same takes this case out of the context of said statute. (Emphasis supplied) Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the plaintiff has fulfilled ALL his obligation under the agreement between him defendants concerning the 3. Performance of the contracts takes it out of the operation of the statute. ms. 15). 15.. (par. 167. The partial performance may be proved by either documentary or oral evidence. On the other hand the commission of fraud in executed contracts is reduced to minimum in executed contracts because (1) the intention of the parties is made apparent by the execution and (2) execution concludes. IV. In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties. Plaintiff's Cause of Action had NOT Prescribed: . the rights of the parties. but defendants failed and refused and continue to fail and refuse to heed his demands. The statute of the frauds is not applicable to contracts which are either totally or partially performed.. in most cases. over which the latter had agreed to execute the proper documents of transfer. 1974 Ed. after all the conditions stated in paragraph 12 hereof had been fulfilled and fully complied with.

unless the same. or some note or memorandum thereof. default. 135. (c) An agreement made in consideration of marriage. evidence.) In the instant case. therefore.We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. 1403. and subscribed by the party charged. at the time of the sale. And the only agreements or contracts covered thereby are the following: (1) Those entered into in the name of another person by one who has been given no authority or legal representation. (2) Those do not comply with the Statute of Frauds as set forth in this number. what appellant is trying to enforce is the delivery to him of 3. or pay at the time some part of the purchase money. or for the sale of real property or of an interest therein: (f) a representation as to the credit of a third person. It is elementary that the Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated therein. (b) A special promise to answer for the debt. or who has acted beyond his powers. or the evidences. of the amount and kind of property sold. . but when a sale is made by auction and entry is made by the auctioneer in his sales book. civil Code. Civil Case No. it is a sufficient memorandum: (e) An agreement for the leasing for a longer period than one year. (Art. be in writing. at a price not less than five hundred pesos. or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof. not all dealings involving interest in real property come under the Statute. terms of sale. other than a mutual promise to marry. price. or by his agent. In no sense may such alleged contract be considered as being a "sale of real property or of any interest therein. or miscarriage of another.000 square meters of land which he claims defendants promised to do in consideration of his services as mediator or intermediary in effecting a compromise of the civil action. or some of them of such things in action. chattels or things in action. between the defendants and the Deudors." Indeed. In the following cases an agreement hereafter made shall be unenforceable by action. unless the buyer accept and receive part of such goods and chattels. (3) Those where both parties are incapable of giving consent to a contract. names of the purchasers and person on whose account the sale is made. of the agreement cannot be received without the writing. (d) An agreement for the sale of goods.

if there is any ground therefor. that in several cases We have decided. It is essential that the act by which the defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. Said article provides: Certain lawful. with the latter's knowledge and consent. Bienvenido Sanvictores. plaintiff-appellee.) appellant entered into an agreement. the Court held: It is also worthy of note that the compromise between Deudors and Tuason. As regards appellant's third assignment of error. it is obvious that a presumed qauasi-contract cannot emerge as against one party when the subject mater thereof is already covered by an existing contract with another party. Tuason. Vol. his cause of action should be against the latter." (Ambrosio Padilla. In J. seek relief against the party benefited.R. Predicated on the principle that no one should be allowed to unjustly enrich himself at the expense of another. 1961.R. No.We cannot. p. defendant-appellant. ENGRACIO ORENSE. It is unilateral. voluntary and unilateral acts give rise to the juridical relation of quasi- contract to the end that no one shall be unjustly enriched or benefited at the expense of another. as recognized by this Court in its decision in G. on Article 2142 of Civil Code is misplaced. "The act is voluntary. 2142 is not applicable. defendant Orense had been the owner of a parcel of land property has up to date been recorded in the new property registry in the name of the said Orense. 1914 GUTIERREZ HERMANOS. We hold that the allegations in his complaint do not sufficiently Appellants' reliance. Jose Duran. because the actor in quasi-contracts is not bound by any pre-existing obligation to act. because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. however. counsel for Gutierrez Hermanos filed a complaint. No. promulgated on May 30. Inc. Civil Law. vs. As one distinguished civilian puts it. Duran reserving to himself the right to repurchase it for the same price within a period of four years from the date of the said instrument. has been validly rescinded and set aside. VI. The reason why the law creates a juridical relations and imposes certain obligation is to prevent a situation where a person is able to benefit or take advantage of such lawful. Corollarily. if the one who claims having enriched somebody has done so pursuant to a contract with a third party. 1969 ed. . 748.. L-9188 December 4. We have declared the same rescinded and of no effect. Article 2124 creates the legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the parties concerned. L- 13768. who in turn may. Tuason & Co. M. voluntary and unilateral acts at the expense of said actor. in relation to the compromise agreement relied upon by appellant. executed before a notary a public instrument whereby he sold and conveyed to the plaintiff company. a nephew of the defendant. 4 SCRA 123. vs. G. Deudor vs. upon which Sanvictores predicates his right to buy the lot he occupies. escape taking judicial notice.

it is unquestionable that the defendant. (Civil Code. based on the explicit testimony of his uncle. nor pay any sum whatever for the losses and damages occasioned by the said sale. which was worth P3. who in this case acted as the manager of his uncle's business. Jose Duran. 1709. nor had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name.) Even should it be held that the said consent was granted subsequently to the sale. 1888 and 1892. to the effect that he had consented to his nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos. 1907.that the plaintiff company had not entered into possession of the purchased property. the record in this case shows that he did give his consent in order that his nephew. acquitted As a result of the acquittal of Jose Duran. Engacio Orense. His refusal was based on the allegations that he had been and was then the owner of the said property. 1911. might sell the property in question to Gutierrez Hermanos.) . The plaintiff firm charged Jose Duran with estafa. 1710 and 1727. and that he did thereafter confirm and ratify the sale by means of a public instrument executed before a notary. the owner of the property. the firm of Gutierrez Hermanos. 1911. Engracio Orense. that he had not executed any written power of attorney to Jose Duran. but to the defendant Orense. or at least implied.itc-alf Notwithstanding the allegations of the defendant. Jose Duran. arts. This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a masonry house with the nipa roof erected thereon. a nephew of the owner of the property. The principal must therefore fulfill all the obligations contracted by the agent. t Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of the sale which he received. approved the action of his nephew. for the sum of P1. it follows that the defendant conferred verbal. the defendant refused to deliver the property to the purchaser. title and interest with Orense had in the property sold. It having been proven at the trial that he gave his consent to the said sale. which was registered in his name in the property registry. whereas in reality they did not belong to him. the owner of the property. power of agency upon his nephew Duran. and Orense'r ratification produced the effect of an express authorization to make the said sale. owing to its continued occupancy by the defendant and his nephew. aside from the fact that the plaintiff had suffered damage by losing the present value of the property.500 by means of a notarial instrument executed and ratified on February 14. which contract was in force up to February 14. After the lapse of the four years stipulated for the redemption. who acted within the scope of his authority. when the period for its repurchase terminated. by virtue of a contract of lease executed by the plaintiff to Duran. and to pay the rental thereof at the rate of P30 per month for its use and occupation since February 14. arts. and to pay to the same the rental of the property due from February 14.000. (Civil Code. counsel for this firm filed a complainant praying. 1911. that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right. for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements. who accepted it in the same way by selling the said property. among other remedies. effected by Jose Duran.

pursuant to article 1309 of the Code. and which testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran. the plaintiff would have been the victim of estafa. Tabiliran.500 for the said property. in the present case. The sworn statement made by the defendant.Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by him or without his legal representation according to law. wherein he affirmed that he had given his consent to the sale of his property. meet the requirements of the law and legally excuse the lack of written authority. Araneta and Guanko. virtually confirms and ratifies the sale of his property effected by his nephew. 110. should not now serve in passing upon the conduct of Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his consent to the sale of his property. to the prejudice of the purchaser. pursuant to article 1313 of the Civil Code. the right of action for nullification that could have been brought became legally extinguished from the moment the contract was validly confirmed and ratified. expressive of his consent to the sale of his property. and. 15 Phil. Rep. . If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the property in litigation to Gutierrez Hermanos. and. the latter was acquitted. 20 Phil. had it not been for the consent admitted by the defendant Orense. The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning.. Kuenzle & Streiff vs. Duran. and it would not be just that the said testimony. is alleged to be invalid. remedies all defects which the contract may have contained from the moment of its execution. for. they produce the effects of an express power of agency. it is not just nor is it permissible for him afterward to deny that admission. who then acted as his business manager. 22 Phil. 241. while testifying as a witness at the trial of Duran for estafa. Gallemit vs. Jose Duran. Jiongco. Rep. null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure. unless it should be ratified by the person in whose name it was executed before being revoked by the other contracting party.) The repeated and successive statements made by the defendant Orense in two actions. Therefore the principal is bound to abide by the consequences of his agency as though it had actually been given in writing (Conlu vs. and. but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself consented to his nephew Jose Duran's making the said sale.. but the record discloses satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew Jose Duran. The contract of sale of the said property contained in the notarial instrument of February 14. Moreover. Orense. On the testimony given by Engacio Orense at the trial of Duran for estafa. as they are a full ratification of the acts executed by his nephew Jose Duran.. 387. because the authority which Orense may have given to Duran to make the said contract of sale is not shown to have been in writing and signed by Orense. 1907. which determined the acquittal of his nephew. Such consent was proven in a criminal action by the sworn testimony of the principal and presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the defendant made no objection. who gave P1. A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void. it is unquestionable that the defendant did confirm the said contract of sale and consent to its execution. Rep.

. 488. by himself alone. G. — now. THE HONORABLE COURT OF APPEALS. EMETERIA ASEJO. Under the Civil Code: ART. subject to his right to collect reimbursement from the remaining co-owners. filed present case for partition with accounting on the position that he was only a trustee on an implied trust when he redeemed. petitioner. respondents. it is the petitioner's contention that the property subject of dispute devolved upon him upon the failure of his co-heirs to join him in its redemption within the period required by law. 6 There is no doubt that redemption of property entails a necessary expense. it did not put to end the existing state of co-ownership. he executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother Felisa with the consequence that he was able to secure title in his name alone also. and after that. The right of repurchase may be exercised by a co-owner with aspect to his share alone. herein defendant Rustico Adille. giving the vendee a retro the right to demand redemption of the entire property.-and this is the evidence. shouldering the expenses therefor. No. vs. 1988 RUSTICO ADILLE. in her second marriage with one Procopio Asejo. In other words. TEODORICA ASEJO. she married twice in her lifetime. JOSEFA ASEJO and SANTIAGO ASEJO. sometime in 1939.The judgment appealed from in harmony with the law and the merits of the case. with the costs against the appellant. 21137 in the name of his mother was transferred to his name. defendant counterclaimed for her to vacate that. There is no merit in this petition. with whom she had as an only child. and the errors assigned thereto have been duly refuted by the foregoing considerations. period of repurchase being 3 years. herein plaintiffs. but during the period of redemption.R. [T]he land in question originally belonged to one Felisa Alzul as her own private property. but as it also turned out that one of plaintiffs. her children were herein plaintiffs. He relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code. 5 While the records show that the petitioner redeemed the property in its entirety. — The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property held in common? Essentially. but she died in 1942 without being able to redeem and after her death. DOMINGO ASEJO. his half-brothers and sisters. that was in 1955. that was why after some efforts of compromise had failed. so it should be affirmed. with one Bernabe Adille. herein defendant repurchased. Necessary expenses may be incurred by one co-owner. said Felisa sold the property in pacto de retro to certain 3rd persons. Emeteria Asejo was occupying a portion. that did not make him the owner of all of it. . No. The judgment appealed from is hereby affirmed.. so that OCT. the first. Each co-owner shall have a right to compel the other co-owners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of . L-44546 January 29.

must have been preceded by repudiation (of the co-ownership). The result is that the property remains to be in a condition of co-ownership." the redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership over it. Registration of property is not a means of acquiring ownership. he is guilty of fraud. he cannot claim exclusive right to the property owned in common. he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code. If property is acquired through mistake or fraud. if there is one. The act of repudiation. The evidence. "may not be compelled to consent to a partial redemption. While his half-brothers and sisters are. while the claim of the private respondents was presented in 1974. the result would be the same whether it is one or the other. under the Article 1456. the party in possession acquires title to the property and the state of co-ownership is ended . his co-heirs. While a vendee a retro. We agree with the respondent Court of Appeals that fraud attended the registration of the property. in turn is subject to certain conditions: (1) a co-owner repudiates the co-ownership. Has prescription then. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title thereto in his name. (3) the evidence thereon is clear and conclusive. of course. under Article 1613 of the Code. the situation Article 2144 of the Code contemplates. It operates as a mere notice of existing title. that is. Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the existing co-ownership. 7 But the provision does not give to the redeeming co-owner the right to the entire property. and (4) . by force of law. the expenses and taxes. He cannot therefore be said to have assume the mere management of the property abandoned by his co-heirs. solely in his name. No such waiver shall be made if it is prejudicial to the co- ownership. as we said. Prescription. It does not provide for a mode of terminating a co- ownership. The aforequoted provision therefore applies. the property was registered in 1955 by the petitioner. the private respondents being the beneficiaries. The petitioner must then be said to be a trustee of the property on behalf of the private respondents. (2) such an act of repudiation is clearly made known to the other co-owners. The petitioner would remain liable to the Private respondents. In any case. did so either on behalf of his co-heirs. In that event. and must act as trustee. or for his exclusive benefit. as a mode of terminating a relation of co-ownership. in which event. 8 In the case at bar. in taking over the property. liable to him for reimbursement as and for their shares in redemption expenses. points to the second alternative the petitioner having asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. considered a trustee of an implied trust for the benefit of the person from whom the property comes. in which case. It is the view of the respondent Court that the petitioner. set in? We hold in the negative. 1456. as the respondent Court itself affirms. This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in common) held by another (co-owner) following the required number of years. the person obtaining it is. The petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole dominion over the property. The Civil Code states: ART.

" petitioner." Upon query by PNB. private respondent. he had deliberately kept the private respondents in the dark by feigning sole heirship over the estate under dispute.R. Acting on said instruction. On September 8. Meanwhile." was engaged in the manufacture of ladies garments. 9 The instant case shows that the petitioner had not complied with these requisites.000. one of the private respondents. respondents. It is true that registration under the Torrens system is constructive notice of title. ANDRES. continuous. and notorious possession of the property for the period required by law. where petitioner had an account. Although private respondent was able to send a telex to PNB to pay petitioner $10. using the business name "Irene's Wearing Apparel. FACETS informed private respondent about the delay and at the same time amended its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB. on September 11. after learning about the delay in the remittance of the money to petitioner. FACETS from time to time remitted certain amounts of money to petitioner in payment for the items it had purchased. petitioner received the remittance of $10. In the course of the business transaction between the two. FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to effect the above. 82670 September 15.000. MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS. on August 25. 1980 stating that the payment was to be made to "Irene's Wearing Apparel.000. Moreover. He cannot therefore be said to have "made known" his efforts to deny the co-ownership.mentioned transfer through its facilities and to charge the amount to the account of FNSB with private respondent. on the contrary. vs.he has been in possession through open. No. Inc.000. exclusive. private respondent sent PNB another telex dated August 27. is occupying a portion of the land up to the present." On August 28. Among its foreign buyers was Facets Funwear. Hence. unaware that petitioner had already received the remittance. doing business under the name and style "IRENE'S WEARING APPAREL.000. 1980.00 through the Pilipinas Bank. As a matter of fact. and only after the private respondents had first sought judicial relief. G. notwithstanding the long-standing rule that registration operates as a universal notice of title. 1989 DOMETILA M. which was also unaware that petitioner had already received the remittance of $10. 10 but it has likewise been our holding that the Torrens title does not furnish a shield for fraud.00 from PNB instructed the PCIB to pay $10. We are not convinced that he had repudiated the co-ownership.00 remittance. FACETS informed FNSB about the situation. 1980. Emeteria Asejo. yet. petitioner received a second $10. assuming there was one. children's wear. Accordingly. the petitioner has not taken pains to eject her therefrom. .00 through Demand Draft No. Petitioner. the payment was not effected immediately because the payee designated in the telex was only "Wearing Apparel. 1980. men's apparel and linens for local and foreign buyers. 225654 of the PNB. he sought to recover possession of that portion Emeteria is occupying only as a counterclaim. 11 It is therefore no argument to say that the act of registration is equivalent to notice of repudiation. 1980.00 to petitioner.

Thus. It was the latter and not private respondent which was indebted to petitioner. the contract for the transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB. 360.Private respondent debited the account of FNSB for the second $10. the loss must be borne by the one whose negligence was the proximate cause of the loss. This legal provision. The contract of petitioner. 464.00 remittance was not made by mistake but was the result of negligence of its employees. 632. The lawmaker has found it one of the helpful guides in framing statutes and codes. Justice Bocobo explained the nature of this article thus: Article 1895 [now Article 2154] of the Civil Code abovequoted. 2154. petitioner has no right to apply the second $10. On the other hand.00. In Velez v.000. There being no contractual relation between them. 1893 and 1895. 647. Petitioner. . 361. 73 Phil. It is a part of that affluent reservoir of justice upon which judicial discretion draws whenever the statutory laws are inadequate because they do not speak or do so with a confused voice. It has been accepted by the courts. is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. In the Roman Law Digest the maxim was formulated thus: "Jure naturae acquum est. petition was filed. The sole issue in this case is whether or not the private respondent has the right to recover the second $10. and. (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. and it was unduly delivered through mistake. in the science of law and in court decisions." And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente con dano de otro. 1303.00 remittance effected through PCIB. 563 (1960)]. Neither was private respondent a party to the contract of sale between petitioner and FACETS. However. 797. the obligation to return it arises. 648. as regards the sale of garments and other textile products. 1295. although named as the payee was not privy to the contract of remittance of dollars.000. Piccio. If something received when there is no right to demand it. 1163.] For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to do so. The resolution of this issue would hinge on the applicability of Art. neminem cum alterius detrimento et injuria fieri locupletiorem. it asked for a recredit of its account in the amount of $10. 1304.00 remittance it had delivered to petitioner. articles. 110 Phil. Private respondent complied with the request. Petitioner next contends that the payment by respondent bank of the second $10. speaking through Mr. Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful act of a third person. (See for example. [at p. 558. is therefore applicable.00 remittance delivered by mistake by private respondent to the outstanding account of FACETS. 1158. which have not hesitated to apply it when the exigencies of right and equity demanded its assertion. 2154 of the New Civil Code which provides that: Art. Balzarza. 630 (1942). the Court.000.000. which determines the quasi-contract of solution indebiti." Such axiom has grown through the centuries in legislation. when FNSB discovered that private respondent had made a duplication of the remittance. was with FACETS. it is unfolded in many articles scattered in the Spanish Civil Code.) This time-honored aphorism has also been adopted by jurists in their study of the conflict of rights. Civil Code.000.

Appellee had duly proved that taxes were not lawfully due. CITY OF MANILA AND MARCELO SARMIENTO. as City Treasurer of Manila. Appelle categorically stated that the payment was not voluntarily made. to wit-- plaintiff is engaged in the business of manufacturing and selling all kinds of furniture acting pursuant to the provisions of Sec. that plaintiff-appellee is entitled to the refund of the retail taxes in question. are refundable. No. 3364. even without protest is recoverable. however. Group II. without protest. of Ordinance No. "If something is received when there is no right to demand it. corresponding to the first Quarter of 1950 up to the third Quarter of 1956. that they were due. 3364. is exempt from the payment of taxes imposed under the provisions of Sec. There is. the obligationto retun it arises" (Art. "Payment by reason of a mistake in the contruction or application of a doubtful or difficult question of law may come within the scope of the preceding article" (Art.785. Under this circumstance. against the City of Manila and its City Treasurer. 1963 GONZALO PUYAT & SONS.. NCC). as amended by Ordinance No. no doubt that the provisions of solutio indebtiti. the new Civil Code. 1.G.. a formal request for refund of the retail dealer's taxes unduly paid. 1. is liable for the payment of taxes on the sales of imported billiard balls. plaintiff filed with defendant City Treasurer of Manila.. therefore. Denied refund (1) Whether or not the amounts paid by plaintiff-appelle. The reason underlying similar provisions. plaintiff-appelle. whether or not the claim for refund filed in October 1956. and it was unduly delivered through mistake. 2154. There is no gainsaying the fact that the payments made by appellee was due to a mistake in the construction of a doubtful question of law. all of which assessments plaintiff paid without protest in the erroneous belief that it was liable plaintiff. bowling balls and other accessories at its displayroom.but on the erronoues belief. plaintiff. he may recover if he proves that it was not due" (Art. apply to the admitted facts of the case. "If the payer was in doubt whether the debt was due. amounting to P33. (2) Assuming arguendo. in so far as said claim refers to taxes paid from 1950 to 1952 has already prescribed. 1. 3364of the City of Manila. the amount paid. vs. .. group II. L-17447 April 30.R. as retail dealer's taxes under Ordinance 1925. being a manufacturer of various kinds of furniture. (a fact found also by the lower court). Inc. defendants- appellants plaintiff Gonzalo Puyat & Sons. defendant City Treasurer of Manilaassessed from plaintiff retail dealer's tax corresponding to the quarters hereunder stated on the sales of furniture manufactured and sold by it at its factory site.. as applied to . NCC). of Ordinance No. filed an action for refund of Retail DealerlsTaxes paid by it.00.The case was submitted on the following stipulation of facts. INC. 2156. 21555).

the decision appealed from is affirmed.providing for a period of six (6) years (upon quasi-contracts like solutio indebiti).W. 22. EB Nos. NCC). it is abvious that the action has prescribed with respect to those made before October 30. shall return the same to him"(Art. 1950 are no longer recoverable in view of the second paragraph of said article (1116). 658 and 659. NCC). for payments made after said effectivity. the period of which is ten (10) years. 40. 1116. Tan Jongko. Procedure) should apply. 2014 CBK POWER COMPANY LIMITED. considering the fact that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x" (Art. 10 S. The Petition assails the Decision2 dated 27 June 2011 and Resolution3 dated 16 September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in C. apply to the case. The assailed Decision and Resolution reversed and set aside the Decision4 dated 3 March 2010 and Resolution5 dated 6 July 2010 rendered by the CTA Special Second Division in C.A. 37 Ky. 1950 should be refunded. Ringo. 1956 (Stipulation of Facts). acquires or comes into possession of something at the expense of the latter without just or legal grounds. Civil Code). because "prescription already running before the effectivity of of this Code shall be govern by laws previously in force xxx " (Art. No costs. 1116. 636. because "prescription already runnig before the effectivity of this Code shall be governed by laws previously in force x x x" (art. providing for a period of six (6) years (upon quasi-contracts like solutio indebiti).MODIFIED in the sense that only payments made on or after October 30. "Every person who through an act or performance by another.T. On the other hand. insofar as payments made before the effectivity of the New Civil Code on August 30.Act No. 2. and the written demand in the case at bar was made on October 30. in the United States. The next issue in discussion is that of prescription. and should not be retained by the party receiving it. . Even if the provisionsof Act No. and which in law or conscience was not payable. Osorio v. 1950. 6211) and article 1145 (NCC). 1950 only.. Respondent. 1155. Nos. 2125. in the following manner:. (here the City of Manila). which partly granted the claim of petitioner for the . G. vs. or any other means.G. 190should apply to those payments made before the effectivity of the new Civil Code. 1950.R. Petitioner. appellee contends that provisions of Act 190 (Code of Civ. 7621. in all other respects. It would seems unedifying for the government. Still payments made before August 30. Even if the provisions of Act No. (Sec. Case No. which provides for a period of four (4) years (upon injury to the rights of the plaintiff). 51 O. NCC). is expressed in the case of Newport v. Anent the payments made after August 30. No one should enrich itself unjustly at the expense of another (Art. which provides:"but if since the time this Code took effect the entire period herein required for prescription should elapse the present Code shall be applicable even though by the former laws a longer period might be required". it may be recovered. essentially affecting the rights of the parties. This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by CBK Power Company Limited (petitioner). COMMISSIONER OF INTERNAL REVENUE. Appellants maintain that article 1146 (NCC). for payments made after said effectivity. 198729-30 January 15.A. it would be reluctant to return the same. 635. 190 should apply to those payments made before the effectivity of the new Civil Code.illegal taxation. "It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of law or fact. 190. that knowing it has no right at all to collect or to receive money for alleged taxes paid by mistake.T. Civil Code).

and the Kalayaan I hydroelectric power plants and their related facilities located in the Province of Laguna. as follows:8 Period Covered Date Of Filing 1st quarter of 2005 30-Jun-05 2nd quarter of 2005 15-Sep-05 3rd quarter of 2005 28-Oct-05 Alleging inaction of the Commissioner of Internal Revenue (CIR). other than capital goods. with BIR Revenue District Office (RDO) No. Botocan. among others. petitioner ’s sale of electr icity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the benefit of effectively zero-rated value added tax (VAT). 55 of Laguna. as amended. petitioner filed a Petition for Review with the CTA on 18 April 2007. and management of the Kalayaan II pumped-storage hydroelectric power plant. the new Caliraya Spillway. the CTA Special Second Division rendered a Decision on 3 March 2010. Thus. THE CTA SPECIAL SECOND DIVISION RULING After trial on the merits. maintenance. in the operation. Mirant Pagbilao Corporation (Mirant). as amended. The Facts Petitioner is engaged. The application was duly approved by the BIR. pursuant to Sections 112(A) and (B) of the NIRC of 1997. Caliraya.6 On 29 December 2004. Applying Commissioner of Internal Revenue v.7 Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged unutilized input taxes on its purchase of capital goods and alleged unutilized input taxes on its local purchases and/or importation of goods and services.issuance of a tax credit certificate representing the latter's alleged unutilized input taxes on local purchases of goods and services attributable to effectively zero-rated sales to National Power Corporation (NPC) for the second and third quarters of 2005.9 the court a quo ruled that petitioner had until the following dates within which to file both administrative and judicial claims: Taxable Quarter Last Day to File Claim for 2005 Close of the quarter Refund 1st quarter 31-Mar-05 31-Mar-07 2nd quarter 30-Jun-05 30-Jun-07 3rd quarter 30-Sep-05 30-Sep-07 . petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC) of 1997.

which were both denied by the CTA Division. and the Petition for Review filed in CTA Case No. Refunds or Tax Credits of Input Tax. and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions. relying on Commissioner of Internal Revenue v. – (A) Zero-rated or Effectively Zero-rated Sales. considering that the judicial claim was filed on 18 April 2007. The CTA Special Second Division Decision and Resolution were reversed and set aside. except transitional input tax. Petitioner’s Motion for Reconsideration was likewise denied for lack of merit. to the extent that such input tax has not been applied against output tax: Provided. Hence. .(2) and (B) and Section 108 (B)(1) and (2).11 THE COURT’S RULING The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides: SEC.170. the court a quo partly granted the claim and ordered the issuance of a tax credit certificate in favor of petitioner in the reduced amount of ₱27. further. the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided. this Petition. (Aichi). petitioner timely filed its administrative claims for the three quarters of 2005. and third quarters of 2005 were belatedly filed.ISSUE Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on its claim for refund of unutilized input VAT for the first to third quarters of 2005.Any VAT-registered person.10 the CTA En Banc ruled that petitioner’s judicial claim for the first. the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete . . That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services. THE CTA EN BANC RULING On appeal. it shall be allocated proportionately on the basis of the volume of sales. however.Accordingly. However. That in the case of zero-rated sales under Section 106(A)(2)(a)(1). The parties filed their respective Motions for Partial Reconsideration. the CTA Division denied the claim for the first quarter of 2005 for having been filed out of time. 112.123. 7621 was dismissed. apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. xxxx (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. whose sales are zero-rated or effectively zero-rated may. within two (2) years after the close of the taxable quarter when the sales were made. second. Inc. Aichi Forging Company of Asia. After an evaluation of petitioner’s claim for the second and third quarters of 2005.In proper cases.36.

including VAT. the taxpayer affected may. the law under Section 112 (A) provides for a different reckoning point for the two-year prescriptive period. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue. petitioner’s sales to NPC are effectively subject to zero percent (0%) VAT. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods.12 As a consequence. . if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him. the BIR itself approved the application for zero-rating on 29 December 2004. The NPC is an entity with a special charter. however. and the interpretation of the applicable jurisprudence.13 this Court ruled: Under the 1997 NIRC. Thus. specifically for the refund or credit of that tax only. no payment is required of him. Commissioner of Internal Revenue. Administrative Claim Section 112(A) provides that after the close of the taxable quarter when the sales were made. there is a two-year prescriptive period within which a VAT-registered person whose sales are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax. Petitioner’s sales to NPC are effectively zero-rated As aptly ruled by the CTA Special Second Division. If the input taxes exceed the output taxes. documents in support of the application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit. and Philex Mining Corporation v. Given the distinctive nature of creditable input tax. The crux of the controversy arose from the proper application of the prescriptive periods set forth in Section 112 of the NIRC of 1997. Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input taxes over the output taxes they had paid in relation to their sales. Commissioner of Internal Revenue14 (hereby collectively referred as San Roque). as amended. or the failure on the part of the Commissioner to act on the application within the period prescribed above. appeal the decision or the unacted claim with the Court of Tax Appeals. For the refund or credit of excess or unutilized input tax. any excess over the output taxes shall instead be refunded to the taxpayer. Section 112 is the governing law. the excess payment shall be carried over to the succeeding quarter or quarters. services rendered to NPC by a VAT-registered entity are effectively zero-rated. San Roque Power Corporation. within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period. whether direct or indirect. petitioner claims for the refund of the alleged excess input tax attributable to its effectively zero-rated sales to NPC. Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day period as prescribed in Section 112. we are constrained to apply the dispositions therein to the facts herein which are similar. which categorically exempts it from the payment of any tax. Taganito Mining Corporation v. In fact. with the finality of the Court’s pronouncement on the consolidated tax cases Commissioner of Internal Revenue v. filed by petitioner for its sales to NPC covering January to October 2005.

17 this Court has ruled thus: . were not applicable. a claim for the refund or credit of creditable input tax that is due or paid. must be filed within two years after the close of the taxable quarter when such sales were made. Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. to wit: Period Covered Close of the Last day to File Administrative Date of Filing Taxable Claim Quarter 1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05 2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05 3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05 Judicial Claim Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred twenty (120) days from the date of submission of complete documents in support thereof. Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer.16 Pursuant to Section 112(A). However. petitioner had attached complete supporting documents necessary to prove its entitlement to a refund in its application. The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. petitioner’s administrative claims were filed well within the two-year period from the close of the taxable quarter when the effectively zero-rated sales were made. Commissioner of Internal Revenue. Input tax is neither an erroneously paid nor an illegally collected internal revenue tax. Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v. which prescribed a different starting point for the two-year prescriptive limit for filing a claim for a refund or credit of excess input tax. The reckoning frame would always be the end of the quarter when the pertinent sale or transactions were made. Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period. it should not retroactively be applied to the instant case.We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed in 2005. It must be emphasized that the Court merely clarified in Mirant that Sections 204 and 229. Thereafter. thus.15 Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated. the fact remains that Section 112 is the controlling provision for the refund or credit of input tax during the time that petitioner filed its claim with which they ought to comply. regardless of when the input VAT was paid. the taxpayer affected by the CIR’s decision or inaction may appeal to the CTA within 30 days from the receipt of the decision or from the expiration of the 120-day period within which the claim has not been acted upon. compliance with both periods is jurisdictional. absent any evidence to the contrary. it is presumed that in order to discharge its burden. and that is attributable to zero-rated or effectively zero-rated sales.

xxxx Thus. being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. the Court in San Roque recognized that BIR Ruling No. like the reversal of a specific BIR ruling under Section 246.18 in which this Court ruled: . where this Court held that the 120+30 day periods are mandatory and jurisdictional. that is. Absent fraud. all taxpayers can rely on 1âwphi1 BIR Ruling No. or the entity responded to. DA-489-03 and its effect on taxpayers. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. Petitioner is similarly situated as Philex in the same case. the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. DA-489-03. in BIR Ruling No. bad faith or misrepresentation. thus: Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner. DA-489-03 constitutes equitable estoppel in favor of taxpayers. Inc. BIR Ruling No. DA-489-03 is a general interpretative rule. Although petitioner did not file its judicial claim with the CTA prior to the expiration of the 120-day waiting period. San Roque. This government agency is also the addressee. particularly on a difficult question of law. should also apply prospectively.. it failed to observe the 30-day prescriptive period to appeal to the CTA counted from the lapse of the 120-day period. not by a particular taxpayer. Clearly." This Court discussed BIR Ruling No. the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development. Thus. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer. The abandonment of the Atlas doctrine did not result in Atlas. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. the reversal by this Court of a general interpretative rule issued by the Commissioner. where the taxpayer did not wait for the lapse of the 120-day period. x x x.Notwithstanding a strict construction of any claim for tax exemption or refund. while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development. but by a government agency asked with processing tax refunds and credits. This Court is applying Mirant and Aichi prospectively. Inc. DA-489- 03 is a general interpretative rule because it was a response to a query made.. (Emphasis supplied) In applying the foregoing to the instant case. BIR Ruling No. we consider the following pertinent dates: 1âw phi1 Period Covered Administrative Expiration of Last day to file Judicial Claim Claim Filed 120-days Judicial Claim Filed 1st quarter 2005 30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07 2nd quarter 2005 15-Sep-05 13-Jan-06 13-Feb-06 3rd quarter 2005 28-Oct-05 26-Feb-06 28-Mar-06 It must be emphasized that this is not a case of premature filing of a judicial claim. or other taxpayers similarly situated. Thus. BIR Ruling No. the only issue is whether BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010.

Again. or from the close of the taxable quarter when the sales attributable to the input VAT were made following the Mirant and Aichi doctrines. petitioner cannot rely on Atlas either. "deemed a denial" of Philex’s claim. if something is received when there is no right to demand it. during. whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake. a creditor-debtor relationship is created under a quasi-contract. Whether the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas doctrine. In any event. Philex’s case is not one of premature filing but of late filing. it cannot claim the benefit of the exception period as it did not file its judicial claim prematurely. petitioner lost its right to claim a refund or credit of its alleged excess input VAT. Philex’s judicial claim will have to be rejected because of late filing. Moreover. which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. not a constitutional right. and the person who received the payment. by express provision of law. in fact 426 days after the lapse of the 120-day period. the doctrine in Atlas which reckons the two-year period from the date of filing of the return and payment of the tax. the obligation to return it arises.19 but not its late filing. who has no duty to pay. DA-489-03 allowed premature filing of a judicial claim. Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. DA-489-03. With regard to petitioner’s argument that Aichi should not be applied retroactively. and the person who has no right to receive the payment becomes obligated to return it. since the latter case was promulgated only on 8 June 2007. As this Court enunciated in San Roque . The inaction of the Commissioner on Philex’s claim during the 120-day period is. (Emphases in the original) Likewise. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. or after the Atlas case. Philex did not also file any petition with the CTA within 30 days after the expiration of the 120-day period. but did so long after the lapse of the 30-day period following the expiration of the 120-day period. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. and .Unlike San Roque and Taganito. does not interpret − expressly or impliedly − the 120+30 day periods. whether governed by jurisprudence before. Philex filed its judicial claim long after the expiration of the 120-day period. The right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege. we reiterate that even without that ruling. Philex failed to comply with the statutory conditions and must thus bear the consequences.22 There is solutio indebiti when: (1) Payment is made when there exists no binding relation between the payor. and it was unduly delivered through mistake. BIR Ruling No. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s judicial claim was indisputably filed late. the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period. Atlas referred only to the reckoning of the prescriptive period for filing an administrative claim.21 The quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich oneself unjustly at the expense of another. In that situation. According to this principle. For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period. The Atlas doctrine cannot save Philex from the late filing of its judicial claim. Philex did not file any petition with the CTA within the 120-day period. while petitioner filed its administrative and judicial claims during the period of applicability of BIR Ruling No.20 Simply stated.

. defendant-appellee. Well-settled is the rule that tax refunds or credits. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. and never against. the payment of input tax was not made through mistake. SO ORDERED. vs. since petitioner was legally obligated to pay for that liability. plaintiff-appellant. the former being a taxpayer obligated to pay VAT.25 Section 112 is a positive rule that should preempt and prevail over all abstract arguments based only on equity. just like tax exemptions. with a monthly wage of P25.27 WHEREFORE. On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise with a moderate gradient some distance away from the company's office and extends along in front of said office for a distance sufficient to cover the length of several coaches. Upon the occasion in question.R. making." is applied only in the absence of. and in coming daily by train to the company's office in the city of Manila where he worked. the plaintiff arose from his seat in the second class-car where he was riding and.: At the time of the occurrence which gave rise to this litigation the plaintiff. there exists a binding relation between petitioner and the CIR.23 Though the principle of solutio indebiti may be applicable to some instances of claims for a refund. statutory law or judicial rules of procedure.26 The burden is on the taxpayer to show strict compliance with the conditions for the grant of the tax refund or credit. Second. seizing the upright guardrail with his right hand for support. (2) Payment is made through mistake. equity. J. the instant Petition is DENIED. MANILA RAILROAD CO. he used a pass. which entitled him to ride upon the company's trains free of charge. At the time of payment of the input VAT. premises considered. Kincaid & Hartigan for appellee.24 Finally. are strictly construed against the taxpayer. 1918 JOSE CANGCO. which has been aptly described as "a justice outside legality. G. He lived in the pueblo of San Mateo. his exit through the door. took his position upon the steps of the coach. the amount paid was correct and proper. L-12191 October 14. January 20. First. 1915. Ramon Sotelo for appellant. in the province of Rizal. supplied by the company. No. the elements thereof are wanting in this case. Jose Cangco. was in the employment of Manila Railroad Company in the capacity of clerk. and not through liberality or some other cause. . which is located upon the line of the defendant railroad company. FISHER.

and the plaintiff appealed. and as the railroad station was lighted dimly by a single light located some distance away. where his right arm was badly crushed and lacerated. and it appeared that the injuries which he had received were very serious. named Emilio Zuñiga. although negligence was attributable to the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and from the cars. and that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. His statement that he failed to see these objects in the darkness is readily to be credited.As the train slowed down another passenger. They were contained in numerous sacks which has been piled on the platform in a row one upon another. . got off the same car. It appears that after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop. also an employee of the railroad company. his Honor. and drew therefrom his conclusion to the effect that. 1915. alighting safely at the point where the platform begins to rise from the level of the ground.25 in the form of medical and surgical fees and for other expenses in connection with the process of his curation. to-wit. he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages of the defendant company. The testimony shows that this row of sacks was so placed of melons and the edge of platform. nevertheless. The result of this operation was unsatisfactory. The accident occurred between 7 and 8 o'clock on a dark night. Upon August 31. It appears in evidence that the plaintiff expended the sum of P790. the primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately examined. It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the platform in the manner above stated. found the facts substantially as above stated. and it is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the platform. but one or both of his feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell violently on the platform. that their presence caused the plaintiff to fall as he alighted from the train. the plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded form recovering. At the hearing in the Court of First Instance. It necessarily follows that the defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. founding his action upon the negligence of the servants and employees of the defendant in placing the sacks of melons upon the platform and leaving them so placed as to be a menace to the security of passenger alighting from the company's trains. and the plaintiff was then carried to another hospital where a second operation was performed and the member was again amputated higher up near the shoulder. the trial judge. objects on the platform where the accident occurred were difficult to discern especially to a person emerging from a lighted car. He was therefore brought at once to a certain hospital in the city of Manila where an examination was made and his arm was amputated. The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that it was the customary season for harvesting these melons and a large lot had been brought to the station for the shipment to the market. The plaintiff was drawn from under the car in an unconscious condition. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also. Judgment was accordingly entered in favor of the defendant company. In resolving this problem it is necessary that each of these conceptions of liability. His body at once rolled from the platform and was drawn under the moving car.

Manresa (vol. the master would be liable in every case and unconditionally — but upon the principle announced in article 1902 of the Civil Code. which was also recognized by this Court in its decision in the case of Rakes vs. which can be rebutted by proof of the exercise of due care in their selection and supervision. clearly points out this distinction. but by mere negligence or inattention.. without willful intent. A master who exercises all possible care in the selection of his servant. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu. . then breaches of those duties are subject to article 1101.. . is not based. The liability. p. that proof shows that the responsibility has never existed. which imposes upon all persons who by their fault or negligence. if the damage done by the servant does not amount to a breach of the contract between the master and the person injured. Atlantic. that article relates only to culpa aquiliana and not to culpa contractual. whatever done within the scope of his employment or not. is himself guilty of an act of negligence which makes him liable for all the consequences of his imprudence. he is not liable for the acts of the latter. upon the principle of respondeat superior — if it were. But where relations already formed give rise to duties. differing essentially. (Rakes vs. and that the obligation to respond for the damage which plaintiff has suffered arises. Gulf and Pacific Co. (7 Phil. Upon this point the Court said: The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not growing out of pre-existing duties of the parties to one another. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code. whether springing from contract or quasi-contract. if at all. Rep. Atlantic. 1103. in legal viewpoint from that presumptive responsibility for the negligence of its servants. It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from liability for the latter's acts — on the contrary. as in the English Common Law. under the Spanish law. 8.) This distinction is of the utmost importance. But. 7 Phil. The obligation to make good the damage arises at the very instant that the unskillful servant. and 1104 of the same code. One who places a powerful automobile in the hands of a servant whom he knows to be ignorant of the method of managing such a vehicle. which. rep. substantive and independent. . the obligation of making good the damage caused. 359). As Manresa says (vol. 8. and directs them . has caused damage to another. is. imposed by article 1903 of the Civil Code. do injury to another.. In commenting upon article 1093 Manresa clearly points out the difference between "culpa. which of itself constitutes the source of an obligation between persons not formerly connected by any legal tie" and culpa considered as an accident in the performance of an obligation already existing . The liability of the master is personal and direct. its liability is direct and immediate. 68) the liability arising from extra- contractual culpa is always based upon a voluntary act or omission which. while acting within the scope of his employment causes the injury. in certain cases imposed upon employers with respect to damages occasioned by the negligence of their employees to persons to whom they are not bound by contract." In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of a contract. if the master has not been guilty of any negligence whatever in the selection and direction of the servant. p. taking into consideration the qualifications they should possess for the discharge of the duties which it is his purpose to confide to them.It is important to note that the foundation of the legal liability of the defendant is the contract of carriage. but only to extra-contractual obligations — or to use the technical form of expression. Gulf and Pacific Co. That is to say. 359 at 365. from the breach of that contract by reason of the failure of defendant to exercise due care in its performance.

This is the notable peculiarity of the Spanish law of negligence. in relations with strangers.) This distinction was again made patent by this Court in its decision in the case of Bahia vs. after citing the last paragraph of article 1903 of the Civil Code. mainly negative in character. and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract. and consequently. On the other hand. but the presumption is rebuttable and yield to proof of due care and diligence in this respect. in interpreting identical provisions. generally embraced in the concept of status. as found in the Porto Rico Code.. 12. The opinion there expressed by this Court. 215. Extra-contractual obligation has its source in the breach or omission of those mutual duties which civilized society imposes upon it members. by his act or omission. thereby performs his duty to third persons to whom he is bound by no contractual ties. who says (vol. of course. if productive of . by reason of the negligence of his servants. Cuesta. the presumption is overcome and he is relieved from liability. which the existence of those rights imposes upon all other members of society. p. Litonjua and Leynes. such third person suffer damage. This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. the liability of masters and employers for the negligent acts or omissions of their servants or agents. The legal rights of each member of society constitute the measure of the corresponding legal duties. 611) that the liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special relations of authority or superiority existing between the person called upon to repair the damage and the one who. even within the scope of their employment. and (2) that that presumption is juris tantum and not juris et de jure. or which arise from these relations. It is. to the effect that in case of extra-contractual culpa based upon negligence. may be rebutted. was the cause of it. or both. True it is that under article 1903 of the Civil Code the law creates a presumption that he has been negligent in the selection or direction of his servant. (Carmona vs. said: From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the master or employer either in selection of the servant or employee. when such acts or omissions cause damages which amount to the breach of a contact. 20 Porto Rico Reports.with equal diligence. and that the last paragraph of article 1903 merely establishes a rebuttable presumption. it is necessary that there shall have been some fault attributable to the defendant personally. The Court. The breach of these general duties whether due to willful intent or to mere inattention. has held that these articles are applicable to cases of extra-contractual culpa exclusively. and he incurs no liability whatever if. Every legal obligation must of necessity be extra-contractual or contractual. or in supervision over him after the selection. is in complete accord with the authoritative opinion of Manresa. 624). It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family. of certain members of society to others. The supreme court of Porto Rico. other than contractual. rep. in striking contrast to the American doctrine that. (30 Phil. which was an action brought upon the theory of the extra- contractual liability of the defendant to respond for the damage caused by the carelessness of his employee while acting within the scope of his employment. the negligence of the servant in conclusively the negligence of the master. is not based upon a mere presumption of the master's negligence in their selection or control.

give rise to an obligation to indemnify the injured party. 71 [1907 ed. p.injury. and it would no doubt be true in most instances that reasonable care had been taken in selection and direction of such servants. The position of a natural or juridical person who has undertaken by contract to render service to another. (Manresa. by a personal negligent act causes its destruction. the anomalous result would be that person acting through the medium of agents or servants in the performance of their contracts. to others who are in a position to exercise an absolute or limited control over them. if the creditor shows that it exists and that it has been broken. But when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff. and they are lost by reason of the negligence of some clerk employed by the bank. vol. or in the control of persons who. it is obvious that proof on the part of defendant that the negligence or omission of his servants or agents caused the breach of the contract would not constitute a defense to the action. juridical persons would enjoy practically complete immunity from damages arising from the breach of their contracts if caused by negligent acts as such juridical persons can of necessity only act through agents or servants. he is unquestionably liable. it is not necessary for plaintiff to specify in his pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the defendant. rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris. If the negligence of servants or agents could be invoked as a means of discharging the liability arising from contract. so as to include responsibility for the negligence of those person who acts or mission are imputable. The fundamental distinction between obligations of this character and those which arise from contract. . on the contrary. and it is alleged that plaintiff has failed or refused to perform the contract. a suing creditor should assume the burden of proof of its existence. even though such be in fact the actual cause of the breach. As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the negligent conduct of defendant or of his servants. If one delivers a valuable watch to watchmaker who contract to repair it. which involves the duty to exercise due care in the preservation of the watch. If one delivers securities to a banking corporation as collateral. Would it be logical to free him from his liability for the breach of his contract. the burden of proof rests upon plaintiff to prove the negligence — if he does not his action fails. by reason of their status. would it be just and reasonable to permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon . as the only fact upon which his action is based. . or. if he shows that it was his servant whose negligence caused the injury? If such a theory could be accepted. or of his servants or agents. while on the contrary. As a general rule . Proof of the contract and of its nonperformance is sufficient prima facie to warrant a recovery. The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. and the bailee. it is logical that in case of extra-contractual culpa. it is not necessary for him to prove negligence. in a case of negligence which presupposes the existence of a contractual obligation. With respect to extra-contractual obligation arising from negligence. by a legal fiction. When the sources of the obligation upon which plaintiff's cause of action depends is a negligent act or omission. without regard to the lack of moral culpability. would be in a better position than those acting in person. is wholly different from that to which article 1903 relates. to extend that liability. This moral responsibility may consist in having failed to exercise due care in the selection and control of one's agents or servants.. for reasons of public policy. p. occupy a position of dependency with respect to the person made liable for their conduct. 8. 76]). it is competent for the legislature to elect — and our Legislature has so elected — whom such an obligation is imposed is morally culpable. whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the contractual relation. whether of act or omission.

. . . Underwood (27 Phil. but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense.. Compania Maritima (6 Phil. citing Manresa (vol. 8." In the case of Chapman vs. and culpa contractual as a mere incident to the performance of a contract has frequently been recognized by the supreme court of Spain. A brief review of the earlier decision of this court involving the liability of employers for damage done by the negligent acts of their servants will show that in no case has the court ever decided that the negligence of the defendant's servants has been held to constitute a defense to an action for damages for breach of contract. in dealing with the liability of a master for the negligent acts of his servants "makes the distinction between private individuals and public enterprise. The court found that the damages were caused by the negligence of the driver of the automobile. (33 Phil. . In the case of Yamada vs. saying: These are not cases of injury caused. makes the driver's acts his own. unless the negligent acts of the driver are continued for a length of time as to give the owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. 1896. the court held that the owner of a carriage was not liable for the damages caused by the negligence of his driver.. plaintiff sued the defendant to recover damages for the personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which defendant was riding at the time. 374)." that as to the latter the law creates a rebuttable presumption of negligence in the selection or direction of servants. . it is true that the court rested its conclusion as to the liability of the defendant upon article 1903. . In the case of Johnson vs.the payment of the debt by proving that due care had been exercised in the selection and direction of the clerk? This distinction between culpa aquiliana. such as those to which article 1902 of the Civil Code relates. Rep. . . . Rep.) In the decisions of November 20. . as the source of an obligation. 8). without any pre-existing obligation. the plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of defendant's servants in the course of the performance of a contract of towage. 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff . (Sentencias of June 27. Manila Railroad Co.. The act complained of must be continued in the presence of the owner for such length of time that the owner by his acquiescence. although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to him arising out of the contract of transportation. 1896. but of damages caused by the defendant's failure to carry out the undertakings imposed by the contracts . Rep. In that case the court commented on the fact that no evidence had been adduced in the trial court that the defendant had been negligent in the employment of the driver. In the case of Baer Senior & Co's Successors vs. although he was present at the time. The court held. David (5 Phil. The express ground of the decision in this case was that article 1903. by fault or negligence. but held that the master was not liable. and that in the particular case the presumption of negligence had not been overcome. 215). saying: . it appeared that plaintiff's action arose ex contractu. The Spanish Supreme Court rejected defendant's contention. pp. 1894. 29. . we do not think that the provisions of articles 1902 and 1903 are applicable to the case. November 20. Rep. 1896. and Bachrach Garage & Taxicab Co.. 663). and December 13. or that he had any knowledge of his lack of skill or carefulness.

The proof disclosed beyond doubt that the defendant's servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. These two fields. the direct and proximate cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a complete stop before alighting. The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of approaching and leaving its trains. Defendant was. Viewed from the standpoint of the defendant the practical result must have been the same in any event. We are of the opinion that this proposition is too badly stated and is at variance with the experience of every-day life. the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. comprising. or in failing to exercise proper care in the selection and direction of his servants. no liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to his injury. and cites many authorities in support of the contention. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes the source of an extra-contractual obligation had no contract existed between the parties. The contract of defendant to transport plaintiff carried with it. it follows that it is not to be inferred. and an examination of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theory. was direct and immediate. figuratively speaking. In this particular instance. It also affirmatively appeared that defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant. We are not disposed to subscribe to this doctrine in its absolute form. Defendant contends. liable for the injury suffered by plaintiff. its essential characteristics are identical. for defendant to have proved that it did in fact exercise care in the selection and control of the servant. That duty. as it does. therefore. As Manresa points out (vol. that in such a case the court would have held that it would have been a good defense to the action. the whole extent of juridical human relations. either directly. and made reference to the fact that the defendant was negligent in the selection and control of its servants.It is evident. being contractual. It is. because the court held in the Yamada case that defendant was liable for the damages negligently caused by its servants to a person to whom it was bound by contract. therefore that in its decision Yamada case. the particular injury suffered by him could not have occurred. the court treated plaintiff's action as though founded in tort rather than as based upon the breach of the contract of carriage. therefore. if the accident was caused by plaintiff's own negligence. important to ascertain if defendant was in fact guilty of negligence. the duty to carry him in safety and to provide safe means of entering and leaving its trains (civil code. concentric. that the train was barely moving when plaintiff alighted is shown . the practical result is identical in either case.contractual obligation is much more broader than that of contractual obligations. the damages should be apportioned. that it is negligence per se for a passenger to alight from a moving train. when the court holds that a defendant is liable in damages for having failed to exercise due care. The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and extra-contractual obligations. Therefore. 8. by implication. and its non-performance could not be excused by proof that the fault was morally imputable to defendant's servants. Consequently. Under the doctrine of comparative negligence announced in the Rakes case (supra). article 1258). There is always an act or omission productive of damage due to carelessness or inattention on the part of the defendant. if presented squarely upon the theory of the breach of the contract. whether the breach of the duty were to be regarded as constituting culpa aquiliana or culpa contractual. 29 and 69) whether negligence occurs an incident in the course of the performance of a contractual undertaking or its itself the source of an extra-contractual undertaking obligation. The field of non. pp. that is to say. It may be admitted that had plaintiff waited until the train had come to a full stop before alighting.

and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger. as the nature of their wearing apparel obstructs the free movement of the limbs. is that of ordinary or reasonable care. The place. It is to be considered whether an ordinarily prudent person. it we prefer to adopt the mode of exposition used by this court in Picart vs.. the plaintiff had a right to assume. also assured to the passenger a stable and even surface on which to alight. 3010) as follows: The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train. In considering the situation thus presented. This care has been defined to be. The distance from the steps of the car to the spot where the alighting passenger would place his feet on the platform was thus reduced. There is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place. to avoid injury. would have acted as the passenger acted under the circumstances disclosed by the evidence. Again.) Or. the plaintiff should have desisted from alighting. the plaintiff was possessed of the vigor and agility of young manhood. in the absence of some circumstance to warn him to the contrary. not the care which may or should be used by the prudent man generally. and his failure so to desist was contributory negligence. The nature of the platform. 3. rep. it may be noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get on and of the train at this station. it should not be overlooked that the plaintiff was. Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train which would have admonished a person of average prudence that to get off the train under the conditions then existing was dangerous? If so. constructed as it was of cement material. Furthermore. 3. whether the passenger acted prudently or recklessly — the age. 809). the placing of them adequately so that their presence would be revealed. the only fact from which a conclusion can be drawn to the effect that plaintiff was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the condition of the platform and while the train was yet slowly moving. and should be considered. of the age." (Thompson. Commentaries on Negligence. but the care which a man of ordinary prudence would use under similar circumstances. We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence (vol. 1aw ph!l. ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the platform existed.net As the case now before us presents itself. as we have already stated. thereby decreasing the risk incident to stepping off. and this also is proof of a failure upon the part of the defendant in the performance of a duty owing by it to the plaintiff. sec. and sustain no injury where the company has kept its platform free from dangerous obstructions. for if it were by any possibility concede that it had right to pile these sacks in the path of alighting passengers. and as the defendant was bound by reason of its duty as a public carrier to afford to its passengers facilities for safe egress from its trains. or dimly lighted. As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed and the surrounding ground. vol. In determining the question of contributory negligence in performing such act — that is to say. as we find. Smith (37 Phil. was dark. that the platform was clear. sex. . we may say that the test is this. sec. it has been observed. Women. sex and condition of the passenger. and it was by no means so risky for him to get off while the train was yet moving as the same act would have been in an aged or feeble person. 3010.conclusively by the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight from trains under these conditions every day of the year. as a general rule are less capable than men of alighting with safety under such conditions.

and for the costs of both instances. MANUEL GUTIERREZ. The truck was driven by the chauffeur Abelardo Velasco. Mr. BONIFACIO GUTIERREZ. A passenger in the autobus.000. So ordered. seven in all. at the time of the accident. On February 2. The automobile was being operated by Bonifacio Gutierrez. The difference between the parties is that. concur. DE GUTIERREZ. San Agustin and Roxas for other appellants. ABELARDO VELASCO. vs.290. Lockwood for appellants Velasco and Cortez. Laguna.25 for medical attention. 1931 NARCISO GUTIERREZ. by the name of Narciso Gutierrez. Street and Avanceña.D.. G. L. and that he is also entitled to recover of defendant the additional sum of P790. hospital services. therefore. the owner of the passenger . plaintiff-appellee. It is conceded that the collision was caused by negligence pure and simple. were accommodated therein. Arellano.25. No. both sets of defendants appealed. and was owned by Saturnino Cortez. and was owned by Bonifacio's father and mother.There could. but the mother. together will several other members of the Gutierrez family.. the father was not in the car. MARIA V. C. We are of the opinion that a fair compensation for the damage suffered by him for his permanent disability is the sum of P2. defendants-appellants. Torres. was earning P25 a month as a copyist clerk.R. for physical injuries suffered as a result of an automobile accident. be no uncertainty in his mind with regard either to the length of the step which he was required to take or the character of the platform where he was alighting. His expectancy of life. On judgment being rendered as prayed for by the plaintiff. Our conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty of contributory negligence. according to the standard mortality tables. Manuel Gutierrez. J. The evidence shows that the plaintiff. is approximately thirty-three years. and Mrs. Defendant has not shown that any other gainful occupation is open to plaintiff. while the plaintiff blames both sets of defendants. a passenger truck and an automobile of private ownership collided while attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las Piñas. 34840 September 23. MALCOLM.: This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants. and other incidental expenditures connected with the treatment of his injuries. The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fracture right leg which required medical attendance for a considerable period of time. and SATURNINO CORTEZ. and which even at the date of the trial appears not to have healed properly. and judgment is hereby rendered plaintiff for the sum of P3. Province of Rizal. and that the injuries he has suffered have permanently disabled him from continuing that employment. Ramon Diokno for appellee. 1930. to recover damages in the amount of P10. a lad 18 years of age. JJ. to Manila.500. At the time of the collision. The decision of lower court is reversed.J. was en route from San Pablo.

as excessive. With this general statement set down.. with neither being willing to slow up and give the right of way to the other. aside from the fact that the defense of contributory negligence was not pleaded. we believe that. sec. In the United States. as has been done in other cases. we can take cognizance of the common law rule on the same subject. The difficulty in approximating the damages by monetary compensation is well elucidated by the divergence of opinion among the members of the court. and that. The guaranty given by the father at the time the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. In its broader aspects. The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge. we turn to consider the respective legal obligations of the defendants. it is sufficient to state that. consisting principally of his keeping his foot outside the truck. that he was driving at an excessive rate of speed. and so should be maintained. that of contract which. Missell vs. the owner of the truck. and having done so. (Huddy On Automobiles. We have given close attention to these highly debatable points.000 would be amply sufficient. In amplification of so much of the above pronouncement as concerns the Gutierrez family.) The liability of Saturnino Cortez. but naturally is not serious in asking for this sum. In this connection. Based on these facts. who maintains it for the general use of his family is liable for its negligent operation by one of his children. 660. the owner of an automobile.500 would be none too much. the case is one of two drivers approaching a narrow bridge from opposite directions. it may be explained that the youth Bonifacio was in incompetent chauffeur. 91 Atl. and of his chauffeur Abelardo Velasco rests on a different basis. . namely. and the evidence. which occasioned his injury. where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it. and the owner of the automobile. The last subject for consideration relates to the amount of the award. it is uniformly held that the head of a house. we think. since no appeal was taken by him from the judgment. in connection with other adjudications of this court. including actual expenditures and damages for the injury to the leg of the plaintiff.. whom he designates or permits to run it. At the same time. blames the truck. the speed in operating the machine. The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the owner's business. he lost his head and so contributed by his negligence to the accident. While these facts are not as clearly evidenced as are those which convict the other defendant. pursuant to the provisions of article 1903 of the Civil Code. We are dealing with the civil law liability of parties for obligations which arise from fault or negligence. the father alone and not the minor or the mother. The other parties unite in challenging the award of P10.000. All facts considered. lead us to conclude that a total sum for the plaintiff of P5. we nevertheless hesitate to disregard the points emphasized by the trial judge. with the inevitable result of a collision and an accident.517. so that he is liable for the negligence of the child because of the relationship of master and servant. which may cause him permanent lameness. while a fourth member has argued that P7. The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the plaintiff. 6th ed. a majority of the court are of the opinion that the findings of the trial judge on all controversial questions of fact find sufficient support in the record. would be liable for the damages caused by the minor. and the lack of care employed by the chauffeur. 322.000 would be fair and reasonable. three of whom have inclined to the view that P3. Hayes [1914].truck blames the automobile. in turn. the evidence bearing out this theory of the case is contradictory in the extreme and leads us far afield into speculative matters. not controverted. The appellee suggests that the amount could justly be raised to P16. has been sufficiently demonstrated by the allegations of the complaint. on approaching the bridge and the truck.

STAFF RETIREMENT PLAN.In consonance with the foregoing rulings. ABAD.: G. Johnson... Ostrand. and the costs of both instances. CARPIO. JJ. J. 2010 x--------------------------------------------------x DECISION CARPIO. for the sum of P5. .versus . November 17. 178610 is a petition for review[1] assailing the Decision[2] promulgated on 30 March 2006 by the Court of Appeals (CA) in CA-G.J. . No. LTD. SPOUSES BIENVENIDO AND EDITHA Promulgated: BROQUEZA. and Saturnino Cortez. the judgment appealed from will be modified. The appellate court reversed and set aside the Decision[3] of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil Case No. Ltd. (now HSBC Present: Retirement Trust Fund. J. Chairperson. concur. PERALTA.) Petitioner. Inc. The appellate court granted the petition filed by Fe Gerong (Gerong) and Spouses Bienvenido and Editha Broqueza (spouses Broqueza) and dismissed the consolidated complaints filed by Hongkong and Shanghai Banking Corporation. C. Romualdez. 178610 BANKING CORP.R. Street. JJ.R. as well as its Order[4] dated 5 September 2000. Villamor. and MENDOZA. NACHURA.Staff Retirement Plan (HSBCL-SRP) for recovery of sum of money. Abelardo Velasco. SP No.R. 00-787 dated 11 December 2000. Respondents. and the plaintiff will have judgment in his favor against the defendants Manuel Gutierrez. 62685.000. HONGKONG AND SHANGHAI G.. No. jointly and severally. The RTCs decision affirmed the Decision[5] dated 28 December 1999 of Branch 61 of the Metropolitan Trial . Avanceña.. and Imperial.

petitioner [Editha] Broqueza obtained a car loan in the amount of Php175. The employees then filed an illegal dismissal case before the National Labor Relations Commission (NLRC) against HSBC. 56797. acting through its Board of Trustees and represented by Alejandro L.[6] HSBCL-SRP. They are also members of respondent Hongkong Shanghai Banking Corporation. et al.Court (MeTC) of Makati City in Civil Case No. National Labor Relations Commission. petitioners were not able to pay the monthly amortizations of their respective loans.R. et al. Majority of HSBCs employees were terminated. Ltd.000. but they failed to pay.00. 1990. Employees Union. plaintiff below). The legality or illegality of such termination is now pending before this appellate Court in CA G.00. Because of their dismissal.000. The HSBCL-SRP is a retirement plan established by HSBC through its Board of Trustees for the benefit of the employees. 1991. Demands to pay the respective obligations were made upon petitioners. she again applied and was granted an appliance loan in the amount of Php24. On October 1. The Facts The appellate court narrated the facts as follows: Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of Hongkong and Shanghai Banking Corporation (HSBC). CV No.00 on June 2. vs. Staff Retirement Plan (HSBCL-SRP. filed Civil Case No. On December 12. entitled Hongkong Shanghai Banking Corp. a labor dispute arose between HSBC and its employees. respondent HSBCL-SRP considered the accounts of petitioners delinquent. among whom are petitioners Editha Broqueza and Fe Gerong. Meanwhile [in 1993]. 1993. 52400 for Recovery of a Sum of Money. These loans are paid through automatic salary deduction. petitioner Gerong applied and was granted an emergency loan in the amount of Php35. Custodio.780. 52400 against the spouses Broqueza on 31 July . Thus. On the other hand.

The Metropolitan Trial Courts Ruling On 28 December 1999. the MeTC promulgated its Decision[7] in favor of HSBCL- SRP. 00-787. the Court finds that the plaintiff was able to prove by a preponderance of evidence the existence and immediate demandability of the defendants loan obligations as judgment is hereby rendered in favor of the plaintiff and against the defendants in both cases. HSBCL-SRP filed Civil Case No. In Civil Case No.[8] Gerong and the spouses Broqueza filed a joint appeal of the MeTCs decision before the RTC. Both suits were civil actions for recovery and collection of sums of money.740. 52400. As unsecured and pure obligations.12 at six percent per annum from the time of the filing of these cases. The dispositive portion of the MeTCs decision reads: WHEREFORE.000. 52911 against Gerong. the loans are immediately demandable. 52911. . The MeTC ruled that the nature of HSBCL-SRPs demands for payment is civil and has no connection to the ongoing labor dispute. To pay the amount of Php20.1996. 2.00 at six percent interest per annum from the time of demand and in Civil Case No. to pay the amount of Php25. On 19 September 1996. premises considered and in view of the foregoing. while the spouses Broquezas case was docketed as Civil Case No. Thus. to pay the amount of Php116. Cost of suit. 00-786. the loans secured by their future retirement benefits to which they are no longer entitled are reduced to unsecured and pure civil obligations. ordering the latter: 1.344. 3.00 each as reasonable attorneys fees. SO ORDERED. until the amount is fully paid.Gerongs case was docketed Civil Case No. Gerong and Editha Broquezas termination from employment resulted in the loss of continued benefits under their retirement plans.

Moreover. The Ruling of the Court of Appeals On 30 March 2006. The CA ruled that the HSBCL-SRPs complaints for recovery of sum of money against Gerong and the spouses Broqueza are premature as the loan obligations have not yet matured. the absence of a period within which to pay the loan allows HSBCL-SRP to demand immediate payment. the RTC affirmed the MeTCs decision in toto. the assailed Decision of the RTC is REVERSED and SET ASIDE. The Regional Trial Courts Ruling The RTC initially denied the joint appeal because of the belated filing of Gerong and the spouses Broquezas memorandum. A new one is hereby rendered DISMISSING the consolidated complaints for recovery of sum of money. no cause of action accrued in favor of HSBCL-SRP. SO ORDERED. . The dispositive portion of the appellate courts Decision reads as follows: WHEREFORE.[11] HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in its Resolution[12] promulgated on 19 June 2007. HSBCL-SRP has a legal right to demand immediate settlement of the unpaid balance because of Gerong and Editha Broquezas continued default in payment and their failure to provide new security for their loans. As a consequence. Thus. the fulfillment of which are demandable at once. The RTC later reconsidered the order of denial and resolved the issues in the interest of justice. the CA rendered its Decision[10] which reversed the 11 December 2000 Decision of the RTC.[9] The RTC ruled that Gerong and Editha Broquezas termination from employment disqualified them from availing of benefits under their retirement plans. The loan obligations are considered pure obligations. Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA. On 11 December 2000. there is no longer any security for the loans.

with interest from date hereof at the rate of Six per cent (6%) per annum. Metro Manila. increase the interest rate stipulated in this note at any time depending on prevailing conditions. Issues HSBCL-SRP enumerated the following grounds to support its Petition: I. ____ 19__ FOR VALUE RECEIVED. The Court of Appeals has decided a question of substance in a way not in accord with law and applicable decisions of this Honorable Court.M. payable monthly. this Court treated the manifestation as a motion to withdraw the petition against Gerong. HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled her obligations. We agree with the rulings of the MeTC and the RTC. and II. . I/WE agree that the PLAN may. In a Resolution[13] of this Court dated 10 September 2007. upon written notice. On 6 August 2007. The Promissory Notes uniformly provide: PROMISSORY NOTE P_____ Makati.[14] The Courts Ruling The petition is meritorious. The Court of Appeals has departed from the accepted and usual course of judicial proceedings in reversing the decision of the Regional Trial Court and the Metropolitan Trial Court. granted the motion. I/WE _____ jointly and severally promise to pay to THE HSBC RETIREMENT PLAN (hereinafter called the PLAN) at its office in the Municipality of Makati. and considered the case against Gerong closed and terminated. on or before until fully paid the sum of PESOS ___ (P___) Philippine Currency without discount. M.

In case collection is made by or through an attorney.[16] A definite amount is paid to HSBCL-SRP on a specific date. In their Answer. Despite the spouses Broquezas protestations. HSBCL-SRP has the right to demand immediate payment.) We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes. 1179. Article 1179 of the Civil Code applies. HSBCL-SRP made a demand to enforce a pure obligation. we apply the first paragraph of Article 1179 of the Civil Code: Art. is demandable at once. I/WE jointly and severally agree to pay ten percent (10%) of the amount due on this note (but in no case less than P200. she religiously paid the loan amortizations. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broquezas salary is of no moment. however. or upon a past event unknown to the parties.00) as and for attorneys fees in addition to expenses and costs of suit. Section 12 of the Rules of Court. Editha Broqueza. the spouses Broqueza admitted that prior to Editha Broquezas dismissal from HSBC in December 1993. which HSBC collected through payroll check-off. Once Editha Broqueza defaulted in her monthly payment.[15] In ruling for HSBCL-SRP. the payroll deduction is . and in such a case our liability shall remain joint and several. I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of the principal without notice to the other(s). defaulted in her monthly loan payment due to her dismissal. Every obligation whose performance does not depend upon a future or uncertain event. Editha Broqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are fully paid. In case of judicial execution. The RTC is correct in ruling that since the Promissory Notes do not contain a period. x x x. I/WE hereby jointly and severally waive our rights under the provisions of Rule 39. The spouses Broquezas obligation to pay HSBCL-SRP is a pure obligation. (Emphasis supplied.

62685 promulgated on 30 March 2006 is REVERSED and SET ASIDE.merely a convenient mode of payment and not the sole source of payment for the loans.R. SO ORDERED. Deceased. L-29900 June 28. Moreover. The Decision of the Court of Appeals in CA-G. San Jose for oppositor-appellee. 1974 IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA. the decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than fifteen years earlier with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand. Costs against respondents. the spouses Broqueza have already incurred in default in paying the monthly installments. are AFFIRMED. as well as the decision of Branch 61 of the Metropolitan Trial Court of Makati City in Civil Case No. GEORGE PAY. Florentino B.:p There is no difficulty attending the disposition of this appeal by petitioner on questions of law. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an employee of HSBC. While several points were raised. SEGUNDINA CHUA VDA. The decision of Branch 139 of the Regional Trial Court of Makati City in Civil Case No. the basis for the action being the latter alternative. DE PALANCA. HSBCL- SRP can immediately demand payment of the loans at anytime because the obligation to pay has no period. Finally. G. 00-787. No. petitioner-appellant.[17] WHEREFORE. FERNANDO. oppositor-appellee.R. J. vs. As such it should be enforcedthrough a separate civil action in the regular courts and not before the Labor Arbiter. we GRANT the petition. The lower court held that the ten-year period of limitation of actions did apply. HSBCL-SRP never agreed that the loans will be paid only through salary deductions. del Rosario for petitioner-appellant. 52400 against the spouses Bienvenido and Editha Broqueza. the note being immediately due and . SP No. the enforcement of a loan agreement involves debtor-creditor relations founded on contract and does not in any way concern employee relations. her obligation to pay the loans will be suspended. Manuel V.

800. "upon demand. Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory note . and with the law being as it is. is demandable at once."1 It then stated that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda.900. 1952. the following appears: "The parties in this case agreed to submit the matter for resolution on the basis of their pleadings and annexes and their respective memoranda submitted. with interest thereon at the rate of 12% per annum. as above noted. The claim of the petitioner is based on a promissory note dated January 30. The promissory note. as intimated. 1962. and that the rights of petitioner-creditor had already prescribed. From the appealed decision. as expressed therein. as creditor.5 a 1908 decision. 1952. Delgado."4 The result. Since it was dated January 30. is worded thus: " `For value received from time to time since 1947. ." There is nothing in the record that would indicate whether or not the first alternative was fulfilled. . Likewise. whereby the late Justo Palanca and Rosa Gonzales Vda."2 Then came this paragraph: "The Court has inquired whether any cash payment has been received by either of the signers of this promissory note from the Estate of the late Carlos Palanca. covered by Tax Declaration No. What is undeniable is that on August 26. it cannot be said that its decision is infected with error. asking that Segundina Chua vda. [George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26. assessed at P41. de Palanca. . The defense interposed was prescription. only the question of prescription need detain us in the disposition of this appeal. we [jointly and severally promise to] pay to Mr. surviving spouse of the late Justo Palanca." This used to be Article 1113 of the Spanish Civil Code of 1889. de Carlos Palanca promised to pay George Pay the amount of P26. Its merit is rather obvious. this petition was filed. As noted at the outset. 1967. The idea is that once said property is brought under administration. therefore. can file his claim against the administratrix. it would appear that petitioner was hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving cash payment from the estate of the late Carlos Palanca presumptively as one of the heirs." On the above facts as found. states: "Dejando con acierto. de Palanca to be appointed as administratrix. the decision must be affirmed. of the creditor has definitely prescribed. it was clear that more "than ten (10) years has already transpired from that time until to date. dated January 30. Manila.00."3 After which.00). he appointed as administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue. George Pay. The well-known Spanish commentator. From the manner in which the promissory note was executed. with interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. el caracter mas teorico y grafico del acto. more than fifteen years after the execution of the promissory note on January 30. de Carlos Palanca and Justo Palanca. petitioner did assail the correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as administratrix. this promissory note is signed by Rosa Gonzales Vda. As stated. on this point. as to the property sought to be administered no longer belonging to the debtor. was the dismissal of the petition. George Pay is now before this Court. o sea la perfeccion de . that the property sought to be administered no longer belonged to the debtor. The action. or upon a past event unknown to the parties. the late Justo Palanca.900. As far back as Floriano v. the late Justo Palanca. 1963. considering the clear tenor of the promissory note. Article 1179 of the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event. del Rosario. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3. 1952. came the ruling that the wording of the promissory note being "upon demand. Manresa.00. it has been applied according to its express language.demandable. the creditor admitting expressly that he was relying on the wording "upon demand. and as to the rights of petitioner-creditor having already prescribed. 3114 in the name of Justo Palanca. In an exhaustive brief prepared by Attorney Florentino B. or." the obligation was immediately due. We affirm.

Mr. 1968 is affirmed. and asked instructions from him as to the delivery thereof. — This is not guaranteed. BELL & CO. based on four separate causes of action. en el distinctive de esta. as to the delivery of which stipulation was made. 1919.. Mr.. Zaldivar (Chairman). and the latter to purchase from it. J. Inc. Ross and Lawrence and Ewald E. The plaintiff. Ramon Sotelo for defendant-appellant.este. Mr. the lower court decision of July 24. Selph for plaintiff-appellant. of the arrival of these goods. Sotelo. it would appear that the filing of the suit after fifteen years was much too late. the latter's refusal to receive them and .000). among other facts. Mr. or just because the estate was left with no other property."6 The obligation being due and demandable. Fernandez and Aquino.000) each. entered into contracts whereby the former obligated itself to sell. the plaintiff corporation and the defendant. vs. further.) In their answer. the same to be shipped from New York and delivered at Manila "within three or four months. or as soon as possible. and two electric motors at the price of two thousand pesos (P2. Antonio. alleged that the expellers and the motors were in good condition. that it immediately notified the defendant of the arrival of the goods. Bill of Exceptions. the notification to the defendant. 1922 SMITH. JJ. pages 16-30.. and that the defendant refused to receive any of them and to pay their price. 190. defendant-appellant. LTD.. alleging. 1918. L-16570 March 9. 1919: the expellers on the 26th of October. and the intervenor. couched in these words: "Approximate delivery within ninety days. the Manila Oil Refining and By- Products Co. No. according to the Civil Code. G. ROMUALDEZ. which is based on Section 43 of Act No. VICENTE SOTELO MATTI. denied the plaintiff's allegations as to the shipment of these goods and their arrival at Manila.000) each. Sotelo. but Mr. WHEREFORE.R. plaintiff-appellant. for the total price of twenty-one thousand pesos (P21. concur. Sotelo refused to receive them and to pay the prices stipulated. The plaintiff corporation notified the defendant. which were to be shipped from San Francisco in the month of September. 1918.7 This is another instance where this Court has consistently adhered to the express language of the applicable norm. For again. se fija. para determinar el concepto de la obligacion pura. The plaintiff brought suit against the defendant. and the motors on the 27th of February. Sotelo." two expellers at the price of twenty five thousand pesos (P25. (Amended complaint. Barredo.8 There is no necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the petition to fail just because the surviving spouse refuses to be made administratrix. two steel tanks.: In August.. Costs against George Pay. Vicente Sotelo. the defendant. The decision of the lower court cannot be overturned." The tanks arrived at Manila on the 27th of April. y que es consecuencia de aquel: la exigibilidad immediata. the prescriptive period for a written contract is that of ten years. 1918.

250) on account of the expellers and the motors not having arrived in due time. with reference to the expellers. the motors and the expellers having arrived incomplete and long after the date stipulated. they also allege that. then it is entitled to the relief prayed for. time of shipment being merely an indication of what we hope to accomplish. The case having been tried. or a number of causes may act to entirely vitiate the indication of shipment as stated. it must be held guilty of delay and liable for the consequences thereof. Sotelo had made the contracts in question as manager of the intervenor. . with legal interest thereon from July 26. its obligation to bring the goods in question to Manila. and costs. the Manila Oil Refining and By-Products Co. In all these contracts. — This sale is subject to our being able to obtain Priority Certificate. Inc which fact was known to the plaintiff. rec. the exigencies of the requirement of the United States Government. the order is accepted on the basis of shipment at Mill's convenience. otherwise. 1919. that it notified the intervenor that said tanks had arrived. ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50. as a consequence of the plaintiff's delay in making delivery of the goods. the price of the said goods.783. the court below absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned. In other words. under the contracts entered into and the circumstances established in the record. . As regards the tanks. alleging as special defense that Mr. page 64. in due time.91) for the nondelivery of the tanks. 1919. hereinbelow more particularly described. To solve this question. railroad embargoes." As a counterclaim or set-off. and twenty-one thousand two hundred and fifty pesos (P21. it is necessary to determine what period was fixed for the delivery of the goods. In the contract Exhibit C (page 63 of the record). — Two Anderson oil expellers . subject to the United States Government requirements and also subject to confirmation of manufactures. the plaintiff has fulfilled. the contracts A and B (pages 61 and 62 of the record) are similar. but rendered judgment against them..00). and the good condition of the expellers and the motors. If it has. lack of vessel space. And in the contract relative to the motors (Exhibit D. to be shipped at San Francisco within the month of September /18. The principal point at issue in this case is whether or not. . — This is not guaranteed. and in both of them we find this clause: To be delivered within 3 or 4 months — The promise or indication of shipment carries with it absolutely no obligation on our part — Government regulations. and that "it was only in May. or as soon as possible. the intervenor suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116. which the intervenor intended to use in the manufacture of cocoanut oil. each assigning several errors in the findings of the lower court.pay their price.) the following appears: Approximate delivery within ninety days." Both parties appeal from this judgment. the following stipulation appears: The following articles. there is a final clause as follows: .

" And with reference to the motors. it is noted that "this is not guaranteed. If that is the case. which limits itself only to declare valid those conditions and the obligation thereby affected. strikes or other causes known as "Force Majeure" entirely beyond the control of the sellers or their representatives. the obligor will be deemed to have sufficiently performed his part of the obligation. the contract says "within the month of September. Under these stipulations. by the Civil Code. as stated in the contract.) And as the export of the machinery in question was. The sellers are not responsible for delays caused by fires." in connection with the tanks and "Priority Certificate. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives. subject to the rules and regulations. Considering these contracts in the light of the civil law. we cannot but conclude that the term which the parties attempted to fix is so uncertain that one cannot tell just whether. as well as to railroad embargoes. riots on land or on the sea. the exigencies of the requirements of the United States Government. and maritime. In such cases. but impliedly covered. If the uncertainty should consist in the arrival or non-arrival of the day." but that period was subject to the contingencies referred to in a subsequent clause. nor of the fact that the other foreseen circumstances therein stated might prevent it. the contract contains this expression. the decisions prior to the Civil Code have held that the obligee having done all that was in his power. subject to the United State Government requirements. even though its date be unknown. but upon the will of third persons who could in no way be compelled to fulfill the condition. As to the tanks. it cannot be said that any definite date was fixed for the delivery of the goods. the parties were not unmindful of the contingency of the United States Government not allowing the export of the goods. if he has done all that was in his power. was entitled to enforce performance of the obligation." The oral evidence falls short of fixing such period. those articles could be brought to Manila or not. which fact was known to the parties. "Approximate delivery within ninety days. the obligation is conditional and shall be governed by the rules of the next preceding section. regarding "Government regulations. railroad embargoes. Code. even if the condition has not been fulfilled in reality. Civ. 1918. as a matter of fact. but it is . as well as railroad. lack of vessel space. 1125." with respect to the motors. the agreement was that the delivery was to be made "within 3 or 4 months. transportation was difficult. which are not expressly provided for. contingent upon the sellers obtaining certificate of priority and permission of the United States Government." but right after this. In cases like this. (Art. With regard to the expellers. then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff. the obligations must be regarded as conditional. as we think it is. which is fictitious — not real — is not expressly authorized by the Code. At the time of the execution of the contracts." but to this is added "or as soon as possible. A day certain is understood to be one which must necessarily arrive. This performance. (referring to pure and conditional obligations). From the record it appears that these contracts were executed at the time of the world war when there existed rigid restrictions on the export from the United States of articles like the machinery in question. hence clauses were inserted in the contracts.

notice thereof must be given. (33) That in the execution and sales thereunder. and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds. (Manresa's commentaries on the Civil Code [1907]. the judgment of the said court. is not contrary to the law of contracts. page 656. by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place. 435. 1791. Manresa are those rendered by the supreme court of Spain on November 19. and Aureno Belisario as his only heirs. and the Code being thus silent. That when the fulfillment of the conditions does not depend on the will of the obligor. and February 23. . 8. the old view can be maintained as a doctrine. of the "Novísima Recopilación. I. 11. be disposed of in comparatively few words. (Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866]. neither disallowed. who prepared and had charge of publication of the notices of the various sales and that in none of the sales was the notice published more than twice in a newspaper. vol. the opponent Adelina Ferrer and three minor children. the affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may. for such time as may be reasonable. as follows: 1. but on that of a third person. Tit. who can in no way be compelled to carry it out. of Partida 5. 450. In case of perishable property. Eugenio.) The decisions referred to by Mr. In the former it is held: First. and (2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. he rest his title (1) on the sales under the executions issued in cases Nos. Book 10. Addison. 1871. considering the character and condition of the property.) In the second decision. ordering the other party to comply with his part of the contract. page 132. the obligor's part of the contract is complied withalf Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof. when in the said finding of the lower court. no law or precedent is alleged to have been violated. That when the fulfillment of the condition does not depend on the will of the obligor. 1896. and it is found by the lower court that the obligor has done all in his power to comply with the obligation. or to Law 1. (32) The Maximo Belisario left a widow. Before the sale of property on execution. 14. the following doctrine is laid down: Second. Vitaliana. but on that of a third person who can in no way be compelled to carry it out. Section 454 of the Code of civil Procedure reads in part as follows: SEC. vol. Tit. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. As will be seen from the foregoing statement of facts. H. we think." or Law 12. McClure appears as the judgment creditor. 454. in which C. 454. he was represented by the opponent Peter W.

Bartolome and Germann & Co. In case No. if redemption be not made. in violation of section 457 of the Code of Civil Procedure. the date of the sale itself. then a like publication for a like period shall be made in one newspaper published in the Spanish language. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4. the sales must be held invalid. this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor. 499. we find that in cases Nos. The provisions of Act No. That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos. for the same period. 808). 4. in some newspaper published or having general circulation in the province. and publishing a copy thereof once a week. and said Director of Lands shall have full control and custody thereof to lease . In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon. by posting a similar notice particularly describing the property. it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor. In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute. who also took charged of the publication of such notices. 454 there were only two publications of the notice in a newspaper. indefeasible title to said real property. The newspaper is a weekly periodical published every Saturday afternoon. * * * * * * * 3. Upon the expiration of the said ninety days. In case No. . and in one published in the English language: Provided. for twenty days in three public places of the municipality or city where the property is situated. the first of which was made thirteen days before the sale. 435 and 450 the sales took place on October 14.. 1791 pertinent to the purchase or repurchase of land confiscated for non- payment of taxes are found in section 19 of the Act and read: . Comparing the requirements of section 454. (38 Phil. however. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. . the date was changed to October 14th. In the case of Campomanes vs. If there are newspaper published in the province in both the Spanish and English languages. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent. the first publication being made only fourteen days before the date of the sale. with what was actually done. if there be one. the first publication was made on October 7th and the second and last on October 14th. In cases of real property. and also where the property is to be sold. there were also only two publications. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. * * * * * * * Examining the record. the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property. 1916. supra.30 in the afternoon. the sale is absolutely void and not title passes. but upon discovering that October 15th was a Sunday. The correct notice was published twice in a local newspaper. 2. the notice first published gave the date of the sale as October 15th. The conveyance or reconveyance of the land from the Director of Lands is equally invalid.

000). . at any time before a sale or contract of sale has been made by the director of Lands to a third party. he is entitled to reimbursement for the money paid for the redemption of the land. . and the defendant Mr. The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed. The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs. void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. or his legal representative. with interest. with legal interest thereon from July 17. N BANC . As we have seen. and to pay the plaintiff the sum of ninety-six thousand pesos (P96. until fully paid. So ordered. but has acquired no title through the redemption. the date of the filing of the complaint. and the costs of both instances. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified. That the original owner. or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided. he acquired no rights under these sales. The opposition of Adelina Ferrer must also be overruled. was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for the sale of public lands. shall have the right to repurchase the entire amount of his said real property. the expellers and the motors in question. sentenced to accept and receive from the plaintiff the tanks. Vicente Sotelo Matti. but from our point of view is of no importance. . by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . 1919.

and and NATIONAL LEONARDO-DE CASTRO. CARPIO.R. GONZALES. QUISUMBING. Department of Justice.FRANCISCO CHAVEZ. TELECOMMUNICATIONS COMMISSION (NTC). CHICO-NAZARIO. Promulgated: Respondents.. AUSTRIA-MARTINEZ. No. RAUL M. AZCUNA. 168338 Petitioner. JJ.versus . SANDOVAL-GUTIERREZ. TINGA. REYES.J. CARPIO MORALES. YNARES-SANTIAGO. Secretary of the NACHURA. Present: PUNO.. in his capacity as the VELASCO. . . G. JR. CORONA. C.

February 15.C.: . 2008 x-------------------------------------------------------------------------------------x DECISION PUNO.J.

COMELEC. which would suggest that the President had instructed the COMELEC official to manipulate the election results in the Presidents favor. The conversation was audiotaped allegedly through wire- tapping. Press Secretary Ignacio Bunye told reporters that the opposition was planning to destabilize the administration by releasing an audiotape of a mobile phone conversation allegedly between the President of the Philippines. We have struck down laws and issuances meant to curtail this right. A. it is clear that a governmental act is nothing more than a naked means to prevent the free exercise of speech. as in Adiong v. Gloria Macapagal Arroyo. Precis In this jurisdiction.[3] and Bayan v. one supposedly the complete version. and the other. Indeed. that any attempt to restrict it must be met with an examination so critical that only a danger that is clear and present would be allowed to curtail it.[5]Later. [6] It seems that Secretary Bunye admitted that the voice was that of President Arroyo. and a high-ranking official of the Commission on Elections (COMELEC). The case originates from events that occurred a year after the 2004 national and local elections.[2] Social Weather Stations v. 2005. Executive Secretary Ermita. we have not wavered in the duty to uphold this cherished freedom. The Facts 1. but subsequently made a retraction. [7] . Chief of Staff. doctored or altered version. in a Malacaang press briefing. it is established that freedom of the press is crucial and so inextricably woven into the right to free speech and free expression.[1]Burgos v. B. it must be nullified. COMELEC. a spliced.[4] When on its face. Secretary Bunye produced two versions of the tape. On June 5.

because by the very nature of the Internet medium.[9] 4. the playing and the printing of the contents of a tape of an alleged wiretapped conversation involving the President about fixing votes in the 2004 national elections. the NTC issued this press release: [11] NTC GIVES FAIR WARNING TO RADIO AND TELEVISION OWNERS/OPERATORS TO OBSERVE ANTI-WIRETAPPING LAW AND PERTINENT CIRCULARS ON PROGRAM STANDARDS . 2005. Atty. On June 9.[8] 3. He also stated that persons possessing or airing said tapes were committing a continuing offense. former counsel of deposed President Joseph Estrada. 2005.Included in the tapes were purported conversations of the President. COMELEC Commissioner Garcillano. I [have] asked the NBI to conduct a tactical interrogation of all concerned.Gonzales said that he was going to start with Inq7. [10] 5. and the late Senator Barbers. in another press briefing. On June 11. Secretary Gonzales ordered the National Bureau of Investigation (NBI) to go after media organizations found to have caused the spread. Paguia. a joint venture between the Philippine Daily Inquirer and GMA7 television network. respondent Department of Justice (DOJ) Secretary Raul Gonzales warned reporters that those who had copies of the compact disc (CD) and those broadcasting or publishing its contents could be held liable under the Anti-Wiretapping Act. Alan Paguia. 2005.net and GMA7 to a probe. On June 7. and supposedly declared. subject to arrest by anybody who had personal knowledge if the crime was committed or was being committed in their presence. it was able to disseminate the contents of the tape more widely. On June 8.He then expressed his intention of inviting the editors and managers of Inq7. 2005. These persons included Secretary Bunye and Atty. the First Gentleman Jose Miguel Arroyo. subsequently released an alleged authentic tape recording of the wiretap.2.net.

xxx xxx xxx Taking into consideration the countrys unusual situation. the concerned radio and television companies are hereby warned that their broadcast/airing of such false information and/or willful misrepresentation shall be just cause for the suspension. . it has come to the attention of the [NTC] that certain personalities are in possession of alleged taped conversations which they claim involve the President of the Philippines and a Commissioner of the COMELEC regarding supposed violation of election laws. the NTC warns all radio stations and television network owners/operators that the conditions of the authorization and permits issued to them by Government like the Provisional Authority and/or Certificate of Authority explicitly provides that said companies shall not use [their] stations for the broadcasting or telecasting of false information or willful misrepresentation. These personalities have admitted that the taped conversations are products of illegal wiretapping operations. It has been subsequently established that the said tapes are false and/or fraudulent after a prosecution or appropriate investigation.Relative thereto. it is the position of the [NTC] that the continuous airing or broadcast of the said taped conversations by radio and television stations is a continuing violation of the Anti-Wiretapping Law and the conditions of the Provisional Authority and/or Certificate of Authority issued to these radio and television stations. and in order not to unnecessarily aggravate the same. Considering that these taped conversations have not been duly authenticated nor could it be said at this time that the tapes contain an accurate or truthful representation of what was recorded therein. revocation and/or cancellation of the licenses or authorizations issued to the said companies.

to apply with full force the provisions of said Circulars and their accompanying sanctions on erring radio and television stations and their owners/operators. that all radio broadcasting and television stations shall. The [NTC] will not hesitate. KBP & its . among others. 22-89. broadcasting and television stations from using their stations to broadcast or telecast any speech. NTC allegedly assured the KBP that the press release did not violate the constitutional freedom of speech. In addition to the above. play. the [NTC] reiterates the pertinent NTC circulars on program standards to be observed by radio and television stations. rebellion or sedition. or to propose and/or incite treason. in addition thereto. after observing the requirements of due process. during any broadcast or telecast. prohibited radio. which. and the right to information. 2005. among others. of expression. cut off from the air the speech. encouraging or assisting in subversive or treasonable acts. Accordingly. NTC and KBP issued a Joint Press Statement which states. On June 14. and of the press. that: [12] NTC respects and will not hinder freedom of the press and the right to information on matters of public concern. 6. act or scene or other matters being broadcast or telecast the tendency thereof is to disseminate false information or such other willful misrepresentation. NTC held a dialogue with the Board of Directors of the Kapisanan ng mga Brodkaster sa Pilipinas (KBP). language or scene disseminating false information or willful misrepresentation. or inciting. NTC Memorandum Circular 111-12-85 explicitly states. The foregoing directive had been reiterated by NTC Memorandum Circular No.

members have always been committed to the exercise of press freedom with high sense of responsibility and discerning judgment of fairness and honesty. . KBP has program standards that KBP members will observe in the treatment of news and public affairs programs. The KBP Codes also require that no false statement or willful misrepresentation is made in the treatment of news or commentaries. NTC did not issue any MC [Memorandum Circular] or Order constituting a restraint of press freedom or censorship. The NTC further denies and does not intend to limit or restrict the interview of members of the opposition or free expression of views. non-airing of materials that would constitute inciting to sedition and/or rebellion. What is being asked by NTC is that the exercise of press freedom [be] done responsibly. The supposed wiretapped tapes should be treated with sensitivity and handled responsibly giving due consideration to the process being undertaken to verify and validate the authenticity and actual content of the same. These include verification of sources.

[17] It was also stressed that most of the [television] and radio stations continue. The Petition Petitioner Chavez filed a petition under Rule 65 of the Rules of Court against respondents Secretary Gonzales and the NTC. 2005 until the present that curtail the publics rights to freedom of expression and of the press.[14]petitioner specifically asked this Court: [F]or [the] nullification of acts. [18] . [15] Respondents[16] denied that the acts transgress the Constitution. and the right of the people to information on matters of public concern. but of late within the parameters agreed upon between the NTC and KBP. unconstitutional and oppressive exercise of authority by the respondents. and to prevent the unlawful. is that broadcast media enjoy lesser constitutional guarantees compared to print media.[13] Alleging that the acts of respondents are violations of the freedom on expression and of the press. Among the arguments they raised as to the validity of the fair warning issued by respondent NTC. and making of such issuances. as extraordinary legal remedies. and to information on matters of public concern specifically in relation to information regarding the controversial taped conversion of President Arroyo and for prohibition of the further commission of such acts. and orders of respondents committed or made since June 6. and questioned petitioners legal standing to file the petition. to annul void proceedings. to air the tapes. praying for the issuance of the writs of certiorari and prohibition. C. and the warning was issued pursuant to the NTCs mandate to regulate the telecommunications industry. even to this date. and orders by respondents. issuances.

the transcendental importance to the public of these cases demands that they be settled promptly and definitely. then. we have already held that where serious constitutional questions are involved. brushing aside if we must. THE PROCEDURAL THRESHOLD: LEGAL STANDING To be sure. Thus. as a group. D. [20] Subsequently. this Court has repeatedly and consistently refused to wield procedural barriers as impediments to its addressing and resolving serious legal questions that greatly impact on public interest. It would seem. technicalities of procedure. For another. who is not a member of the broadcast media. the circumstances of this case make the constitutional challenge peculiar. Petitioner. free expression and a free press. Indeed. having failed to allege such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the Court so largely depends for illumination of difficult constitutional questions. that petitioner has not met the requisite legal standing.[21] in keeping with the Court's duty under the 1987 Constitution to determine whether or not other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them.[22] we therefore brush . in line with the liberal policy of this Court on locus standi when a case involves an issue of overarching significance to our society. prays that we strike down the acts and statements made by respondents as violations of the right to free speech. the recipients of the press statements have not come forwardneither intervening nor joining petitioner in this action. they issued a joint statement with respondent NTC that does not complain about restraints on freedom of the press. [19] But as early as half a century ago.

the freedom of expression.S. Bill of Rights.aside technicalities of procedure and take cognizance of this petition.[25] were considered the necessary . E. (3) to discuss the core concepts of prior restraint. content-neutral and content-based regulations and their constitutional standard of review. and (5) to call attention to the ongoing blurring of the lines of distinction between print and broadcast media. RE-EXAMINING THE LAW ON FREEDOM OF SPEECH. and given a preferred right that stands on a higher level than substantive economic freedom or other liberties. Section 4 of the Constitution. The petition raises other issues like the extent of the right to information of the public. It is fundamental. or of the press. that we need not address all issues but only the most decisive one which in the case at bar is whether the acts of the respondents abridge freedom of speech and of the press. however. (2) to clarify the types of speeches and their differing restraints allowed by law. copied almost verbatim from the First Amendment of the U.[24] Freedom of expression has gained recognition as a fundamental principle of every democratic government. or the right of the people peaceably to assemble and petition the government for redress of grievances. the case at bar also gives this Court the opportunity: (1) to distill the essence of freedom of speech and of the press now beclouded by the vagaries of motherhood statements. (4) to examine the historical difference in the treatment of restraints between print and broadcast media and stress the standard of review governing both. But aside from the primordial issue of determining whether free speech and freedom of the press have been infringed. of expression.[23] seeing as it involves a challenge to the most exalted of all the civil rights. OF EXPRESSION AND OF THE PRESS No law shall be passed abridging the freedom of speech. The cognate rights codified by Article III.

[28] This right was elevated to constitutional status in the 1935. the 1973 and the 1987 Constitutions.[30] For it is only when the people have unbridled access to information and the press that they will be capable of rendering enlightened judgments. our history shows that the struggle to protect the freedom of speech. at bottom. free speech and free press may be identified with the liberty to discuss publicly and truthfully any matter of public interest without censorship and punishment. ABSTRACTION OF FREE SPEECH Surrounding the freedom of speech clause are various concepts that we have adopted as part and parcel of our own Bill of Rights provision on this basic freedom. Commission on Elections.[27] In the Philippines. or action for damages. expression and the press was. the struggle for the indispensable preconditions for the exercise of other freedoms. In the oft-quoted words of Thomas Jefferson. that freedom of speech is an indispensable condition for nearly every other form of freedom. reflecting our own lesson of history. both political and legal.consequence of republican institutions and the complement of free speech. or contempt proceedings unless there be a clear and . prosecution for sedition.1. There is to be no previous restraint on the communication of views or subsequent liability whether in libel suits. we cannot both be free and ignorant. [32] in which it was held: At the very least.[31] What is embraced under this provision was discussed exhaustively by the Court in Gonzales v.[26] This preferred status of free speech has also been codified at the international level. the primacy and high esteem accorded freedom of expression is a fundamental postulate of our constitutional system. its recognition now enshrined in international law as a customary norm that binds all nations. E.[29] Moreover.

present danger of substantive evil that Congress has a right to prevent. about which information is needed or appropriate. decision-making. To be truly meaningful. [35] Freedom of speech and of the press means something more than the right to approve existing political beliefs or economic arrangements.[36] When atrophied. print and assembly regarding secular as well as political causes. to lend support to official measures.[34] As early as the 1920s. though it be hostile to or derided by others. and of maintaining the balance between stability and change. and to take refuge in the existing climate of opinion on any matter of public consequence. no less than for the thought that agrees with us. the trend as reflected in Philippine and American decisions was to recognize the broadest scope and assure the widest latitude for this constitutional guarantee. who do not conform. The protection covers myriad matters of public interest or concern embracing all issues. robust. or even stirs people to anger.if not more to those who question. freedom of speech and of the press should allow and even encourage the articulation of the unorthodox view. . including political.[38] The ideas that may be expressed under this freedom are confined not only to those that are conventional or acceptable to the majority. [33] Gonzales further explained that the vital need of a constitutional democracy for freedom of expression is undeniable. or though such view induces a condition of unrest. The trend represents a profound commitment to the principle that debate on public issue should be uninhibited. [40] The scope of freedom of expression is so broad that it extends protection to nearly all forms of communication. creates dissatisfaction with conditions as they are. of assuring participation by the people in social. whether as a means of assuring individual self-fulfillment. It protects speech. the right becomes meaningless. who differ. of attaining the truth. and wide-open.[37] The right belongs as well -. it is freedom for the thought that we hate. and is not confined to any particular field of human interest.[39] To paraphrase Justice Holmes.

are entitled to the broad protection of the clause on freedom of speech and of expression. all speech are not treated the same. news. For freedom of expression is not an absolute. Specifically. E.[41] this Court stated that all forms of media.2. whether print or broadcast. While all forms of communication are entitled to the broad protection of freedom of expression clause. scientific. [42] nor is it an unbridled license that gives immunity for every possible use of language and prevents the punishment of those who abuse this freedom. The constitutional protection is not limited to the exposition of ideas. DIFFERENTIATION: THE LIMITS & RESTRAINTS OF FREE SPEECH From the language of the specific constitutional provision. as will be subsequently discussed. Dans. it would appear that the right to free speech and a free press is not susceptible of any limitation. the freedom of film. The constitutional protection assures the broadest possible exercise of free speech and free press for religious. in order that it may not be injurious to the equal right of others or those of the . or informational ends. political.so as to enable members of society to cope with the exigencies of their period. in Eastern Broadcasting Corporation (DYRE) v. television and radio broadcasting is somewhat lesser in scope than the freedom accorded to newspapers and other print media. The protection afforded free speech extends to speech or publications that are entertaining as well as instructive or informative. economic. Some types of speech may be subjected to some regulation by the State under its pervasive police power. Thus. inasmuch as the Constitution's basic guarantee of freedom to advocate ideas is not confined to the expression of ideas that are conventional or shared by a majority. But the realities of life in a complex society preclude a literal interpretation of the provision prohibiting the passage of a law that would abridge such freedom.

g. speech that affects the right to a fair trial. e. either consciously or unconsciously.. (a) the dangerous tendency doctrine which permits limitations on speech once a rational connection has been established between the speech restrained and the danger contemplated. obscene speech. for example. obscene speech. and requires a conscious and detailed consideration of the interplay of interests observable in a given situation of type of situation. and evaluation of the permissible scope of restrictions on various categories of speech... speech affecting associational rights. the speech of the broadcast media and of the traditional print media. speech before hostile audiences. as well as fighting words are not entitled to constitutional protection and may be penalized. and speech associated with rights of assembly and petition. may vary from those of another. i. libelous speech. lewd and obscene speech. Distinctions have therefore been made in the treatment.e. [44] We have ruled.g. political speech. we have applied either the dangerous tendency doctrine or clear and present danger test to resolve free speech . e. vagueness. used as a standard when courts need to balance conflicting social values and individual interests. This rule requires that the evil consequences sought to be prevented must be substantive. analysis. that in our jurisdiction slander or libel. symbolic speech. [48] (b) the balancing of interests tests. subversive speech. [46] A study of free speech jurisprudencewhether here or abroadwill reveal that courts have developed different tests as to specific types or categories of speech in concretesituations. restraints on freedom of speech and expression are evaluated by either or a combination of three tests. the techniques of reviewing alleged restrictions on speech (overbreadth. [49] and (c) the clear and present danger rule which rests on the premise that speech may be restrained because there is substantial danger that the speech will likely lead to an evil the government has a right to prevent.[43] The difference in treatment is expected because the relevant interests of one type of speech.[45] Moreover.community or society. [47] Generally.. extremely serious and the degree of imminence extremely high. i. and so on) have been applied differently to each category. [50] As articulated in our jurisprudence.e.

The productions of writers are classified as intellectual and proprietary. IN FOCUS: FREEDOM OF THE PRESS Much has been written on the philosophical basis of press freedom as part of the larger right of free discussion and expression. Bustos:[52] The interest of society and the maintenance of good government demand a full discussion of public affairs. the mistakes of every administration would go uncorrected and its abuses unexposed. [51] E. though. Complete liberty to comment on the conduct of public men is a scalpel in the case of free speech. The sharp incision of its probe relieves the abscesses of officialdom. Its contribution to the public weal makes freedom of the press deserving of extra protection. It is the most pervasive and perhaps most powerful vehicle of opinion on public questions. is more easily grasped. Persons who interfere or defeat the freedom to write for the press or to maintain a periodical publication are liable for damages. . As Justice Malcolm wrote in United States v. It is the instrument by which citizens keep their government informed of their needs. the press benefits from certain ancillary rights. More recently.challenges. Without a vigilant press. their aspirations and their grievances. we have concluded that we have generally adhered to the clear and present danger test. It is the chief source of information on current affairs. Men in public life may suffer under a hostile and unjust accusation. It is the sharpest weapon in the fight to keep government responsible and efficient. the wound can be assuaged with the balm of clear conscience. Its practical importance.3. be they private individuals or public officials. Indeed.

even as early as the period under the 1935 Constitution.4. the determination in every case of whether there is an impermissible restraint on the freedom of speech has always been based on the circumstances of each case. [54] and (4) freedom of circulation. (2) freedom from punishment subsequent to publication. as well as its sub-specie of content-based (as distinguished from content-neutral) regulations. Rather. ANATOMY OF RESTRICTIONS: PRIOR RESTRAINT. a closer scrutiny of this principle is in order. CONTENT-NEUTRAL AND CONTENT-BASED REGULATIONS Philippine jurisprudence. the parameters of this principle have been etched on a case-to-case basis. considering that the cases in our jurisdiction involving prior restrictions on speech never had any issue of whether the governmental act or issuance actually constituted prior restraint. always tested by scrutinizing the governmental issuance or act against the circumstances in which they operate. These are (1) freedom from prior restraint. and then determining the appropriate test with which to evaluate. And in its application in our jurisdiction. This presents a unique tinge to the present challenge. At this point. including the nature of the restraint. [53] (3) freedom of access to information. has recognized four aspects of freedom of the press. E. Prior restraint refers to official governmental restrictions on the press or other forms of expression in advance of actual publication or dissemination. the determinations were always about whether the restraint was justified by the Constitution.[56] Freedom from prior restraint is largely freedom from government censorship of .[55] Considering that petitioner has argued that respondents press statement constitutes a form of impermissible prior restraint. Be that as it may. it should be noted that respondents in this case deny that their acts constitute prior restraints.

but determined only upon a careful evaluation of the challenged act as against the appropriate test by which it should be measured against. and regardless of whether it is wielded by the executive. the restriction is based on the subject matter of the utterance or speech.e. Hence. Thus. and even injunctions against publication. they . Certain previous restraints may be permitted by the Constitution. place or manner. legislative or judicial branch of the government. Even the closure of the business and printing offices of certain newspapers. and remedy can be had at the courts. it is not enough to determine whether the challenged act constitutes some form of restraint on freedom of speech. and any act that restrains speech is presumed invalid. i. and under well defined standards. [57] Any law or official that requires some form of permission to be had before publication can be made.[62] Because regulations of this type are not designed to suppress any particular message. whatever the form of censorship.[60] or (2) a content-based restraint or censorship.. licensing or permits as prerequisites to publication including the payment of license taxes for the privilege to publish. only a substantial governmental interest is required for its validity. or one that merely controls the time. are deemed as previous restraint or censorship. When the speech restraints take the form of a content-neutral regulation.. i. merely concerned with the incidents of the speech. it precludes governmental acts that required approval of a proposal to publish.publications. resulting in the discontinuation of their printing and publication. Given that deeply ensconced in our fundamental law is the hostility against all prior restraints on speech.[58] and any act that restrains speech is hobbled by the presumption of invalidity and should be greeted with furrowed brows. commits an infringement of the constitutional right. [59] it is important to stress not all prior restraints on speech are invalid. [61] The cast of the restriction determines the test by which the challenged act is assayed with. A distinction has to be made whether the restraint is (1) a content-neutral regulation.e.

[67] As formulated. [64] On the other hand.are not subject to the strictest form of judicial scrutiny but an intermediate approachsomewhere between the mere rationality that is required of any other law and the compelling interest standard applied to content-based restrictions.[66] With respect to content-based restrictions. if it furthers an important or substantial governmental interest.[65] with the government having the burden of overcoming the presumed unconstitutionality. the question in every case is whether the words used are used in such circumstances and are of . and if the incident restriction on alleged [freedom of speech & expression] is no greater than is essential to the furtherance of that interest.[63] The test is called intermediate because the Court will not merely rubberstamp the validity of a law but also require that the restrictions be narrowly-tailored to promote an important or significant governmental interest that is unrelated to the suppression of expression. if the governmental interest is unrelated to the suppression of free expression. The intermediate approach has been formulated in this manner: A governmental regulation is sufficiently justified if it is within the constitutional power of the Government. Unless the government can overthrow this presumption. Prior restraint on speech based on its content cannot be justified by hypothetical fears. but only by showing a substantive and imminent evil that has taken the life of a reality already on ground. a governmental action that restricts freedom of speech or of the press based on content is given the strictest scrutiny in light of its inherent and invasive impact. the government must also show the type of harm the speech sought to be restrained would bring about especially the gravity and the imminence of the threatened harm otherwise the prior restraint will be invalid. the content- based restraint will be struck down. Only when the challenged act has overcome the clear and present danger rule will it pass constitutional muster.

as they are content- based restrictions. bears a heavy presumption of invalidity and is measured against the clear and present danger rule. when the prior restraint partakes of a content-neutral regulation. therefore. The acts of respondents focused solely on but one objecta specific content fixed as these were on the alleged taped conversations between the President and a COMELEC official. it is clear that the challenged acts in the case at bar need to be subjected to the clear and present danger rule. Undoubtedly these did not merely provide regulations as to the time.[68] The regulation which restricts the speech content must also serve an important or substantial government interest.5. It is a question of proximity and degree. [74] Applying the foregoing. [71] The regulation. A content-based [73] regulation. the incidental restriction on speech must be no greater than what is essential to the furtherance of that interest. with the least restrictive means undertaken. [72] Thus. it is subjected to an intermediate review. The latter will pass constitutional muster only if justified by a compelling reason. Dichotomy of Free Press: Print v. and the restrictions imposed are neither overbroad nor vague. [70] A restriction that is so broad that it encompasses more than what is required to satisfy the governmental interest will be invalidated. [69] Also. E. must be reasonable and narrowly drawn to fit the regulatory purpose. place or manner of the dissemination of speech or expression.such a nature as to create a clear and present danger that they willbring about the substantive evils that Congress has a right to prevent. Broadcast Media . however. which is unrelated to the suppression of free expression.

S.[78] Because cases involving broadcast media need not follow precisely the same approach that [U. The dichotomy between print and broadcast media traces its origins in the United States. airwaves are physically limited while print medium may be limitless]..[80] or the intermediate test. the three major reasons why broadcast media stands apart from print media are: (a) the scarcity of the frequencies by which the medium operates [i. broadcasting. Courts have excluded broadcast media from the application of the strict scrutiny standard that they would otherwise apply to content-based [76] restrictions. nor go so far as to demand that such regulations serve compelling government interests. We next explore and test the validity of this argument. courts] have applied to other media. As pointed out by respondents. Finally. comes respondents argument that the challenged act is valid on the ground that broadcast media enjoys free speech rights that are lesser in scope to that of print media. There.[75] and U. According to U. The regimes presently in place for each type of media differ from one other. magazines and traditional printed matter. [77] (b) its pervasiveness as a medium. Contrasted with the regime in respect of books.S. Nevertheless. newspapers. insofar as it has been invoked to validate a content-based restriction on broadcast media. broadcast radio and television have been held to have limited First Amendment protection.[79] they are decided on whether the governmental restriction is narrowly tailored to further a substantial governmental interest.e. film and video have been subjected to regulatory schemes. a review of Philippine case law on broadcast media will show thatas we have deviated with the American conception of the Bill of Rights[81] we likewise did .S. Philippine jurisprudence has also echoed a differentiation in treatment between broadcast and print media. and (c) its unique accessibility to children. Courts.

The distinction between broadcast and traditional print media was first enunciated in Eastern Broadcasting Corporation (DYRE) v. the Court made a detailed exposition as to what needs be considered in cases involving broadcast media.S. are entitled to the broad protection of the freedom of speech and expression clause. the Court has consistently held that the clear and present danger test applies to content-based restrictions on media. Although the issue had become moot and academic because the owners were no longer interested to reopen. regardless of the regulatory schemes that broadcast media is subjected to. and narrowly confined to unprotected speech (e. in the main. particularly as to which test would govern content-based prior restraints. conception of free speech as it relates to broadcast media.g. The test for limitations on freedom of expression continues to be the clear and present danger rule[83] Dans was a case filed to compel the reopening of a radio station which had been summarily closed on grounds of national security. such as national security or the electoral process.not adopt en masse the U. the difference in treatment. pornography. is in the regulatory scheme applied to broadcast media that is not imposed on traditional print media. without making a distinction as to traditional print or broadcast media. Thus:[84] . Second. Particularly. obscenity. or is based on a compelling government interest that also has constitutional protection. the Court still proceeded to do an analysis of the case and made formulations to serve as guidelines for all inferior courts and bodies exercising quasi-judicial functions.[82] wherein it was held that [a]ll forms of media. Our cases show two distinct features of this dichotomy. whether print or broadcast. Dans.. seditious and inciting speech). First.

569-570) Chief Justice Enrique M. Airwave frequencies have to be allocated among qualified users. the freedom of television and radio broadcasting is somewhat lesser in scope than the freedom accorded to newspaper and print media.S.xxx xxx xxx (3) All forms of media. broadcast media have established a uniquely pervasive presence in the lives of all citizens. (4) The clear and present danger test. Material presented over the airwaves confronts the citizen. that words are used in such circumstances and are of such a nature as to create a clear and present danger that they will bring about the substantive evils that the lawmaker has a right to prevent. A broadcast corporation cannot simply appropriate a certain frequency without regard for government regulation or for the rights of others. . more than other forms of communications. not only in public. Bagatsing. 726). confronted with a patently offensive and indecent regular radio program. receives the most limited protection from the free expression clause. Second. however.B. Reyes in behalf of the Anti-Bases Coalition v. All forms of communication are entitled to the broad protection of the freedom of expression clause. The American Court in Federal Communications Commission v. More recently. pp. Fernando cites at least nine of our decisions which apply the test. Broadcasting has to be licensed. the clear and present danger test was applied in J. broadcasting is uniquely accessible to children. Pacifica Foundation (438 U. explained why radio broadcasting. but in the privacy of his home. does not lend itself to a simplistic and all embracing interpretation applicable to all utterances in all forums. First. Necessarily. In his Constitution of the Philippines (2nd Edition. whether print or broadcast. The test for limitations on freedom of expression continues to be the clear and present danger rule. however. are entitled to the broad protection of the freedom of speech and expression clause.L.

The materials broadcast over the airwaves reach every person of every age. On the other hand. and magazines beyond their humble means. Their message may be simultaneously received by a national or regional audience of listeners including the indifferent or unwilling who happen to be within reach of a blaring radio or television set.s and mental capabilities. therefore.Q. Bookstores and motion picture theaters may be prohibited from making certain material available to children. The broadcast media have also established a uniquely pervasive presence in the lives of all Filipinos. intelligent and sophisticated handling. newspapers. Radio and television may not be used to organize a rebellion or to signal the start of widespread uprising. The government has a right to be protected against broadcasts which incite the listeners to violently overthrow it. The impact of the vibrant speech is forceful and immediate. persons of varying susceptibilities to persuasion. there are low income masses who find the cost of books. persons of different I. Even here. and reject the utterance. where the listener or viewer is constantly tuning in and out. the radio audience has lesser opportunity to cogitate analyze. The supervision of radio stations-whether by government or through self-regulation by the industry itself calls for thoughtful. Basic needs like food and shelter perforce enjoy high priorities. the transistor radio is found everywhere. The television set is also becoming universal. (5) The clear and present danger test. must take the particular circumstances of broadcast media into account. Newspapers and current books are found only in metropolitan areas and in the poblaciones of municipalities accessible to fast and regular transportation. Unlike readers of the printed work. but the same selectivity cannot be done in radio or television. persons whose reactions to inflammatory or offensive speech would be difficult to monitor or predict. Similar considerations apply in the area of national security. At the same time. the people have a .

731) this Court was already stressing that. Bustos (37 Phil. Since they are the most convenient and popular means of disseminating varying views on public issues. the scarcity. obscenity.. (6) The freedom to comment on public affairs is essential to the vitality of a representative democracy. Thus. (7) Broadcast stations deserve the special protection given to all forms of media by the due process and freedom of expression clauses of the Constitution. whether print or broadcast. Men in public life may suffer under a hostile and an unjust accusation.S. [Citations omitted] It is interesting to note that the Court in Dans adopted the arguments found in U. or pleasantly entertaining utterances. The sharp incision of its probe relieves the abscesses of officialdom. a close reading of the above-quoted provisions would show that the differentiation that the Court in Dans referred to was narrowly restricted to what is otherwise deemed as unprotected speech (e. right to be informed. In the 1918 case of United States v. national security.e.. they also deserve special protection. Complete liberty to comment on the conduct of public men is a scalpel in the case of free speech. jurisprudence to justify differentiation of treatment (i. A public officer must not be too thin-skinned with reference to comment upon his official acts. for all forms of media. but only after categorically declaring that the test for limitations on freedom of expression continues to be the clear and present danger rule. Indeed. which is absent in print media. obsequious. when this Court declared in Dans that the freedom given to broadcast media was somewhat lesser in scope than the freedom accorded to . seditious and inciting speech). pervasiveness and accessibility to children). Radio and television would have little reason for existence if broadcasts are limited to bland. or to validate a licensing or regulatory scheme necessary to allocate the limited broadcast frequencies.g. the wound can be assuaged with the balm of a clear conscience. Only thus can the intelligence and dignity of the individual be exalted. The interest of society and the maintenance of good government demand a full discussion of public affairs.

we reiterated that the clear and present danger rule is the test we unquestionably adhere to issues that involve freedoms of speech and of the press. The rule applies to all media.It cannot be denied though that the State as parens patriae is called upon to manifest an attitude of caring for the welfare of the young. strictly speaking. in resolving a case involving the conduct of exit polls and dissemination of the results by a broadcast company.[90] which also involved broadcast media. It is the consensus of this Court that where television is concerned. again without distinguishing the media.[87] Katigbak. but only when the challenged act is a content-based regulation that infringes on free speech.[89] This is not to suggest. More recently. [85] In the same year that the Dans case was decided. including broadcast. and application of norms to unprotected speech. Children then will likely be among the avid viewers of the programs therein shown. does not treat of broadcast media but motion pictures. but the context by which requirements of licensing. Although the issue involved obscenity standards as applied to movies. a less liberal approach calls for observance. it was not as to what test should be applied. that the clear and present danger rule has been applied to all cases that involve the broadcast media. Indeed.[86]that the test to determine free expression challenges was the clear and present danger. in Osmena v. however.[88] the Court concluded its decision with the following obiter dictum that a less liberal approach would be used to resolve obscenity issues in television as opposed to motion pictures: All that remains to be said is that the ruling is to be limited to the concept of obscenity applicable to motion pictures. television reaches every home where there is a set. the Court refused to apply the clear and present danger rule to a COMELEC regulation of .newspaper and print media. expression and the press. allocation of airwaves. This is so because unlike motion pictures where the patrons have to pay their way. it was reiterated in Gonzales v. Katigbak.. COMELEC.

but are also seen as possible sources of harm. and censorship. these justifications are now the subject of debate. Historically. But still.time and manner of advertising of political advertisements because the challenged restriction was content-neutral. However. Since it has a unique impact on people and affects children in a way that the print media normally does not.[91] And in a case involving due process and equal protection issues.[93] Parenthetically. Digital technology will further increase the number of channels available. without going into which test would apply. The stricter system of controls seems to have been adopted in answer to the view that owing to their particular impact on audiences. videos and broadcasting require a system of prior restraints. whereas it is now accepted that books and other printed media do not. the Court in Telecommunications and Broadcast Attorneys of the Philippines v. As explained by a British author: The reasons behind treating broadcast and films differently from the print media differ in a number of respects. cable and satellite television have enormously increased the number of actual and potential channels. that regulation is . the argument persists that broadcasting is the most influential means of communication. the scarcity of frequencies was thought to provide a rationale. regulation by administrative bodies. but have a common historical basis. films. These media are viewed as beneficial to the public in a number of respects. COMELEC[92] treated a restriction imposed on a broadcast media as a reasonable condition for the grant of the medias franchise. where the statutory regimes in place over broadcast media include elements of licensing. That broadcast media is subject to a regulatory regime absent in print media is observed also in other jurisdictions. since it comes into the home. and so much time is spent watching television.

yet the Internet and the broadcast media share similarities. with the government having the burden of overcoming the presumed unconstitutionality by the clear and present danger rule. telecommunications and the computer industry -.which has led to the convergence of broadcasting.has likewise led to the question of whether the regulatory model for broadcasting will continue to be appropriate in the converged environment. but from private corporate bodies. including broadcast media. let us go to its application to the case at bar. It has been argued further that a significant main threat to free expressionin terms of diversitycomes not from government. a governmental action that restricts freedom of speech or of the press based on content is given the strictest scrutiny. These developments show a need for a reexamination of the traditional notions of the scope and extent of broadcast media regulation. and (e) the quantum of evidence necessary. respondents who have the burden to .[97] Thus. [98] F. remains largely unregulated. (c) the burden of proof. This rule applies equally to all kinds of media. regulate neither or develop a new regulatory framework and rationale to justify the differential treatment. To recapitulate.[95] Internet. On the basis of the records of the case at bar.said to be necessary in order to preserve pluralism. [94] The emergence of digital technology -. The Case At Bar Having settled the applicable standard to content-based restrictions on broadcast media. (b) the presumption. (d) the party to discharge the burden. it has been argued that courts. [96] and the rationales used to support broadcast regulation apply equally to the Internet. This outlines the procedural map to follow in cases like the one at bar as it spells out the following: (a) the test. legislative bodies and the government agencies regulating media must agree to regulate both. for example.

In fine. one supposed to be a complete version and the other. violations of law should be vigorously prosecuted by the State for they breed their own evil consequence. a preferred right whose breach can lead to greater . by itself and without more. the various statements of the Press Secretary obfuscate the identity of the voices in the tape recording. In calling for a careful and calibrated measurement of the circumference of all these factors to determine compliance with the clear and present danger test. We rule that not every violation of a law will justify straitjacketing the exercise of freedom of speech and of the press.Firstly. the need to prevent their violation cannot per se trump the exercise of free speech and free press. The Press Secretary showed to the public two versions.show that these acts do not abridge freedom of speech and of the press failed to hurdle the clear and present danger test. But to repeat. Fourthly. There are laws of great significance but their violation. the manner of its commission and other related and relevant proofs are some of the invisibles of this case. given all these unsettled facets of the tape. and respondents evidence falls short of satisfying the clear and present danger test. especially considering the tapes different versions. an altered version. it is even arguable whether its airing would violate the anti-wiretapping law. the integrity of the taped conversation is also suspect. which should be weighed in adjudging whether to restrain freedom of speech and of the press. The totality of the injurious effects of the violation to private and public interest must be calibrated in light of the preferred status accorded by the Constitution and by related international covenants protecting freedom of speech and of the press. Our laws are of different kinds and doubtless. the evidence of the respondents on the whos and the hows of the wiretapping act is ambivalent. It appears that the great evil which government wants to prevent is the airing of a tape recording in alleged violation of the anti-wiretapping law. The records of the case at bar. are confused and confusing. Secondly. cannot support suppression of free speech and free press. The identity of the wire-tappers. some of them provide norms of conduct which even if violated have only an adverse effect on a persons private comfort but does not endanger national security. the Court should not be misinterpreted as devaluing violations of law. however. Thirdly. a vital one to be sure. violation of law is just a factor. By all means.

After the warnings. such as a speech uttered. It is sufficient that the press statements were made by respondents while in the exercise of their official functions. In resolving this issue. we hold that it is not decisive that the press statements made by respondents were not reduced in or followed up with formal orders or circulars. the alter ego of the Executive. There is enough evidence of chilling effect of the complained acts on record.evils. . the non formalization of an act into an official order or circular will result in the easy circumvention of the prohibition on prior restraint. Undoubtedly. They also came from the Secretary of Justice. The warnings given to media came from no less the NTC. This is not all the faultline in the stance of the respondents. respondent Gonzales made his statements as Secretary of Justice. After the warnings. while the NTC issued its statement as the regulatory body of media. For this failure of the respondents alone to offer proof to satisfy the clear and present danger test. Otherwise. for and on behalf of the government in an official capacity is covered by the rule on prior restraint. The concept of an act does not limit itself to acts already converted to a formal order or official circular. who wields the awesome power to prosecute those perceived to be violating the laws of the land. petitioner Chavez was left alone to fight this battle for freedom of speech and of the press. Any act done. The press statements at bar are acts that should be struck down as they constitute impermissible forms of prior restraints on the right to free speech and press. the Court has no option but to uphold the exercise of free speech and free press. the KBP inexplicably joined the NTC in issuing an ambivalent Joint Press Statement. a regulatory agency that can cancel the Certificate of Authority of the radio and broadcast media. This silence on the sidelines on the part of some media practitioners is too deafening to be the subject of misinterpretation. We slide to the issue of whether the mere press statements of the Secretary of Justice and of the NTC in question constitute a form of content-based prior restraint that has transgressed the Constitution. There is no showing that the feared violation of the anti-wiretapping law clearly endangers the national security of the State.

plaintiff Singson Encarnacion notified defendants. No. owner of the house numbered 589 Legarda Street. vs. some six years ago leased said house to Jacinto Baldomar and her son.The constitutional imperative for us to strike down unconstitutional acts should always be exercised with care and in light of the distinct facts of each case. JACINTA BALDOMAR. the petition is GRANTED. 1945. 2005 warning the media on airing the alleged wiretapped conversation between the President and other personalities. plaintiff-appellee. nullifying the official statements made by respondents on June 8. and the limits and construct of relative freedoms are never set in stone. ET AL. L-264 October 4. Issues revolving on their construct must be decided on a case to case basis. But in cases where the challenged acts are patent invasions of a constitutionally protected right. In VIEW WHEREOF. specifically on March 16.. For there are no hard and fast rules when it comes to slippery constitutional questions. G. After Manila was liberated in the last war.R. Bausa and Ampil for appellants. we should be swift in striking them down as nullities per se. of the same year. When . defendants insisted on continuing their occupancy. and on April 7.: Vicente Singson Encarnacion. Lefrado Fernando. Manila. upon a month-to- month basis for the monthly rental of P35. 1946 VICENTE SINGSON ENCARNACION. to vacate the house above-mentioned on or before April 15. 1945. Despite this demand. defendants-appellants. A blow too soon struck for freedom is preferred than a blow too late. because plaintiff needed it for his offices as a result of the destruction of the building where said plaintiff had said offices before. and 11. always based on the peculiar shapes and shadows of each case. for constituting unconstitutional prior restraint on the exercise of freedom of speech and of the press SO ORDERED. HILADO. J. Tolentino and Aguas for appellee. the said mother and son. The writs of certiorari and prohibition are hereby issued.

. therefore. defendants filed therein a motion to dismiss (which was similar to a motion to dismiss filed by them in the municipal court) based upon the ground that the municipal court had no jurisdiction over the subject matter due to the aforesaid claim for damages and that. 1945.the original action was lodged with the Municipal Court of Manila on April 20. (8 Manresa. since the continuance and fulfillment of the contract would then depend solely and exclusively upon their free and uncontrolled choice between continuing paying the rentals or not. is prohibited by the aforesaid article of the Civil Code. 1945. Although plaintiff included in said original complaint a claim for P500 damages per month. 627. and that this agreement had been ratified when another ejectment case between the parties filed during the Japanese regime concerning the same house was allegedly compounded in the municipal court. 100. to the date of said judgment at the rate of P35 a month. so long as defendants elected to continue the lease by continuing the payment of the rentals. the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. That rental was paid prior to the hearing of the case in the municipal court. the agrees rental being payable within the first five days of each month. jr. Santos. as it is hereby. We think that the Court of First Instance was right in so declaring. that claim was waived by him before the hearing in the municipal court. Furthermore. as a consequence of which said court entered judgment for restitution and payment of rentals at the rate of P35 a month from May 1. 626. Upon the whole. the owner would never be able to discontinue it. certain deposits were made by defendants on account of rentals with the clerk of said court. The Court of First Instance gave more credit to plaintiff's witness. Judge Mamerto Roxas. If this defense were to be allowed. of course. conversely. and in said judgment it is disposed that the amounts thus deposited should be delivered to plaintiff. Cuyugan vs. Vicente Singson Encarnacion. until defendants completely vacate the premises. the rentals in areas were those pertaining to the month of August. the Court of First Instance had no appellate jurisdiction over the subject matter of the action. who testified that the lease had always and since the beginning been upon a month-to-month basis. carried to its logical conclusion. This. lawphil. pp. although the owner should desire the lease to continue. we are clearly of opinion that the judgment appealed from should be. within the meaning of article 1256 of the Civil Code. When the case reached the Court of First Instance of Manila upon appeal. 1945.net In the Court of First Instance the graveman of the defense interposed by defendants. 1945.) During the pendency of the appeal in the Court of First Instance and before the judgment appealed from was rendered on October 31. . the defense thus set up by defendant Lefrado Fernando would leave to the sole and exclusive will of one of the contracting parties (defendants in this case) the validity and fulfillment of the contract of lease. So ordered. therefore. on account of which nothing was said regarding said damages in the municipal court's decision. by order dated July 21. completely depriving the owner of all say in the matter. on the ground that in the municipal court plaintiff had waived said claim for damages and that.. During the pendency of the appeal in that court.. the same waiver was understood also to have been made in the Court of First Instance. 3d ed. affirmed. That motion to dismiss was denied by His Honor. with the costs of the three instances to appellants. 1945. defendants were in arrears in the payment of the rental corresponding to said month. as it was expressed defendant Lefrado Fernando during the trial. 34 Phil. The court added in its decision that this defense which was put up by defendant's answer. for which reason the Court considered it as indicative of an eleventh-hour theory. was that the contract which they had celebrated with plaintiff since the beginning authorized them to continue occupying the house indefinetly and while they should faithfully fulfill their obligations as respects the payment of the rentals.

an English association (represented by Mr. the legal term. No. "When the term has not been fixed for the lease." The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the Civil Code. 967 May 19. 1581 which provides that.R. . .R. the law which was in force at the time the contract was entered into. the conventional term — that is. fixed for leases by articles 1577 and 1581. The Manila Lawn Tennis Club G. As a result the plaintiff filed a case for unlawful detainer for the restitution of the land claiming that article 1569 of the Civil Code provided that a lessor may judicially dispossess the lessee upon the expiration of the conventional term or of the legal term. . in defect of the conventional. The defendant is in the belief that there can be no other mode of terminating the lease than by its own will. 967 Eleizegui v. the lessee can make improvements deemed desirable for the comfort and amusement of its members. 1903 Facts: A contract of lease was executed on January 25. Williamson) for a fixed consideration of P25 per month and accordingly. 1980 over a piece of land owned by the plaintiffs Eleizegui (Lessor) to the Manila Lawn Tennis Club. for months when the rent is monthly. it is understood to be for years when an annual rental has been fixed. No. as what they believe has been stipulated. The Manila Lawn Tennis Club Digest G." The second clause of the contract provides as follows: "The rent of the said land is fixed at 25 pesos per month. It is of the .Eleizegui v. the one agreed upon by the parties. It appeared that the plaintiffs terminated the lease right on the first month. Under the contract. The Plaintiffs argued that the duration of the lease depends upon the will of the lessor on the basis of Art. to last at the will of the lessee.

opinion that the contract of lease was terminated by the notice given by the plaintiff. (Art. or by provision of law. The judgment was entered upon the theory of the expiration of a legal term which does not exist.) . It would be absurd to accept the argument of the plaintiff that the contract was terminated at its notice. 1257 of the Civil Code. then it must be for a determinate period. given this implication. as long as the will of the lessee — that is. ISSUE: a) Whether or not the parties have agreed upon the duration of the lease b) Whether or not the lease depends upon the will of the lessee RULING: a) YES. or for an unlimited period. and still less as a perpetual lease since the terms of the contract express nothing to this effect. as the case requires that a term be fixed by the courts under the provisions of article 1128 with respect to obligations which. all his life. by agreement. If the lease could last during such time as the lessee might see fit. 1608. just as by reason of its nature. either by its nature. The legal term cannot be applied under Art 1581 as it appears that there was actually an agreement between the parties as to the duration of the lease. even if they implied this idea.) By its very nature it must be temporary. being a lease. an emphyteusis must be perpetual. Moreover. it would last. are terminable at the will of the obligee. (Art. 1581 is inapplicable. (Art. during all the time that he may have succession. first. the contract should not be understood as one stipulated as a life tenancy. the parties have agreed upon a term hence Art. Interestingly. 1543.) The lease in question does not fall within any of the cases in which the rights and obligations arising from a contract can not be transmitted to heirs. as is the present. inasmuch as he who contracts does so for himself and his heirs. albeit implied that the lease is to be dependent upon the will of the lessee. because it has been so stipulated by the lessor. second.

B) The duration of the lease does not depend solely upon the will of the Lessee (defendant). there is always a creditor who is entitled to demand the performance. in this contract of lease. sec. In bilateral contracts the contracting parties are mutually creditors and debtors. 1128. (Art. as laid down by the authorities. whether conventional or legal. The only action which can be maintained under the terms of the contract is that by which it is sought to obtain from the judge the determination of this period." and provides that in this case the term shall be fixed by the courts. This term it is which must be fixed by the courts. The Civil Code has made provision for such a case in all kinds of obligations. It cannot be concluded that the termination of the contract is to be left completely at the will of the lessee simply because it has been stipulated that its duration is to be left to his will. the lessee is the creditor with respect to the rights enumerated in article 1554. Thus. In speaking in general of obligations with a term it has supplied the deficiency of the former law with respect to the "duration of the term when it has been left to the will of the debtor.) In every contract. and is the debtor with respect to the obligations imposed by articles 1555 and 1561. The term within which performance of the latter obligation is due is what has been left to the will of the debtor. and not the unlawful detainer action which has been brought — an action which presupposes the expiration of the term and makes it the duty of the judge to simply decree an eviction. . 2. and a debtor upon whom rests the obligation to perform the undertaking. To maintain the latter action it is sufficient to show the expiration of the term of the contract. in order to decree the relief to be granted in the former action it is necessary for the judge to look into the character and conditions of the mutual undertakings with a view to supplying the lacking element of a time at which the lease is to expire.

The lower court’s judgement is erroneous and therefore reversed and the case was remanded with directions to enter a judgment of dismissal of the action in favor of the defendant. crippled and an invalid. vs. blind. deceased. plaintiff-appellant. . in her behalf. of taxes. 1957 Justina Santos became the owner of the entire property as her sister died with no other heir. the contract was amended (Plff Exh. 4) so as to make it cover the entire property. with an area of 2.620. "In grateful acknowledgment of the personal services of the lessee to her. J. Wong also took care of the payment. Wong himself was the trusted man to whom she delivered various amounts for safekeeping. being at the time 90 years old. The contract covered an area of 1. lawyers' fees. On September 22. Ozaeta. deceased. Gibbs & Ozaeta for defendant-appellant. she was left with no other relative to live with. is located on Rizal Avenue and opens into Florentino Torres street at the back and Katubusan street on one side. defendant-appellant. Ten days later (November 25). 1957 a contract of lease (Plff Exh.R. an amount not exceeding P1. the monthly rental was P3. the Manila Lawn Tennis Club. G. For his part Wong undertook to pay. Her only companions in the house were her 17 dogs and 8 maids. 1967 PHILIPPINE BANKING CORPORATION.000 a month for the food of her dogs and the salaries of her maids. In it are two residential houses with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal Avenue. The lease was for 50 years. at an additional monthly rental of P360. salaries of maids and security guard. and her household expenses. although the lessee was given the right to withdraw at any time from the agreement. Then already well advanced in years. 3) in favor of Wong. L-17587 September 12. The sisters lived in one of the houses. including the portion on which the house of Justina Santos stood. representing the estate of JUSTINA SANTOS Y CANON FAUSTINO. No. funeral expenses. Wong had been a long-time lessee of a portion of the property. covering the portion then already leased to him and another portion fronting Florentino Torres street. LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng. while Wong Heng.582.30 square meters. Nicanor S. a Chinese." Justina Santos executed on November 15. out of the rental due from him. lived with his family in the restaurant. CASTRO.124 square meters. Her otherwise dreary existence was brightened now and then by the visits of Wong's four children who had become the joy of her life. masses.: Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in Manila.120. including rentals from her property at the corner of Ongpin and Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal Avenue property. This parcel. paying a monthly rental of P2. Sison for plaintiff-appellant.

285 & 279).000 and P3. 1959 (Def Exhs. while Ephraim G. he expressed readiness to comply with any order that the court might make with respect to the sums of P22. In two wills executed on August 24 and 29.27 (Nov. the collection of various amounts allegedly delivered on different occasions was sought. Claiming that the various contracts were made by her because of machinations and inducements practiced by him. undue influence and abuse of confidence and trust of and (by) taking advantage of the helplessness of the plaintiff and were made to circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines and also of the Philippine Naturalization Laws.344.42 and P10. misrepresentation.240 a month. . The option. Thus on June 9. aside from the nullity of the contracts.800 a month. Wong's admission of the receipt of P22.000 in the bank and P3. that this application for naturalization was withdrawn when it was discovered that he was not a resident of Rizal. was appointed guardian of the properties of Justina Santos. 1957). 5) extending the term of the lease to 99 years. 1958 she filed a petition to adopt him and his children on the erroneous belief that adoption would confer on them Philippine citizenship.49 which he said she owed him for advances. 6) fixing the term of the option of 50 years. in addition to the sum of P3. The error was discovered and the proceedings were abandoned.000 (Dec.27. 1. 6. Wong insisted that the various contracts were freely and voluntarily entered into by the parties. another sum of P22.210. In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic Relations Court. Both contracts are written in Tagalog. the charge not to exceed P1. however. In his answer. written in Tagalog. admitted receipt of P7.42 (Dec.000 (as admitted in his answer).On December 21 she executed another contract (Plff Exh. He likewise disclaimed knowledge of the sum of P33. 1957 on the allegation that the reasonable rental of the leased premises was P6. one (Plff Exh. Gochangco was appointed guardian of her person. P7. but contended that these amounts had been spent in accordance with the instructions of Justina Santos. 1958 she executed two other contracts. The option was conditioned on his obtaining Philippine citizenship. On November 18 the present action was filed in the Court of First Instance of Manila.000. and another (Plff Exh." The court was asked to direct the Register of Deeds of Manila to cancel the registration of the contracts and to order Wong to pay Justina Santos the additional rent of P3. 1957). the Security Bank & Trust Co.000. P22. 7) giving Wong the option to buy the leased premises for P120.120 a month from November 15. imposed on him the obligation to pay for the food of the dogs and the salaries of the maids in her household. 4. As counterclaim he sought the recovery of P9.000. inequitable conduct. P10. The complaint alleged that the contracts were obtained by Wong "through fraud. payable within ten years at a monthly installment of P1. but in a codicil (Plff Exh.000 which he said she had delivered to him for safekeeping. An accounting of the rentals from the Ongpin and Rizal Avenue properties was also demanded. she bade her legatees to respect the contracts she had entered into with Wong. 1960. On November 18.000 had been deposited in a joint account which he had with one of her maids. These amounts and the dates of their delivery are P33. But he denied having taken advantage of her trust in order to secure the execution of the contracts in question.724. Wong admitted that he enjoyed her trust and confidence as proof of which he volunteered the information that. On October 28. 1957).000 was the cue for the filing of an amended complaint.000 in his possession. It appears. 17) of a later date (November 4.000 and P3. a petition for which was then pending in the Court of First Instance of Rizal. she now directed her executor to secure the annulment of the contracts.344. 1959) she appears to have a change of heart.724. In his answer.

for where the contracting parties have agreed that such option shall exist. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee. This is of course untenable. in contrast.2 And so it was held in Melencio v. 3) should have been annulled along with the four other contracts (Plff Exhs. Uy Tieng Piao.120. at any time before he erected any building on the land. In that case. does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation. After the case was submitted for decision. 1308] of the Civil Code. the right of the lessee to continue the lease or to terminate it is so ." Here. he is also ordered to pay the sum of P3. are declared null and void. was in custodia legis. From this judgment both parties appealed directly to this Court. Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease contract (Plff Exh.The case was heard. for as this Court said. Wong Heng is condemned to pay unto plaintiff thru guardian of her property the sum of P55. from 15 November 1959. costs against Wong Heng. Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this agreement. the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. as can be readily seen.554. although the owner should desire the lease to continue the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. might rescind the lease. the owner would never be able to discontinue it. because her consent was obtained through undue influence. the lessees argued that they could occupy the premises as long as they paid the rent. and because the lease contract. because the contract was obtained in violation of the fiduciary relations of the parties.25 with legal interest from the date of the filing of the amended complaint. 1962 and Justina Santos on December 28. like the rest of the contracts. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Lui She. so long as defendants elected to continue the lease by continuing the payment of the rentals. Indeed. 1964. the cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment. can hardly be regarded as a violation of article 1256 [now art. its validity or compliance cannot be left to the will of one of them. after which the lower court rendered judgment as follows: [A]ll the documents mentioned in the first cause of action. because of a difference in factual setting. conversely. 4-7) because it lacks mutuality. "If this defense were to be allowed." The case of Singson Encarnacion v. Wong was substituted by his wife. the other defendant in this case." We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. Such a stipulation. at the time. fraud and misrepresentation.00 for every month of his occupation as lessee under the document of lease herein sustained. with the exception of the first which is the lease contract of 15 November 1957. Wong Heng on October 21. Baldomar 4 cannot be cited in support of the claim of want of mutuality. and the moneys he has consigned since then shall be imputed to that.1 We said in that case: Article 1256 [now art. while Justina Santos was substituted by the Philippine Banking Corporation. both parties died. is absolutely simulated. because it included a portion which." It is claimed that this stipulation offends article 1308 of the Civil Code which provides that "the contract must bind both contracting parties.

which disqualifies "agents (from leasing) the property whose administration or sale may have been entrusted to them. I was called again by her and she told me to follow the wishes of Mr. this case would at most justify the fixing of a period5 but not the annulment of the contract.circumscribed by the term of the contract that it cannot be said that the continuance of the lease depends upon his will. Doña Justina. interest or participation which he has or might have in the lands under administration. Q Agreed what? A Agreed with my objectives that it is really onerous and that I was really right. but to hold it as it was before. Justina Santos became the owner of the entire property upon the death of her sister Lorenzo on September 22. 1957 by force of article 777 of the Civil Code. Q But. Yumol who said that he prepared the lease contract on the basis of data given to him by Wong and that she told him that "whatever Mr. even if no term had been fixed in the agreement. the lease is invalid as to such portion. in relation to article 1941 of the Civil Code. the contents of this document before she signed it? A I explained to her each and every one of these conditions and I also told her these conditions were quite onerous for her. What this witness said was: Q Did you explain carefully to your client. she did not follow your advice. Tomas S. Wong wants must be followed. on a verbal month to month contract of lease. did not amount to an agency so as to bring the case within the prohibition of the law." But Wong was never an agent of Justina Santos. Hence. although admittedly close and confidential. Just the same. . subject to the result of the pending administration. Wong Heng. she did so already as owner thereof. But the sale made by an heir of his share in an inheritance. Yumol cannot be read out of context in order to warrant a finding that Wong practically dictated the terms of the contract. contrary to article 1646. when she leased the property on November 15. At any rate."7 The testimony of Atty. Nor is there merit in the claim that as the portion of the property formerly owned by the sister of Justina Santos was still in the process of settlement in the probate court at the time it was leased. As this Court explained in upholding the sale made by an heir of a property under judicial administration: That the land could not ordinarily be levied upon while in custodia legis does not mean that one of the heirs may not sell the right. but after that. xxx xxx xxx . and she went with the contract just the same? A She agreed first . The relationship of the parties. The ordinary execution of property in custodia legis is prohibited in order to avoid interference with the possession by the court.6 It is next contended that the lease contract was obtained by Wong in violation of his fiduciary relationship with Justina Santos. it is argued that Wong so completely dominated her life and affairs that the contracts express not her will but only his. in no wise stands in the way of such administration. I don't really know if I have expressed my opinion. Counsel for Justina Santos cites the testimony of Atty. . but I told her that we would rather not execute any contract anymore.

" she said — "You just go ahead. I am the owner. Wong wants must be followed. 3). the charge of undue influence in this case rests on a mere inference12 drawn from the fact that Justina Santos could not read (as she was blind) and did not understand the English language in which the contract is written. Alonzo. they used to tell me what the documents should contain. related by the same witness. Wong Heng. . ninety (90) years old at the time and her condition. as I said before. I am the only one that can question the illegality. Yumol embodied in the lease contract. Ana)13 it was Justina Santos herself who. the lawyer could not make her change her mind. I would say she is not. however. said: [I]n nearly all documents. according to her own witness. but neither of them was presented as a witness. and the equally emphatic avowal of gratitude in the lease contract (Plff Exh. had saved her and her sister from a fire that destroyed their house during the liberation of Manila. makes clear that she voluntarily consented to the lease contract. she told me — "Whatever Mr. she was made to believe. it is just natural when she said "This is what I want and this will be done. who was constantly by her side. when I said "This is not proper. She was. Benjamin C. as well as to the rest of the contracts in question. But. and her maid. he tried to persuade her to enter instead into a lease on a month-to-month basis. you prepare that. When we had conferences. As it was with the lease contract (Plff Exh. so it was with the rest of the contracts (Plff Exhs. you were satisfied that this document was perfectly proper? xxx xxx xxx A Your Honor. Yumol declared on cross examination: Considering her age. 3). As Atty. One incident. Natividad Luna. said "very emphatically" that she and her sister would have perished in the fire had it not been for Wong. Nor is there merit in the claim that her consent to the lease contract. testifying for her.14 Hence the recital in the deed of conditional option (Plff Exh. "Just follow Mr. Hermenegilda Lao. but that inference has been overcome by her own evidence. This persuaded the lower court to uphold the validity of the lease contract against the claim that it was procured through undue influence. For while a witness claimed that the sisters were saved by other persons (the brothers Edilberto and Mariano Sta. 4-7) — the consent of Justina Santos was given freely and voluntarily. Alonzo. she is a wealthy woman. as I said. because. The truth is that even after giving his client time to think the matter over. Instead of heeding the advice of the lawyer. as far as consent is concerned. but to say this is not to detract from the binding force of the contract. Indeed.11 Any of them could have testified on the undue influence that Wong supposedly wielded over Justina Santos. Atty. and if there is any illegality. 7) that "[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang magkapatid sa halos ay tiyak na kamatayan". if I have to express my personal opinion. was given out of a mistaken sense of gratitude to Wong who. Wong Heng or Judge Torres and/or both."9 Recounting the incident. Yumol further testified that she signed the lease contract in the presence of her close friend." In particular reference to this contract of lease."8 Wong might indeed have supplied the data which Atty. Q So. This witness said that the original term fixed for the lease was 99 years but that as he doubted the validity of a lease to an alien for that length of time. she ordered him. firm and unyielding."10 Atty. For the contract was fully explained to Justina Santos by her own lawyer. it was either Mr.

near or far. and the fixing of the term of the option at 50 years). on the ground that they are contrary to the expressed wish of Justina Santos and that their considerations are fictitious. Since their residence in the Philippines is temporary. As this Court said in Krivenko v. believing that thru adoption Wong Heng might acquire Filipino citizenship. being the adopted child of a Filipino citizen. 1957. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. because she did not want him to. Taken singly. a lease to an alien for a reasonable period is valid. with the exception of the lease contract of November 15. To be sure. the extension of the lease to 99 years. Atty. Neither did it believe his statement that he paid P1. and she told me to see to it that no one could disturb Wong Heng from those properties.17 She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped her much. at the same time gives the clue to what we view as a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens. .18 This is not to say. Filipino citizenship is not impossible to acquire. Atty. even to own them. they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. was to see to it that these properties be enjoyed. It's all right. Alonzo declared that he saw no money paid at the time of the execution of the documents. before her death. 3-7) are valid. Alonzo in reaching the conclusion that the contracts are void for want of consideration. I would always ask the old woman about them and invariably the old woman used to tell me: "That's okay. by Wong Heng because Doña Justina told me that she did not have any relatives. Instead. but considered collectively. 4-7) in question. the court relied on the testimony of Atty. Wong stated in his deposition that he did not pay P360 a month for the additional premises leased to him. What is more."15 But the lower court set aside all the contracts. the consideration need not pass from one party to the other at the time a contract is executed because the promise of one is the consideration for the other. That is why we thought of the ninety-nine (99) years lease.16 With respect to the lower court's finding that in all probability Justina Santos could not have intended to part with her property while she was alive nor even to lease it in its entirety as her house was built on it. Should they desire to remain here forever and share our fortunes and misfortunes. they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. that the contracts (Plff Exhs. while dispelling doubt as to the intention of Justina Santos. but his negative testimony does not rule out the possibility that the considerations were paid at some other time as the contracts in fact recite. the option to buy the leased premises. the contracts show nothing that is necessarily illegal. and she considered Wong Heng as a son and his children her grandchildren. Alonzo: The ambition of the old woman. For the testimony just quoted. but that the amount was returned to him by her for safekeeping. especially her consolation in life was when she would hear the children reciting prayers in Tagalog. we thought of adoption. however.000 as consideration for each of the contracts (namely. suffice it to quote the testimony of her own witness and lawyer who prepared the contracts (Plff Exhs. but the trial court did not believe him. Register of Deeds:20 [A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. according to her revelation to me. "The illicit purpose then becomes the illegal causa"19 rendering the contracts void.

But if an alien is given not only a lease of. and the prohibition by law is designed for the protection of the plaintiff. without relief.27 on November 8. with the result that Justina Santos' ownership of her property was reduced to a hollow concept. the evidence shows that he received P33. 16). 246). It does not follow from what has been said. which he himself was leasing. no private agricultural land shall be transferred or assigned except to individuals. made in behalf of Justina Santos. As this Court said in Krivenko: It is well to note at this juncture that in the present case we have no choice.25 That policy would be defeated and its continued violation sanctioned if.42 on December 1. The claim for increased rentals and attorney's fees. P10. and another pertaining to rentals from the Ongpin property and from the Rizal Avenue property. the latter must be considered as pro tanto qualified. article 1416 of the Civil Code provides.007. that because the parties are in pari delicto they will be left where they are. And yet this is just exactly what the parties in this case did within the space of one year. With respect to the first account. or a total of P70. P7.000 on December 6. But if this is the solemn mandate of the Constitution. Register of Deeds.22 is indeed in grave peril.724. however. We are construing the Constitution as it is and not as we may desire it to be. 1957 (Plff Exh. To the extent that our ruling in this case conflicts with that laid down in Rellosa v. . including residential lands. the use. by virtue of which the Filipino owner cannot sell or otherwise dispose of his property. 13). then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land ( jus possidendi. the original parties who were guilty of a violation of the fundamental charter have died and have since been substituted by their administrators to whom it would be unjust to impute their guilt. 1957 (Plff Exh. corporations. instead of setting the contracts aside and ordering the restoration of the land to the estate of the deceased Justina Santos.21 this to last for 50 years. if public policy is thereby enhanced. It is just as if today the possession is transferred. For all the foregoing. we hold that under the Constitution aliens may not acquire private or public agricultural lands. he may. a piece of land. and. then the Constitutional ban against alien landholding in the Philippines. one pertaining to amount which she entrusted to him from time to time. Exh. and this is not only cogent but also important. 14) . accordingly. this Court should apply the general rule of pari delicto.354.928. tomorrow. recover what he has paid or delivered. Perhaps the effect of our construction is to preclude aliens admitted freely into the Philippines from owning sites where they may build their homes. and P18.23 For another thing. as announced in Krivenko v. jus fruendi and jus abutendi) but also of the right to dispose of it ( jus disponendi) — rights the sum total of which make up ownership. must be denied for lack of merit. . until ultimately all the rights of which ownership is made up are consolidated in an alien. . jus utendi.50 on August 26. For one thing. 1959 (Def. 1957 (Plff Exh.19. And what of the various amounts which Wong received in trust from her? It appears that he kept two classes of accounts. Gaw Chee Hun 26 and subsequent similar cases." The Constitutional provision that "Save in cases of hereditary succession. He . If this can be done. without costs. as an exception to the rule on pari delicto. that "When the agreement is not illegal per se but is merely prohibited. the disposition. or associations qualified to acquire or hold lands of the public domain in the Philippines"24 is an expression of public policy to conserve lands for the Filipinos. judgment is affirmed. and so on. we will not attempt to compromise it even in the name of amity or equity . the next day. but also an option to buy.

1959. the Court will not adjudicate in favor of Wong Heng on his counterclaim.49 must likewise be rejected as his averment of liquidation is belied by his own admission that even as late as 1960 he still had P22.928.210. But it is claimed that the rental from both the Ongpin and Rizal Avenue properties was more than enough to pay for her monthly expenses and that. or a total of P25.564. the trouble is that they were made only by Francisco Wong and Antonia Matias. we think that the claim of Justina Santos totalling P37. the Court faced with the choice of the two alternatives will choose the middle course which after all is permitted by the rules of proof. — which was the way she signed the loose sheets. In his answer. a person will live within his income so that the conclusion of the Court will be that there is neither deficit nor superavit and will let the matter rest here. that was not what Doña Justina apparently understood for as the Court understands her statement to the Honorable Judge of the Juvenile Court . Aside from the reasons given by the court. He made disbursements from this account to discharge Justina Santos' obligations for taxes.3528 in favor of Justina Santos.claims. Rule 123 for in the ordinary course of things. his claim of liquidation and settlement of accounts must be rejected.000 in his possession.442.442. . 6) which shows a balance of P9. funeral services and security guard services. the evidence shows that the monthly income from the Ongpin property until its sale in Rizal Avenue July.84 (expenditures) from P70. on the contrary if the result of that was a deficit as alleged and sought to be there shown. .000. added to the amount of P25. . . Both parties on appeal reiterate their respective claims but we agree with the lower court that both claims should be denied. Sec. . we cannot understand why he still had P22.000 in the bank and P3. Wong Heng (as substituted by the defendant-appellant Lui She) .31 His claim for P9. The lower court did not allow either party to recover against the other. on the other hand. the contracts in question (Plff Exhs. Exh. there should be a balance in her favor. Said the court: [T]he documents bear the earmarks of genuineness. this Court must concede that daily expenses are not easy to compute.49 in favor of Wong. for this reason. . .50 was in fact payment to him of what in the liquidation was found to be due to him.000. of P9.19 (receipts). the reason why she preferred to stay in her home was because there she did not incur in any debts . as rentals due to her after deducting various expenses. if he had really settled his accounts with her on August 26.000 in his possession. On these two grounds. he offered to pay this amount if the court so directed him. this being the case.000. This account is contained in a notebook (Def. but the checks (Def Exhs.564 which. As to the second account. . ACCORDINGLY. nick-named Toning. while it is claimed that the expenses were much less than the rentals and there in fact should be a superavit.49. however.84. there is a difference of P31. .210. and there is no clear proof that Doña Justina had authorized these two to act for her in such liquidation. 1959 was P1. therefore. and that from the Rizal Avenue property. of which Wong was the lessee. attorneys' fees.235. should be rejected as the evidence is none too clear about the amounts spent by Wong for food29 masses30 and salaries of her maids. leaves a balance of P56.210. was P3. as a matter of fact. the land subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation. 69. that he settled his accounts and that the last amount of P18.000 in the bank and P3. 3-7) are annulled and set aside. 247-278) drawn by him for this purpose amount to only P38. Against this account the household expenses and disbursements for the care of the 17 dogs and the salaries of the 8 maids of Justina Santos were charged.120. .27 Besides. After subtracting P38.007.

R... Makalintal. to indemnify the offended party in the amount of P559. Salud Bantug. and the tobacco was loaded in the jeep and brought by the appellant. Salud G.30 per kilo. Dizon. de Ayroso. 1966. concur. This was signed by the appellant and witnessed by the complainant's sister.30 a kilo. The appellant at that time was bringing a jeep.50) will be given to her as soon as it was sold.. Salvador Bantug drew the document. The appellant was to receive the overprice for which she could sell the tobacco. thereby precluding criminal liability of petitioner for the crime charged. . and the latter's maid. J. appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum. JJ. 1966.is ordered to pay the Philippine Banking Corporation the sum of P56. Maria de Guzman Vda. On January 10.B.J.50 without subsidiary imprisonment. six hundred fifteen kilos of leaf tobacco to be sold at Pl. Maria de Guzman Vda. Reyes. Rollo) From this judgment. A. PEOPLE OF THE PHILIPPINES. Bengzon. No. Rollo) The question involved in this case is whether the receipt. L-34338 November 21. Bantug. Exh. and to pay the costs.. This agreement was made in the presence of plaintiff's sister.50. Genoveva Ruiz. with subsidize imprisonment in case of insolvency. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799. The findings of facts of the appellate court are as follows: . Sanchez and Angeles. which reads: To Whom It May Concern: This is to certify that I have received from Mrs. respondent. the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco." (p. C.. Concepcion.: Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum. with legal interest from the date of the filing of the amended complaint. de Ayroso.564. 24. Zaldivar. G. 14." (p. The appellant is a businesswoman. 1984 LOURDES VALERIO LIM. RELOVA. to indemnify the complainant in the amount of P550. Nueva Ecija.. dated January 10. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1. Exhibit "A". is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant. J.P.35. petitioner. and the amounts consigned in court by Wong Heng shall be applied to the payment of rental from November 15.L. 1959 until the premises shall have been vacated by his heirs. and to pay the costs of suit. J. of Gapan. vs. Costs against the defendant-appellant.

but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof. dahil kokonte pa ang nasisingil kong pera. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. 1967. the appellant had paid to Ayroso only P240. 1966. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. and that the "camarin" the appellant was empty. but the appellant often eluded her. Rollo) In this petition for review by certiorari. and she paid P90. magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. 1197 of the New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. Pupunta lang kami ni Mina sa Maynila ngayon. As no further amount was paid. (pp. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso. Patnubayan tayo ng mahal na panginoon Dios. 1967. or a total of P240. she wrote a letter to Salud Bantug which reads as follows: Dear Salud. 1967 as evidenced by the receipt Exh. Exh. 2. Salud Bantug further testified that she had gone to the house of the appellant several times. (Exh. Pursuant to this letter. Of the total value of P799. 2. Huwag kang mabahala at tiyak na babayaran kita. the complainant filed a complaint against the appellant for estafa. and particularly by her sister. it is a fact that on October 19. 14.00 on October 24. immediately demandable as soon as the tobacco was sold" (Decision. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. and this was paid on three different times. 4. Salud Bantug. to wit: 1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore. p. B). Although the appellant denied that demands for payment were made upon her. Lourdes Valerio Lim poses the following questions of law. dated April 18. 1967. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the debtor in which case . and another for P50. 15. 16. 6) as against the theory of the petitioner that the obligation does not fix a period. Hindi ako nakapunta dian noon a 17 nitong nakaraan.50.00 on March 8.00 on April 18. the appellant sent a money order for P100.00.00.

28249-R. Exhibit "A". Rosauro Alvarez and Ernani Cruz Paño for respondent. the Court of Appeals correctly resolved the matter as follows: . LTD.30 per kilo and the proceeds to be given to complainant as soon as it was sold. No. (p. respondent. The appellant is a businesswoman. if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco.: Petition for certiorari to review a judgment of the Court of Appeals. J.L.. 1967 GREGORIO ARANETA.. the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something.R. petitioner. Rollo) The fact that appellant received the tobacco to be sold at P1. No. Hence. Certainly. Rollo) It is clear in the agreement. in its . that the obligation was immediately demandable as soon as the tobacco was disposed of..R. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. it would not have been the appellant who would have gone to the house of Ayroso. Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco. REYES. in its CA-G. SO ORDERED. 19. vs. which provides that the courts may fix the duration of the obligation if it does not fix a period. Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold. strongly negates transfer of ownership of the goods to the petitioner... 3-4.. that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold. J. does not apply. With costs. or. INC. (pp. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO.B. Araneta and Araneta for petitioner. an amendatory decision of the Court of First Instance of Manila. but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. G. and 3. ACCORDINGLY. the petition for review on certiorari is dismissed for lack of merit. Article 1197 of the New Civil Code. the only action that can be maintained is a petition to ask the court to fix the duration of the period. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold. affirming with modification. L-22558 May 31.

is unable to finish the construction of the street in the Northeast side named (Sto.. Tuason & Co. Lt. M. Tuason and Co. who has been physically occupying a middle part thereof. the latter particularly setting up the principal defense that the action was premature since its obligation to construct the streets in question was without a definite period which needs to he fixed first by the court in a proper suit for that purpose before a complaint for specific performance will prosper." The buyer. it dismissed plaintiff's complaint (in a decision dated May 31. 1958. Inc." issued an order granting plaintiff's motion for reconsideration and amending the dispositive portion of the decision of May 31. more or less. Gregorio Araneta. it (Tuason & Co. Tuason & Co.Civil Case No. Domingo Church and Convent. praying that the court fix a period within which defendants will comply with their obligation to construct the streets in question. defendants. the lower court..00. is the owner of a big tract land situated in Quezon City. to Philippine Sugar Estates Development Co. after finding that "the proven facts precisely warrants the fixing of such a period. M. 1960). to read as follows: .. upholding the defenses interposed by defendant Gregorio Araneta. 1950. Inc. on May 7. but the seller. Inc. as stipulated in the above- mentioned deed of sale. entitled "Philippine Sugar Estates Development Co. and covered by a Torrens title in its name. Philippine Sugar Estates Development Co. Domingo Avenue. On July 16. Philippine Sugar Estates Development Co. plaintiff. Ltd. Inc. that the buyer will — Build on the said parcel land the Sto.514. 1äw phï1. for the sum of P430. Inc.. and upon its termination. 1960. seeking to compel the latter to comply with their obligation... The issues having been joined. Tuason & Co.. and instance. finished the construction of Sto.034. answered the complaint. and/or to pay damages in the event they failed or refused to perform said obligation. M. Mesa Heights Subdivision. the lower court proceeded with the trial. by the name of Manuel Abundo. the facts of this case are: J. Domingo Church and Convent while the seller for its part will — Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block surrounded by streets on all four sides... among in the contract of purchase and sale with mortgage. which began constructing the streets. through Gregorio Araneta. 1960. otherwise known as the Sta. Inc... The parties stipulated. Ltd. refused to vacate the same.) sold a portion thereof with an area of 43. and the street on the NE side shall be named "Sto. Domingo Avenue) because a certain third-party. and Gregorio Araneta. Defendant Gregorio Araneta. maintaining that plaintiff's complaint did not expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that the evidence presented at the trial was insufficient to warrant the fixing of such a period. Inc. hence.ñët Plaintiff moved to reconsider and modify the above decision. M. Both defendants J. On July 28. versus J. and Gregorio Araneta.. Inc. 36303. Inc. filed its complaint against J.. opposed said motion." As found by the Court of Appeals. Ltd.4 square meters.

contended mainly that the relief granted. 1963. what the answer put in issue was not whether the court should fix the time of performance. The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed the absence of a period in issue by pleading in its answer that the contract with respondent Philippine Sugar Estates Development Co. that under the circumstances. Inc. motion. said appellate court rendered its decision dated December 27. then the court should declare that petitioner had breached the contract. judgment affirmed and modified. defendant-appellant Gregorio Araneta. If the contract so provided. said reasonable time has not elapsed. the lower court denied defendant Gregorio Araneta. then there was a period fixed. a "reasonable time. defendant-appellant Gregorio Araneta. plaintiff opposed. 1960. Inc. NW and SW sides of the land sold to plaintiff so that the same would be a block surrounded by streets on all four sides. which motion. We agree with the petitioner that the decision of the Court of Appeals. But in no case can it be logically . a period of two (2) years from notice hereof. and the latter perfected its appeal Court of Appeals. the dispositive part of which reads — IN VIEW WHEREOF. affirming that of the Court of First Instance is legally untenable. Defendant Gregorio Araneta. On the other hand. Under the Deed of Sale with Mortgage of July 28. within which to comply with its obligation under the contract. on the hypothesis stated. itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses contained in its answer which reads — 7.e. In said appellate court. We gave it due course. gave petitioner Gregorio Araneta. NW and SW sides of the lot in question. resorted to a petition for review by certiorari to this Court. i. Disposing of the other issues raised by appellant which were ruled as not meritorious and which are not decisive in the resolution of the legal issues posed in the instant appeal before us. Unsuccessful in having the above decision reconsidered. under the amendatory decision of July 16. was not justified by the pleadings and not supported by the facts submitted at the trial of the case in the court below and that the relief granted in effect allowed a change of theory after the submission of the case for decision. Ruling on the above contention. herein defendant has a reasonable time within which to comply with its obligations to construct and complete the streets on the NE.. Inc's. if the reasonable time had not yet elapsed. Inc. but whether or not the parties agreed that the petitioner should have reasonable time to perform its part of the bargain. Ltd.. Annex "A". 1960. the court perforce was bound to dismiss the action for being premature. Inc. On August 16.. judgment is hereby rendered giving defendant Gregorio Araneta. Inc. presented a motion to reconsider the above quoted order." and all that the court should have done was to determine if that reasonable time had already elapsed when suit was filed if it had passed. as a consequence. as averred in the complaint. 1950." Neither of the courts below seems to have noticed that. "reasonable time within which to comply with its obligation to construct and complete the streets. and fix the resulting damages. defendant is given two (2) years from the date of finality of this decision to comply with the obligation to construct streets on the NE. WHEREFORE. Inc. fixing of a period. the appellate court declared that the fixing of a period was within the pleadings and that there was no true change of theory after the submission of the case for decision since defendant-appellant Gregorio Araneta.

on Appeal. The Court of Appeals objected to this conclusion that it would render the date of performance indefinite. the trial Court appears to have pulled the two-year period set in its decision out of thin air. The Court must first determine that "the obligation does not fix a period" (or that the period is made to depend upon the will of the debtor). All that the trial court's amended decision (Rec. and in not so holding. but must set the time that the parties are shown to have intended. the Court can not fix a period merely because in its opinion it is or should be reasonable. Yet. however. pp. for the original decision is clear that the complaint proceeded on the theory that the period for performance had already elapsed. the intervention of the court to fix the period for performance was warranted. Petitioner's Appendix B. As the record stands. Granting. p.held that under the plea above quoted. that the contract had been breached and defendant was already answerable in damages. Even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (and the trial court's amended decision nowhere declared any such fact) still. this is not warranted by the Civil Code. In this connection. since no circumstances are mentioned to support it. Abundo. The list paragraph of Article 1197 is clear that the period can not be set arbitrarily." but from the nature and the circumstances it can be inferred that a period was intended" (Art. . This preliminary point settled. 124) says in this respect is that "the proven facts precisely warrant the fixing of such a period. 3). on Appeal. it is to be borne in mind that the contract shows that the parties were fully aware that the land described therein was occupied by squatters. ultimately. 1 and 2). still the amended decision is defective in that no basis is stated to support the conclusion that the period should be set at two years after finality of the judgment. the complaint not having sought that the Court should set a period. as contended by the petitioner Gregorio Araneta. for Article 1197 is precisely predicated on the absence of any period fixed by the parties. was still pending in the Court of Appeals when its decision in this case was rendered. 12-13)." a statement manifestly insufficient to explain how the two period given to petitioner herein was arrived at. Inc. pars. As the parties must have known that they could not take the law into their own hands. par. because the fact is expressly mentioned therein (Rec. It follows that there is no justification in law for the setting the date of performance at any other time than that of the eviction of the squatters occupying the land in question. 1197. So that.. the court could not proceed to do so unless the complaint in as first amended. The conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted. The law expressly prescribes that — the Court shall determine such period as may under the circumstances been probably contemplated by the parties. the Court must then proceed to the second step. both the trial Court and the Court of Appeals committed reversible error. and this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of performance. It must be recalled that Article 1197 of the Civil Code involves a two-step process. Plainly. It is not denied that the case against one of the squatters. they must have realized that the duration of the suits to be brought would not be under their control nor could the same be determined in advance. and decide what period was "probably contemplated by the parties" (Do. that it lay within the Court's power to fix the period of performance. the circumstances admit no other reasonable view. but must resort to legal processes in evicting the squatters.

HERNANDO. HON. G. as it were. In his capacity as Presiding Judge. Millare was received on 28 July 1980 by the Co spouses.. the lessor informed them that they could continue leasing the People's Restaurant so long as they were amenable to paying creased rentals of P1. as lessee.In view of the foregoing. L-55480 PACIFICA MILLARE. Millare's refusal to accept their counter-offer. Costs against respondent Philippine Sugar Estates Development. much less offered.00 a month was made by the Co spouses.00 monthly rentals supposedly sought bv Mrs. and the time for the performance of the obligations of petitioner Gregorio Araneta. a commercial establishment located at the corner of McKinley and Pratt Streets in Bangued. Mrs. HAROLD M. Mrs. 3 In reply. On 30 August 1980. Court of Instance of Abra. married to Antonio Co. The present dispute arose from events which transpired during the months of May and July in 1980. a renewal of the Contract of Lease.00 the "People's Restaurant". Ltd. docketed as Civil . a Saturday. petitioner.00 a nionth and for a period of ten years. in the meantime. on 1 September 1980. the decision appealed from is reversed. Millare which they considered "highly excessive. ANTONIO CO and ELSA CO. prompting them to continue occupying the subject premises and to forego their search for a substitute place to rent. The variance in versions notwithstanding. respondents. the record shows that on 22 July 1980. the Co spouses jumped the gun. and (c) ordering the defendant to pay damages in the amount of P50. Abra. In response. which was scheduled to expire on 31 May 1980. the lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350. already expirecl. 2 In contrast.200.00 a month. oppressive and contrary to existing laws". Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued. (b) ordering the defendant to collect the sum of P1. At this point. Inc.400. They also signified their intention to deposit the amount of rentals in court.200. the lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us". vs. The following Monday. J. Abra. is hereby fixed at the date that all the squatters on affected areas are finally evicted therefrom. Branch I. Millare wrote the Co spouses requesting them to vacate the leased premises as she had no intention of renewing the Contract of Lease which had. According to the Co spouses. So ordered. Under the written agreement. No.00 a month) in court. a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co.00 deposited by plaintiffs with the court. Second Judicial District. and filed a Complaint 5 (docketed as Civil Case No. a counteroffer of P700. which alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed. who responded by depositing the rentals for June and July (at 700. FELICIANO. 1434) with the then Court of First Instance of Abra against Mrs. Co. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate of P700. sometime during the last week of May 1980.: On 17 June 1975.00. the lessor flatly denied ever having considered. in view of Mrs.R. the Co spouses reiterated their unwillingness to pay the Pl.000.4 Another letter of demand from Mrs.

though for reasons different from those cited by the respondent judge. Millare filed the instant Petition for Certiorari. and (b) lack of jurisdiction by the trial court over the complaint for failure of plaintiffs to secure a certification from the Lupong Tagapayapa of the barangay wherein both disputants reside attesting that no amicable settlement between them had been reached despite efforts to arrive at one. Furthermore plaintiffs were allowed to deposit all accruing monthly rentals in court. i. This Court issued a temporary restraining order on 21 November 1980 enjoining respondent. Mrs.D. It appears further that both complaints were. 661. as attested to by the Barangay Captain in a Certification presented in evidence by petitioner herself. 1508 is not a jurisdictional requirement in the sense that failure to have prior recourse to such procedure would not deprive a court of its jurisdiction either over the subject matter or over the person of the defendant. 10 Hence. the acord shows that two complaints were submitted to the barangay authorities for conciliation — one by petitioner for ejectment and the other by private respondents for renewal of the Contract of Lease. assail the proceedings in the trial court on a technicaety. while defendant Millare was directed to submit her answer to the complaint. 13 We would note firstly that the conciliation procedure required under P. defendant in Civil Case No. before the temporary restraining order could be served on the respondent judge.00 a month. The spouses Co. however.Case No.14 Secondly. of that same aftemoon. was cured by the subsequent issuance of the Certifications to File Action by the barangay Lupong Tagapayapa Such certifications in any event constituted substantial comphance with the requirement of P. 12 Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over Civil Case No. 8 A motion for reconsideration 9 was subsequently filed which. defendants therein. 15 Petitioner would. On18 March 1981. 1434. heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. 1508. Prohibition and Mandamus. Mrs. payable in arrears.e. respondent judge denied the motion to dismiss and ordered the renewal of the Contract of Lease. Turning to the first issue. he rendered a "Judgment by Default" dated 26 November 1980 ordering the renewal of the lease contract for a term of 5 years counted from the expiration date of the original lease contract. and fixing monthly rentals thereunder at P700.. subsequently set up lis pendens as a defense against the complaint for ejectment. The spouses Co.m. 1434. . defendants therein. The defect in procedure admittedly initially present at that particular moment when private respondents first filed the complaint in the trial court. of 30 August 1980. or one hour and twenty minutes before the issuance of the requisite certification by the Lupng Tagapayapa. 7 In an Order dated 15 October 1980. Millare. was likewise denied. 1434.m. countered with an Omnibus Motion to Dismiss6 rounded on (a) lack of cause of action due to plaintiffs' failure to establish a valid renewal of the Contract of Lease. petitioner's attack on the jurisdiction of the trial court must fail. private respondents allegedly filed their complaint at 4:00 p. and (2) whether or not private respondents have a valid cause of action against petitioner. judge from conducting further proceedings in Civil Case No. seeking injunctive relief from the abovementioned orders. Prohibition and Mandamus. 661. The Co spouses opposed the motion to dismiss. as required by Section 6 of Presidential Decree No.D. Certifications to File Action authorizing the parties to pursue their respective claims in court were then issued at 5:20 p. 11 Apparently. After attempts at conciliation had proven fruitless. 1508. sut)sequently set up lis pendens as a Civil Case No. on 13 November 1980. nonetheless. in fact. this Court gave due course to the Petition for Certiorari.

. reject and refuse to renew said lease contract.200 a month. It is the defendant-lessor's assertion and position that she can at the mere click of her fingers.. urges that under paragraph 13 quoted above. that is. this Court cannot sanction lot owner's business and commercial speculations by allowing them with "unbridled discretion" to raise rentals even to the extent of "extraordinary gargantuan proportions. obliges the lessor to fulfill her promise. This negative position of the defendantlessor.00". social justice and equity. but.. just throw-out the plaintiffs-lessees from the leased premises and any time after the original term of the lease contract had already expired.. under these facts and circumstances surrounding this case. Nonetheless. and as a unilateral stipulation. that is. to wit: xxx xxx xxx The term "to be renewed" as expressly stipulated by the herein parties in the original contract of lease means that the lease may be renewed for another term of five (5) years. the law of lease is impressed with public interest. this is not the correct concept or perspective the law of lease. (Emphasis supplied. for indeed. the lease contract has never expired because paragraph 13 thereof had expressly mandated that it is renewable. the respondent Judge elaborated his views — obviously highly emotional in character — in the following extraordinary tatements: However.. This contract of lease is subject to the laws and regulations ofthe goverrunent.-" Many business establishments would be closed and the public would directly suffer the direct consequences. its equivalent to a promise made by the lessor to the lessee... and that this contract of lease may be renewed after a period of five (5) years under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal.) The respondent judge. In short. in his Answer and Comment to the Petition. no Man should unjustly enrich himself at the expense of another.200. to place the lessee always at the mercy of the lessor's "Merchant of Venice" and to agit the latter's personal whims and caprices. except to surrender and vacate the premises mediately.16 In the "Judgment by Default" he rendered. the defendant-lessor's hostile attitude by imposing upon the lessee herein an "unreasonable and extraordinary gargantuan monthly rental of P1. is "fly-by night unjust enrichment" at the expense of said lessees.We turn to the second issue. there was already a consummated and finished mutual agreement of the parties to renew the contract of lease after five years. once expressly . Paragraph 13 of the Contract of Lease reads as follows: 13. 1434 filed by the respondent Co spouses claiming renewal of the contract of lease stated a valid cause of action.. the action therefore to renew the lease contract! is "tenable" because it falls squarely within the coverage and command of Articles 1197 and 1670 of the New Civil Code. reason for which. of course the lessor is free to comply and honor her commitment or back-out from her promise to renew the lease contract. to the mind of this Court. whether or not the complaint in Civil Case No. while the lessee is begging P700 a month which doubled the P350 monthly rental under the original contract . what is only left unsettled between the parties to the contract of lease is the amount of the monthly rental. the lessor insists Pl. and calculated to unreasonably and unjustly eject the helpless lessee because he cannot afford said inflated monthly rental and thereby said lessee is placed without any alternative. . but. to the mind of this Court does not conform to the principles and correct application of the philosophy underlying the law of lease. it is now the negative posture of the defendant-lessor to block.

Most importantly.) The first paragraph of Article 1197 is clearly inapplicable. it follows. the lessor shall not be allowed to evade or violate the obligation to renew the lease because. certainly. Article 1197 applies only where a contract of lease clearly exists. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the period of the renewal contract. morals. the respondent judge's grasp of both the law and the Enghsh language is tenuous at best. (Emphasis supplied. Failure to reach agreement on the terms and conditions of the renewal contract will of course prevent the contract from being renewed at all. since the Contract of Lease did in fact fix an original period of five years. good customs. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal period was not left to the wiu of the lessee alone. the period cannot be changed by them. therefore. In other words. Article 1670 of the Civil Code reads thus: If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of the lessor and unless a notice to the contrary by either party has previously been given.00 a month.00 is contrary to law. have been probably contemplated by the parties. It is understood that there is an implied new lease. not for the period of the original contract but for the time established in Articles 1682 and 1687.200. and on the term of the renewed contract. In every case. that the lease contract is renewable for another five (5) years and the lessee is not required before hand to give express notice of this fact to the lessor because it was expressly stipulated in the original lease contract to be renewed. justice and equity because no one should unjustly enrich herself at the expense of another. Article 1197 of the Civil Code provides as follows: If the obligation does not fix a period. the bare refusal of the lessor to renew the lease contract unless the monthly rental is P1. In the instant case. public policy. the lessor and the lessee conspicuously failed to reach agreement both on the amount of the rental to be payable during the renewal term. the contract was not renewed at all. the courts may fix the duration thereof. (Emphasis suplied. the lessor is guilty of breach of contract: Since the original lease was fixed for five (5) years. stipulated. but from its nature and the circumstances it can be inferred that a period was intended. which had expired. Here. The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the "Judgment by Default" by which he ordered the renewal of the lease for another term of five years and fixed monthly rentals thereunder at P700. Wherefore. the courts shall determine such period as may. Paragraph 13 of the Contract of Lease can only mean that the lessor and lessee may agree to renew the contract upon their reaching agreement on the terms and conditions to be embodied in such renewal contract. under the circumstances. Once fixed by the courts.17 Clearly. The courts shall also fix the duration of the period when it depends upon the will of the debtor.) . We are otherwise unable to comprehend how he arrived at the reading set forth above. Article 1197 and 1670 of the New Civil Code must therefore govern the case at bar and whereby this Court is authorized to fix the period thereof by ordering the renewal of the lease contract to another fixed term of five (5) years. but rather to the will of both the lessor and the lessee. there was in fact no contract at all the period of which could have been fixed. the lessor may be held hable for damages caused to the lessee as a consequence of the unjustifiable termination of the lease or renewal of the same. The ther terms of the original contract shall be revived.

That volition cannot be supplied by a judge and a judge who pretends to do so. be consensual or contractual in nature.R. by definition. the resulting "agreement" cannot. 1337. At the latest. a contract may be annulled if tainted by violence. It cannot be presumed and may be implied only if the old and new contracts are incompatible on every point. No pronouncement as to costs. are hereby annulled and set aside and Civil Case No. June 25.R. Prohibition and mandamus is granted. J. G. the implied new lease could not possibly have a period of five years. LIM. It would also follow that such coerced terms and conditions cannot be the law as between the parties themselves. 19 WHEREFORE. courts have no authority to prescribe the terms and conditions of a contract for the parties.. The Orders of the respondent judge in Civil Case No. DOING BUSINESS UNDER THE NAME AND STYLE OF QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES. the date of expiration of the contract. Civil Code of the Philippines). which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City. public and private. is hereby made permanent. an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands served by the petitioner upon the private respondents to vacate the previously leased premises.The respondents themselves. SANTOS. Even if it be assumed that tacite reconduccion had occurred. AND CANDIDA A. equity and public policy" demand. As pointed out by Mr. intimidation or undue influence (Article 1306. but rather would have been a month-to- month lease since the rentals (under the original contract) were payable on a monthly basis. 206806. v.: Novation must be stated in clear and unequivocal terms to extinguish an obligation. Branch 171. Contracts spring from the volition of the parties. which do not obtain here. do not pretend that the continued occupancy of the leased premises after 31 May 1980. INC. If they are imposed by a judge who draws upon his own private notions of what morals. The temporary restraining order dated 21 November 1980 issued by this ourt. Philippine Long Distance Telephone.Co. 1434 is hereby dismissed. Justice J. 95709. CV No. Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G. for collection of sum of money.L. 1434 dated 26 September 1980 (denying petitioner's motion to dismiss) and 4 November 1980 (denying petitioner's motion for reconsideration). acts tyrannically.B. 1336. The facts are as follows: .[[18 [P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Contractual terms and conditions created by a court for two parties are a contradiction in terms. It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in fact.. DECISION LEONEN. Freedom to stipulate such terms and conditions is of the essence of our contractual system. justice. Respondent. No. DAN T. Petitioners. was with the acquiescence of the lessor. Save in the limited and exceptional situations envisaged inArticles ll97 and 1670 of the Civil Code. arbitrarily and in excess of his jurisdiction. the Petition for Certiorari. and the "Judgment by Default" rendered by the respondent judge dated 26 November 1980. and by express provision of the statute. 2014 ARCO PULP AND PAPER CO. good customs. Reyes in Republic vs.

2007.968. bring this petition for review on certiorari. Lim alleged that when he delivered the raw materials. According to him.00 moral damages. where his conformity through a separate contract was indispensable.220. 2007. 2007. Lim the amount of P7. but no payment was made to him. novation did not take place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between them.487.9 cralawred On the same day. Dan T.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T.Dan T. He argued that if his name was mentioned in the contract. it was only for supplying the parties their required scrap papers.22 cralawred The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation.68 as partial payment. it was dishonored for being drawn against a closed account. and P50.11 On May 5.31.26 Arco Pulp and Paper and its President and Chief Executive Officer. Hence. the trial court allowed Dan T.19 cralaw red On January 11. 20077 in the amount of P1. Lim. Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement10where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation.31 with interest at 12% per annum from the time of demand. It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be supplied by Quality Paper & Plastic Products Ent. to factories engaged in the paper mill business. Santos and Mr. According to the memorandum. he delivered scrap papers worth P7.00 attorney’s fees.50 per kg.6 cralaw red Dan T. Lim appealed18 the judgment with the Court of Appeals. Schedule of deliveries are as follows: .8 When he deposited the check on April 18. 2007. Arco Pulp and Paper issued a post-dated check dated April 18. Valenzuela City.968..000. owned by Eric Sy. Inc. (price subject to change per advance notice). April 18. which extinguished Arco Pulp and Paper’s obligation to Dan T.. it has been mutually agreed between Mrs. 2013.. Candida A. Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of ?7. 2008.766. Branch 171. holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement. Lim the value of the raw materials or deliver to him their finished products of equivalent value.000. on May 28. Lim.23 It also ruled that Dan T. and other raw materials. P50. Santos.4From February 2007 to March 2007. Lim works in the business of supplying scrap papers. The memorandum of agreement reads as follows: chanRoble svirtual Lawli bra ry Per meeting held at ARCO. under the name Quality Paper and Plastic Products. cartons. Quality Paper and Plastic Products.16 c ralawre d On September 19.. through his company. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM. petitioners argue that the execution of the memorandum of agreement constituted a novation of the original obligation since Eric Sy became the new debtor of respondent.220. the raw materials would be supplied by Dan T. Lim to present his evidence ex parte. novation took place.24 cralaw red Its motion for reconsideration25 having been denied.13 cralawred Dan T. Candida A. Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial hearing.50 per kg. 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T.00 exemplary damages. On one hand. Enterprises. Eric Sy’s account. the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated September 19. total of 600 Metric Tons at P6.17 cralawred Dan T. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking. They also argue that there is .220. Candida A.968.000. Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack Container Corp. for his account. Santos. based on the above production schedule. full width 76 inches at the price of P18. (Arco Pulp and Paper) through its Chief Executive Officer and President.31 to Arco Pulp and Paper Company. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court. the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint. with the assurance that the check would not bounce. P50. to Megapack Container for Mr.

Santos personally liable for the transaction that petitioner corporation entered into with respondent. “In an alternative obligation. The Court of Appeals. they allege. The obligation between the parties was an alternative obligation The rule on alternative obligations is governed by Article 1199 of the Civil Code. Inc. Whether moral damages.M. the original obligation was novated.34 According to the factual findings of the trial court and the appellate court.35 cralaw red The appellate court. there is more than one object. . and only after said notice shall the election take legal effect when consented by the creditor.220. determined by the choice of the debtor who generally has the right of election. 99-2-04-SC dated November 21. and the fulfillment of one is sufficient. therefore. after receiving the raw materials from respondent. 2000. or if impugned by the latter. By agreement.”29 c ralawred In their reply. . Respondent’s receipt of the check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay. would either pay him the price of the raw materials or. but it was noted without action in view of A. No. whereby petitioner Arco Pulp and Paper.968. argues that the Court of Appeals was correct in ruling that there was no proper novation in this case. as the debtor.968. when declared proper by a competent court. A person alternatively bound by different prestations shall completely perform one of them.31 cralaw red The issues to be resolved by this court are as follows: chanRoblesvi rt ual Lawlib rary 1. also erred in awarding moral and exemplary damages and attorney’s fees to respondent who did not show proof that he was entitled to damages. Santos was solidarily liable with Arco Pulp and Paper Co. the original contract between the parties was for respondent to deliver scrap papers worth P7.33 The choice of the debtor must also be communicated to the creditor who must receive notice of it since: cha nRoblesvi rt ualLaw lib rary The object of this notice is to give the creditor . had the option to either (1) pay the price or (2) deliver the finished products of equivalent value to respondent. correctly identified the obligation between the parties as an alternative obligation. on the other hand. 3.28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A. or to impugn the election made by the debtor. .no legal basis to hold petitioner Candida A. He argues that the Court of Appeals was correct in ordering the payment of ?7. 27 cralawred Respondent. When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers. They also argue that when respondent allowed them to deliver the finished products to Eric Sy. petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the obligation was alternative. they exercised their option to pay the price. and attorney’s fees can be awarded The petition is denied. deliver to him the finished products of equivalent value. in the alternative.31 to petitioner Arco Pulp and Paper. Whether Candida A.30 cralawred A rejoinder was submitted by respondent.31 with damages since the debt of petitioners remains unpaid. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. The creditor cannot be compelled to receive part of one and part of the other undertaking. petitioner Arco Pulp and Paper.. Whether the obligation between the parties was extinguished by novation 2. which states: chanRoblesvi rtual Lawli bra ry Article 1199. exemplary damages. opportunity to express his consent.220.”32 The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice known. Santos was “the prime mover for such outstanding corporate liability.

novation is made either by changing the object or the principal conditions. The rules on novation are outlined in the Civil Code. In expromision. referred to as objective or real novation. may be made even without the knowledge or against the will of the latter. or by subrogating a third person to the rights of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. Novation which consists in substituting a new debtor in the place of the original one.”36 cralawred Novation was extensively discussed by this court in Garcia v. or that the old and the new obligations be on every point incompatible with each other. and the creditor accepts. or by substituting the person of the debtor or subrogating a third person to the rights of the creditor. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. In delegacion. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a third person.This choice was also shown by the terms of the memorandum of agreement. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person. which was executed on the same day. Novation which consists in substituting a new debtor in the place of the original one.” In general. 1293. thus. In order that an obligation may be extinguished by another which substitute the same. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. by substituting a new debtor in place of the old one. since it consists of a third person’s assumption of the obligation. may be made even without the knowledge or against the will of the latter. it is imperative that it be so declared in unequivocal terms. it did not novate the original obligation between the parties. (1204) Article 1293. the debtor offers. but not without the consent of the creditor. (3) Subrogating a third person in the rights of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. Whether extinctive or modificatory. The memorandum of agreement did not constitute a novation of the original contract The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the contract between the parties. (1205a) Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation of the creditor. Both modes of substitution by the debtor require the consent of the creditor. For novation to take place. It occurs only when the new contract declares so “in unequivocal terms” or that “the old and the new obligations be on every point incompatible with each other. thus:chanRoble svirtual Lawlib ra ry Article 1291. an act known as subjective or personal novation. thereby extinguishing the option to deliver the finished products of equivalent value to respondent. (2) Substituting the person of the debtor. the consent of these three persons are necessary. (1203) Article 1292. a third person who consents to the substitution and assumes the obligation. As such. Obligations may be modified by: (1) Changing their object or principal conditions. there are two modes of substituting the person of the debtor: (1) expromisionand (2) delegacion. Llamas:37 cralawred Novation is a mode of extinguishing an obligation by changing its objects or principal obligations. it logically requires the consent of the third person and the creditor. Novation may also be extinctive or modificatory. but not without the consent of the creditor. the initiative for the change does not come from — and may even be made without the knowledge of — the debtor. the following requisites must concur: . Article 1293 of the Civil Code defines novation as follows: “Art.

which states: chanRoblesvi rtua lLawl ibra ry Per meeting held at ARCO. As this court stated: chanRob lesvi rtual Lawl ibra ry . Neither of these circumstances is present in this case.1) There must be a previous valid obligation. moral damages may be awarded in case of breach of contract where the breach is due to fraud or bad faith: chanRoblesvi rtua lLawl ibra ry Art. Petitioners are liable for damages Under Article 2220 of the Civil Code. thus: chanRoblesv irt ual Lawlib rary In the civil law setting. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead. . its animus must be ever present. These acts. his conformity to the contract need not be secured. It is implied when the new obligation is incompatible with the old one on every point. 2) The parties concerned must agree to a new contract.38 (Emphasis supplied) Because novation requires that it be clear and unequivocal. thus. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that. it is never presumed. (Emphasis supplied) Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad faith. therefore. for novation to be a jural reality. petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing.41 If the memorandum of agreement was intended to novate the original agreement between the parties.31. the principle — novatio non praesumitur — that novation is never presumed. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor.968. At bottom. 4) There must be a valid new contract. Candida A. 3) The old contract must be extinguished. respondent must have first agreed to the substitution of Eric Sy as his new debtor. respondent was not privy to the memorandum of agreement. April 18.39 (Emphasis supplied) There is nothing in the memorandum of agreement that states that with its execution. Eric Sy. Novation may also be express or implied. Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their obligation to Eric Sy. Santos and Mr. the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. must still pay respondent the full amount of P7. it showed that the former neither acknowledged nor consented to the latter as his new debtor. The test of incompatibility is whether the two obligations can stand together. when taken together. it has been mutually agreed between Mrs. Since there was no novation. The memorandum of agreement must also state in clear and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent. .220. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. debitum pro debito — basically extinguishing the old obligation for the new one. Moreover. When respondent sent his letter of demand to petitioner Arco Pulp and Paper. So it is deeply rooted in the Roman Law jurisprudence. such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. This is clear from the first line of the memorandum. clearly show that novation did not take place.40 (Emphasis supplied) In this case. . each one with its own independent existence. novatio is literally construed as to make new. 2007. and not to Eric Sy. The consent of the creditor must also be secured for the novation to be valid: chanRoble svirtual Lawlib rary Novation must be expressly consented to. Petitioner Arco Pulp and Paper. 2220. under the circumstances.

When the obligation became due and demandable. This has remained unpaid since 2007. slander or any other form of defamation. reckless. petitioner Arco Pulp and Paper not only issued an unfunded check but also entered into a contract with a third person in an effort to evade its liability. or other lascivious acts. (4) Adultery or concubinage. 26. he or she goes against Article 19 of the Civil Code. and (4) fourth. and oppressive or abusive.968. whether physical. When a party breaches a contract. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations. malicious or in bad faith. 30. 28. and public policy: chanRoble svirtual Lawli bra ry . This proves the third requirement. however. (9) Acts mentioned in Article 309. (3) Seduction. Article 19 describes the degree of care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21. and 35.220. in the exercise of his rights and in the performance of his duties. 27. Moral damages may be recovered in the following and analogous cases: ChanRobles Vi rtua lawlib rary (1) A criminal offense resulting in physical injuries. Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. By itself. contrary to law. the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code.Moral damages are not recoverable simply because a contract has been breached. shall indemnify the latter for the same. The breach must be wanton. Article 20 requires a violation of law. Article 21. To be actionable. Every person must. which states: chanRoble svirtual Lawli bra ry Article 19. (2) Quasi-delicts causing physical injuries. good customs.43 Here. Failure to do so results in an abuse of that right. 34.42 Further. 29. the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant. mental or psychological. abduction. wilfully or negligently causes damage to another. and observe honesty and good faith. while Article 21 only concerns with lawful acts that are contrary to morals. (10) Acts and actions referred to in Articles 21. Breaches of contract done in bad faith. good customs or public policy shall compensate the latter for the damage. (6) Illegal search. it is not the basis of an actionable tort. there must be an injury. rape.44 Article 20 and 21 of the Civil Code are as follows: chanRoblesvi rt ualLaw lib rary Article 20. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals. As to the fourth requisite. They are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances:chanRob lesvi rtua lLawl ibra ry Article 2219. Every person who. (5) Illegal or arbitrary detention or arrest.31 from his business. the injury suffered by respondent is the loss of P7. give everyone his due. however. to wit: (1) first. which may become the basis of an action for damages. cannot be its sole basis: chanRob lesvirtual Lawlib ra ry Article 19 is the general rule which governs the conduct of human relations. act with justice. clearly sustained by the claimant. Article 19. 32. are not specified within this enumeration. (3)third. the following requisites must be proven for the recovery of moral damages: chanRoblesvi rtua lLawl ibra ry An award of moral damages would require certain conditions to be met. there must be culpable act or omission factually established. (7) Libel. (2) second. (8) Malicious prosecution.

reckless.45 When parties act in bad faith and do not faithfully comply with their obligations under contract. oppressive. but also under Articles 19 and 20 in relation to Article 1159. a question of intention. it requires an examination of the circumstances in each case. reckless and malicious. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.49 we stated that: chanRoblesvirt ual Lawlib rary . When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent.”48 Moral damages may. Article 2219. temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. not only under Article 2220. fraudulent. concerns injuries that may be caused by acts which are not necessarily proscribed by law.47 (Emphasis supplied) Since a finding of bad faith is generally premised on the intent of the doer. that is. therefore. therefore. In Tankeh v. Lasala:46 cralawred To recover moral damages in an action for breach of contract. Willful may refer to the intention to do the act and the desire to achieve the outcome which is considered by the plaintiff in tort action as injurious. In cases under Article 21. the plaintiff must show that he is entitled to moral. the act is not only contrary to morals. Bad faith does not simply connote bad judgment or negligence. Article 21. Breaches of contract become the basis of moral damages. Exemplary damages cannot be recovered as a matter of right. In Adriano v. are not recoverable on the mere breach of the contract. that there was an intention to do the act and a desire to achieve the outcome. Under the Civil Code. however. or abusive.Article 20 concerns violations of existing law as basis for an injury. It is. Worse. Hence. Moral damages. in bad faith. or malevolent manner. the person claiming bad faith must prove its existence by clear and convincing evidence for the law always presumes good faith. Negligence may refer to a situation where the act was consciously done but without intending the result which the plaintiff considers as injurious. the court will decide whether or not they should be adjudicated. among others. the court may award exemplary damages if the defendant acted in a wanton. This article requires that the act be willful. Petitioner Arco Pulp and Paper’s actions clearly show “a dishonest purpose or some moral obliquity and conscious doing of a wrong. Article 2234. Article 21. they run the risk of violating Article 1159 of the Civil Code: chanRoble svirtual Lawli bra ry Article 1159. When a party reneges on his or her obligations arising from contracts in bad faith. Development Bank of the Philippines. oppressive. which can be inferred from one’s conduct and/or contemporaneous statements. It allows recovery should the act have been willful or negligent. is not an exhaustive list of the instances where moral damages may be recovered since it only specifies. In contracts and quasi-contracts. therefore. on the other hand. Article 2220 requires that the breach be done fraudulently or in bad faith. the breach must be palpably wanton. the legal issues revolve around whether such outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care required in Article 19. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. good customs. Exemplary damages may also be awarded. it was presumably with the knowledge that it was being drawn against a closed account. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. it attempted to shift their obligations to a third person without the consent of respondent. While the amount of the exemplary damages need not be proven. exemplary damages are due in the following circumstances: chanRoblesvi rt ualLaw lib rary Article 2232. be awarded. Article 2233. it is also a violation of Article 1159. and public policy.

this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act.52 we stated that: chanRoblesvirtual Lawlib rary Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and. Since the award of exemplary damages is proper. acting through its directors. Exemplary damages may also be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities.51 Business owners must always be forthright in their dealings. gross negligence or recklessness. In either case. Following this principle. officers and employees. their determination depending upon the amount of compensatory damages that may be awarded to the claimant. In common law. They cannot be allowed to renege on their obligations. and (3) the act must be accompanied by bad faith or done in a wanton. Nevertheless. Article 2208 of the Civil Code states: chanRoblesvi rt ualLaw lib rary Article 2208. other than judicial costs. In Heirs of Fe Tan Uy v. except: (1) When exemplary damages are awarded[. A director. these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future. exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings. wantonness. are its sole liabilities. cannot be recovered. officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. malice. citations omitted) The requisites for the award of exemplary damages are as follows: ChanRobles Vi rtua lawlib rary (1) they may be imposed by way of example in addition to compensatory damages.. or to confuse legitimate issues. used interchangeably. the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness. The terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous conduct.. Rante citing People v. or as a vehicle for the evasion of an existing obligation. Santos is solidarily liable with petitioner corporation Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the transaction was also a personal undertaking of petitioner Santos.The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. . . (2) that they cannot be recovered as a matter of right. insult or fraud or gross fraud—that intensifies the injury. In the absence of stipulation. These terms are generally. attorney's fees and expenses of litigation. but not always.50 (Emphasis supplied. obligations incurred by the corporation. We disagree.] Petitioner Candida A. and only after the claimant's right to them has been established. attorney’s fees and cost of the suit may also be recovered.. oppression. in general. International Exchange Bank. and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. considering that these obligations were freely entered into by them. there is preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted. fraudulent. oppressive or malevolent manner. The case of People v. from the people comprising it. Dalisay held that:ChanRoblesVi rtua lawlib rary Also known as ‘punitive’ or ‘vindictive’ damages. the circumvention of statutes.

or that the officer was guilty of gross negligence or bad faith. However. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper.56 (Emphasis supplied) According to the Court of Appeals. to shield or perpetrate fraud or to carry out similar or inequitable considerations. the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. stating that: chanRoblesvirtual Lawlib rary In the present case. Here. While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45. that the corporate veil must be pierced. Inc. or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. In this instance. in which case. she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a misapprehension of facts. or to justify a wrong. other unjustifiable aims or intentions. be petitioner Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper. negligence or bad faith.”54 Any obligation arising from these acts would not. that (1) the officer is guilty of negligence or bad faith. In Livesey v. “Arco Pulp & Paper. When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable. of the promulgation by this court of the decision dated August 13. After the check in the amount of P1.68 issued by [petitioner] Santos was dishonored for being drawn against a closed account. however.59 the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand.53 (Emphasis supplied) As a general rule. this veil of corporate fiction may be pierced if complainant is able to prove. Gallery Frames. the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation.57 We agree with the Court of Appeals. [petitioner] corporation denied any privity with [respondent]. Binswanger Philippines:55 c ralaw red Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes.Before a director or officer of a corporation can be held personally liable for corporate obligations. This is clear on the face of the check bearing the account name. Under the doctrine. however. and (2) such negligence or bad faith was clearly and convincingly proven. the corporate veil may be pierced. the corporate existence may be disregarded where the entity is formed or used for non- legitimate purposes. We find. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights. officers. petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper.766.487. ordinarily.60 and we have laid down the following guidelines with regard to the rate of legal interest:c hanRoble svirtual Lawlib ra ry . These acts clearly amount to bad faith. Petitioner Santos cannot be allowed to hide behind the corporate veil. 2013 in Nacar v. Gallery Frames58 c ralawre d In view. Court of Appeals.. She unjustifiably refused to honor petitioner corporation’s obligations to respondent. Co. Nacar effectively amended the guidelines stated in Eastern Shipping v. The rate of interest due on the obligation must be reduced in view of Nacar v. as in this case. petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper. and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper. and (2) the complainant must clearly and convincingly prove such unlawful acts. however. such as to evade a just and due obligation. directors. We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent].

the contravenor can be held liable for damages. law.00. Civil Code). The actual base for the computation of legal interest shall. be on the amount finally adjudged. With regard particularly to an award of interest in the concept of actual and compensatory damages. 2013. the rate of legal interest. The decision in CA-G.) According to these guidelines. Petitioners Arco Pulp & Paper Co. judgments that have become final and executory prior to July 1. as follows: I. 95709 is AFFIRMED. When the judgment of the court awarding a sum of money becomes final and executory. however. citations omitted. but when such certainty cannot be so reasonably established at the time the demand is made.e. not constituting a loan or forbearance of money. where the demand is established with reasonable certainty.R. Santos are hereby ordered solidarily to pay respondent Dan T.00. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. Roselino Reyes Isler for respondents. L-55138 September 28. Furthermore. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.000.. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. When an obligation. the guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No.220.e. Inc. respondents. and attorney’s fees in the amount of P50. Lim the amount of P7. CV No. G. the interest due shall itself earn legal interest from the time it is judicially demanded. computed from May 5. with moral damages in the amount of P50.000. when respondent sent his letter of demand to petitioners. and it consists in the payment of a sum of money. When an obligation. SO. Fortun for petitioner. above.968. and Candida A. No interest. . as well as the accrual thereof. the interest due should be that which may have been stipulated in writing. the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). the rate of interest. quasi-contracts.968. petitioner. in addition to the above. the interest due on the obligation of P7.e. 1169. SO ORDERED. 1984 ERNESTO V. No. 2007. II.31 with interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction. WHEREFORE.R.. i. Gloria A. the rate of interest shall be 6% per annum to be computed from default. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. vs. whether the case falls under paragraph 1 or paragraph 2. HONORABLE COURT OF APPEALS AND ANTONIO P. 3. This interest shall continue to be due from the finality of this decision until its full satisfaction. the petition is DENIED in part.00. delicts or quasi-delicts is breached. In the absence of stipulation. shall be 6% per annum from such finality until its satisfaction. an interest on the amount of damages awarded may be imposed at the discretion of the courtat the rate of 6% per annum. contracts.To recapitulate and for future guidance.000. regardless of its source. this interim period being deemed to be by then an equivalent to a forbearance of credit. is breached. i.220.31 should now be at 6% per annum. RONQUILLO. 2. i. Accordingly. 799. a loan or forbearance of money. as follows: 1. And. exemplary damages in the amount of P50. in any case. shall be adjudged on unliquidated claims or damages.. When the obligation is breached. except when or until the demand can be established with reasonable certainty.61 (Emphasis supplied. is imposed..

the lower court rendered its Decision 1 based on the compromise agreement submitted by the parties. The amount deposited was subsequently withdrawn by private respondent.00 the amount of P55.00 initial payment. Ronquillo versus the Hon. 1979.00. 1979. the innocent party will be entitled to an execution of the decision based on this compromise agreement and the defaulting party agrees and hold themselves to reimburse the innocent party for attorney's fees. 3 . 1980. Because private respondent refused to accept their payments.000.: This is a petition to review the Resolution dated June 30.98 sought to be collected represents the value of the checks issued by said defendants in payment for foodstuffs delivered to and received by them. 1980. 1979.. Petitioner Ernesto V. SP-10573. Pilar P. herein private respondent (then plaintiff filed a Motion for Execution on the ground that defendants failed to make the initial payment of P55. 1979. xxx xxx xxx On December 26. Petitioner then prayed that private respondent be ordered to accept his payment in the amount of P13. etc. the pertinent portion of which reads as follows: 1. Branch XV filed by private respondent Antonio P. 1980 of the then Court of Appeals (now the Intermediate Appellate Court) in CA-G.00. Said motion for execution was opposed by herein petitioner (as one of the defendants) contending that his inability to make the payment was due to private respondent's own act of making himself scarce and inaccessible on December 24. On December 13. petitioner. as his prorata share in the P55. The amount of P117. entitled "Ernesto V. 1979.00 on or before December 24. The said checks were dishonored by the drawee bank.000. J.000.000 . for the collection of the sum of P17.R. as one of the four defendants. Ronquillo was one of four (4) defendants in Civil Case No. demanding from them the full initial installment of P 55. offered to pay the same amount.000. tendered the amount of P13. Tan.00. Plaintiff agrees to reduce its total claim of P117. Another defendant. 1980.498.000.498-95 to only P11. That both parties agree that failure on the part of either party to comply with the foregoing terms and conditions. The other defendants were Offshore Catertrade Inc.498. petitioner and Pilar Tan instead deposited the said amount with the Clerk of Court. or before June 30. Florellana Castro-Bartolome.750. defendants individually and jointly agree to pay within a period of six months from January 1980. the balance of P55. So. No.98 plus attorney's fees and costs. 33958 of the then Court of First Instance of Rizal (now the Regional Trial Court). 2 During the hearing of the Motion for Execution and the Opposition thereto on January 16. 1979 as provided in the Decision. (Emphasis supplied) xxx xxx xxx 4. on July 23.750. denying petitioner's motion for reconsideration of the above resolution.00.00 on or before December 24. Johnny Tan and Pilar Tan." and the Order of said court dated August 20. execution fees and other fees related with the execution.000.CUEVAS.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P10.

" 5 Petitioner opposed the said motion arguing that under the decision of the lower court being executed which has already become final.500. the fact is that only P27. Offshore Catertrade Inc.500. 1979. 1980. 1980 a petition for certiorari and prohibition with the then Court of Appeals (CA-G.500. consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable. when the lower court's decision based on the compromise agreement did not specifically state the liability of the four (4) defendants to be solidary. 1980. and Johnny Tan 4 who did not pay their shares. Juanson of Rizal. such that if his motion for reconsideration would be denied he would have no more time to obtain a writ from the appellate court to stop the scheduled public sale of his personal properties at 10:00 a. private respondent moved for the reconsideration and/or modification of the aforesaid Order of execution and prayed instead for the "execution of the decision in its entirety against all defendants. let writ of execution issue as prayed for On March 17. He raised the question of the validity of the order of execution. 1980 at 8:30 a. of the same day. the lower court denied petitioner's motion for reconsideration but the scheduled public sale in that same day did not proceed in view of the pendency of a certiorari proceeding before the then Court of Appeals. Realizing the actual threat to property rights poised by the re-setting of the hearing of s motion for reconsideration for April 2.00 on or before December 24. was upon motion of private respondent reset to April 2. April 2. issued a notice of sheriff's sale. the writ of execution and the notice of public sale of his properties to satisfy fully the entire unpaid obligation payable by all of the four (4) defendants. petitioner moved for the reconsideration of the above order. January 16.00 as against the properties of the defendants (including petitioner). 1980.500. 1980. . 1980. and the same was set for hearing on March 25. There appears to be a non-payment in accordance with the compromise agreement of the amount of P27. Special Sheriff Eulogio C. "singly or jointly hable.m. No. The public sale was scheduled for April 2. 1980 at 8:30 a. against the other two defendants. jointly and severally." 6 On March 20. WHEREFORE. The parties are reminded that the payment is condition sine qua non to the lifting of the preliminary attachment and the execution of an affidavit of desistance. 1980. praying at the same time for the issuance of a restraining order to stop the public sale.1980.00. the liability of the four (4) defendants was not expressly declared to be solidary. On January 22. 1980.m. 1980 which was set for hearing on March 25. 1980 at 10:00 a. 1980.R. a writ of execution was issued for the satisfaction of the sum of P82. or more specifically on March 19. Meanwhile.m.m. or jointly and severally. 1980.On the same day. the lower court ordered the issuance of a writ of execution for the balance of the initial amount payable. 7 Petitioner's motion for reconsideration of the Order of Execution dated March 17. for the sale of certain furnitures and appliances found in petitioner's residence to satisfy the sum of P82. the lower court issued an Order reading as follows: ORDER Regardless of whatever the compromise agreement has intended the payment whether jointly or individually. SP-10573). On April 2.00 has been paid. petitioner filed on March 26. On March 17.

the pertinent portion of which reads as follows: This Court.On June 30. (b) denying reconsideration of the Resolution of June 30. Moreover. the lower court had already denied the motion referred to and consequently. the said court issued a Resolution. 1980. all remedies available in that court must first be exhausted. the legal issues being raised in the petition were already "ripe" for determination. 1980. and in denying due course to the petition to restrain implementation of a writ of execution issued at variance with the final decision of the lower court filed barely four (4) days before the scheduled public sale of the attached movable properties. 1980. Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2. the instant petition for certiorari and prohibition with preliminary injunction is hereby denied due course. The rule is that before a petition for certiorari can be brought against an order of a lower court. 1980. to be only joint. the scheduled public sale should be suspended. finds the present petition to have been filed prematurely. 1980 is hereby lifted without pronouncement as to costs. this petition for review. when the defendants. Hence. The fact that the hearing of the motion for reconsideration had been reset on the same day the public sale was to take place is of no moment since the motion for reconsideration of the Order of March 17. SO ORDERED. defaulted in their obligation based on the compromise agreement. 1980. under the final decision of the lower court. of the total unpaid amount payable by his joint co-defendants. which declared as premature the filing of the petition. which could have been favorable to the petitioner. and (e) not declaring as invalid and unlawful the threatened execution. The foregoing assigned errors maybe synthesized into the more important issues of — . 1980 having been seasonably filed. herein petitioner filed a petition without waiting for a resolution of the Court on the motion for reconsideration. as against the properties of petitioner who had paid his pro-rata share of the adjudged obligation. 8 The said motion was however denied by the Court of Appeals in its Resolution dated August 20. 1980. including herein petitioner. the writ of execution and the notice of sheriff's sale. petitioner contending that the Court of Appeals erred in (a) declaring as premature. singly and jointly". private respondent had become entitled to move for an execution of the decision based on the said agreement. executing the lower court's decision against "all defendants. to be at variance with the lower court's final decision which did not provide for solidary obligation. (d) not holding the lower court's order of execution dated March 17. In the case at bar. the motion referred to was already denied by the lower court and there was no more motion pending therein. WHEREFORE. however. although there is proof on record that as of April 2. The restraining order issued in our resolution dated April 9. (c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of the defendants.

the credit or debt shall be presumed to be divided into as many equal shares as there are creditors and debtors. despite the pendency of a motion for reconsideration of the same questioned Order? 2. the public sale scheduled that very same morning could have proceeded. What is the nature of the liability of the defendants (including petitioner). proper. the credits or debts being considered distinct from one another. 1980 and were it not for the pendency of the petition with the Court of Appeals and the restraining order issued thereafter. The decision of the lower court based on the parties' compromise agreement. Art. In this regard. The records likewise show that petitioner's motion for reconsideration of the questioned Order of Execution was filed on March 17. or was it several or solidary? Anent the first issue raised. was it merely joint. In fact. entire compliance with the prestation. Needless to state that under the circumstances. 1980 and was set for hearing on March 25. petitioner was faced with imminent danger of his properties being immediately sold the moment his motion for reconsideration is denied. 1980 at 8:30 a. the said rule is not absolutes 9 and may be dispensed with in instances where the filing of a motion for reconsideration would serve no useful purpose.. the hearing was reset to April 2. but upon motion of private respondent. the said motion was already denied by the lower court in its order dated April 2. Plainly. 1208.m. Then is a solidary liability only when the obligation expressly so states. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand. the public sale can proceed at 10:00 that morning. or that each one of the latter is bound to render. subject to the Rules of Court governing the multiplicity of quits. 1980.m.or the nature or the wording of the obligation to which the preceding article refers the contrary does not appear. 1980 at 8:30 a. such as when the motion for reconsideration would raise the same point stated in the motion 10 or where the error is patent for the order is void 11 or where the relief is extremely urgent. the very same clay when petitioner's properties were to be sold at public auction. 1980 before taking recourse to the appellate court may already be too late since without a restraining order. The other issue raised refers to the nature of the liability of petitioner. For him to wait until after the hearing of the motion for reconsideration on April 2.m.. that is whether or not he is liable jointly or solidarily. the records show that not only was a writ of execution issued but petitioner's properties were already scheduled to be sold at public auction on April 2.1. 1980 at 10:00 a. urgency prompted recourse to the Court of Appeals and the adequate and speedy remedy for petitioner under the situation was to file a petition for certiorari with prayer for restraining order to stop the sale. provides: . a motion for reconsideration should precede recourse to certiorari in order to give the trial court an opportunity to correct the error that it may have committed. suffice it to state that while as a general rule. 1207. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of Execution issued by the lower court. Article 1207 and 1208 of the Civil Code provides — Art. dated March 17. or when the law or the nature of the obligation requires solidarity. 13 In the case at bar. as one of the defendants in Civil Case No. as in cases where execution had already been ordered 12 where the issue raised is one purely of law. 33958. If from the law.

R. 14 and a "several obligation is one by which one individual binds himself to perform the whole obligation. petitioner. with slight modification. the amount of P5. Negorra 17 We held that "in the absence of a finding of facts that the defendants made themselves individually hable for the debt incurred they are each liable only for one-half of said amount The obligation in the case at bar being described as "individually and jointly". 1979. "distinctively".00 on or before December 24.000. [G. Brazil. COURT OF APPEALS and TKC MARKETING CORPORATION.171 metric tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8. by the express term of the compromise agreement and the decision based upon it.000. 119599. No. defendants individually and jointly agree to pay within a period of six months from January 1980 or before June 30. Gemora 16 We therein ruled that "the phrase juntos or separadamente or in the promissory note is an express statement making each of the persons who signed it individually liable for the payment of the fun amount of the obligation contained therein.189. vs. Private respondent TKC Marketing Corp. the defendants obligated themselves to pay their obligation "individually and jointly".00. 1980.498. to the port of Manila. SO ORDERED. J.95 to only P110. No. respectively or "severally". 1. Plaintiff agrees to reduce its total claim of P117.: Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G. 15 In the case of Parot vs. was the owner/consignee of some 3.000. Cost against petitioner. The term "individually" has the same meaning as "collectively". the [1] decision of the Regional Trial Court of Cebu. March 20." Likewise in Un Pak Leung vs.00. 1989 for carriage from the port of Rio del Grande.R. THE HON.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P110. An agreement to be "individually liable" undoubtedly creates a several obligation. (Emphasis supply) Clearly then. "separately". DECISION ROMERO. IN VIEW OF THE FOREGOING CONSIDERATIONS. Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for which . 43023 which affirmed. Branch 15. respondents. 1997] MALAYAN INSURANCE CORPORATION.000. the instant petition is hereby DISMISSED. the same is therefore enforceable against one of the numerous obligors. the balance of P55.

30.902.304.00.000. Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an excepted risk under the marine insurance policies.66. private respondent notified petitioner on October 4. it be reimbursed the amount of P128.184.09 (or its peso equivalent of P9. covering the period October 4-December 19.88. which extension was approved upon payment of additional premium. 1990.00 and attorney's fees equivalent to 30% of what will be awarded by the court. M/LP 97800305 amounting to P18.269. 1989 enroute to Manila.231. exemplary damages amounting .024. representing the dollar equivalent on the policies.45 and M/LP 97800306 amounting to P1. While the vessel was docked in Durban. for US$154.195.000.89 at the exchange rate of P22. advised petitioner that it might tranship the cargo and requested an extension of the insurance coverage until actual transhipment. the cargo was sold in Durban. This prompted private respondent to file a complaint for damages praying that aside from its claim. As a result. South Africa on September 11. Private respondent likewise sought the assistance of petitioner on what to do with the cargo. consequential and liquidated damages amounting to P1. 1989 of the arrest of the vessel and made a formal claim for the amount of US$916.45. private respondent asked for moral damages amounting to P200.it issued two (2) Marine Cargo Policy Nos. the civil authorities arrested and detained it because of a lawsuit on a question of ownership and possession.88 as legal expenses and the interest it paid for the loan it obtained to finance the shipment totalling P942. South Africa.66 or P20.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila and another twenty days for the discharge thereof. The lower court decided in favor of private respondent and required petitioner to pay. accordingly. The insurance coverage was extended under the same terms and conditions embodied in the original policies while in the process of making arrangements for the transhipment of the cargo from Durban to Manila. 1989. on December 11. aside from the insurance claim.928. On January 5.879.986.886.159. private respondent forthwith reduced its claim to US$448. both dated September 1989. for non-delivery of the cargo.005. Private respondent. exemplary damages amounting to P200.0138 per $1.770. However.806. Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. In addition.40 per metric ton or a total of P10.233.00) representing private respondent's loss after the proceeds of the sale were deducted from the original claim of $916. 1989.55.886.

Hence this petition. & S. But due to the perishable nature of the goods. In other words. it should not operate to discharge petitioner from its contractual liability. Hence. it had to be promptly sold to minimize loss. the sale of the goods being reasonable and justified.000. restraints or detainments contemplated in the former clause were those effected by political or executive acts. the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12 of the policies issued to private respondent. reimbursement in the amount equivalent to 10% of whatever is recovered as attorney's fees as well as the costs of the suit. The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss compensable. Pilferage. [2] Furthermore.C. not only under the Institute War Clause but also under the Theft.00. the arrest and seizure by judicial processes which were excluded under the former policy became one of the covered risks. the appellate court contended that since the vessel was prevented at an intermediate port from completing the voyage due to its seizure by civil authorities. and Non-delivery Clause (TNPD) of the insurance policies. However. as read in relation to Section 130 of the Insurance Code and as held in Williams v. restraint or detainment within the meaning of Clause 12 (or F. . 2. the same became automatically covered under subsection 1. 3. petitioner was also required to further pay interest at the rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the lower court decision counted from the inception of this case until the same is paid. is an excepted risk under Clause 12 of the Institute Cargo Clause or the F. arrest. Clause. with the deletion of Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses (Cargo).C. & S.to P100. claiming that the Court of Appeals erred: 1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies. Accordingly. On appeal. In ruling that petitioner was in bad faith in declining private respondent's claim. The arrests.1 of Section 1 of the Institute War Clauses. Clause) rules out detention by ordinary legal processes. Cole. such as what happened in the instant case. the liability of petitioner continued until the goods could have been transhipped. Losses occasioned by riot or ordinary judicial processes were not covered therein. arrests by civil authorities. a peril insured against. In ruling that there was constructive total loss over the cargo. On private respondent's motion for reconsideration.

argued that when it appealed its case to the Court of Appeals. petitioner alleges that its act of rejecting the claim was a result of its honest belief that the arrest of the vessel was not a compensable risk under the policies issued. Likewise. (c) the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities. petitioner submits the following: (a) an arrest by civil authority is not compensable since the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or by ordinary judicial process as in this case. petitioner submits that any loss which private respondent may have incurred was in the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest. detention or seizure of the ship. It also argued that petitioner. for the first time. "arrests" should be strictly interpreted against it because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be construed reasonably and in a manner as to make effective the intentions and expectations of the parties. (b) the deletion of the Free from Capture or Seizure Clause would leave the assured covered solely for the perils specified by the wording of the policy itself. such was not necessary because the coverage as ruled upon by the Court of Appeals is evident from the very terms of the policies. . petitioner did not raise as an issue the award of exemplary damages. In fact. being the sole author of the policies. petitioner cannot submit for the first time on appeal its argument that it was wrong for the Court of Appeals to have ruled the way it did based on facts that would need inquiry into the evidence. Private respondent. It cannot now. As to the third issue. notwithstanding that it was then under no legal obligation to do so. As to the second assigned error. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.4. It added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package and that it was petitioner itself that invited and granted the extensions and collected premiums thereon. on the other hand. petitioner supported private respondent by accommodating the latter's request for an extension of the insurance coverage. In assigning the first error. Even if inquiry into the facts were possible. raise the same before this Court.

or quality soever.. Clause which reads. and recovery of the said goods and merchandises. they are of the Seas. but this warranty shall not exclude collision. or any part thereof. Princess and Peoples. marine insurance developed as an all- risk coverage. condition. or Acceptance of Abandonment. Men-of-War. & c. that this writing or Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or Policy of INSURANCE made in LONDON.. Losses. Pirates. Jettisons. Fire. INC. By way of a historical background. and the consequences thereof or of any attempt thereat. & S. servants and assigns. thus: "Warranted free of capture. safeguards.. And it is agreed by the said COMPANY. their Heirs. restraint or detainment. are content to bear. Goods and Chattel. in and about the defence. labour. Thieves. contact with any fixed or floating object . Executors. and do hereby promise and bind themselves. seizure. Administrators. AND it is expressly declared and agreed that no acts of the Insurer or Insured in recovering. and Misfortunes. or preserving the Property insured shall be considered as a Waiver. Barratry of the Master and Mariners. Arrests. or Assigns. to sue. Restraints and Detainments of all Kings. to the charges whereof the said COMPANY. saving. of what Nation. will contribute according to the rate and quantity of the sum herein INSURED. also from the consequences of hostilities and warlike operations. Rovers. and ship. for the true Performance of the Premises. Said clause reads: "Touching the adventures which the said MALAYAN INSURANCE CO. Suprisals. or damage of the said goods and merchandise or any part thereof . confessing themselves paid the Consideration due unto them for this INSURANCE at and after the rate arranged. and of all other Perils.C. their factors. AND in case of any loss or misfortune it shall be lawful to the ASSURED. The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in relation to the excluded risks or warranty specifically stated therein. to the ASSURED. that have come to hurt." (Underscoring supplied) The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F. arrest. Takings of the Sea. whether there be a declaration of war or not. his or their Executors. The subject policies contain the [3] "Perils" clause which is a standard form in any marine insurance policy. using the phrase "perils of the sea" to encompass the wide and varied range of risks that were covered. are contented. and to take upon them in this voyage. and travel for. detriment. without prejudice to this INSURANCE. Letters of Mart and Counter Mart. And so the said MALAYAN INSURANCE COMPANY. Enemies.

stranding.(other than a mine or torpedo). revolution." pertained exclusively to warlike operations if this Court strictly construes the heading of the said Clauses. it also claims that the parties intended to include arrests." According to petitioner. or piracy. but this warranty shall not exclude collision. whether there be a declaration of war or not. any other vessel involved therein is performing) by a hostile act by or against a belligerent power and for the purpose of this warranty 'power' includes any authorities maintaining naval. the relevant current institute war clauses shall be deemed to form part of this insurance. revolution. detention.1 of Section 1. the automatic incorporation of subsection 1. etc. in the case of a collision any other vessel involved therein is performing) by a hostile act by or against a belligerent power. However. military or air forces in association with a power. Should Clause 12 be deleted. military or air forces in association with power. and for the purpose of this warranty 'power' includes any authority maintaining naval. concluding that whether private respondent's claim is anchored on subsection 1. means that any "capture. This insurance covers: 1.1 of section 1 of the Institute War Clauses (Cargo). the term "arrests" would only cover those arising from political or executive acts. provides: "1. arrest.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture.1 of Section 1 of the Institute . even if it were not the result of hostilities or warlike operations. & S. in the case of a collision. heavy weather or fire unless caused directly (and independently of the nature on voyage or service which the vessel concerned or. etc. in subsection 1. seizure. Further warranted free from the consequences of civil war. contact with any fixed or floating object (other than a mine or torpedo). the Institute War Clauses (Cargo) was deemed incorporated which. insurrection. It further claims that on the strength of jurisprudence on the matter. or civil strike arising therefrom. and the consequences thereof of hostilities or warlike operations. C. Consequently. stranding." (Underscoring supplied) However. heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or. among others. Further warranted free from the consequences of civil war. arrest. rebellion. or civil strike arising therefrom or piracy. restraint or detainment. Clause was deleted from the policies. the F. insurrection.

Although the F.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks excluded from the Standard Form of English Marine Policy by the clause 'Warranted free of capture.C. etc. arrest. x x x" In fact. . Clause was "arrest" occasioned by ordinary judicial process.1 of Section 1 of the Institute War Clauses. Clause may have originally been inserted in marine policies to protect against risks of war. it assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and thereby excludes "arrests" caused by ordinary legal processes. regardless of whether or not said "arrest" by civil authorities occurred in a state of war. Clause as well as that of subsection 1. such as in the instant case. & [6] S. x x x'" or the F. & S. at 71-73 [2d Ed.1 of Section 1 of the Institute War Clauses included "arrest" even if it were not a result of hostilities or warlike operations. [4] This Court cannot agree with petitioner's assertions. petitioner [5] itself averred that subsection 1.C.C. & S. Black. "arrests" caused by ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by the F. the arrest of the vessel by judicial authorities is an excluded risk.C. Clause under the Institute War Clauses can only be operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses. this Court agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed included among the covered risks.1 of Section 1 of the Institute War Clauses (Cargo). Jurisprudentially. (see generally G.C. . however. such "arrest" would now become a covered risk under subsection 1. Clause applies even if there be no war or . This interpretation becomes inevitable when subsection 1.C. & S.C.War Clauses (Cargo) or the F. since what was also excluded in the deleted F.C. Petitioner itself seems to be confused about the application of the F. particularly when it alleges that in the "Perils" Clause. In this regard. Clause was "originally incorporated in insurance policies to eliminate the risks of warlike operations". Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the covered risk simply because the F. seizure. & S. It also averred that the F. & S. With the incorporation of subsection 1. 1975]). & S. & S." This Court agrees with the Court of Appeals when it held that ".C. Gilmore & C. logically. The Law of Admiralty Section 2-9. its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the general purposes of the clause.1 of Section 1 of the Institute War Clauses. It stated that "the F. & S. Clause. Clause. Clause.

deletes the F. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the subject policies. Likewise.C.C. as to lead to an absurd conclusion or to render the policy nonsensical.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest. the deletion of the F. exception. This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by executive or political acts of government which is interpreted as not referring to those caused by ordinary legal processes as contained in the "Perils" Clause. It has been held that a strained interpretation which is unnatural and forced."[8] This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the policy in order to avoid being liable for private respondent's claim. be construed strictly against the company in order to avoid a forfeiture. & S.C. Any [10] construction of a marine policy rendering it void should be avoided. & S. thereafter incorporates subsection 1. & S. etc. there would have been no controversy with respect to the interpretation of the subject clauses. [12] If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by special proviso. it contended that subsection 1. it should express such limitation in clear and unmistakable language. Clause and the [13] consequent incorporation of subsection 1. or exemption. . also those caused by ordinary legal processes.1 of [7] Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. Clause and the consequent incorporation of subsection 1. Such [11] policies will. it must be borne in mind that [9] such contracts are invariably prepared by the companies and must be accepted by the insured in the form in which they are written. Obviously. should.1 of Section 1 of the Institute War Clauses which now includes in the coverage risks of arrest due to executive or political acts of a government but then still excludes "arrests" occasioned by ordinary legal processes when subsection 1. unless no other result is possible from the language used. & S. and.warlike operations x x x" In the same vein. Clause which excludes risks of arrest occasioned by executive or political acts of the government and naturally. by all means. therefore. be avoided.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from the coverage of the F. even if it were not a result of hostilities or warlike operations.C. Clause.

A contract of[18] insurance. any ambiguity therein should be resolved against the insurer. GAVINO GONZALES. del Rosario Diaz for plaintiff-appellant. Even an express exception in a policy is to be [14] construed against the underwriters by whom the policy is framed. Such interpretation should result from the natural and reasonable meaning of language in the policy. LUCIANO CASTILLO. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. ANTONIO DIMAYUGA. exceptions to the general coverage are construed most strongly against the company. [15] An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the contract which is. this Court sees no need to discuss the other issues presented. where the contract or policy is prepared by the insurer. [19] In view of the foregoing. . Ilao.. vs. defendants-appellees. MOISES CARANDANG. the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. Basa. being a contract of adhesion. AURELIO VALENCIA. No. L-28046 May 16. LOPE GEVANA and BONIFACIO LAUREANA. Where restrictive [16] provisions are open to two interpretations. that which is most favorable to the insured is adopted. plaintiff-appellant. LAURO LEVISTE. CEFERINO VALENCIA. WHEREFORE. Tomas Yumol for Fajardo. [17] Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured. G. defendant-appellee. 1983 PHILIPPINE NATIONAL BANK. in other words. par excellence. to insure against risks of loss or damage to the goods. DELFIN FAJARDO. INC. INDEPENDENT PLANTERS ASSOCIATION.R. Laurel Law Office for Dimayuga. SO ORDERED. Be that as it may. and for whose benefit the exception is introduced. it should be construed liberally in favor of the insured and strictly against the insurer.

should the creditor choose to demand payment from the latter. some or all of his solidary debtors.PLANA.: Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of First Instance of Manila (Branch XX) in its Civil Case No. nothing improper in the creditor's filing of an action against the surviving solidary debtors alone. this Court ruled: Construing Section 698 of the Code of Civil Procedure from whence the aforequoted provision (Sec. without prejudice to the right of the estate to recover contribution from the other debtor. some or all of its solidary debtors under Article 1216 of the Civil Code — ART. one of the defendants dies. should be prosecuted in the testate or intestate proceeding for the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads: SEC. could be entertained to the extent that failure to observe the same would deprive the court jurisdiction to take cognizance of the action against the surviving debtors. Upon the other hand. the Civil Code expressly allows the creditor to proceed against any one of the solidary debtors or some or all of them simultaneously. 891 at 897.e..— the obligation of the decedent is solidary with another debtor. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. Thus in Manila Surety & Fidelity Co. 107 Phil. instead of instituting a proceeding . It is evident from the foregoing that Section 6 of Rule 87 (now Rule 86) provides the procedure should the creditor desire to go against the deceased debtor. the claim shall be filed against the decedent as if he were the only debtor. In a joint obligation of the decedent. therefore. 6. It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one. vs. invoking its right of recourse against one. during its pendency.. and if. but there is certainly nothing in the said provision making compliance with such procedure a condition precedent before an ordinary action against the surviving solidary debtors. Solidary obligation of decedent. after instituting a collection suit based on contract against some or all of them and. so long as the debt has not been fully collected. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. Villarama et al. 46741 dismissing PNB's complaint against several solidary debtors for the collection of a sum of money on the ground that one of the defendants (Ceferino Valencia) died during the pendency of the case (i. the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants. the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants. the same will be barred as against the estate. and if the claim is not presented within the time provided by the rules. after the plaintiff had presented its evidence) and therefore the complaint. being a money claim based on contract. the decedent's liability being absolute and primary. as he deems fit or convenient for the protection of his interests. 1216. this Court held that where two persons are bound in solidum for the same debt and one of them dies. Inc. J.. 6. the whole indebtedness can be proved against the estate of the latter. The sole issue thus raised is whether in an action for collection of a sum of money based on contract against all the solidary debtors. the claim shall be confined to the portion belonging to him. Rule 86) was taken. There is. The appellant assails the order of dismissal.

Code to proceed against any one. for the settlement of the estate of the deceased debtor wherein his claim could be filed. if he so chooses. this provision diminishes the Bank's right under the New Civil. Said provision merely sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim against the estate of the deceased solidary. Justice Makasiar. 46741 is hereby set aside in respect of the surviving defendants. A cursory perusal of Section 6. Otherwise stared. Asuncion. Similarly. if Section 6. some or all of the solidary debtors. debtor. SO ORDERED. creditor to determine against whom he will enforce collection. Such a construction is not sanctioned by the principle. this Court. THIRD DIVISION . No costs. reiterated the doctrine. Rule 86 of the Revised Rules of Court reveals that nothing therein prevents a creditor from proceeding against the surviving solidary debtors. WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No. substantive. Said provision gives the creditor the right to 'proceed against anyone of the solidary debtors or some or all of them simultaneously. In case of the death of one of the solidary debtors. in PNB vs. be repealed since under the Rules of Court. Obviously. It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. . Rule 86 of the Revised Rules of Court cannot be made to prevail over Article 1216 of the New Civil Code. and the case is remanded to the corresponding Regional Trial Court for proceedings. that a substantive law cannot be amended by a procedural rule. Rule 86 of the Revised Rules of Court were applied literally. . Article 1216 of the New Civil Code would. 80 SCRA 321 at 323-324. proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors. in effect.' The choice is undoubtedly left to the solidary. the former being merely procedural. proceedings. As correctly argued by petitioner. Section 6. It is not mandatory for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased solidary debtor . speaking thru Mr. he (the creditor) may. petitioner has no choice but to proceed against the estate of Manuel Barredo only. while the latter. which is too well settled to require citation.

R. Philtranco Service Enterprises. J. Inc. Present: Petitioners. -. and VILLARAMA. . . to challenge our Resolution of February 17. Our assailed Resolution denied the petition for review on certiorari for failure to show any reversible error sufficient to warrant the exercise of this Courts discretionary appellate jurisdiction. 2010. BRION. Respondent. JR.. INC.. 2010 x----------------------------------------------------------------------------------------- x RESOLUTION BRION. CARPIO MORALES. JJ. versus - BERSAMIN. No.- Promulgated: August 3. J. ROLITO CALANG and G. Chairperson.  ABAD. 190696 PHILTRANCO SERVICE ENTERPRISES. PEOPLE OF THE PHILIPPINES.: We resolve the motion for reconsideration filed by the petitioners. (Philtranco) and Rolito Calang..

00 as death indemnity to the heirs of Armando. multiple physical injuries and damage to property.00 as death indemnity to the heirs of Mabansag. 2001. Rolito Calang was driving Philtranco Bus No. The CA. and sentenced him to suffer an indeterminate penalty of thirty days of arresto menor. The CA further ruled that Calang demonstrated a reckless . and bumped and killed Jose Mabansag. The RTC. were instantly killed.Antecedent Facts At around 2:00 p. The petitioners appealed the RTC decision to the Court of Appeals (CA). of April 22.m. Margarita. lost control of the vehicle. Sta. a bystander who was standing along the highways shoulder.000.083. According to the CA. various eyewitnesses testified that the bus was traveling fast and encroached into the opposite lane when it evaded a pushcart that was on the side of the road. despite admitting that he had already seen the jeep coming from the opposite direction when it was still half a kilometer away. as minimum. Branch 31. Two of the jeeps passengers. in its decision dated November 20. to four years and two months of prision correccional. CR No. Samar when its rear left side hit the front left portion of a Sarao jeep coming from the opposite direction. docketed as CA-G. As a result of the collision. and P90.R. he failed to slacken his speed. P50. while the other passengers sustained serious physical injuries. Armando Nablo and an unidentified woman. multiple serious physical injuries and damage to property thru reckless imprudence before the Regional Trial Court (RTC).000. to pay P50. in its decision dated May 21. The prosecution charged Calang with multiple homicide. 7001. affirmed the RTC decision in toto. the jeeps driver. The RTC ordered Calang and Philtranco. Calbayog City. jointly and severally. as maximum. Cresencio Pinohermoso. owned by Philtranco along Daang Maharlika Highway in Barangay Lambao. found Calang guilty beyond reasonable doubt of reckless imprudence resulting to multiple homicide.93 as actual damages to the private complainants. 25522. In addition. The CA ruled that petitioner Calang failed to exercise due care and precaution in driving the Philtranco bus. 2009. 1989. The jeep turned turtle three (3) times before finally stopping at about 25 meters from the point of impact.

we denied the petition for failure to sufficiently show any reversible error in the assailed decision to warrant the exercise of this Courts discretionary appellate jurisdiction.attitude when he drove the bus. We partly grant the motion. 2010. the traffic accident sketch and report. hence. the petitioners claim that there was no basis to hold Philtranco jointly and severally liable with Calang because the former was not a party in the criminal case (for multiple homicide with multiple serious physical injuries and damage to property thru reckless imprudence) before the RTC. and the jeepneys registration receipt. which. not roadworthy. The Motion for Reconsideration In the present motion for reconsideration. . The petitioners likewise maintain that the courts below overlooked several relevant facts. for failing to prove that it had exercised the diligence of a good father of the family to prevent the accident. The petitioners filed with this Court a petition for review on certiorari. The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner Calang. would have shown that Calang was not negligent. despite knowing that it was suffering from loose compression. The petitioners also insist that the jeeps driver had the last clear chance to avoid the collision. supported by documentary exhibits. the testimony of witness Rodrigo Bocaycay. if considered. such as the affidavit and testimony of witness Celestina Cabriga. In our Resolution dated February 17.

unless the factual findings complained of are devoid of support by the evidence on record. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an employer for quasi-delicts that an employee has committed. affirmed by the CA. Since the cause of action against Calang was based on delict. is a question of fact that we cannot pass upon without going into factual matters touching on the finding of negligence. We emphasize that Calang was charged criminally before the RTC. both the RTC and the CA erred in holding Philtranco jointly and severally liable with Calang. . this Court is limited to reviewing only errors of law.Liability of Calang We see no reason to overturn the lower courts finding on Calangs culpability. hold that the RTC and the CA both erred in holding Philtranco jointly and severally liable with Calang. or the assailed judgment is based on a misapprehension of facts. In petitions for review on certiorari under Rule 45 of the Revised Rules of Court. Liability of Philtranco We. Undisputedly. based on quasi-delict under Articles 2176[1] and 2180[2] of the Civil Code. Such provision of law does not apply to civil liability arising from delict. however. Philtranco was not a direct party in this case. not of fact. The finding of negligence on his part by the trial court.

in all cases where a violation of municipal ordinances or some general or special police regulations shall have been committed by them or their employees. or for the payment of the value thereof. (3) the crime was committed by the employees in the discharge of their duties. tavernkeepers. provided that such guests shall have notified in advance the innkeeper himself. tavernkeepers and proprietors of establishments. Philtrancos liability may only be subsidiary. If at all. persons. teachers. or the person representing him. innkeepers. adequate evidence must exist establishing that (1) they are indeed the employers of the convicted employees. the trial court need not expressly pronounce the subsidiary liability of the employer. The determination of these conditions may be done in the same criminal action in which the employees liability. and corporations engaged in any kind of industry for felonies committed by their servants. before the employers subsidiary liability is enforced. pupils.[3] Nonetheless. and any other persons or corporations shall be civilly liable for crimes committed in their establishments. in the dispositive portion of its decision. The foregoing subsidiary liability applies to employers. which reads: The subsidiary liability established in the next preceding article shall also apply to employers. Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft within their houses from guests lodging therein. Thus. and (4) the execution against the latter has not been satisfied due to insolvency. according to Article 103 of the Revised Penal Code. in a . or employees in the discharge of their duties. workmen. (2) they are engaged in some kind of industry. as follows: In default of the persons criminally liable. and shall furthermore have followed the directions which such innkeeper or his representative may have given them with respect to the care of and vigilance over such goods. Article 102 of the Revised Penal Code states the subsidiary civil liabilities of innkeepers. of the deposit of such goods within the inn. apprentices. criminal and civil. has been pronounced. No liability shall attach in case of robbery with violence against or intimidation of persons unless committed by the innkeepers employees. The provisions of the Revised Penal Code on subsidiary liability Articles 102 and 103are deemed written into the judgments in cases to which they are applicable.

00 for indemnity for loss of income.. Branch 142 (RTC) in Civil Case No. on August 19. multiple serious physical injuries and damage to property.[4] WHEREFORE. SO ORDERED. The Facts The instant case arose from a complaint for damages filed by Adworld against Transworld and Comark International Corporation (Comark) before the RTC. petitioner Ruks Konsult and Construction (Ruks) and respondent Transworld Media Ads. Barangka Mandaluyong. DECISION PERLAS-BERNABE. Respondents. as part of the proceedings for the execution of the judgment.000. 2009 of the Regional Trial Court of Makati City.R. Guadalupe. vs. The Court of Appeals decision that affirmed in toto the RTC decision.R. praying for damages in the aggregate amount of ₱474. with the MODIFICATION that Philtrancos liability should only be subsidiary.00 for labor. which was misaligned and its foundation impaired when. it was constrained to file the instant complaint. Inc. admitting the damage caused by its billboard structure on Adworld’s billboard. 2015 RUKS KONSULT AND CONSTRUCTION.: Assailed in this petition for review on certiorari1 are the Decision2 dated November 16. 2003. 2003. Transworld sent its reply. (Transworld) jointly and severally liable to respondent Adworld Sign and Advertising Corporation (Adworld) for damages. Petitioner.00 for materials. ₱72. 94693 which affirmed the Decision4dated August 25. G. inter alia. 204866 January 21.6 . the adjacent billboard structure owned by Transworld and used by Comark collapsed and crashed against it. 2011 and the Resolution3dated December 10. Resultantly. No. billboard structure located at EDSA Tulay. and ₱121. on August 11.5 In the complaint. 2003. x 60 ft.000. Adworld alleged that it is the owner of a 75 ft.00. is AFFIRMED.hearing set for that precise purpose. No costs.204. J. INC. ADWORLD SIGN AND ADVERTISING CORPORATION* and TRANSWORLD MEDIA ADS. but nevertheless. CV No. 2012 of the Court of Appeals (CA) in CA-G. On August 29. refused and failed to pay the amounts demanded by Adworld. 03-1452 holding. finding Rolito Calang guilty beyond reasonable doubt of reckless imprudence resulting in multiple homicide. comprised of ₱281. As Adworld’s final demand letter also went unheeded. Adworld sent Transworld and Comark a letter demanding payment for the repairs of its billboard as well asloss of rental income.204. with due notice to the employer. we PARTLY GRANT the present motion.

Comark denied liability for the damages caused to Adworld’s billboard structure. Notwithstanding.00 as actual damages. Ruks proceeded with the construction of the billboard’s upper structure and merely assumed that Transworld would reinforce its lower structure.8 Lastly.15 Transworld elevated its case before the Court. the CA dismissed Transworld’s appeal for its failure to file an appellant’s brief on time. Ruks should ultimately be held liable for the damages caused to Adworld’s billboard structure. and that Ruks continued to install and finish the billboard structure despite the knowledge that there were no adequate columns to support the same. In this relation. such as Adworld’s billboard.20 . Subsequently. the company which built the collapsed billboard structure in the former’s favor. 2011 Resolution final and executory. they did not do anything to remedy the situation. In a Resolution dated February 3.204. both Transworld and Ruks appealed to the CA. No. maintaining that it does not have any interest on Transworld’s collapsed billboard structure as it only contracted the use of the same. in a Resolution17 dated November 23.R. It found that Transworld failed to ensure that Ruks will comply with the approved plans and specifications of the structure. but denied liability for the damages caused by its collapse.000. Comark prayed for exemplary damages from Transworld for unreasonably includingit as a party-defendant in the complaint. declared. 2011.In its Answer with Counterclaim. It was alleged therein that the structure constructed by Ruks had a weak and poor 1âw phi1 foundation not suited for billboards. with legal interest from the date of the filing of the complaint until full payment thereof. the RTC explained that Transworld was made aware by Ruks that the initial construction of the lower structure of its billboard did not have the proper foundation and would require additional columns and pedestals to support the structure. 2011.14 Aggrieved. Transworld and Ruks jointly and severally liable to Adworld in the amount of ₱474. 197601. The CA Ruling In a Decision19 dated November 16. 2012 in G. the Court declared the case closed and terminated for failure of Transworld to file the intended petition for review on certiorariwithin the extended reglementary period. and maintained that the damage caused to Adworld’s billboard structure was hardly noticeable. prone to collapse. plus attorney’s fees in the amount of ₱50.16 However. No.R.13 The RTC then concluded that these negligent acts were the direct and proximate cause of the damages suffered by Adworld’s billboard.00. the RTC ultimately ruled in Adworld’s favor. Transworld averred that the collapse of its billboard structure was due to extraordinarily strong winds that occurred instantly and unexpectedly. and yet.11 The RTC found both Transworld and Ruks negligent in the construction of the collapsed billboard as they knew that the foundation supporting the same was weak and would pose danger to the safety of the motorists and the other adjacent properties. 2009. however. and as such. 2011. It adhered to the RTC’s finding of negligence on the part of Transworld and Ruks which brought about the damage to Adworld’s billboard. docketed as G. inter alia. 197601 declaring the Court’s November 23. Transworld likewise filed a Third-Party Complaint against Ruks. the Court issued an Entry of Judgment18 dated February 22. and accordingly. Ruks admitted that it entered into a contract with Transworld for the construction of the latter’s billboard structure. there was already an existing foundation for the billboard and that it merely finished the structure according to the terms and conditions of its contract with the latter. thus.12 In particular.7 For its part. the CA denied Ruks’s appeal and affirmed the ruling of the RTC.9 The RTC Ruling In a Decision10 dated August 25. It contended that when Transworld hired its services.

denied in a Resolution22 dated December 10. The Court’s Ruling The petition is without merit.R. joint tortfeasors are each liable as principals. countenance. 205120. this petition. or the doing of something which a prudent and reasonable man would not do. At the outset. 197601. if done for their benefit. and perforce. "[j]oint tortfeasors are those who command.R. As joint tortfeasors. would do. Worse. The Issue Before the Court The primordial issue for the Court’s resolution is whether or not the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for damages sustained by Adworld.25 Absent any exceptions to this rule – such as when it is established that the trial court ignored. both Transworld and Ruks were fully aware that the foundation for the former’s billboard was weak. In other words.hence. joint tortfeasors are solidarily liable for the resulting damage. if considered. but none was done at all. 2012. On the other hand. advise. Jurisprudence defines negligence as the omission to do something which a reasonable man. whereby such other person suffers injury. however. holding that the same was already bound by the dismissal of its petition filed in G.23 However. should be held liable for its collapse and the resulting damage to Adworld’s billboard structure. 2013. it must be stressed that factual findings of the RTC. caused damage to the adjacent billboard of Adworld. misconstrued. neither of them took any positive step to reinforce the same. the Court sees no cogent reason to deviate from the findings of the RTC and the CA and their uniform conclusion that both Transworld and Ruks committed acts resulting in the collapse of the former’s billboard. or approve of it after it is done. and that of Ruks’s finishing its upper structure and just merely assuming that Transworld would reinforce the weak foundation are the two (2) successive acts which were the direct and proximate cause of the damages sustained by Adworld.28 In this case. cooperate in. if independent of each other. unite in causing a single injury. No. guided by those considerations which ordinarily regulate the conduct of human affairs. are entitled to great weight by the Court and are deemed final and conclusive when supported by the evidence on record. Ruks moved for reconsideration. when affirmed by the CA. the foregoing circumstances show that both Transworld and Ruks are guilty of negligence in the construction of the former’s billboard. promote. encourage. the CA correctly affirmed the RTC’s finding that Transworld’s initial construction of its billboard’s lower structure without the proper foundation. would change the outcome of the case26 – such findings must stand. they are solidarily liable to Adworld.27 It is the failure to observe for the protection of the interest of another person that degree of care. After a judicious perusal of the records. aid or abet the commission of a tort. yet. therefore. the Court denied outright Transworld’s petition in a Resolution24 dated April 15. docketed as G. Under Article 219429 of the Civil Code. Transworld filed another appeal before the Court. Verily. precaution. They merely relied on each other’s word that repairs would be done to such foundation. No. to the same extent and in the same manner as if they .21 which was. which in turn. overlooked. or misinterpreted cogent facts and circumstances that. and vigilance which the circumstances justly demand. They are also referred to as those who act together in committing wrong or whose acts. Clearly.Dissatisfied. instigate.

C. Velasco31 is instructive on this matter. FAUSTINO ESPIRITU.R. G. FAUSTINO ESPIRITU. the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for damages sustained by Adworld. plaintiff-appellee.had performed the wrongful act themselves. it may appear that one of them was more culpable. INC. B. the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case. L-28498 November 6.. 94693 are hereby AFFIRMED. Francisco for appellee. Benito Soliven and Jose Varela Calderon for intervenor-appellant. 1928 THE BACHRACH MOTOR CO. Where the concurrent or successive negligent acts or omissions of two 1âwphi1 or more persons. No.. intervenor-appellant. No.. . and that the duty owed by them to the injured person was not same. plaintiff-appellee. There is no contribution between joint [tortfeasors] whose liability is solidary since both of them are liable for the total damage. AVANCEÑA. INC.R. defendant-appellant. defendant-appellant. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury. to wit:32 Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not have happened. are in combination the direct and proximate cause of a single injury to a third person. WHEREFORE.R. the petition is DENIED. 28497 and 28948. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. vs. it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. ------------------------------ G. vs. 2011 and the Resolution dated December 10. Ernesto Zaragoza and Simeon Ramos for defendant-appellant. L-28497 November 6. 2012 of the Court of Appeals in CA-G.. 1928 THE BACHRACH MOTOR CO. SO ORDERED.: These two cases. (Emphases and underscoring supplied) In conclusion. x x x. CV No."30 The Court’s pronouncement in People v. were tried together. The Decision dated November 16. although acting independently. and ROSARIO ESPIRITU. Nos. J.

28 with interest at 12 per cent per annum from December 1.208. and all of the White make (Exhibit A). 1926 until fully paid. which appear to have been mortgaged by the defendants to the plaintiff. two of which are numbered 77197 and 92744 respectively. 77197 and 92744.000 down to apply on account of this price. The defendant failed to pay P10. and that as the latter did not sign the mortgage deeds. three others.269. after deducting the sheriff's fees and transportation charges to Manila. The judgment appealed from ordered the defendants and the intervenor to pay plaintiff in case 28497 the sum of P7. Appellants also alleged that on February 4. and in case of non-payment of the total debt upon its maturity. lawphi1. Rosario Espiritu appeared in these two cases as intervenor. The defendant failed to pay P4. and were only put in later. without defendant's knowledge. These two trucks had been purchased from the same plaintiff and were fully paid for by the defendant and his brother Rosario Espiritu. and 25 per cent thereof in addition as penalty. and when the trucks .983. an employee of the plaintiff's written a few days before the transaction. The appellants contend that trucks 77197 and 92744 were not mortgaged. Besides.50 within the periods agreed upon. In connection with case 28498. there were presented two of defendant's letters to Hidalgo.It appears. which the defendant executed in favor of the plaintiff.732. it appears that on February 18.net While these two cases were pending in the lower court the mortgaged trucks were sold by virtue of the mortgage. respectively. In both sales it was agreed that 12 per cent interest would be paid upon the unpaid portion of the price at the executon of the contracts. besides. 25 per cent thereon.09 with interest at the rate of 12 per cent per annum from May 1. the defendants mortgaged the said truck purchased and. and obligating himself to pay the remaining P10. acquiescing in the inclusion of all his White trucks already paid for. because.28 of this sum. yet. obligated himself to make payment of this sum within the periods agreed upon. But there is positive proof that they were included at the time the defendant signed these documents. and after having deducted the P500 cash payment and the 12 per cent annual interest on the unpaid principal. as penalty. and 25 per cent thereon as penalty.136. But the evidence shows that while the intervenor Rosario Espiritu did not sign the two mortgage deeds (Exhibits A and C). all of them together bringing in.82 of the price secured by this mortgage. 1925 the defendant bought a one- ton White truck of the plaintiff corporation for the sum of P7. paying P1. in the mortgage (Exhibit H-I). numbered 77197 and 92744. alleging to be the exclusive owner of the two White trucks Nos.208. In case 28498.983. the defendant sold his rights in said trucks Nos. when the defendant signed the mortgage deeds these trucks were not included in those documents. the net sum of P3. 77197 and 92744 to the intervenor. In addition to the mortagage deeds referred to. 1925 until fully paid.58. he signed the two promissory notes (Exhibits B and D) secured by these two mortgages.477.50. 1925. All these instruments were executed at the same time.50. the defendant at the same time also signed a promissory note solidarily with his brother Rosario Espiritu for the several sums secured by the two mortgages (Exhibits B and D). the same that were mortgaged in the purchase of the other truck referred to in the other case. that on July 28. 1925 the defendant Faustino Espiritu purchased of the plaintiff corporation a two-ton White truck for P11. the trial court ordered the defendant and the intervenor to pay plaintiff the sum of P4. such trucks cannot be considered as mortgaged. in connection with case 28497. together with the defendants Faustino Espiritu. To secure this payment the defendant mortgaged to the plaintiff corporation the said truck purchased and two others. To secure the payment of this sum.

R. many miles away from Manila. 1978 ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION. notwithstanding the evidence presented to establish that on the date when Exhibits B appears to have been signed. In view of his conclusion that the intervenor signed the promissory notes secured by trucks 77197 and 92744 and consented to the mortgage of the same. respondents.. Branch XXXIV. presided by the Honorable Bernardo P. the judgment appealed from is affired in all other respects without special pronouncement as to costs. that is July 25. It is finally contended that the 25 per cent penalty upon the debt. With the sole modification that instead of 25 per cent upon the sum owed. Beltran for respondent. this penalty is reduced to 10 per cent of the unpaid debt. does not include the interest. And such is our conclusion. judgment is hereby rendered commanding the defendant to register the deed of absolute sale it had executed in favor of plaintiff with the Register of . and making use of the power given to the court by article 1154 of the Civil Code. the intervenor was in Batac. We do not find the statement of the intervenor Rosario Espiritu that he did not sign promissory notes Exhibits B and C to be sufficient to overthrow this evidence. These facts are supported by the testimony of Bachrach. petitioner. Such a contention is not well founded. J. And the fact that on the 24th of said month of July. Pardo. who witnessed the execution of Exhibits B and D. the penalty. makes the contract usurious. and of Angel Hidalgo. the intervenor Rosario Espiritu was aware of it and consented to such inclusion. Salvador N. Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. L-41093 October 30. According to this. who witnessed the execution of all these documents. Hernaez (32 Phil.77197 and 92744 were included in the mortgages. MUÑOZ PALMA. manager of the plaintiff corporation. COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV). Purugganan & Bersamin for petitioner. 631). So ordered. the dispositive portion of which reads: WHEREFORE.: This is a direct appeal on questions of law from a decision of the Court of First Instance of Rizal. in addition to the interest of 12 per cent per annum. it is immaterial whether he was or was not the exclusive owner thereof. of Agustin Ramirez. Ilocos Norte. A comparison of his genuine signature on Exhibit AA with those appearing on promissory notes B and C. since said rate was fixed only for the interest. as was held in the case of Lopez vs. But considering that the obligation was partly performed. No. Should there be such an agreemnet. the defendants need pay only 10 per cent thereon as penalty. G. convinces us that the latter are his signatures. 1925. vs. the plaintiff sent some truck accessory parts by rail to Ilocos for the intervenor does not necessarily prove that the latter could not have been in Manila on the 25th of that month. the penalty is not to be added to the interest for the determination of whether the interest exceeds the rate fixed by the law. and which may be demamded separetely. and LOLITA MILLAN.

2 Millan complied with her obligation under the contract and paid the installments stipulated therein. the final payment having been made on December 22. Block No. 21) Petitioner corporation questions the award for nominal damages of P20.3 Thereafter.63 including interests and expenses for registration of title. 1972 until fully paid.00 plus attorney's fee in the amount of P5. defendant is sentenced to pay plaintiff nominal damages in the amount of P20.63 with interest at 4% per annum from June 22. 1973. known as Lot No. defendant is hereby sentenced to pay plaintiff the sum of P5. 4 The complaint prayed for judgment (1) ordering the reformation of the deed of absolute sale.000. In the Court's resolution of October 20.00 which are allegedly excessive and unjustified. p. The vendee made a total payment of P5. this particular provision: That the VENDOR further warrants that the transfer certificate of title of the above- described parcel of land shall be transferred in the name of the VENDEE within the period of six (6) months from the date of full payment and in case the VENDOR fails to issue said transfer certificate of title. the corporation failed to cause the issuance of the corresponding transfer certificate of title over the lot sold to Millan. The deed of absolute sale contained.00. Caloocan City. On March 2. 20. C-3268. among others. plus an interest at the rate of 4% per annum. 9) Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months.000. payable in installments.000. Deeds of Caloocan City and secure the corresponding title in the name of plaintiff within ten (10) days after finality of this decision. (record on appeal. Caloocan City. docketed therein as Civil Case No. 1 The following incidents are not in dispute: In May 1962 Robes-Francisco Realty & Development Corporation. if. Lolita Millan made repeated demands upon the corporation for the execution of the final deed of sale and the issuance to her of the transfer certificate of title over the lot. (2) ordering the defendant to deliver to plaintiff the certificate of title over the lot free from any lien or encumbrance.864. February 11. 1975. agreed to sell to private respondent Lolita Millan for and in consideration of the sum of P3. the parties executed a deed of absolute sale of the aforementioned parcel of land. 1971. 1975. Caloocan City. now petitioner.00 and attorney's fee of P5. p. it shall bear the obligation to refund to the VENDEE the total amount already paid for.00 and costs. the latter filed on August 14. SO ORDERED. We gave due course to the Petition only as regards the portion of the decision awarding nominal damages. 11 of its Franville Subdivision. this not possible. (rollo. for any reason.193. situated in Barrio Camarin. In either case. or. 1974 a complaint for specific performance and damages against Robes-Francisco Realty & Development Corporation in the Court of First Instance of Rizal. a parcel of land containing an area of approximately 276 square meters. should this be not possible. to pay plaintiff the value of the lot which should not be .000. hence.193. Branch XXXIV.

Nevertheless. on February 11. if there is no stipulation to the contrary. Presumably. and (3) ordering the defendant to pay plaintiff damages. for very obvious reasons. pursuant to Article 2209 of the Civil Code. are liable for damages. 5 The corporation in its answer prayed that the complaint be dismissed alleging that the deed of absolute sale was voluntarily executed between the parties and the interest of the plaintiff was amply protected by the provision in said contract for payment of interest at 4% per annum of the total amount paid. in issuing the transfer certificate of title to vendee Millan who had fully paid up her installments on the lot bought by her. 7-A It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause which will preclude an award of damages to the vendee Millan. amounting to nonperformance of its obligation. the trial court. said clause does not convey any penalty. or delay. petitioner in invoking Article 1226 of the Civil Code which provides that in obligations with a penal clause. Nonetheless. Article 170 of the Civil Code expressly provides that those who in the performance of their obligations are guilty of fraud. for even without it. the vendee is bound by the terms of the provision and cannot recover more than what is agreed upon. submitted her case below without presenting evidence on the actual damages suffered by her as a result of the nonperformance of petitioner's obligation under the deed of sale. rendered judgment the dispositive portion of which is quoted in pages 1 and 2 of this Decision. the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance. the circumstances of the case warrant a reduction of the amount of P20.00. 6 At the pretrial conference the parties agreed to submit the case for decision on the pleadings after defendant further made certain admissions of facts not contained in its answer.000. We would agree with petitioner if the clause in question were to be considered as a penal clause. the vendee. corrective and actual in the sum of P15 000. Petitioner contends that the deed of absolute sale executed between the parties stipulates that should the vendor fail to issue the transfer certificate of title within six months from the date of full payment. 1975. 7 Finding that the realty corporation failed to cause the issuance of the corresponding transfer certificate of title because the parcel of land conveyed to Millan was included among other properties of the corporation mortgaged to the GSIS to secure an obligation of P10 million and that the owner's duplicate certificate of title of the subdivision was in the possession of the Government Service Insurance System (GSIS). and those who in any manner contravene the tenor thereof.600. however. hence. In fact the clause is so worded as to work to the advantage of petitioner corporation. There can be no dispute in this case under the pleadings and the admitted facts that petitioner corporation was guilty of delay. the facts show that the right of the vendee to acquire title to the lot bought by her was violated by petitioner and this entitles her at the very least to nominal damages. the vendee would be entitled to recover the amount paid by her with legal rate of interest which is even more than the 4% provided for in the clause. for the delay in the issuance of the title.00 (allegedly the present estimated value of the lot). now private respondent. The foregoing argument of petitioner is totally devoid of merit. it shall refund to the vendee the total amount paid for with interest at the rate of 4% per annum. . We hold that the trial court did not err in awarding nominal damages.less than P27. negligence.00 granted to private respondent Millan. Unfortunately.

Article 2221 of the Civil Code. 720. v. It is generally held that a nominal damage is a substantial claim.000. v. Cuenca who was the holder of a first class ticket from Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to the tourist class notwithstanding its knowledge that Cuenca as Commissioner of Public Highways of the Republic of the Philippines was travelling in his official capacity as a delegate of the country to a conference in Tokyo. the assessment of damages being left to the discretion of the court according to the circumstances of the case. in such case. W. The court may award nominal damages in every obligation arising from any source enumerated in article 1157. sustained an award of P20. but simply in recogniton of the existence of a technical injury. the law presumes a damage. They are recoverable where some injury has been done the amount of which the evidence fails to show.00 as nominal damages in favor of respnodent Cuenca. or exemplary damages were granted to the latter. although actual or compensatory damages are not proven. or in every case where any property right has been invaded. 2d 796-797. Cuenca. et al. no such compensatory.000. the circumstances of a particular case will determine whether or not the amount assessed as nominal damages is within the scope or intent of the law. in truth nominal damages are damages in name only and not in fact.00 as "nominal". Art. 8 It is true as petitioner claims that under American jurisprudence nominal damages by their very nature are small sums fixed by the court without regard to the extent of the harm done to the injured party. viz: Northwest Airlines. Nominal damages are adjudicated in order that a right of the plaintiff. 1956.000. 2222. there is no conflict between that case and Medina. et al." 11 Actually. and "nominal damages cannot coexist with compensatory damages. 1965. citing 17 C. The Court there found special reasons for considering P20. Nicolas L. moral. in Vda. (Fouraker v.The pertinent provisions of our Civil Code follow: Art. P30. Kidd Springs Boating and Fishing Club. be demeed "nominal". Inc.000. for in the latter." while in the case of Commissioner Cuenca. not as an equivalent of a wrong inflicted. and are allowed. Cresencia. the P10.10 In a subsequent case. if based upon the violation of a legal right. 2221. which has been violated or invaded by the defendant. this Court had occasion to eliminate an award of P10. as explained in the Court's decision in Northwest Airlines. may be vindicated or recognized.00 imposed by way of nominal damages. more particularly. the Court stating inter alia that the amount cannot. . in common sense. however. and not for the purpose of indemnifying the plaintiff for any loss suffered by him.00 award for nominal damages was eliminated principally because the aggrieved party had already been awarded P6. Under the foregoing provisions nominal damages are not intended for indemnification of loss suffered but for the vindication or recognition of a right violated or invaded. 65 S.9 In this jurisdiction.00 as compensatory damages. through then Justice Roberto Concepcion who later became Chief Justice of this Court. 12 At any rate. and a number of authorities). de Medina.J.00 as moral damages and P10. this Court.00 as exemplary damages.000.000.000. which was an action for damages arising out of a vehicular accident.

" Here. V.000. del Rosario & Associates for appellant.000. We are of the view that the amount of P20. fraudulent. Sangco & Sangalang for private respondent. reckless.00 award may be considered in the nature of exemplary damages. INC. and notwithstanding the lapse of almost three years since she made her last payment. COURT OF APPEALS and YU PING KUN CO. In case of breach of contract. respondent-appellees. PREMISES CONSIDERED. 1979 MARIANO C.00). there was the expectation of the vendor that arrangements were possible for the GSIS to make partial releases of the subdivision lots from the overall real estate mortgage.000. . We modify the decision of the trial court and reduce the nominal damages to Ten Thousand Pesos (P10. G. 1971. Without pronouncement as to costs. The admitted fact that petitioner corporation failed to convey a transfer certificate of title to respondent Millan because the subdivision property was mortgaged to the GSIS does not in itself show that there was bad faith or fraud. We hold that the sum of Ten Thousand Pesos (P10. It was simply unfortunate that petitioner did not succeed in that regard.: This case is about the recovery compensatory. 1962. viz: respondent Millan bought the lot from petitioner in May. only if the injured party has shown that he is entitled to recover moral. oppressive or malevolent manner. 14 To conclude. No. J. but it was only on March 2. that a deed of absolute sale was executed in her favor. L-26339 December 14. PAMINTUAN. temperate or compensatory damages. vs. Bad faith is not to be presumed.000. Moreover. and paid in full her installments on December 22. exemplary or corrective damages are to be imposed by way of example or correction for the public good. exemplary damages may be awarded if the guilty party acted in wanton. AQUINO. In all other respects the aforesaid decision stands..00 is excessive. 1973. E.. For that reason We cannot agree with respondent Millan Chat the P20.00) by way of nominal damages is fair and just under the following circumstances.R. respondent Millan did not submit below any evidence to prove that she suffered actual or compensatory damages. damages for breach of a contract of sale in addition to liquidated damages. petitioner-appellant. 13 Furthermore. petitioner still failed to convey the corresponding transfer certificate of title to Millan who accordingly was compelled to file the instant complaint in August of 1974.In the situation now before Us.

1960 of 336. It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its bodegas in Manila or suburbs directly from the piers "within one month upon arrival of" the carrying vessels. The plastic sheetings arrived in Manila and were received by Pamintuan. (3) Firm Offers Nos. 328 for 70. (2) Firm Offer No.000 yards valued at $5.440 yards valued at $2. 1960 — 30 cases out of 100 cases. November 15. On September 27 and 30 and October 4. 21. (3) 60 cases containing 30.236. Out of the shipments..000 and 18.200.000. Any violation of the contract of sale would entitle the aggreived party to collect from the offending party liquidated damages in the sum of ten thousand pesos (Exh. Pamintuan was apprised by the bank on August 1. Acting on that information.. the Japanese suppliers shipped to Pamintuan. size 48 inches by 50 yards. Inc. the company lost no time in securing in favor of Pamintuan an irrevocable letter of credit for two hundred sixty-five thousand five hundred fifty pesos. He contracted to sell the plastic sheetings to Yu Ping Kun Co. The facts and the findings of the Court of Appeals are as follows: In 1960. Pamintuan informed the president of Yu Ping Kun Co. On July 28. 327 for 50. he entered into an agreement to ship his corn to Tokyo Menka Kaisha. Ltd. 1960 — 258 cases out of 352 cases. Ltd.. respectively. Pamintuan was the holder of a barter license wherein he was authorized to export to Japan one thousand metric tons of white flint corn valued at forty-seven thousand United States dollars in exchange for a collateral importation of plastic sheetings of an equivalent value.000 (pp. November 15.050. Pamintuan requested that he be paid immediately. November 14. 1960 of that letter of credit which made reference to the delivery to Yu Ping Kun Co. 1960 — 11 cases out of 352 cases.305. Pamintuan appealed from the judgment of the Court of Appeals wherein he was ordered to deliver to Yu Ping Kun Co.000 yards valued at $5.440 yards valued at $22. the plastic sheetings in four shipments to wit: (1) Firm Offer No.000 yards valued at $8. 360 yards of plastic sheetings (p. (2) 37 cases containing 18. of Osaka.000 yards valued at $5..400 and (4) 83 cases containing 40. and (4) Firm Offer No. Inasmuch as the computation of the prices of each delivery would allegedly be a long process. Japan in exchange for plastic sheetings. 330 for 26. The company undertook to open an irrevocable domestic letter of credit for that amount in favor of Pamintuan. that he was in dire need of cash with which to pay his obligations to the Philippine National Bank. Inc. Record on Appeal).28 as damages with six percent interest from the date of the filing of the complaint. 329 and 343 for 175. on or before October 31. Inc. Ltd.97. A). 1960. 1960 — 10 cases out of 100 cases.305.559. certain plastic sheetings and. By virtue of that license.200.445 and $2. Pamintuan delivered to the company's warehouse only the following quantities of plastic sheetings: November 11. Record on Appeal). November 15. 1960 — 140 cases. for two hundred sixty-five thousand five hundred fifty pesos. 1960.440 yards with an aggregate value of $47.. to pay the latter P100. if he could not do so. Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26.Mariano C. Inc. through Toyo Menka Kaisha. While the plastic sheetings were arriving in Manila. the company received a copy of the letter from the Manila branch of Toyo Menka Kaisha. or a total of 339. confirming the acceptance by Japanese suppliers of firm offers for the consignment to Pamintuan of plastic sheetings valued at forty-seven thousand dollars. 4-5 and 239-40. .000 yards valued at $9.850 yards valued at $5.

.... or total damages of P110.163..13 per yard and a selling price at the time of delivery of Pl.......20 per yard at the time of delivery.... the aggregate quantity of the shipments..... the trial court added (a) P10.120.174..... The parties arrived at that figure by dividing the total price of P265.75 a yard......850 yards with a contract price of P0............7822 a yard ......67 (3) 30.458... As justification for his refusal.. 20...000 yards with a contract price of P0...017 per yard and a selling price of Pl............ 329 containing 40....... (3) Firm Offer No.102.....000 yards valued at P29... The unrealized profits awarded as damages in the trial court's decision were computed as follows (pp..........588..00 (2) 18. 343..023........26 made to Pamintuan by Yu Ping Kun Co..510 and (4) Firm Offer No.C. P67... 330...490...7062 per yard and selling price of Pl........... 21. (2) Firm Offer No....... containing 26.550 by 339...330.502....850 yards valued at P29.....000 as stipulated liquidated damages....282.502.......150 yards of sheetings of interior quality valued at P163... 9...... 243-2...... Record on Appeal).13 for the issuance of the writ of preliminary attachment and (d) P10.282........26 as overpayment)................. the company filed its amended complaint for damages against Pamintuan....150 yards as per firm offers or as per contract.. 248-9...150 yards at P0... quality or actual invoice value thereof........ for the 224.. containing 30... Pamintuan said that the company failed to comply with the conditions of the contract and that it was novated with respect to the price..... which the trial court regarded as an item of damages suffered by the company.............000 as moral damages.........13 Actual peso value of 224.. 217.. 71..17 as unrealized profits and P12.380.000 yards with a contract price of Pl.. Inc.000 as attorney's fees...000 yards valued at P30...85 as premium paid by the company on the bond of P102..000 yards with a contract price of Pl.174.. After Pamintuan had delivered 224..... Pamintuan and the president of the company....17 The overpayment of P12.. P175.......7247 per yard and a selling price of P1... After trial.......150 yards. P16..50 Total unrealized profits....... Benito Y.047.....28) .................440 yards.. Record on Appeal): (1) 26. P 12......87 Overpayment....13 which were covered by (i) Firm Offer No...26 To these two items of damages (P67..559.047..........25 a yard at the time of delivery.440 yards valued at P13.... containing 18....70 per yard.....105.... 1960.....87.... Espiritu.. Record on Appeal): Liquidation value of 224. regardless of the kind....00 (4) 40...782 a yard......Consequently.... (c) Pl.......88 (See pp... he refused to deliver the remainder of the shipments with a total value of P102.. the lower court rendered the judgment mentioned above but including moral damages... was computed as follows (p.......... (b) P10. agreed to fix the price of the plastic sheetings at P0.....282.25. On December 2....

1966). The main contention of appellant Pamintuan is that the buyer. Pamintuan appealed. The Court of Appeals in its decision of March 18.26 for the said deliveries. and would thereafter refuse to make any further delivery in flagrant violation of his plighted word. . endorsed to the customs broker the warehouse receipts covering the plastic sheetings withheld by him and (4) he overpriced the plastic sheetings which he delivered to the company. 250. That factual finding is conclusive upon this Court. "Responsibility arising from fraud is demandable in all obligations" (Art. would now ask us to sanction his actuation" (pp. Civil Code) and. is guilty of fraud in the fulfillment of the obligation". 588).. The Court of Appeals affirmed that judgment with the modification that the moral damages were disallowed (Resolution of June 29. on the pretense that he would deliver what in the first place he ought to deliver anyway. that "in obligations with a penal clause. Fox 26 Phil. it is argued. The Court of Appeals found that the writ of attachment was properly issued. Inc. Pamintuan reaped certain benefits from the contract. The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not make a complete delivery of the plastic sheetings and he overpriced the same. Record on Appeal).000. Rollo). Pamintuan relies on the rule that a penalty and liquidated damages are the same (Lambert vs. art. bad faith. Hence. there is no such stipulation to the contrary in this case and that "liquidated damages are those agreed upon by the parties to a contract. he is estopped to repudiate it. he would unjustly enrich himself at the expense of the company. 1171.p. 1226.000 ". malice or wanton attitude. 1966 found that the contract of sale between Pamintuan and the company was partly consummated. 2201). the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance. It also found that Pamintuan was guilty of fraud because (1) he was able to make the company agree to change the manner of paying the price by falsely alleging that there was a delay in obtaining confirmation of the suppliers' acceptance of the offer to buy. The company fulfilled its obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm offers totalling $47. to be paid in case of breach thereof" (Art. as attorney-in-fact of the warehouseman. We hold that appellant's contention cannot be sustained because the second sentence of article 1226 itself provides that I nevertheless. That contention is based on the stipulation "that any violation of the provisions of this contract (of sale) shall entitle the aggrieved party to collect from the offending party liquidated damages in the sum of P10. 2226.282.. 61-62. the obligor shall be responsible for an damages which may be reasonably attributed to the non-performance of the obligation" (Ibid. his attorney-in-fact so that he could control the disposal of the goods. irrespective of invoice value. The Court of Appeals described Pamintuan as a man "who. "In case of fraud. after having succeeded in getting another to accommodate him by agreeing to liquidate his deliveries on the basis of P0. if there is no stipulation to the contrary " (1st sentence of Art. Civil Code). is entitled to recover only liquidated damages. Civil Code). when he knew all the while that he had no such intention.7822 per yard. (3) Pamintuan. damages shall be paid if the obligor . (2) he caused the plastic sheetings to be deposited in the bonded warehouse of his brother and then required his brother to make him Pamintuan).. and in the process delivered only the poorer or cheaper kind or those which he had predetermined to deliver and did not conceal in his brother's name and thus deceived the unwary party into overpaying him the sum of P 1 2. Yu Ping Kun Co. otherwise..

with six percent interest a year from the filing of the complaint. HONRADO. This view finds support in the opinion of Manresa (whose comments were the bases of the new matter found in article 1226. en el supuesto incumplimiento o mero retardo de la obligacion principal.B. consistente en sancionar o castigar dicho incumplimiento o cumplimiento inadecuado.. en que la pena es sustitutiva de la reparacion ordinaria. G. No. Una funcion coercitiva o de garantia. p. 204702 January 14. With that modification the judgment of the Court of Appeals is affirmed in all respects. consistente en estimular al deudor al complimiento de la obligacion principal. atribuyendole consecuencias mas onerosas para el deudor que las que normalmente lleva aparejadas la infraccion contractual. 251)." (Ibid. cited in 4 Tolentino's Civil Code. 8.R. INC. " (3 Derecho Civil Espanol. The proven damages supersede the stipulated liquidated damages. ante la amenaza de tener que pagar la pena.559.. ademas de la pena. Petitioner. part. Civil Code. not found in article 1152 of the old Civil Code) that in case of fraud the difference between the proven damages and the stipulated penalty may be recovered (Vol. Inc.There is no justification for the Civil Code to make an apparent distinction between penalty and liquidated damages because the settled rule is that there is no difference between penalty and liquidated damages insofar as legal results are concerned and that either may be recovered without the necessity of proving actual damages and both may be reduced when proper (Arts. No costs in this instance. 128). Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. Castan Tobenas.. Respondent. as found by Court of Appeals and the trial court. Codigo Civil. los danos y perjuicios. vs. p. 2015 RICARDO C. Hence. Una funcion liquidadora del daño. 2216 and 2227. p. See observations of Justice J. 9th Ed. Reyes. a differencia de aquellos otros ordinarios.L. 1950. The penalty clause is strictly penal or cumulative in character and does not partake of the nature of liquidated damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir. 483). o sea la de evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el incumplimiento o cumplimiento inadecuado de la obligacion. 1.. 1229.28). SO ORDERED. Se habla en este caso de pena cumulativa. to recover only the actual damages proven and not to award to it the stipulated liquidated damages of ten thousand pesos for any breach of the contract. and after reflecting on the/tenor of the stipulation for liquidated damages herein. 2. p. Una funcion estrictamente penal. DECISION . 3. GMA NETWORK FILMS. we further hold that justice would be adequately done in this case by allowing Yu Ping Kun Co. the damages recoverable by the firm would amount to ninety thousand five hundred fifty-nine pesos and twenty-eight centavos (P90. the true nature of which is not easy to categorize. 130). After a conscientious consideration of the facts of the case. 5th Ed.

granted to GMA Films. he replaced it with another film. Petitioner counterclaimed for attorney’s fees. finding merit in petitioner’s counterclaim. Inc. for a fee of ₱60.75 million. an affiliate of GMA Films. petitioner alleged that he had settled his obligation to Alano. in the event of disapproval.CARPIO. attesting that such film "is of good broadcast quality"7 (Film Certification). The Ruling of the Trial Court The trial court dismissed GMA Films’ complaint and. Regarding the fee GMA Films paid for Bubot.6 million representing the fee it paid for Evangeline Katorse (₱1.0004). the parties agreed that "all betacam copies of the [films] should pass through broadcast quality test conducted by GMA-7. The Facts On 11December 1998. being a stranger to the contracts he entered into with the owners of the films in question. Alternatively. keeping for himself the balance of ₱350. petitioner invoked a certification of GMA Network. (GMA Films) entered into a "TV Rights Agreement" (Agreement) with petitioner under which petitioner.000. respondent GMA Network Films. GMA Films sued petitioner in the Regional Trial Court of Quezon City (trial court) to collect ₱1.000 to the owner of Bubot (Juanita Alano [Alano]). a proportionate reduction from the total price shall either be deducted or refunded whichever is the case by the LICENSOR OR LICENSEE [GMA Films]. Under Paragraph 3 of the Agreement. Inc. counter-alleging that after GMA Films rejected Evangeline Katorse." the TV station operated by GMA Network.5 million) and a portion of the fee it paid for Bubot (₱350. LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title which is mutually acceptable to both parties or. ordered GMA Films to pay attorney’s fees (₱100. for breach of contract and breach of trust. On the disposal of the fee . As proof of such acceptance. The trial court gave credence to petitioner’s defense that he replaced Evangeline Katorse with Winasak na Pangarap. J. which GMA Films accepted. has no personality to question his compliance with the terms of such contracts. (GMA Network). Honrado (petitioner) to pay a sum of money to respondent GMA Network Films.: The Case We review1 the Decision2 of the Court of Appeals (CA) ordering petitioner Ricardo C. Winasak na Pangarap. GMA Films prayed for the return of such amount on the theory that an implied trust arose between the parties as petitioner fraudulently kept it for himself. failure to do such.6 Petitioner denied liability. Inc. GMA Films alleged that it rejected Evangeline Katorse because "its running time was too short for telecast"5 and petitioner only remitted ₱900. petitioner alleged that GMA Films. In 2003.5 million each. dated 30 March 1999. as licensor of 36 films.3 (Emphasis supplied) Two of the films covered by the Agreement were Evangeline Katorse and Bubot for which GMA Films paid ₱1. the exclusive right to telecast the 36 films for a period of three years. The parties also agreed to submit the films for review by the Movie and Television Review and Classification Board (MTRCB) and stipulated on the remedies in the event that MTRCB bans the telecasting ofany of the films (Paragraph 4): The PROGRAMME TITLES listed above shall be subject to approval by the Movie and Television Review and Classification Board (MTRCB) and.000).

as beneficiary. what triggersthe rejection and replacement of any film listed in the Agreement is the "disapproval" of its telecasting by MTRCB. The Ruling of the Court of Appeals The CA granted GMA Films’ appeal. The Issue The question is whether the CA erred in finding petitioner liable for breach of the Agreement and breach of trust. and ordered respondent to pay GMA Films ₱2 million8 as principal obligation with 12% annual interest. Hence. to return to GMA Films. the CA sustained GMA Films’ contention that petitioner was under obligation to turn over to the film owners the fullamount GMA Films paid for the films as "nowhere in the TV Rights Agreement does it provide that the licensor is entitled to any commission x x x [hence] x x x [petitioner] Honrado cannot claim any portion of the purchase price paid for by x x x GMA Films. finding insufficient GMA Films’ proof that petitioner pocketed any portion of the fee in question. the CA found that (1) GMA Films was authorized under Paragraph 4 of the Agreement to reject Evangeline Katorse. the amount claimed by the latter. The Ruling of the Court We grant the petition. GMA Films appealed to the CA. We find GMA Films’ complaint without merit and accordingly reinstate the trial court’s ruling dismissing it with the modification that the award of attorney’s fees is deleted."10 The CA concluded that petitioner’s retention of a portion of the fee for Bubot gave rise to an implied trust between him and GMA Films. Petitioner prays for the reinstatement of the trial court’s ruling while GMA Films attacks the petition for lack of merit. attorney’s fees (₱200. this petition. set aside the trial court’s ruling. exemplary damages (₱100. Brushing aside the trial court’s appreciation of the evidence. Petitioner Committed No Breach of Contract or Trust MTRCB Disapproval the Stipulated Basis for Film Replacement The parties do not quarrel on the meaning of Paragraph 4 of the Agreement which states: The PROGRAMME TITLES listed [in the Agreement] x x x shall be subject to approval by the Movie and Television Review and Classification Board (MTRCB) and. . as trustee. in the event of disapproval. the trial court rejected GMA Films’ theory of implied trust. obligating petitioner. failure to do such. litigation expenses (₱100.000).000).GMA Films paid for Bubot. LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title which is mutually acceptable to both parties or.9 On petitioner’s liability for the fee GMA Films paid for Bubot. a proportionate reduction from the total price shall either be deducted or refunded whichever is the case by the LICENSOR OR LICENSEE [GMA Films].000) and the costs.11(Emphasis supplied) Under this stipulation. and (2) GMA Films never accepted Winasak na Pangarap as replacement because it was a "bold" film.

for a fee. GMA Network went beyond its assigned role under the Agreement of screening films to test their broadcast quality and assumed the function of MTRCB to evaluate the films for the propriety of their content. Specifically. Alano.14 Implicit in GMA Films’ claim is the theory that the Agreement obliges petitioner to give to the film owners the entire amount he received from GMA Films and that his failure to do so gave rise to an implied trust. did the parties stipulate that petitioner signed the contract in such capacity. In terms devoid of any ambiguity." Nor did the parties stipulate that the fees paid by GMA Films for the films listed in the Agreement will be turned over by petitioner to the film owners. of the exclusive right to telecast the films listed in the Agreement. The Agreement. Indeed. then Vice-President for Program Management of GMA Network. the Agreement merely provided that the total fees will be paid in three installments (Paragraph 3). Instead.16 . On the contrary. is a licensing contract. before GMA Films can reject a film and require its replacement. Paragraph 4 requires that MTRCB. GMA Films insists that such clearance pertained only to the technical quality of the film but not to its content which it rejected because it found the film as "bomba" (bold). GMA Films does not allege. obliging petitioner to hold whatever amount he kept in trust for GMA Films. GMA Films’ rejection of Winasak na Pangarap finds no basis in the Agreement. however. the Agreement repeatedly refers to petitioner as "licensor" and GMA Films as "licensee. testified during trial that it was GMA Network which rejected Winasak na Pangarap because the latter considered the film "bomba. and we find no proof on record indicating. Petitioner maintains that the Film Certification issued by GMA Network attesting to the "good broadcast quality" of Winasak na Pangarap amounted to GMA Films’ acceptance of such film. noting that the Agreement "does not provide that the licensor is entitled to any commission. Disposal of the Fees Paid to Petitioner Outside of the Terms of the Agreement GMA Films also seeks refund for the balance of the fees it paid to petitioner for Bubot which petitioner allegedly failed to turn-over to the film’s owner. the essence of which is the transfer by the licensor (petitioner) to the licensee (GMA Films). GMA Films’ own witness. The CA sustained GMA Films’ interpretation. We hold that regardless of the import of the Film Certification."15 This is error. found merit in the latter’s claim."13 In doing so.12 The CA. Stipulations for payment of "commission" to the licensor is incongruous to the nature of such contracts unless the licensor merely acted as agent of the film owners. after reviewing a film listed in the Agreement. petitioner voluntarily acceded to it and replaced such film with Winasak na Pangarap. disapprove or X- rate it for telecasting. Jose Marie Abacan (Abacan).Nor is there any dispute that GMA Films rejected Evangeline Katorse not because it was disapproved by MTRCB but because the film’s total running time was too short for telecast (undertime). This runs counter to the clear terms of Paragraphs 3 and 4 of the Agreement. On the other hand. that MTRCB reviewed Winasak na Pangarap and X-rated it. the state censor. working under the assumption that the ground GMA Films invoked to reject Winasak na Pangarap was sanctioned under the Agreement. What is disputed is whether GMA Films accepted the replacement film offered by petitioner. Nowhere in the Agreement. as its full title denotes ("TV Rights Agreement"). Instead of rejecting GMA Films’ demand for falling outside of the terms of Paragraph 4. Paragraph 4 of the Agreement requires the intervention of MTRCB.

. The Decision. spelling out the terms of payment to the latter. of the Court of Appeals are SET ASIDE. The telegram was accepted by the defendant in its Dagupan office. as held by the CA. Crouch. Whether or not petitioner complied with these terms. must be fully elaborated in the body of the ruling. We find it unnecessary to pass upon the question whether an implied trust arose between the parties.A. and HONORABLE INTERMEDIATE APPELLATE COURT. Defendant-Appellant.We entertain no doubt that petitioner forged separate contractual arrangements with the owners of the films listed in the Agreement. Inc. and mother of the other plaintiffs. SR. On the same day. for transmission. Sr. AURORA CASTRO. negates the nature of attorney's fees as a form of actual damages. SOFIA C.19Its mere invocation. passed away in Lingayen. MARIO CASTRO. respondents. INC. after payment of the required fees or charges. Scottsburg. we GRANT the petition. dated 5 December 2008. IGNACIO CASTRO JR. ROLANDO CASTRO. GMA Films is no more entitled to complain of any breach by petitioner of his contracts with the film owners than the film owners are for any breach by GMA Films of its Agreement with petitioner. IGNACIO CASTRO. No. Plaintiffs-Appellees. VIRGILIO CASTRO AND GLORIA CASTRO.: Petition for review on certiorari of the decision * of the Intermediate Appellate Court.R. Sr. who was then vacationing in the Philippines."18 Such ground. J. Pangasinan.. 73867 February 29. CROUCH. is a matter to which GMA Films holds absolutely no interest. 47170 announcing Consolacion's death. dated 19 November 2012..000). in AC-G. SALVADOR CASTRO. Indiana. however. attorney's fees may be awarded if the trial court "deems it just and equitable. ESMERALDA C. et al. CONRADO CASTRO. No..S. addressed a telegram to plaintiff Ignacio Castro. Being a stranger to such arrangements. however. entitled "Ignacio Castro..R.." The facts of the case are as follows: On 2 November 1956. Award of Attorney's Fees to Petitioner Improper The trial court awarded attorney's fees to petitioner as it "deemed it just and reasonable"17 to do so. Undoubtedly. dated 11 February 1986. SO ORDERED. using the amount provided by petitioner on the witness stand (₱100. of the Regional Trial Court of Quezon City (Branch 223) is REINSTATED with the MODIFICATION that the award of attorney's fees is DELETED. Such conclusion was grounded on the erroneous assumption that GMA Films 1âwphi1 holds an interest in the disposition of the licensing fees it paid to petitioner. . Sr. WHEREFORE. PADILLA. her daughter Sofia C. without more.. vs. FLORO. petitioner. versus Telefast Communication/Philippine Wireless. dated 30 April 2012 and Resolution. The Decision. CV-70245. at 685 Wanda. Consolacion Bravo-Castro wife of plaintiff Ignacio Castro. U. 1988 TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS. AGERICO CASTRO. G.

8. P10. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and atmospheric factors beyond its control. The award of P20.00 as compensatory damages and P20. Salvador Castro.000. P20. exemplary damages in the amount of P1. Ignacio Castro Sr.00 moral damages. she discovered that the wire she had caused the defendant to send.000. P10. 7.000. with interest at 6% per annum: 1.000. 9.00 attorney's fees.00 to each of the plaintiffs and costs. P10. Rolando Castro. Agerico Castro. then all residing in the United States. Ignacio Castro. had not been received. 12. Defendant is also ordered to pay P5.00 as compensatory damages to Sofia C. ordered the defendant (now petitioner) to pay the plaintiffs (now private respondents) damages. 10. Esmeralda C.00 as moral damages.00 moral damages. Conrado Castro.00 as moral damages. Sofia C. Jr. Crouch.92 and P16. 2 On appeal by petitioner.00 moral damages. 6.00 moral damages.00 moral damages. 00 for each.The telegram never reached its addressee. Floro was also reduced to P120." 1 No evidence appears on record that defendant ever made any attempt to advise the plaintiff Sofia C.. after trial. Floro. Crouch as to why it could not transmit the telegram. Crouch. When Sofia returned to the United States.000.000. 4.000. Virgilio Castro.000. 2. returned for the burial. Ignacio Castro Jr.000. P10. 3. 5.000.00 moral damages.000. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No. the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of P16.000.000. 15356. Aurora Castro.00 as moral damages to each of Sofia C. P10. as follows.000. P10. Mario Castro.00 moral damages. P20. 11. Gloria Castro. P20. 3 . P10. The Court of First Instance of Pangasinan.000. Neither the husband nor any of the other children of the deceased. and Esmeralda C. P10.000. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach of contract. Consolacion was interred with only her daughter Sofia in attendance. P31.00 as moral damages.00 to each of the private respondents as exemplary damages.000.00 moral damages. Crouch and the award of P1.000.000 moral damages..

serious anxiety.92.00 as compensatory damages to Sofia C. despite performance by said private respondent of her obligation by paying the required charges. there would have been no need for this suit or for Mrs. Crouch for the telegram that was never sent to the addressee thereof. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. This. We find Art. without being given the opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that these emotional sufferings were proximately caused by appellant's omission and substantive law provides for the justification for the award of moral damages. besmirched reputation. contending that the award of moral damages should be eliminated as defendant's negligent act was not motivated by "fraud. As the appellate court properly observed: [Who] can seriously dispute the shock. and those who in any manner contravene the tenor thereof. Though incapable of pecuniary computation. as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers. sustained in the amount of P1.00 for each of the private respondents." Art." In the case at bar. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages. malice or recklessness.000. Crouch's testimony." (Emphasis supplied). negligence or delay. was precisely the cause of the suffering private respondents had to undergo. Petitioner's contention is without merit. fright. petitioner undertook to send said private respondent's message overseas by telegram. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud. under petitioner's theory. Here. petitioner's act or omission. is obliged to pay for the damage done. mental anguish. for a fee. which amounted to gross negligence. Art. and similar injury. social humiliation. are liable for damages. Had petitioner not been remiss in performing its obligation. Crouch entered into a contract whereby. 2217 of the Civil Code applicable to the case at bar. This liability is not limited to actual or quantified damages.000. it can only be held liable for P 31. moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission.Petitioner appeals from the judgment of the appellate court. there being fault or negligence. 2176 also provides that "whoever by act or omission causes damage to another. . wounded feelings. To sustain petitioner's contrary position in this regard would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago. the fee or charges paid by Sofia C. petitioner and private respondent Sofia C. therefore. moral shock. petitioner did not do. It states: "Moral damages include physical suffering. 4 We also sustain the trial court's award of P16. the mental anguish and the sorrow that the overseas children must have suffered upon learning of the death of their mother after she had already been interred." In other words. The award of exemplary damages by the trial court is likewise justified and.

p. 7. the petition is DENIED. Quezon City (Exh. 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines along Baesa. (4) P5.00 as attorney's fees. 143. The decision appealed from is modified so that petitioner is held liable to private respondents in the following amounts: (1) P10. Quezon City. Quezon City rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or remove the building and structures they built on the land of the plaintiff and to vacate the premises. Record).000. OFELIA DURIAN and CYRENE PANADO. BIENVENIDO RAMOY. one of the plaintiffs in the case at bar. ROMANA RAMOY-RAMOS." In the case of Leoncio Ramoy.00 as compensatory damages. TSN. the MTC Branch 36. (2) P1. 2-B. thus: The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa. Among the defendants in the ejectment case was Leoncio Ramoy. G.000.: This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court. be reversed and set aside. 9). 5). ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy2 moral and exemplary damages and attorney's fees. p.000. 1993. July 2. The Regional Trial Court (RTC) of Quezon City. Respondents.00 as moral damages. accurately summarized the facts as culled from the records. and (5) Costs of suit. 1989 after the defendants failed to file an answer in spite of summons duly served. 2002. (3) P16.00 as exemplary damages. On June 20. Attached to the letter was a list of establishments affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. Branch 81.WHEREFORE.R. to private respondent Sofia C. 72-B-2-B with the exact location of his apartments indicated and encircled in the location map as No. praying that the Decision1 of the Court of Appeals (CA) dated December 16. 2008 MANILA ELECTRIC COMPANY. A copy of the decision was furnished Leoncio Ramoy (Exhibits 2. 7. J. to each of private respondents. 158911 March 4. 2-A. pp. ROSEMARIE RAMOY. denying petitioner's motion for reconsideration. as well as a copy of the court . 2003. the Court found that he was occupying a portion of Lot No. to each of private respondents. DECISION AUSTRIA-MARTINEZ. Record. Petitioner. Crouch. MATILDE MACABAGDAL RAMOY. SO ORDERED. 128-131. On April 28. vs. and the CA Resolution3 dated July 1.000. 2-C. No.

the CA held MERALCO liable for moral and exemplary damages and attorney's fees. 326346. Shortly thereafter. 3-G). 3-F). the plaintiffs-lessees left the premises. 2003. the RTC ordered MERALCO to restore the electric power supply of respondents. it was found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property. p.. Rosemarie Ramoy (Exh. plaintiff Leoncio Ramoy objected by informing the Meralco foreman that his property was outside the NPC property and pointing out the monuments showing the boundaries of his property. The record also shows that at the request of NPC. TSN. TSN. 6-A. Record). 10 and 11). Panado (Exh. p. 12). Thus. a joint survey was conducted and the NPC personnel pointed out the electric meters to be disconnected (Exh. Jose Valiza and Cyrene S. pp. 8). 14). Panado as lessees. October 13. 3. Ofelia Durian. Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by TCT No. However. he was threatened and told not to interfere by the armed men who accompanied the Meralco employees. July 1994. After deliberating on NPC's letter. Meralco decided to comply with NPC's request (Exhibits 6. 2). Hence. 13. Monsale III on cross-examination (TSN. herein petition for review on certiorari on the following grounds: I THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS. In a letter dated August 17. 1990 Meralco requested NPC for a joint survey to determine all the establishments which are considered under NPC property in view of the fact that "the houses in the area are very close to each other" (Exh. Ofelia Durian (Exh. When the Meralco employees were disconnecting plaintiffs' power connection. In its Decision dated December 16. the CA faulted MERALCO for not requiring from National Power Corporation (NPC) a writ of execution or demolition and in not coordinating with the court sheriff or other proper officer before complying with the NPC's request.4 The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages. 1993. the electric service connection of the plaintiffs [herein respondents] was disconnected (Exhibits D to G. a portion of which was occupied by plaintiffs Rosemarie Ramoy. exemplary damages and attorney's fees.decision (Exh. 6-A-1. This was confirmed by defendant's witness R. During the ocular inspection ordered by the Court and attended by the parties. 14). 6-B) and thereupon issued notices of disconnection to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. . MERALCO's motion for reconsideration of the Decision was denied per Resolution dated July 1. p. After the electric power in Ramoy's apartment was cut off. 1993. 3-H) and Cyrene S. In due time. 2002. 3-A to 3-C). Jose Valiza (Exh. Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E). 3-I). defendant Meralco re-connected the electric service of four customers previously disconnected none of whom was any of the plaintiffs (Exh. with submarkings. However. Respondents then appealed to the CA. 7. 86-87. October 8.P. pp. Monsale also admitted that he did not inform his supervisor about this fact nor did he recommend re-connection of plaintiffs' power supply (Ibid.

v. The Court emphasized in Ridjo Tape & Chemical Corporation v. will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. Under the Service Contract. upon request of the NPC. thus: "In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify. The remedy serves to preserve the interests of the promissee that may include his "expectation interest. II THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. a corresponding right of relief. to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances. either for their makers or for society."7 MERALCO argues that since there is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents were among the illegal occupants of the NPC's right of way. Inc. Those who in the performance of their obligations are guilty of fraud. The law. prima facie. "[a] customer of electric service must show his right or proper interest over the property in order that he will be provided with and assured a continuous electric service.9 (Emphasis supplied) Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons." which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed. MERALCO has the obligation to discharge its functions with utmost care and diligence. The effect of every infraction is to create a new duty. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. Indeed. Nevertheless. that is. are liable for damages. or delay. recognizing the obligatory force of contracts. like proof of his exercise of due diligence x x x or of the attendance of fortuitous event." which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made. Clearly. and those who in any manner contravene the tenor thereof. In Radio Communications of the Philippines. or his "restitution interest. of the time and of the place. respondents' cause of action against MERALCO is anchored on culpa contractual or breach of contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code which provides: Article 1170. to excuse him from his ensuing liability." which is his interest in having restored to him any benefit that he has conferred on the other party. 5 The petition is partly meritorious. negligence. MERALCO admits6 that respondents are its customers under a Service Contract whereby it is obliged to supply respondents with electricity. Court of Appeals10 that "as a public utility. Verchez. agreements can accomplish little. MERALCO disconnected its power supply to respondents on the ground that they were illegally occupying the NPC's right of way.8 the Court expounded on the nature of culpa contractual. or his "reliance interest. unless they are made the basis for action."11 . MERALCO was justified in cutting off service to respondents.

In the present case. The next question is: Are respondents entitled to moral and exemplary damages and attorney's fees? Article 2220 of the Civil Code provides: Article 2220.12 the Court explained: [B]eing a public utility vested with vital public interest.15 (Emphasis supplied) Thus. the lessees of his four apartments on subject lot left the premises. This is contrary to public policy because. It was incumbent upon MERALCO to do everything within its power to ensure that the improvements built by respondents are within the NPC’s right of way before disconnecting their power supply. are not entitled to the services of MERALCO. and its provider is a public utility subject to strict regulation by the State in the exercise of police power. MERALCO. therefore. under the circumstances. v. Moreover. MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Likewise. only upon finality of said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property. The Court emphasized in Samar II Electric Cooperative. there is no evidence on record to show that this was done by MERALCO.16 Furthermore. if it were true that the decision was final and executory. Failure to comply with these regulations will give rise to the presumption of bad faith or abuse of right. Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA. Leoncio Ramoy testified that he suffered wounded feelings because of MERALCO's actions. MERALCO is impressed with certain obligations towards its customers and any omission on its part to perform such duties would be prejudicial to its interest. Willful injury to property may be a legal ground for awarding moral damages if the court should find that. thus. To repeat. the bottom line is that those who do not exercise such prudence in the discharge of their duties shall be made to bear the consequences of such oversight. MERALCO's failure to exercise utmost care and diligence in the performance of its obligation to Leoncio Ramoy.The Court agrees with the CA that under the factual milieu of the present case. its customer. it was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final and executory. . For in the final analysis. In Ridjo Tape. due to the lack of power supply. is tantamount to bad faith. by analogy. such damages are justly due. Inc. and failure to exercise the diligence required means that MERALCO was at fault and negligent in the performance of its obligation. being a vital public utility. as discussed above.13 This being so. Although MERALCO insists that the MTC Decision is final and executory. MERALCO is liable for damages under Article 1170 of the Civil Code. Quijano14 that: Electricity is a basic necessity the generation and distribution of which is imbued with public interest. it never showed any documentary evidence to support this allegation. Verily.17 Clearly. the most prudent thing for MERALCO to have done was to coordinate with the proper court officials in determining which structures are covered by said court order. The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its part. is expected to exercise utmost care and diligence in the performance of its obligation. MERALCO failed to exercise the utmost degree of care and diligence required of it.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the
effects on him of MERALCO's electric service disconnection. His co-respondents Matilde Ramoy,
Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of damages
they suffered.

It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez,
Jr.,18 the Court held thus:

In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint that he
suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed to prove
them during the trial. Indeed, respondent should have taken the witness stand and should have
testified on the mental anguish, serious anxiety, wounded feelings and other emotional and mental
suffering he purportedly suffered to sustain his claim for moral damages. Mere allegations do not
suffice; they must be substantiated by clear and convincing proof. No other person could have
proven such damages except the respondent himself as they were extremely personal to him.

In Keirulf vs. Court of Appeals, we held:

"While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the
amount of indemnity being left to the discretion of the court, it is nevertheless essential that the
claimant should satisfactorily show the existence of the factual basis of damages and its causal
connection to defendant’s acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of mental suffering. Thus, if
the plaintiff fails to take the witness stand and testify as to his/her social humiliation, wounded
feelings and anxiety, moral damages cannot be awarded. In Cocoland Development Corporation vs.
National Labor Relations Commission, the Court held that "additional facts must be pleaded and
proven to warrant the grant of moral damages under the Civil Code, these being, x x x social
humiliation, wounded feelings, grave anxiety, etc. that resulted therefrom."

x x x The award of moral damages must be anchored to a clear showing that respondent actually
experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar
injury. There was no better witness to this experience than respondent himself. Since respondent
failed to testify on the witness stand, the trial court did not have any factual basis to award
moral damages to him.19 (Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded
moral damages.20

With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and
quasi-contracts, the court may award exemplary damages if the defendant, in this case MERALCO,
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the
same Code provides that such damages cannot be recovered as a matter of right and the
adjudication of the same is within the discretion of the court.
1avv phi 1

The Court finds that MERALCO fell short of exercising the due diligence required, but its actions
cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Records show that
MERALCO did take some measures, i.e., coordinating with NPC officials and conducting a joint
survey of the subject area, to verify which electric meters should be disconnected although these

measures are not sufficient, considering the degree of diligence required of it. Thus, in this case,
exemplary damages should not be awarded.

Since the Court does not deem it proper to award exemplary damages in this case, then the CA's
award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in
the absence of stipulation, attorney's fees cannot be recovered except in cases provided for in
said Article, to wit:

Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees
is DELETED.

SECOND DIVISION

MINDANAO TERMINAL AND G.R. No. 162467
BROKERAGE SERVICE, INC.

Petitioner, Present:

- versus - CARPIO MORALES ,* JJ.,
Acting Chairperson,
TINGA,
PHOENIX ASSURANCE VELASCO, JR.,
COMPANY OF NEW YORK/ LEONARDO DE CASTRO,** and
MCGEE & CO., INC., BRION, JJ.
Respondent.
Promulgated:
May 8, 2009
x------------------------------------------------------------------------------------x

DECISION
TINGA, J.:
Before us is a petition for review on certiorari[1] under Rule 45 of the 1997 Rules of
Civil Procedure of the 29 October 2003[2] Decision of the Court of Appeals and
the 26 February 2004 Resolution[3] of the same court denying petitioners motion
for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao
Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green Philippine
bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh
Produce International, Inc. (Del Monte Produce) into the cargo hold of the
vessel M/V Mistrau. The vessel was docked at the port of Davao City and the
goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an
open cargo policy with private respondent Phoenix Assurance Company of New
York (Phoenix), a non-life insurance company, and private respondent McGee &
Co. Inc. (McGee), the underwriting manager/agent of Phoenix.[4]

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The
vessel set sail from the port of Davao City and arrived at the port of Inchon, Korea.

It was then discovered upon discharge that some of the cargo was in bad condition.
The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of
Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the extent
of the damage of the shipment. In a survey report, it was stated that 16,069 cartons
of the banana shipment and 2,185 cartons of the pineapple shipment were so
damaged that they no longer had commercial value.[5]

Del Monte Produce filed a claim under the open cargo policy for the damages to its
shipment. McGees Marine Claims Insurance Adjuster evaluated the claim and
recommended that payment in the amount of $210,266.43 be made. A check for
the recommended amount was sent to Del Monte Produce; the latter then issued a
subrogation receipt[6] to Phoenix and McGee.

Phoenix and McGee instituted an action for damages[7] against Mindanao Terminal
in the Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the
RTC,[8] in a decision dated 20 October 1999, held that the only participation of
Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the
direction and supervision of the ships officers, who would not have accepted the
cargoes on board the vessel and signed the foremans report unless they were
properly arranged and tightly secured to withstand voyage across the open seas.
Accordingly, Mindanao Terminal cannot be held liable for whatever happened to
the cargoes after it had loaded and stowed them. Moreover, citing the survey report,
it was found by the RTC that the cargoes were damaged on account of a typhoon
which M/V Mistrau had encountered during the voyage. It was further held
that Phoenix and McGee had no cause of action against Mindanao Terminal
because the latter, whose services were contracted by Del Monte, a distinct
corporation from Del Monte Produce, had no contract with the assured Del Monte
Produce. The RTC dismissed the complaint and awarded the counterclaim of
Mindanao Terminal in the amount of P83,945.80 as actual damages
and P100,000.00 as attorneys fees.[9]The actual damages were awarded as
reimbursement for the expenses incurred by Mindanao Terminals lawyer in
attending the hearings in the case wherein he had to travel all the way from Metro
Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court
reversed and set aside[10] the decision of the RTC in its 29 October 2003 decision.

The same court ordered Mindanao Terminal to pay Phoenix and McGee the total
amount of $210,265.45 plus legal interest from the filing of the complaint until
fully paid and attorneys fees of 20% of the claim.[11] It sustained Phoenixs and
McGees argument that the damage in the cargoes was the result of improper
stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the
stevedore of the cargo, the duty to exercise extraordinary diligence in loading and
stowing the cargoes. It further held that even with the absence of a contractual
relationship between Mindanao Terminal and Del Monte Produce, the cause of
action of Phoenix and McGee could be based on quasi-delict under Article 2176 of
the Civil Code.[12]

Mindanao Terminal filed a motion for reconsideration,[13] which the Court of
Appeals denied in its 26 February 2004[14] resolution. Hence, the present petition
for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it
was careless and negligent in the loading and stowage of the cargoes onboard M/V
Mistrau making it liable for damages; and, whether Phoenix and McGee has a
cause of action against Mindanao Terminal under Article 2176 of the Civil Code
on quasi-delict. To resolve the petition, three questions have to be answered: first,
whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under
obligation to observe the same extraordinary degree of diligence in the conduct of
its business as required by law for common carriers[15] and warehousemen;[16] and
third, whether Mindanao Terminal observed the degree of diligence required by
law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed by Phoenix and
McGee against Mindanao Terminal, from which the present case has arisen, states
a cause of action. The present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes belonging to Del Monte
Produce. Even assuming that both Phoenix and McGee have only been subrogated
in the rights of Del Monte Produce, who is not a party to the contract of service
between Mindanao Terminal and Del Monte, still the insurance carriers may have a
cause of action in light of the Courts consistent ruling that the act that breaks the
contract may be also a tort.[17] In fine, a liability for tort may arise even under a

contract, where tort is that which breaches the contract[18]. In the present
case, Phoenix and McGee are not suing for damages for injuries arising from the
breach of the contract of service but from the alleged negligent manner by which
Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite
the absence of contractual relationship between Del Monte Produce and Mindanao
Terminal, the allegation of negligence on the part of the defendant should be
sufficient to establish a cause of action arising from quasi-delict.[19]

The resolution of the two remaining issues is determinative of the ultimate
result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract does
not state the degree of diligence which is to be observed in the performance of an
obligation then that which is expected of a good father of a family or ordinary
diligence shall be required. Mindanao Terminal, a stevedoring company which was
charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There
is no specific provision of law that imposes a higher degree of diligence than
ordinary diligence for a stevedoring company or one who is charged only with the
loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and
McGee that Mindanao Terminal was bound by contractual stipulation to observe a
higher degree of diligence than that required of a good father of a family. We
therefore conclude that following Article 1173, Mindanao Terminal was required
to observe ordinary diligence only in loading and stowing the cargoes of Del
Monte Produce aboard M/V Mistrau.

The Court of Appeals erred when it cited the case of Summa Insurance
Corporation v. CA and Port Service Inc.[20] in imposing a higher degree of
diligence,[21] on Mindanao Terminal in loading and stowing the cargoes. The case
of Summa Insurance Corporation v. CA, which involved the issue of whether an
arrastre operator is legally liable for the loss of a shipment in its custody and the
extent of its liability, is inapplicable to the factual circumstances of the case at bar.
Therein, a vessel owned by the National Galleon Shipping Corporation (NGSC)
arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order
of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as "notify
party." The shipment, including a bundle of PC 8 U blades, was discharged from

the vessel to the custody of the private respondent, the exclusive arrastre operator
at the South Harbor.Accordingly, three good-order cargo receipts were issued by
NGSC, duly signed by the ship's checker and a representative of private respondent.
When Semirara inspected the shipment at house, it discovered that the bundle of
PC8U blades was missing. From those facts, the Court observed:

x x x The relationship therefore between the consignee and the
arrastre operator must be examined. This relationship is much akin
to that existing between the consignee or owner of shipped goods and
the common carrier, or that between a depositor and a
warehouseman[[22]]. In the performance of its obligations, an arrastre
operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman as enunciated
under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to
take good care of the goods and to turn them over to the party
entitled to their possession. (Emphasis supplied)[23]

There is a distinction between an arrastre and a stevedore.[24] Arrastre, a Spanish
word which refers to hauling of cargo, comprehends the handling of cargo on the
wharf or between the establishment of the consignee or shipper and the ship's
tackle. The responsibility of the arrastre operator lasts until the delivery of the
cargo to the consignee. The service is usually performed by longshoremen. On the
other hand, stevedoring refers to the handling of the cargo in the holds of the vessel
or between the ship's tackle and the holds of the vessel. The responsibility of the
stevedore ends upon the loading and stowing of the cargo in the vessel.

It is not disputed that Mindanao Terminal was performing purely
stevedoring function while the private respondent in the Summa case was
performing arrastre function. In the present case, Mindanao Terminal, as a
stevedore, was only charged with the loading and stowing of the cargoes from the
pier to the ships cargo hold; it was never the custodian of the shipment of Del
Monte Produce. A stevedore is not a common carrier for it does not transport
goods or passengers; it is not akin to a warehouseman for it does not store goods
for profit. The loading and stowing of cargoes would not have a far reaching public

That is to say.[30] It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the stowage plan. Phoenix and McGee failed to prove by preponderance of evidence[25] that Mindanao Terminal had acted negligently.[29] It was not disputed by Phoenix and McGee that the materials. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence preponderates the party having the burden of proof fails upon that issue. The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.[28] which are not disputed by Phoenix and McGee. The public policy considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients. a guide for the area assignments of the goods in the vessels hold. such as ropes. whose testimony .[31] The loading and stowing was done under the direction and supervision of the ship officers. if the evidence touching a disputed fact is equally balanced. or if it does not produce a just. rational belief of its existence. prepared by Del Monte Produce and the officers of M/V Mistrau. was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded. as proof of work done on board the vessel.[33] Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn[34] and on the survey report[35] of the damage to the cargoes. Byeong. or if it leaves the mind in a state of perplexity. They would order the stevedore to rectify any error in its loading and stowing. [26] We adopt the findings[27] of the RTC. and cardboards.[32] The said ship officers would not have accepted the cargoes on board the vessel if they were not properly arranged and tightly secured to withstand the voyage in open seas. The vessels officer would order the closing of the hatches only if the loading was done correctly after a final inspection.ramification as that of a common carrier and a warehouseman. used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry standard. The Court of Appeals did not make any new findings of fact when it reversed the decision of the trial court. the party holding the affirmative as to such fact must fail. pallets. A foremans report. In the third issue. the public is adequately protected by our laws on contract and on quasi-delict.

As admitted by Phoenix and McGee in their Comment[38] before us. Even the materials used for stowage. The present case is clearly not an unfounded civil action against the plaintiff . 1994 as described in the sea protest. and cardboards. the latter is merely a stevedoring company which was tasked by Del Monte to load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the shipper and the officers of the vessel.[40] As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the cargoes. In other words. we are of the opinion that damage occurred aboard the carrying vessel during sea transit. which is the ordinary diligence of a good father of a family.[36] found that the cause of the damage was improper stowage[37] due to the manner the cargoes were arranged such that there were no spaces between cartons. None of the circumstances enumerated in Article 2208 of the Civil Code exists. which caused the shipments in the cargo hold to collapse. the Court finds no basis for the award of attorneys fees in favor of petitioner. the grant of the petition is in order. shift and bruise in extensive extent. as encountered by M/V Mistrau during its voyage. being caused by ships heavy rolling and pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October. the use of cardboards as support system. are provided for by the vessel.[39] Even the deposition of Byeong was not supported by the conclusion in the survey report that: CAUSE OF DAMAGE xxx From the above facts and our survey results. pallets. the work of the stevedore was under the supervision of the shipper and officers of the vessel. such as ropes.was refreshed by the survey report. Even the survey report found that it was because of the boisterous stormy weather due to the typhoon Seth. However. and the use of small rope to tie the cartons together but not by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes.

the RTC erred in awarding P83. vs. No.[42] WHEREFORE. 66121 is SET ASIDE and the decision of the Regional Trial Court of DavaoCity.80 actual damages to Mindanao Terminal. respondents. Branch 12 in Civil Case No.97 is hereby REINSTATED MINUS the awards of P100. J.as there is no showing that it was instituted for the mere purpose of vexation or injury. 25. But there is no showing that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of expenditures. but only insofar as holding Asiatic Integrated Corporation solely liable for damages and attorney's fees instead of making the City of Manila jointly and solidarily liable with it as prayed for by the petitioner and (2) the resolution of the same Appellate Court denying his Partial Motion for Reconsideration (Rollo.90 actual medical expenses. 20. Rollo) The findings of respondent Appellate Court are as follows: . Although actual expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City. CV No.00 as attorney's fees.R.00 as attorneys fees and P83. the lawyer of Mindanao Terminal incurred expenses for plane fare. even if erroneously. 96390 between the same parties. reversing the decision ** of the Court of First Instance of Manila. P900. Asiatic Integrated Corporation and City of Manila.R.000. (p.945. P20. sufferings and sleepless nights and P l0.R. 013887-CV Bernardino Jimenez v. The decision of the Court of Appeals in CA-G. No. 2). 71049 May 29.80 as actual damages.00 as moral damages due to pains.[41] Likewise. A new one is hereby entered ordering the defendant Asiatic Integrated Corporation to pay the plaintiff P221.00 for the amount paid for the operation and management of a school bus. G. PARAS.945. p. It is not sound public policy to set a premium to the right to litigate where such right is exercised in good faith. the decision appealed from is hereby REVERSED. hotel accommodations and food. as well as other miscellaneous expenses. 1987 BERNARDINO JIMENEZ. The dispositive portion of the Intermediate Appellate Court's decision is as follows: WHEREFORE.: This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate Court in AC-G. petitioner. Branch XXII in Civil Case No.311.000. SO ORDERED. CITY OF MANILA and INTERMEDIATE APPELLATE COURT. the petition is GRANTED.000. as he attended the trials coming all the way from Manila.

p. Despite the medicine administered to him by the latter. Civil Case No. 29) respondent City of Manila filed its comment on August 13. Rollo. 96390. on appeal. As above stated. AC-G. The lower court decided in favor of respondents. p. p. 1985 of the First Division of this Court (Rollo. the Intermediate Appellate Court held the Asiatic Integrated Corporation liable for damages but absolved respondent City of Manila. 01387. He was then rushed to the Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and severe pain. Upon his discharge from the hospital. Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose administration the Sta. 1985 (Rollo. Juanita Mascardo. 1985 (Rollo. 42). 13- 20). 34) while petitioner filed its reply on August 21. Hence this petition. He felt ill and developed fever and he had to be carried to Dr. to pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a half inches. Thereafter. 1985 (Reno. (Decision. 1985 (Rollo. the same having been assigned to a member of said Division (Rollo. causing a dirty and rusty four. 82). went to Sta. pp.00). together with his neighbors.inch nail. 1974 he. his companions helped him hobble home. After administering first aid treatment at a nearby drugstore. judgment is hereby rendered in favor of the defendants and against the plaintiff dismissing the complaint with costs against the plaintiff. Ana public market to buy "bagoong" at the time when the public market was flooded with ankle deep rainwater. he had to engage the services of one Bienvenido Valdez to supervise his business for an aggregate compensation of nine hundred pesos (P900. 65) while respondent filed its memorandum on October 24. p. he had to walk around with crutches for fifteen (15) days. p. p. 92). Ana Public Market had been placed by virtue of a Management and Operating Contract (Rollo. . After purchasing the "bagoong" he turned around to return home but he stepped on an uncovered opening which could not be seen because of the dirty rainwater. (Decision. the Court in the resolution of September 11. 1986. this case was transferred to the Second Division of this Court. Rollo.The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15. his left leg swelled with great pain. 51). 1985 (Rollo. the counterclaims of the defendants are likewise dismissed. CV No. In the resolution of October 13. For lack of sufficient evidence. the dispositive portion of the decision reading: WHEREFORE.R. In compliance with the resolution of July 1. p. p. stuck inside the uncovered opening. His injury prevented him from attending to the school buses he is operating. 47). p. 62) gave due course to the petition and required both parties to submit simultaneous memoranda Petitioner filed his memorandum on October 1. The lone assignment of error raised in this petition is on whether or not the Intermediate Appellate Court erred in not ruling that respondent City of Manila should be jointly and severally liable with Asiatic Integrated Corporation for the injuries petitioner suffered. As a result.

regardless of the object. streets. 409 establishes a general rule regulating the liability of the City of Manila for "damages or injury to persons or property arising from the failure of city officers" to enforce the provisions of said Act. 409 as amended (Revised Charter of Manila) which provides: The City shall not be liable or held for damages or injuries to persons or property arising from the failure of the Mayor. 1." Upon the other hand. (Decision. What said article requires is that the province. This issue has been laid to rest in the case of City of Manila v. 4. Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the petitioner because under the Management and Operating Contract.R. or any other law or ordinance. "or any other law or ordinance or from negligence" of the City "Mayor. Article 2189 of the Civil Code of the Philippines which provides that: Provinces. claiming that it was only a small puncture and that as a war veteran.The petition is impressed with merit. Rollo. p. constitutes a particular prescription making "provinces. while Article 2189 of the Civil Code governs liability due to "defective streets. or injury suffered by any person by reason" — specifically — "of the defective condition of roads. In the same suit. 01387. Section 4 of Republic Act No. that the defective public works belong to the province. No. or from negligence of said Mayor.A. public buildings and other public works under their control or supervision. bridges. As correctly found by the Intermediate Appellate Court. in general. the Municipal Board. It has also been argued that the City of Manila cannot be held liable under Article 1. city or municipality has either "control or supervision" over the public building in question. Ana Public Market. streets. Teotico (22 SCRA 269-272 [1968]) where the Supreme Court squarely ruled that Republic Act No. or other officers while enforcing or attempting to enforce said provisions. Asiatic Integrated Corporation assumed all responsibility for damages which may be suffered by third persons for any cause attributable to it. the Supreme Court clarified further that under Article 2189 of the Civil Code." In other words. and other public works under their control or supervision. CV No. AC-G.. 409 refers to liability arising from negligence. cities and municipalities shall be liable for damages for the death of. liable for damages for the death of. 6). bridges. R. Municipal Board.. plaintiff's hospitalization at the War Veteran's Hospital was free. public buildings. or any other City Officer. Municipal Board. city or municipality from which responsibility is exacted. Art. cities and municipalities . or any other officers while enforcing or attempting to enforce said provisions. . thereof. there is no doubt that the plaintiff suffered injuries when he fell into a drainage opening without any cover in the Sta. public buildings and other public works" in particular and is therefore decisive on this specific case. or injuries suffered by any person by reason of defective conditions of roads. sec. it is not necessary for the liability therein established to attach. Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated Corporation tries to minimize the extent of the injuries. to enforce the provisions of this chapter.

particularly as to their cost of construction. inasmuch as the City retains the power of supervision and control over its public markets and talipapas under the terms of the contract.) (Rollo. 1972 by and between the City of Manila and the Asiatic Integrated Corporation. cleaning. p. xxx xxx xxx It is believed that there is nothing incongruous in the exercise of these powers vis-a- vis the existence of the contract. when it provides: II That immediately after the execution of this contract. Ana Public Market. maintenance. (lbid) The fact of supervision and control of the City over subject public market was admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads: These cases arose from the controversy over the Management and Operating Contract entered into on December 28. Provided. rehabilitation and reconstruction of the city public markets and talipapas subject to prior approval of the FIRST PARTY. . on the activities and operation of the City public markets and talipapas and the facilities and conveniences installed therein. p. sanitizing and repair of the public markets and talipapas and within ninety (90) days thereof. or his duly authorized representative or representatives. despite the Management and Operating Contract between respondent City and Asiatic Integrated Corporation remained under the control of the former. that the SECOND PARTY shall have the right. the SECOND PARTY shall submit a program of improvement. VII That the SECOND PARTY may from time to time be required by the FIRST PARTY.In the case at bar. p. (Rollo. 75). subject to prior approval of the FIRST PARTY to discharge any of the present employees for cause. 44) xxx xxx xxx VI That all present personnel of the City public markets and talipapas shall be retained by the SECOND PARTY as long as their services remain satisfactory and they shall be extended the same rights and privileges as heretofore enjoyed by them. however. whereby in consideration of a fixed service fee. said contract is explicit in this regard. the SECOND PARTY shall start the painting. (Rollo. rehabilitation and development of the City's public markets and' Talipapas' subject to the control and supervision of the City. (Exhibit "7-A") (Emphasis supplied. to report. the City hired the services of the said corporation to undertake the physical management. operation and maintenance in connection with the stipulations contained in this Contract. there is no question that the Sta. development. 45). For one thing.

Ymson Yes. As observed by respondent Court of Appeals. 01387. Hearing of July 27. as I stated. AC- G. 1173 of the Civil Code).. More specifically stated. p. As a defense against liability on the basis of a quasi-delict. 41-42. 1977. R. (Decision. A customer in a store has the right to assume that the owner will comply with his duty to keep the premises safe for customers. (Art. provides: The treasurer shall exercise direct and immediate supervision administration and control over public markets and the personnel thereof. Your Honor. the check or verifying whether the place is safe for public safety is vested in the market master. Rollo."(T. Ana Market is safe for the public? Mr.) xxx xxx xxx Court As far as you know there is or is there any specific employee assigned with the task of seeing to it that the Sta. 76) The contention of respondent City of Manila that petitioner should not have ventured to go to Sta. 1977. Q What are his functions? A Direct supervision and control over the market area assigned to him.s. it is an error for the trial court to attribute the negligence to herein petitioner. Section 30 (g) of the Local Tax Code as amended. Ana Public Market during a stormy weather is indeed untenable. (T. no negligence can be imputed to the customer. including those whose duties concern the maintenance and upkeep of the market and ordinances and other pertinent rules and regulations.) (Emphasis supplied. Finally.n. 2425. The trial court even chastised the plaintiff for going to market on a rainy day just to buy bagoong. Hearing of May 20.. CV No. Ana has its own market master. one must have exercised the diligence of a good father of a family.. Ana Public Market whose primary duty is to take direct supervision and control of that particular market. p.) (Rollo. The primary duty of that market master is to make the direct supervision and control of that particular market.) (Rollo. 19). Your Honor. the findings of appellate court are as follows: . . (Emphasis supplied.s. p.. the City of Manila employed a market master for the Sta. that the Sta.n. Ymson Actually. If he ventures to the store on the basis of such assumption and is injured because the owner did not comply with his duty. to check the safety of the place for the public. Chief of the Market Division and Deputy Market Administrator of the City of Manila testified as follows: Court This market master is an employee of the City of Manila? Mr.pp. more specifically. 76).In fact. pp. Thus the Asst.

There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the public market reasonably safe for people frequenting the place for their marketing needs.00 as attorney's fees. petitioner. Had the opening been covered. CARLOS. No. that they were adequately covered. PREMISES CONSIDERED. and the PHILIPPINE BAR ASSOCIATION. Even more important is the fact. making the City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221. JUAN J. 1986 JUAN F. petitioner could not have fallen into it. vs. respondent City having retained control and supervision over the Sta. pp. UNITED CONSTRUCTION COMPANY. the City is therefore liable for the injury suffered by the peti.R.000. 1986 THE UNITED CONSTRUCTION CO. THE COURT OF APPEALS. AC-G. COURT OF APPEALS. L-47896 October 3. ET AL. Sadly. INC.90 actual medical expenses. it appears evident that the City of Manila is likewise liable for damages under Article 2189 of the Civil Code.00 for the amount paid for the operation and management of the school bus. G. respondents. Thus the negligence of the City of Manila is the proximate cause of the injury suffered. P20. G. NAKPIL.R. and JUAN F. No. P900.. Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article 2194 of the Civil Code. L-47863 October 3. respondents. (Rollo. while there are findings that during floods the vendors remove the iron grills to hasten the flow of water (Decision. that the City should have seen to it that the openings were covered. the decision of the Court of Appeals is hereby MODIFIED. Moreover. 59). To recapitulate. Rollo.. For instance. Neither was it shown that any sign had been placed thereabouts to warn passersby of the impending danger.R. there is no showing that such practice has ever been prohibited.R. petitioners. 1986 .000.. 0 1387. much less penalized by the City of Manila. the evidence indicates that long before petitioner fell into the opening. SO ORDERED. be admitted that ordinary precautions could have been taken during good weather to minimize the dangers to life and limb under those difficult circumstances. p. sufferings and sleepless nights and P10. No. the opening was still uncovered. NAKPIL & SONS. While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods. G. 57. it was already uncovered. CV No. INC.. vs. and five (5) months after the incident happened. 17).00 as moral damages due to pain. it must however. Ana Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts Petitioner had the right to assume that there were no openings in the middle of the passageways and if any. the drainage hole could have been placed under the stalls instead of on the passage ways.4 petitioner. L-47851 October 3.

1971 as modified in the December 8. 1971 Order of the lower court is hereby affirmed with COSTS to be paid by the defendant and third party defendant (except Roman Ozaeta) in equal shares. ET AL.000. petitioners. respondents. 51771-R modifying the decision of the Court of First Instance of Manila.68 with interest at the legal rate from November 29. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE.47851.00 in favor of plaintiff-appellant Philippine Bar Association. The Court of Appeals in modifying the decision of the lower court included an award of an additional amount of P200. Rollo. and by the third-party defendants Juan F. J. 1977 decision of the Court of Appeals in CA-G.R.00 to the Philippine Bar Association to be paid jointly and severally by the defendant United Construction Co. COURT OF APPEALS.. the judgment dated September 21. 1968 until full payment to be paid jointly and severally by defendant United Construction Co. Inc. (d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit.335. judgment is hereby rendered: (a) Ordering defendant United Construction Co. 1971.: These are petitions for review on certiorari of the November 28.. in Civil Case No. Carlos. Inc. (c) Dismissing the third-party complaint.. . ET AL. Nakpil and Sons and Juan F. Inc. No. 1971 as modified by the Order of the lower court dated December 8. 521. and third-party defendants (except Roman Ozaeta) to pay the costs in equal shares. and third party defendants (except Roman Ozaeta). The dispositive portion of the modified decision of the lower court reads: WHEREFORE. In all other respects. SO ORDERED. the sum of P989.. the date of the filing of the complaint until full payment. (Record on Appeal p.. p. 1968. Branch V.000. with interest at the legal rate from November 29. 74958 dated September 21. 169).PHILIPPINE BAR ASSOCIATION. and third-party defendants (except Roman Ozaeta) to pay the plaintiff. jointly and severally. PARAS. (b) Dismissing the complaint with respect to defendant Juan J. SO ORDERED. (e) Ordering defendant United Construction Co. vs. L. the judgment appealed from is modified to include an award of P200. Nakpil.

incorporated under the Corporation Law.00 as attorney's fees. the president and general manager of said corporation. Nakpil & Sons and Juan F. the plaintiff need not amend its complaint by including the said Juan F. . Rollo. pp. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals.00 as exemplary damages.661. Nakpil personally as parties defendant. causing the building to tilt forward dangerously. 172). and Juan J. Carlos as defendants. Nakpil presented a written stipulation which reads: 1. Inc. the plaintiff and third-party defendants Juan F.830. Carlos. Inc. C. alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. the building was shored up by United Construction. P100. 1969. 74958. The building was completed in June. and P100. No. at the cost of P13. the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction. Carlos. Nakpil & Sons and Juan F. L-47851. p. Inc. among other things. 1968. Philippine Bar Association. Inc. 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage.00 for the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building. on an "administration" basis. decided to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets.party complaints and the third-party defendants Nakpil & Sons' answer thereto. 520-521.. 1966. In the early morning of August 2. President of the United Construction Co. 269- 348.28. L-47851. On November 29. Record on Appeal. The construction was undertaken by the United Construction. As a temporary remedial measure. Plaintiff alleges that the collapse of the building was accused by defects in the construction. The facts as found by the lower court (Decision. a civic-non-profit association. The plans and specifications for the building were prepared by the other third-party defendants Juan F.000.Petitioners Juan F. and its President and General Manager Juan J. Intramuros. (Rollo. Nakpil & Sons in L-47851 and United Construction Co.000.000. as party defendant.. pp. a third-party defendant in this case. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta. Nakpil & Sons. the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract. Manila. for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1. the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated by this Court in the resolution of May 10. p. on the suggestion of Juan J. Inc. 1978 requiring the respective respondents to comment. 169) and affirmed by the Court of Appeals are as follows: The plaintiff. On March 3. The tenants vacated the building in view of its precarious condition. Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications. The front columns of the building buckled. Roman Ozaeta.C. That in relation to defendants' answer with counterclaims and third.

designs. pp. charged with the duty to try the following issues: 1. 2. the degree or proportion in which each individual factor contributed to the damage sustained. . In the latter case. or in the event that the Court may find Juan F. who was ultimately appointed by the trial court. Hizon. Carlos and United Construction Co. (b) The deviations. Both parties hereby jointly petition this Honorable Court to approve this stipulation. and specifications prepared by them and/or failure in the performance of their contract with plaintiff. by: (a) The inadequacies or defects in the plans and specifications prepared by third-party defendants. Inc. (c) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. the defects or inadequacy of the plans. Nakpil as parties defendant and by alleging causes of action against them including. during which among others. and specifications p by the third-party defendants.169). 274-275. Whether the damage sustained by the PBA building during the August 2. Upon the issues being joined. the determination of the cost of such restoration or repair. are free from any blame and liability for the collapse of the PBA Building. 2. Nakpil & Sons and/or Juan F. 3. as the case may be. Mr. L-47851. Nakpil and Sons and/or Juan F.. If the cause of the damage suffered by the building arose from a combination of the above-enumerated factors. if any. and the value of any remaining construction. Whether the building is now a total loss and should be completely demolished or whether it may still be repaired and restored to a tenantable condition. and (f) Any other cause not herein above specified. and should further find that the collapse of said building was due to defects and/or inadequacy of the plans. Rollo. made by the defendants from said plans and specifications and how said deviations contributed to the damage sustained. judgment may be rendered in whole or in part. (d) The alleged failure to exercise the requisite degree of supervision expected of the architect. 3. the parties agreed to refer the technical issues involved in the case to a Commissioner. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants. That in the event (unexpected by the undersigned) that the Court should find after the trial that the above-named defendants Juan J. a pre-trial was conducted on March 7. directly or indirectly. among others. designs. the contractor and/or the owner of the building. against Juan F. such as the foundation. 1969. 1968 earthquake had been caused. assumed his office as Commissioner.p. (e) An act of God or a fortuitous event. Andres O. (Record on Appeal. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by including the said Juan F. Nakpil & Sons and Juan F.

and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. pp.) After the protracted hearings. these petitions. but not another earthquake of high intensity on April 7. The motion having been granted. As aforestated the technical issues were referred to the Commissioner. the issues of this case were divided into technical issues and non-technical issues. Meanwhile. p. Hence. the lower court rendered the assailed decision which was modified by the Intermediate Appellate Court on November 28. and 12. Thus. L-47851. 169). 278-280. Thus. 1977. 1971. 1978. 1970 followed by other strong earthquakes on April 9. Ibid). which may still be utilized or availed of (Record on Appeal. architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2. caused further damage to the property. 1970. On May 11. 1978) were duly noted. 1968 earthquake whose magnitude was estimated at 7. The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. The actual demolition was undertaken by the buyer of the damaged building. 1978. the Commissioner eventually submitted his report on September 25. The position papers of the amicus curiae (submitted on November 24. (Record on Appeal. Finally.3 they were also caused by the defects in the plans and specifications prepared by the third- party defendants' architects. They proposed to present a position paper on the liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent views on the design and plans as submitted by the experts procured by the parties. All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner. We gave due course to the petitions in Our Resolution of July 21. The Court sees no legal or contractual basis for such conclusion. the Association of Civil Engineers. 275-276. the amicus curiae were granted a period of 60 days within which to submit their position. on April 30. Ibid. pp. plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a strong earthquake. 309-328. All the parties herein appealed from the decision of the Intermediate Appellate Court. pp. (Record on Appeal. The motions were opposed by the defendants and the matter was referred to the Commissioner. The non-technical issues were tried by the Court. 1979 the building was authorized to be demolished at the expense of the plaintiff. on September 21. deviations from said plans and specifications by the defendant contractors and failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors. . After the parties had all filed their comments. Rollo. the United Architects of the Philippines.

UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co. .000. 1723. the general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen.100. or the deficiencies in the design. among others..28 while the Nakpils opposed the payment of damages jointly and solidarity with UCCI. Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. 4131) and the 1966 Asep Code. Acceptance of the building. which provides: Art. raised the following assignments of errors: Philippine Bar Association claimed that the measure of damages should not be limited to P1. exempts from liability. But the Commissioner. Inc. and the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility and not the defective construction. Inc. or due to the defects in the ground. The action must be brought within ten years following the collapse of the building.The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. when asked by Us to comment.00 imposed by the Court of Appeals. The contractor is likewise responsible for the damage if the edifice fags within the same period on account of defects in the construction or the use of materials of inferior quality furnished by him. If the engineer or architect supervises the construction. or due to any violation of the terms of the contract.661. In their respective briefs petitioners. deviations from plans and specifications and other imperfections in the case of United Construction Co. The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused the failure of the building. still the deficiency in the original design and jack of specific provisions against torsion in the original plans and the overload on the ground floor columns (found by an the experts including the original designer) certainly contributed to the damage which occurred.000. No. he shall be solidarily liable with the contractor.. poor workmanship. plans and specifications prepared by petitioners in the case of the Nakpils. after completion. The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code. the Commissioner added that even if it can be proved that the defects in the constructionalone (and not in the plans and design) caused the damage to the building. 174). p. On the other hand. reiterated his conclusion that the defects in the plans and specifications indeed existed. (Ibid. were inevitable (Article 1174. Both UCCI and the Nakpils object to the payment of the additional amount of P200. parties who are otherwise liable because of their negligence. does not imply waiver of any of the causes of action by reason of any defect mentioned in the preceding paragraph. New Civil Code). The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans and specifications.

the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August 2. is found to be in part the result of the participation of man. 1985. Court of Appeals. Republic of the Phil. Luzon Stevedoring Corp. pains or care. such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. de Jesus. reasonably to have been expected. was found to have made substantial deviations from the plans and specifications. which by no amount of foresight. 134 SCRA 105. It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this court (cases cited in Tolentino vs. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. Phil. (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. January 17. (b) the event must be either unforseeable or unavoidable. if upon the happening of a fortuitous event or an act of God.. whether it be from active intervention or neglect. 604. Tucker v. Thus. The negligence of the defendant and the third-party defendants petitioners was established beyond dispute both in the lower court and in the Intermediate Appellate Court. 71 SCRA 423. Motors. and (d) the debtor must be free from any participation in. When the effect. 45 Phil. 129. 39 SCRA 527. (1 Corpus Juris 1174). which results in loss or damage. the whole occurrence is thereby humanized. 657). or aggravation of the injury to the creditor. To be exempt from liability for loss because of an act of God. v. 55 Phil. or failure to act. 30-31).G. 21 SCRA 279. he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. Lasam v. and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision. 34 Phil. 594. To exempt the obligor from liability under Article 1174 of the Civil Code. while the third-party defendants were found to have inadequacies or defects in the plans and specifications prepared by them. Court of Appeals. 657). Court of Appeals. There is no dispute that the earthquake of August 2. Lasam v.. 56 SCRA 67. 4379. negligence. Estrada v. (1 Corpus Juris. As correctly assessed by both courts. 1968 is a fortuitous event or an act of God. 138 SCRA 553. (Vasquez v. Inc. (Fish & Elective Co. unless (1) the conclusion is a finding . Limpangco & Sons v. and removed from the rules applicable to the acts of God. there concurs a corresponding fraud. 1968. Smith. For this reason the defendant and third-party defendants cannot claim exemption from liability. the obligor cannot escape liability. could have been prevented. Cesar vs. Yangco Steamship Co. as it were. delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code. v. Austria v. Consolacion. 1174-1175). Milan. the cause of which is to be considered. Sandiganbayan. Smith. 45 Phil. Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss. for a breach of an obligation due to an "act of God. Defendant United Construction Co." the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor. 49 O. pp..An act of God has been defined as an accident. due directly and exclusively to natural causes without human intervention. pp. 121). (Decision.

The collapse of the PBA building as a result of the August 2. (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents (Garcia vs. No. the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected. On the contrary. February 8.76 a year until the judgment for the principal amount shall have been satisfied L. 1979. spent P13. (10) the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by evidence on record (Salazar vs.671. 19). (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees (Ramos vs. The PBA. 6. The PBA in its brief insists that the proper award should be P1. May 29. (3) there is grave abuse of discretion. 21 SCRA 648. The PBA further urges that the unrealized rental income awarded to it should not be limited to a period of one- half year but should be computed on a continuing basis at the rate of P178. The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that the total amount required to repair the PBA building and to restore it to tenantable condition was P900. CA . the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of P200. July 10. The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse (and eventual complete collapse) of its building.830. 366). thru no fault of its own. (5) the findings of fact are conflicting . the relevant and logical observations of the trial court as affirmed by the Court of Appeals that "while it is not possible to state with certainty that the building would not have collapsed were those defects not present.00 inasmuch as it was not initially a total loss. was unable. in view of its lack of needed funding. Pepsi-Cola Bottling Co. 31. UNITED's Brief as Petitioner..47896. June 30. p. CA. on the other hand. 92 SCRA 322. 25). Roque vs.grounded entirely on speculation. July 30. the records show that the lower court spared no effort in arriving at the correct appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus curiae who were allowed to intervene in the Supreme Court. Sandiganbayan. surmise and conjectures.28 to shore up the building after the August 2. while the trial court awarded the PBA said amount as damages. NAKPIL's Brief as Petitioner. (8) said findings of facts are conclusions without citation of specific evidence on which they are based. 92).000. PBA's No. while both the NAKPILS and UNITED question the additional award of P200. I. Sacay v. UNITED.00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on April 7.000. However.00 representing the total value of the building (L-47896. Cited in G. It is evident that the case at bar does not fall under any of the exceptions above-mentioned. p.000. 1967. (7) the findings of facts of the Court of Appeals are contrary to those of the trial court. p. to have the building repaired. 291-292. 1 Assignment of Error." cannot be ignored. p. 19 SCRA 289.00 in favor of the PBA (L- 47851. Alsua-Bett vs.000. 33 SCRA 622. 1970. (4) the judgment is based on misapprehension of facts.661. 1970 (L-47896. plus unrealized rental income for one-half year. 1968 earthquake (L-47896. 33 SCRA 243. (2) the inference made is manifestly mistaken. In any event. 1970. Gutierrez. Vol. Oct. 1967. 11 Assignment of Errors.R. 651). Court of Appeals. 247. p. Buan. 66497-98. however. 1968 earthquake was only partial and it is undisputed that the building could then still be repaired and restored to its tenantable condition. 1986). 19). PBA's No.

46). poor workmanship. drought. the trial court after the needed consultations. It does not necessarily follow. We are not convinced on the basis of the evidence on record that from the thousands of structures in Manila. 1970. floods. hundreds of ancient buildings which survived the earthquake better than the two-year old PBA building must have been designed and constructed by architects and contractors whose knowledge and foresight were unexplainably auspicious and prophetic. There is no mystery about .appellants and third party defendants-appellants presented in their briefs are premised on legal generalizations or speculations and on theological fatalism both of which ignore the plain facts. Fortunately. 53-54). Nakpil and Sons alleges that the designs were adequate in accordance with pre-August 2. The record is replete with evidence of defects and deficiencies in the designs and plans. God singled out the blameless PBA building in Intramuros and around six or seven other buildings in various parts of the city for collapse or severe damage and that God alone was responsible for the damages and losses thus suffered. If this were so. pp. defective construction. These deficiencies are attributable to negligent men and not to a perfect God. as a unique and distinct construction with no reference or comparison to other buildings. The evidence reveals defects and deficiencies in design and construction. the facts on record allow a more down to earth explanation of the collapse. deviation from plans and specifications and other imperfections. p. to weather the severe earthquake forces was traced to design deficiencies and defective construction. The theological allusion of appellant United that God acts in mysterious ways His wonders to perform impresses us to be inappropriate. Vol. we will be forced to conclude that under such a situation scores of buildings in the vicinity and in other parts of Manila would have toppled down. The act-of-God arguments of the defendants. 1. The failure of the PBA building. The lengthy discussion of United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous events and extraordinary fortuitous events leads to its argument that the August 2. If we follow this line of speculative reasoning. Following the same line of reasoning.Decision. Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of Appeals: There is no question that an earthquake and other forces of nature such as cyclones. the injury would have been produced. lightning. authorized the total demolition of the building (L-47896. however. 1968 knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. factors which are neither mysterious nor esoteric. Because of the earthquake on April 7. We quote with approval the following from the erudite decision penned by Justice Hugo E. and perils of the sea are acts of God. 1968 earthquake was of such an overwhelming and destructive character that by its own force and independent of the particular negligence alleged. that specific losses and suffering resulting from the occurrence of these natural force are also acts of God. There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the partial and eventual collapse of the PBA building as a result of the earthquakes.

More relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount "which built his house upon a rock. were responsible for the damages. A reiteration of these same arguments on appeal fails to convince us that we should reverse or disturb the lower Court's factual findings and its conclusions drawn from the facts. and natural forces is precisely the reason why we have professional experts like architects. Designs and constructions vary under varying circumstances and conditions but the requirement to design and build well does not change. Increase the inertia forces that move the building laterally toward the Manila Fire Department. it also examined the ability of the PBA building. earthquakes. b. Commissioner's Answer to the various Objections. for it was founded upon a rock" and of the "foolish upon the sand. Plaintiff's Objections to the Report. Third Party Defendants' Objections to the Report. Instead of laying the blame solely on the motions and forces generated by the earthquake. and beat upon that house. inadequate design was the cause of the failure of the building. and it fell and great was the fall of it. winds. Counter-Reply to Defendants' Reply. ." The requirement that a building should withstand rains. And the rain descended and man which built his house the floods came. a. Create another stiffness imbalance. and the winds blew. The findings of the lower Court on the cause of the collapse are more rational and accurate. 2. to wit: Physical evidence before the earthquake providing (sic) inadequacy of design. Matthew 7: 24-27). The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons. (St. among them: The Commissioner also found merit in the allegations of the defendants as to the physical evidence before and after the earthquake showing the inadequacy of design. Plaintiffs' Reply to the Commissioner's Answer. Defendants' Objections to the Report. and the rain descended and the floods came and the winds blew and beat upon that house. as designed and constructed. The Report of the Commissioner. Defendants' Reply to the Commissioner's Answer. The collapse of the PBA building was no wonder performed by God. and engineers. It was a result of the imperfections in the work of the architects and the people in the construction company. floods. not a mysterious act of an inscrutable God. 1. Sun-baffles on the two sides and in front of the building.these acts of negligence. to withstand and successfully weather those forces. and Third-Party Defendants' Reply to the Commissioner's Report not to mention the exhibits and the testimonies show that the main arguments raised on appeal were already raised during the trial and fully considered by the lower Court. and it fen not.

The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-sectional area of each of the columns and the strength thereof. The Third-party defendants. and (d) the Commissioner has analyzed the design of the PBA building not in the light of existing and available earthquake engineering knowledge at the time of the preparation of the design. Maximum sagging occurs at the column A7 where the floor is lower by 80 cm. There was a lateral displacement of the building of about 8". that the design is essentially that of a heavy rectangular box on stilts with shear wan at one end. (c) the Commissioner has failed to back up or support his finding with extensive. however. not only in columns but also in slabs. 6.3. (b) the finding that there were defects and a deficiency in the design of the building would at best be based on an approximation and. 1. Floors showed maximum sagging on the sides and toward the front corner parts of the building. rightly belonged to the realm of speculation. 4. than the highest slab level. The Commissioner concluded that there were deficiencies or defects in the design. A7 and D7 columns were very much less reinforced. voiced opposition to the same on the grounds that (a) the finding is based on a basic erroneous conception as to the design concept of the building. Also D7. but in the light of recent and current standards. therefore. who are the most concerned with this portion of the Commissioner's report. 3. plans and specifications of the PBA building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. 2. There are more damages in the front part of the building than towards the rear. that the fact that those deficiencies or defects may have arisen from an obsolete or not too conservative code or even a code that does not require a design for earthquake forces mitigates in a large measure the responsibility or liability of the architect and engineer designer. to wit. Two front corners. Proving Inadequacy of design. 4. Building leaned and sagged more on the front part of the building. rather than of certainty and could very possibly be outright error. complex and highly specialized computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical question. The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates or exhibits not presented . Slab at the corner column D7 sagged by 38 cm. Column A7 suffered the severest fracture and maximum sagging. 5. He conceded. Physical Evidence After the Earthquake.

the Court sees no compelling reasons to disturb the findings of the Commissioner that there were defects and deficiencies in the design. These two issues. Summary of alleged defects as reported by Engineer Mario M. on the codes to be used and even as to the type of structure that the PBA building (is) was (p. if any. who are all engineers. as to what earthquake co- efficients are. made by the defendants from the plans and specifications. and that said defects and deficiencies involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. Within the pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's report on this issue. (2) Absence of effective and desirable integration of the 3 bars in the cluster.during the hearing that the resort to engineering references posterior to the date of the preparation of the plans was induced by the third-party defendants themselves who submitted computations of the third-party defendants are erroneous. (b) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. will be discussed together. and how said deviations contributed to the damage sustained by the building. being interrelated with each other. plans and specifications prepared by third-party defendants. It involves questions not within the ordinary competence of the bench and the bar to resolve by themselves. and whose competence had not been questioned by the parties until he submitted his report. and the objections voiced to the same. of third. Counsel for the third-party defendants has aptly remarked that "engineering. (1) Wrongful and defective placing of reinforcing bars. . The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the Court itself. All these may be summarized as follows: a. Bundalian. coupled with the intrinsic nature of the questions involved therein. constituted the reason for the reference of the said issues to a Commissioner whose qualifications and experience have eminently qualified him for the task. although dealing in mathematics.party defendants before the Commissioner). is not an exact science and that the present knowledge as to the nature of earthquakes and the behaviour of forces generated by them still leaves much to be desired. (2) (a) The deviations. The issue presently considered is admittedly a technical one of the highest degree. The findings of the Commissioner on these issues were as follows: We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the construction and violations or deviations from the plans and specifications. 29. cannot agree on what equation to use. Memo. so much so "that the experts of the different parties.

unless otherwise stated. C-7. Columns suffered worst displacement where the eccentricity of the columnar reinforcement assembly is more acute. (3) Column D6 — Spacing of spiral over 4 l/2. Specification requires no larger than 1 inch. . (1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers. Columns are first (or ground) floor. Spirals are uneven 2" to 4". Columns buckled worst where there are no spirals or where spirals are cut. (9) Column A3 — Lack of lateral ties. (2) Column D5 — No spiral up to a height of 22" from the ground floor.(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Spirals are at 2" from the exterior column face and 6" from the inner column face. (4) Reinforcement assembly is not concentric with the column. (7) Column B5 — Lack of spirals at a distance of 26' below the beam. (12) Columns buckled at different planes. (4) Column D7 — Lack of lateral ties. D-7 and D-4. ground floor. (8) Column B7 — Spirals not tied to vertical reinforcing bars. or omission. A-5. (7) Absence. (6) Contraband construction joints. (11) Big cavity in core of Column 2A-4. (9) Defective construction joints in Columns A-3. Antonio Avecilla. second floor. eccentricity being 3" off when on one face the main bars are only 1 1/2' from the surface. (5) Column C7 — Absence of spiral to a height of 20" from the ground level. or over spacing of spiral hoops. b. (5) Prevalence of honeycombs. ground floor. (6) Column B6 — Lack of spiral on 2 feet below the floor beams. Summary of alleged defects as reported by Engr. (10) Undergraduate concrete is evident. (8) Deliberate severance of spirals into semi-circles in noted on Col.

(8) Column C7— Spirals are absent at lowest 18" (9) Column D5 — At lowest 2 feet spirals are absent. (2) Column A5 — Spirals are cut. (6) Column B6 — At upper 2 feet spirals are absent. (1) Column A4 — Spirals are cut. . (13) Column A6 — No spirals up to a height of 30' above the ground floor level. (3) Column A6 — At lower 18" spirals are absent. (7) Column B7 — At upper fourth of column spirals missing or improperly spliced. (10) Column D6 — Spirals are too far apart and apparently improperly spliced. c. There is merit in many of these allegations. (14) Column A7— Lack of lateralties or spirals. spaced 16" on centers. (11) Column A4 — (second floor Column is completely hollow to a height of 30" (12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam to a height of 6 feet. (11) Column D7 — Lateral ties are too far apart. The explanations given by the engineering experts for the defendants are either contrary to general principles of engineering design for reinforced concrete or not applicable to the requirements for ductility and strength of reinforced concrete in earthquake- resistant design and construction. Summary of alleged defects as reported by the experts of the Third-Party defendants. Ground floor columns. (5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced. We shall first classify and consider defects which may have appreciable bearing or relation to' the earthquake-resistant property of the building.(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars. (4) Column A7 — Ties are too far apart.

this is certainly an evidence on the part of the contractor of poor construction. The cutting of the spirals in column A5. There is evidence to show that the pouring of concrete for columns was sometimes done through the beam and girder reinforcements which were already in place as in the case of column A4 second floor. p. The burden of proof. The omission of spirals and ties or hoops at the bottom and/or tops of columns contributed greatly to the loss of earthquake-resistant strength. 1. 970. The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum may be approximated in relation to column loads and column and beam moments. that this cutting was done by others is upon the defendants.As heretofore mentioned. The effect on the measured eccentricity of 2 inches. is to increase or diminish the column load by a maximum of about 1% and to increase or diminish the column or beam movements by about a maximum of 2%. If the reinforcement for the girder and column is to subsequently wrap around the spirals. Reference 11). they nevertheless diminish said factor of safety. This is not quite correct. this would not do for the elasticity of steel would . Specifications. ground floor. There were several clear evidences where this was not done especially in some of the ground floor columns which failed. is the responsibility of the general contractor which is the UCCI. ground floor is the subject of great contention between the parties and deserves special consideration. There is no excuse for the cavity or hollow portion in the column A4. therefore. second floor. Other than a strong allegation and assertion that it is the plumber or his men who may have done the cutting (and this was flatly denied by the plumber) no conclusive proof was presented. There were also unmistakable evidences that the spacings of the spirals and ties in the columns were in many cases greater than those called for in the plans and specifications resulting again in loss of earthquake-resistant strength. and although this column did not fail. The plans and specifications required that these spirals and ties be carried from the floor level to the bottom reinforcement of the deeper beam (p. The assertion of the engineering experts for the defendants that the improper spacings and the cutting of the spirals did not result in loss of strength in the column cannot be maintained and is certainly contrary to the general principles of column design and construction. And even granting that there be no loss in strength at the yield point (an assumption which is very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of the plastic range or ductility in the column and it is precisely this plastic range or ductility which is desirable and needed for earthquake- resistant strength. While these can certainly be absorbed within the factor of safety. The main effect of eccentricity is to change the beam or girder span. therefore. The proper placing of the main reinforcements and spirals in column A5. The engineering experts for the defendants asserted that they could have no motivation for cutting the bar because they can simply replace the spirals by wrapping around a new set of spirals. details which insure ductility at or near the connections between columns and girders are desirable in earthquake resistant design and construction.

that the proven defects. a procedure which can not be done if either the beam or girder reinforcement is already in place. including the effect of eccentricity in the column the loss in strength due to these minor defects may run to as much as ten percent. (pp. The liability for the cutting of the spirals in column A5. these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2. As the parties most directly concerned with this portion of the Commissioner's report. The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns where spalling of the concrete cover had taken place. In other words. The defendants. We may say. that the defects and deficiencies in the construction contributed greatly to the damage which occurred. the defendants voiced their objections to the same on the grounds that the Commissioner should have specified the defects found by him to be "meritorious". should be held responsible for the consequences arising from the loss of strength or ductility in column A5 which may have contributed to the damages sustained by the building. therefore. the presence of existence of all the major defects and deficiencies noted and proven manifests an element of negligence which may amount to imprudence in the construction work. Since the execution and supervision of the construction work in the hands of the contractor is direct and positive. The engineering experts for the defendants strongly assert and apparently believe that the cutting of the spirals did not materially diminish the strength of the column. This belief together with the difficulty of slipping the spirals on the top of the column once the beam reinforcement is in place may be a sufficient motivation for the cutting of the spirals themselves. 42-49. It is reasonable to conclude. The engineering experts for the defendants submitted an estimate on some of these defects in the amount of a few percent. This lack of proper splicing contributed in a small measure to the loss of strength. in the considered opinion of the Commissioner rests on the shoulders of the defendants and the loss of strength in this column contributed to the damage which occurred. therefore. To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of the ground floor columns contributed greatly to the collapse of the PBA building since it is at these points where the greater part of the failure occurred. The proper way is to produce correct spirals down from the top of the main column bars. therefore. prevent the making of tight column spirals and loose or improper spirals would result. ground floor. If accumulated. The effects of all the other proven and visible defects although nor can certainly be accumulated so that they can contribute to an appreciable loss in earthquake-resistant strength. therefore. 1968 and the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of the structure. Commissioners Report). that the Commissioner failed to .

I. C- 7. The objection regarding the cutting of the spirals in Column A-5. The objection to the failure of the Commissioner to specify the number of columns where there was lack of proper length of splicing of spirals. the lack of proper length of splicing of spirals. the Commissioner answered that. As regards the objection as to failure to state the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement. The Commissioner likewise specified the first storey columns where the spacings were greater than that called for in the specifications to be columns B-5. Vol. the eccentricities in the columns. and in the latter. As found by the Commissioner. the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient cause to disregard or modify the same. there were no spirals for 10 inches at the bottom.indicate the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement of the deeper beam. groundfloor. and that the cutting of the spirals in column A5. Answering the said objections. did not aggravate or contribute to the damage suffered by the building. since many of the defects were minor only the totality of the defects was considered. He answered the supposition of the defendants that the spirals and the ties must have been looted. the Commissioner stated that. The Commissioner conceded that the hollow in column A-4. pp. B-6. which rendered said supposition to be improbable. ." On the claim that the eccentricity could be absorbed within the factor of safety. as evidenced by the actual failure of this column. ground floor. and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks. ground floor. D-5 and B-7. specifications. C-5. second floor. designs. was answered by the Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the spirals. Again. the defendants should be held liable for the same as the general contractor of the building. did not aggravate or contribute to the damage. that the hollow in column A4. while the same may be true. and not by the defendants. (Rollo. it also contributed to or aggravated the damage suffered by the building. was done by the plumber or his men. but averred that it is "evidence of poor construction. 128-142) The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans. the Commissioner mentioned groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not welded. by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns. second floor. resulting in some loss of strength which could be critical near the ends of the columns. and the cut in the spirals in column A5. or where the spacing of the spirals and ties in the columns were greater than that called for in the specifications. C-6. The Commissioner further stated that the loss of strength of the cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment in the column and resulted in the loss of strength. that the defects in the construction were within the tolerable margin of safety. the Commissioner specified groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the top. the "deviations made by the defendants from the plans and specifications caused indirectly the damage sustained and that those deviations not only added but also aggravated the damage caused by the defects in the plans and specifications prepared by third-party defendants.

One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic).R. We deem it reasonable to render a decision imposing. vs.2 Million in accordance with the payment schedule dated 22 November 1999. at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta). Only one thing spells out the fatal difference. the total sum being payable upon the finality of this decision.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100. 4380) which may be in point in this case reads: One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof. . Civil Code.’s surety bond dated 3 December 1999. CV No. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5. gross negligence and evident bad faith. Milan (49 O. Branch 141. Of the said purchase price for the goods delivered. which reversed the Decision4 of the Regional Trial Court (RTC). as We do hereby impose. it obtained defendant UCPB General Insurance Co..G. 189563 April 7. 02-461. One Virtual promised to pay a portion thereof totalling US$1.. twelve (12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality until paid. The antecedent facts. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case. in favor of GILAT. To ensure the prompt payment of this amount.. Supra. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. Respondent. without which the damage would not have occurred. services and software. INC. No. Makati City in Civil Case No. 1723.128. are as follows: On September 15. DECISION SERENO. LTD.000. or an act of God for which he is not responsible. 1999. spares.250. Petitioner. SO ORDERED. the destruction was not purely an act of God.00) Pesos as and for attorney's fees.000. accessories. 4379. 89263. G. Inc. As already discussed.R. ordering respondent to pay petitioner a sum of money. the ruling of the Supreme Court in Tucker v.00). CJ: This is an appeal via a Petition for Review on Certiorari1 filed 6 November 2009 assailing the Decision2 and Resolution3 of the Court of Appeals (CA) in CA-G.000. although the act of a third person. p. intervenes to precipitate the loss. WHEREFORE.Relative thereto.. 2014 GILAT SATELLITE NETWORKS. as culled from the CA. Upon failure to pay on such finality.

petitioner Gilat Satellite Networks. the instant complaint.00 or a part thereof. 1999 (Exhibit "E"). 2000 in accordance with the payment schedule attached as Annex "A" to the surety bond. After due hearing.During the period between [sic] September 1999 and June 2000. GILAT shipped and delivered to One Virtual the purchased products and equipment. This obligation was not made dependent on any condition outside the terms and conditions of the Surety Bond and Payment Milestones. and 2. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars (US$1. defendant’s counterclaim is hereby dismissed for want of merit. to wit: 1. the surety issued. (Emphasis in the original) In so ruling. with legal interest thereon at the rate of 12% per annum computed from the time the judgment becomes final and executory until the obligation is fully settled.00. 2001.004. Ltd.00) on the due date of May 30.000. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44.200. the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject equipments [sic] and the same was installed.. One Virtual failed to pay any of the payments agreed upon. as evidenced by airway bills/Bill of Lading (Exhibits "F". hence. was shipped by GILAT and duly received by One Virtual. prompting GILAT to send a second demand letter dated January 24. Accordingly.000. defendant UCPB failed to settle the amount of US$1.. All of the equipment (including the software components for which payment was secured by the surety bond.10 . to recover the amounts supposedly covered by the surety bond. an amendment to the surety bond.04) representing attorney’s fees and litigation expenses. 2001. ordering. the Court hereby renders judgment for the plaintiff.000.200. One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400. filed a Complaint6 against respondent UCPB General Insurance Co. SO ORDERED."5(Emphases in the original) On 24 April 2002..00 guaranteed under the surety bond. for the payment of the full amount of US$1. the RTC rendered its Decision. 2000. However."8 Considering that its liability was indeed that of a surety. Even with the delivery and installation made.7 the dispositive portion of which is herein quoted: WHEREFORE. with One Virtual’s conformity. prompting GILAT to write the surety defendant UCPB on June 5. Inc. Demand notwithstanding."9 respondent agreed and bound itself to pay in accordance with the Payment Milestones. correcting its expiry date from May 30.00) representing the principal debt under the Surety Bond.200. plus interests and expenses (Exhibits "H") and which letter was received by the defendant surety on January 25. "F-1" to "F-8"). One Virtual likewise failed to pay on the succeeding payment instalment date of 30 November 2000 as set out in Annex "A" of the surety bond. 2001.000. defendant failed and refused and continued to fail and refused to settle the obligation. 2001 to July 30. UCPB as Surety and GILAT as Creditor/Bond Obligee. No part of the amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB.000. plus interests and expenses. Annex "A" thereof. and against the defendant. as "spelled out in the Surety Bond executed by and between One Virtual as Principal. premises considered. Under an endorsement dated December 23. a demand letter (Exhibit "G") for payment of the said amount of US$400.

the RTC denied petitioner’s claim on the premise that while a surety can be held liable for interest even if it becomes more onerous than the principal obligation. 2006 is VACATED. respondent filed a Comment21 on the Petition for Review. The motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009. and 2. On 31 August 2010. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to arbitrate. petitioner filed a Reply. the accessory contract must be construed with the principal agreement.. the ‘complementary-contracts-construed-together’ doctrine finds application. petitioner filed a Motion for Reconsideration with Motion for Oral Argument. including the surety. petitioner and One Virtual were ordered to proceed to arbitration. with legal interest at the rate of 12% per annum computed from the time the judgment becomes final and executory. (Emphasis in the original) The CA ruled that in "enforcing a surety contract.19 the trial court’s Decision was vacated. the outcome of which shall necessary bind the parties.22 ISSUES From the foregoing. SO ORDERED. On 9 September 2008. and One Virtual are ordered to proceed to arbitration. this appealed case is DISMISSED for lack of jurisdiction. respondent failed to pay its surety obligation because of the advice of its principal (One Virtual) not to pay." According to this doctrine.16 whose stipulations are also binding on the parties to the suretyship.Insofar as the interests were concerned.17 Bearing in mind the arbitration clause contained in the Purchase Agreement18 and pursuant to the policy of the courts to encourage alternative dispute resolution methods.. Hence. the surety shall only accrue when the delay or refusal to pay the principal obligation is without any justifiable cause. nor can an arbitration clause between the buyer and the seller be invoked by a non-party such as the surety.12 The RTC then obligated respondent to pay petitioner the amount of USD1. On 24 November 2010. On 18 October 2007. The trial court’s Decision dated December 28.15 In this case.04 representing attorney’s fees and litigation expenses. defendant-appellant United Coconut Planters Bank General Insurance Co.200. we reduce the issues to the following: 1. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation under the Suretyship Agreement.13 The appellate court rendered a Decision14 in the following manner: WHEREFORE.000. and USD44.11 Here. the instant Petition. THE COURT’S RULING The existence of a suretyship agreement does not give the surety the right to intervene in the principal contract. Plaintiff-appellant Gilat Satellite Networks Ltd. respondent appealed to the CA.00 representing the principal debt under the Surety Bond. the appellate court considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract. .004. Inc.

it can be directly held liable by the creditor for payment as a solidary obligor.31 Nevertheless. Moreover." Hence. unless a party entitled to it applies for this relief. as well as their assigns and heirs. This undertaking makes a surety agreement an ancillary contract. at which time. which cannot exist without a valid obligation. We agree with petitioner. the oft-repeated rule is that a surety’s liability is joint and solidary with that of the principal debtor. its liability to the creditor or "promise" of the principal is said to be direct.34 It may in fact be sued separately or together with the principal debtor. although the contract of a surety is in essence secondary only to a valid principal obligation. the right to invoke the arbitration clause in the Purchase Agreement. In other words. Consequently. the surety remains a stranger to the Purchase Agreement. we have held in Stronghold Insurance Co.29 Thus. Despite these compliances.33Thus. must take precedence over arbitration as the preferred mode of settling disputes.24 Considering that neither petitioner nor One Virtual has asked for a referral. being the principal contract to which the Suretyship Agreement is accessory. even without possessing a direct or personal interest in the obligations constituted by the latter.40 it is binding only on the parties thereto. as the principal debtor.26 Even the Surety Agreement itself states that respondent becomes liable upon "mere failure of the Principal to make such prompt payment. In other words. or upon the . v. Articles 1216 and 2047 of the Civil Code25 clearly provide that the creditor may proceed against the surety without having first sued the principal debtor. In suretyship. Tokyu Construction Co. there is no basis for the CA’s order to arbitrate. Ltd.Petitioner alleges that arbitration laws mandate that no court can compel arbitration.23 This referral. a surety is not entitled to a separate notice of default or to the benefit of excussion. We agree with petitioner that respondent cannot invoke in its favor the arbitration clause in the Purchase Agreement. One Virtual still failed to pay its obligation. in other words. however. because it is not a party to that contract.37 triggering respondent’s liability to petitioner as the former’s surety. the surety may avail itself of all the defenses available to the principal debtor and inherent in the debt30 – that is. a surety is directly and equally bound with the principal.32 He becomes liable for the debt and duty of the principal obligor.41 Second. Inc. respondent maintains that a surety contract is merely an accessory contract."27 Thus.38 that "[the] acceptance [of a surety agreement]. primary and absolute. we cannot sustain respondent’s claim that the Purchase Agreement. the failure of One Virtual.35 After a thorough examination of the pieces of evidence presented by both parties. The surety’s role arises only upon the debtor’s default. First.39 An arbitration agreement being contractual in nature. however. 928542 is clear in stating that a referral to arbitration may only take place "if at least one party so requests not later than the pre-trial conference.28 On the other hand. can only be demanded by one who is a party to the arbitration agreement. Section 24 of Republic Act No. as it presupposes the existence of a principal contract. the acceptance does not give the surety the right to intervene in the principal contract.. petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before proceeding against respondent. to fulfill its 1âw phi 1 monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.36 the RTC found that petitioner had delivered all the goods to One Virtual and installed them. does not change in any material way the creditor’s relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship.

44 The effect is that the creditor is given the right to directly proceed against either principal debtor or surety. respondent’s failure to heed the demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase Agreement. respondent does not contest this point.request of both parties thereafter.49 The CA. shall be the payment of the interest agreed upon. for delay to merit interest.57 we held thus: . there being no stipulation to the contrary.45 To require the creditor to proceed to arbitration would render the very essence of suretyship nugatory and diminish its value in commerce. from the second demand on 24 January 2001 because of the latter’s delay in discharging its monetary obligation. petitioner insists that the delay started to run from the time it demanded the fulfilment of respondent’s obligation under the suretyship contract. he may pay the debt himself and become subrogated to all the rights and remedies of the creditor. made no pronouncement on this matter. and the latter fails to comply.53 Having held that a surety upon demand fails to pay. it must be inexcusable in nature. the surety) to be in default. which means delay in the fulfilment of obligations. In Guanio v. petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first demand on respondent on 5 June 2000 or at most. as we have held in Palmares v. Makati-Shangri-la Hotel. At any rate.54 The increased liability is not because of the contract. but rather the debt itself." Interest.48 In this case. it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated. even if in thus paying. is synonymous with default or mora. This is the reason why excussion cannot be invoked." Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. the legal interest. sureties do not insure the solvency of the debtor.46 "if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal. Third. (2) that the debtor delays performance." Respondent has not presented even an iota of evidence to show that either petitioner or One Virtual submitted its contesting claim for arbitration.52 In order for the debtor (in this case. Verchez. Anent the issue of interests. provided that the delay is inexcusable. This responsibility necessarily places a surety on the same level as that of the principal debtor.51 It is the nonfulfillment of an obligation with respect to time. and the debtor incurs a delay. but because of the default and the necessity of judicial collection.47 Citing Article 1169 of the Civil Code. the indemnity for damages.56 citing RCPI v. and (3) that the creditor requires the performance judicially or extrajudicially.43 They are contracted precisely to mitigate risks of non-performance on the part of the obligor. We sustain petitioner. however. but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioner’s last demand on 24 January 2001. Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money. may be awarded to a creditor for the delay incurred by a debtor in the payment of the latter’s obligation.55 However. as a form of indemnity. Court of Appeals. its liability becomes more than the principal obligation. the RTC stated that interests may only accrue when the delay or the refusal of a party to pay is without any justifiable cause. it can be held liable for interest. as used in Article 1169. and in the absence of stipulation. Significantly. In rejecting petitioner’s position.50 Delay.

The law. i. either for their makers or for society. because the obligation was already due and demandable at that time..62 which modified the guidelines established in Eastern Shipping Lines v.. Gallery Frames. prima facie. With regard to the interest rate to be imposed. that is. When the obligation is breached. xxxx . The remedy serves to preserve the interests of the promissee that may include his "expectation interest. recognizing the obligatory force of contracts. interest on the amount due begins to run. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before an action for performance was filed. CA63 in relation to Bangko Sentral- Monetary Board Circular No. the rate of interest shall be 6% per annum to be computed from default.59 Notwithstanding these compliances. Moreover.e. agreements can accomplish little. gone into operation. not from the date of the filing of the complaint. vice president of Gilat. to wit: 1." which is his interest in having restored to him any benefit that he has conferred on the other party." which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made. the interest due should be that which may have been stipulated in writing. the deposition of Mr. and that the equipment had been installed and in fact.In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify.61 we agree with the latter that interest must start to run from the time petitioner sent its first demand letter (5 June 2000). One Virtual. respondent still failed to pay. i. we take cue from Nacar v. Erez Antebi. to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial demand is made on the surety. or his "reliance interest.e. and that the extrajudicial demand of petitioner was sent on 5 June 2000. will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. 799 (Series of 2013)." which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed. Furthermore. petitioner would not have been forced to stop operations. a corresponding right of relief. the interest due shall itself earn legal interest from the time it is judicially demanded. As to the issue of when interest must accrue. but from the date of that extra-judicial demand. to excuse him from his ensuing liability. (Emphasis ours) We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed justified by the circumstances – that is. One Virtual’s advice regarding petitioner’s alleged breach of obligations. like proof of his exercise of due diligence x x x or of the attendance of fortuitous event. if only it had paid its obligation on time. and it consists in the payment of a sum of money. respondent has no one to blame but its principal. The effect of every infraction is to create a new duty. Indeed.60 Considering that respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement. unless they are made the basis for action. or his "restitution interest. including the licensed software. In 1âwphi 1 the absence of stipulation."58Assuming arguendo that the commissioning work was not completed. a loan or forbearance of money. The lower court’s Decision itself belied this contention when it said that "plaintiff is not disputing that it did not complete commissioning work on one of the two systems because One Virtual at that time is already in default and has not paid GILAT. repeatedly stated that petitioner had delivered all equipment.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

Applying the above-discussed concepts and in the absence of an agreement as to interests, we are
hereby compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000,
its first date of extra judicial demand, until the satisfaction of the debt in accordance with the revised
guidelines enunciated in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of
the Regional Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as
the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the
rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship
Contract and Purchase Agreement.

SO ORDERED.

G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S. VIOLETA CHUA, Respondents.

[G.R. NO. 184472]

SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO RIVERA, Respondent.

DECISION

PEREZ, J.:

Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing
the Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed with modification the separate
rulings of the Manila City trial courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and
the Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No. 163661,3 a case for collection of a sum of
money due a promissory note. While all three (3) lower courts upheld the validity and authenticity of the
promissory note as duly signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the
appellate court modified the trial courts’ consistent awards: (1) the stipulated interest rate of sixty percent
(60%) reduced to twelve percent (12%) per annum computed from the date of judicial or extrajudicial
demand, and (2) reinstatement of the award of attorney’s fees also in a reduced amount of P50,000.00.

In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and questions
the entire ruling of the lower courts. On the other hand, petitioners in G.R. No. 184472, Spouses Salvador
and Violeta Chua (Spouses Chua), take exception to the appellate court’s reduction of the stipulated interest
rate of sixty percent (60%) to twelve percent (12%) per annum.

We proceed to the facts.

The parties were friends of long standing having known each other since 1973: Rivera and Salvador
are kumpadres, the former is the godfather of the Spouses Chua’s son.

On 24 February 1995, Rivera obtained a loan from the Spouses Chua: chanroblesvi rtua llawli bra ry

PROMISSORY NOTE

120,000.00

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA SY
CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (P120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until the entire obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty
percent (20%) of the total amount due and payable as and for attorney’s fees which in no case shall be less
than P5,000.00 and to pay in addition the cost of suit and other incidental litigation expense.

Any action which may arise in connection with this note shall be brought in the proper Court of the City of
Manila.

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as
partial payment for the loan, issued and delivered to the Spouses Chua, as payee, a check numbered
012467, dated 30 December 1998, drawn against Rivera’s current account with the Philippine Commercial
International Bank (PCIB) in the amount of P25,000.00.

On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise
drawn against Rivera’s PCIB current account, numbered 013224, duly signed and dated, but blank as to
payee and amount. Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was issued in
the amount of P133,454.00 with “cash” as payee. Purportedly, both checks were simply partial payment for
Rivera’s loan in the principal amount of P120,000.00.

Upon presentment for payment, the two checks were dishonored for the reason “account closed.”

As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the principal of
P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because
of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit on 11 June 1999. The
case was raffled before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.

In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the subject
Promissory Note; (2) in all instances when he obtained a loan from the Spouses Chua, the loans were
always covered by a security; (3) at the time of the filing of the complaint, he still had an existing
indebtedness to the Spouses Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB
Check No. 132224 signed by him which he delivered to the Spouses Chua on 21 December 1998, should
have been issued in the amount of only P1,300.00, representing the amount he received from the Spouses
Chua’s saleslady; (5) contrary to the supposed agreement, the Spouses Chua presented the check for
payment in the amount of P133,454.00; and (6) there was no demand for payment of the amount of
P120,000.00 prior to the encashment of PCIB Check No. 0132224. 5 chanRoblesv irtual Lawlib rary

In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.

The MeTC summarized the testimonies of both parties’ respective witnesses: chan roblesv irtuallawl ib rary

[The spouses Chua’s] evidence include[s] documentary evidence and oral evidence (consisting of the
testimonies of [the spouses] Chua and NBI Senior Documents Examiner Antonio Magbojos). x x x

xxxx

Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document examiner
(1989); NBI Senior Document Examiner (1994 to the date he testified); registered criminologist; graduate

of 18th Basic Training Course [i]n Questioned Document Examination conducted by the NBI; twice attended
a seminar on US Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended a seminar
on Effective Methodology in Teaching and Instructional design conducted by the NBI Academy; seminar
lecturer on Questioned Documents, Signature Verification and/or Detection; had examined more than a
hundred thousand questioned documents at the time he testified.

Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera] appearing in the
Promissory Note and compared the signature thereon with the specimen signatures of [Rivera] appearing on
several documents. After a thorough study, examination, and comparison of the signature on the questioned
document (Promissory Note) and the specimen signatures on the documents submitted to him, he concluded
that the questioned signature appearing in the Promissory Note and the specimen signatures of [Rivera]
appearing on the other documents submitted were written by one and the same person. In connection with
his findings, Magbojos prepared Questioned Documents Report No. 712-1000 dated 8 January 2001, with
the following conclusion: “The questioned and the standard specimen signatures RODGRIGO RIVERA were
written by one and the same person.”

[Rivera] testified as follows: he and [respondent] Salvador are “kumpadres;” in May 1998, he obtained a
loan from [respondent] Salvador and executed a real estate mortgage over a parcel of land in favor of
[respondent Salvador] as collateral; aside from this loan, in October, 1998 he borrowed P25,000.00 from
Salvador and issued PCIB Check No. 126407 dated 30 December 1998; he expressly denied execution of the
Promissory Note dated 24 February 1995 and alleged that the signature appearing thereon was not his
signature; [respondent Salvador’s] claim that PCIB Check No. 0132224 was partial payment for the
Promissory Note was not true, the truth being that he delivered the check to [respondent Salvador] with the
space for amount left blank as he and [respondent] Salvador had agreed that the latter was to fill it in with
the amount of ?1,300.00 which amount he owed [the spouses Chua]; however, on 29 December 1998
[respondent] Salvador called him and told him that he had written P133,454.00 instead of P1,300.00; x x x.
To rebut the testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated his averment that
the signature appearing on the Promissory Note was not his signature and that he did not execute the
Promissory Note.6

After trial, the MeTC ruled in favor of the Spouses Chua: chanroblesv irt uallawl ibra ry

WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00 plus stipulated interest at the
rate of 5% per month from 1 January 1996, and legal interest at the rate of 12% percent per annum from
11 June 1999, as actual and compensatory damages; 20% of the whole amount due as attorney’s fees.7

On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but deleted the
award of attorney’s fees to the Spouses Chua: chanroblesv irt uallawl ibra ry

WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted, the rest of the Decision
dated October 21, 2002 is hereby AFFIRMED.8

Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera.

Undaunted, Rivera appealed to the Court of Appeals which affirmed Rivera’s liability under the Promissory
Note, reduced the imposition of interest on the loan from 60% to 12% per annum, and reinstated the award
of attorney’s fees in favor of the Spouses Chua: chanroblesvi rt uallawli bra ry

WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the
interest rate of 60% per annum is hereby reduced to 12% per annum and the award of attorney’s fees is
reinstated at the reduced amount of P50,000.00 Costs against [Rivera].9

Hence, these consolidated petitions for review on certiorari of Rivera in G.R. No. 184458 and the Spouses
Chua in G.R. No. 184472, respectively raising the following issues: chan roble svirtuallaw lib rary

A. In G.R. No. 184458

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE RTC
AND M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT DEMAND IS NO
LONGER NECESSARY AND IN APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING ATTORNEY’S FEES
DESPITE THE FACT THAT THE SAME HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT
[THE SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION OF THE RTC DELETING THE AWARD OF
ATTORNEY’S FEES.10 chanRoblesvi rtual Lawli bra ry

B. In G.R. No. 184472

[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL ERROR WHEN IT
MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12%
PER ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE
SAID STIPULATED RATE OF INTEREST IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE,
ILLEGAL, IMMORAL OR VOID.11

As early as 15 December 2008, we already disposed of G.R. No. 184472 and denied the petition, via a
Minute Resolution, for failure to sufficiently show any reversible error in the ruling of the appellate court
specifically concerning the correct rate of interest on Rivera’s indebtedness under the Promissory Note.12 chanRob lesvi rtua lLawl ibra ry

On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.

Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning the entire ruling
of the Court of Appeals in CA-G.R. SP No. 90609.

Rivera continues to deny that he executed the Promissory Note; he claims that given his friendship with the
Spouses Chua who were money lenders, he has been able to maintain a loan account with them. However,
each of these loan transactions was respectively “secured by checks or sufficient collateral.”

Rivera points out that the Spouses Chua “never demanded payment for the loan nor interest thereof (sic)
from [Rivera] for almost four (4) years from the time of the alleged default in payment [i.e., after December
31, 1995].”13chanRoblesvi rtua lLaw lib rary

On the issue of the supposed forgery of the promissory note, we are not inclined to depart from the lower
courts’ uniform rulings that Rivera indeed signed it.

Rivera offers no evidence for his asseveration that his signature on the promissory note was forged, only
that the signature is not his and varies from his usual signature. He likewise makes a confusing defense of
having previously obtained loans from the Spouses Chua who were money lenders and who had allowed him
a period of “almost four (4) years” before demanding payment of the loan under the Promissory Note.

First, we cannot give credence to such a naked claim of forgery over the testimony of the National Bureau of
Investigation (NBI) handwriting expert on the integrity of the promissory note.

On that score, the appellate court aptly disabled Rivera’s contention: chanro blesvi rt uallawl ibra ry

[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory note is a
forgery. The fact of forgery cannot be presumed but must be proved by clear, positive and convincing
evidence. Mere variance of signatures cannot be considered as conclusive proof that the same was forged.
Save for the denial of Rivera that the signature on the note was not his, there is nothing in the records to
support his claim of forgery. And while it is true that resort to experts is not mandatory or indispensable to
the examination of alleged forged documents, the opinions of handwriting experts are nevertheless helpful
in the court’s determination of a document’s authenticity.

To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and the
testimony of the NBI witness. In fact, even a perfunctory comparison of the signatures offered in evidence
would lead to the conclusion that the signatures were made by one and the same person.

It is a basic rule in civil cases that the party having the burden of proof must establish his case by
preponderance of evidence, which simply means “evidence which is of greater weight, or more convincing
than that which is offered in opposition to it.”

Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a prima

facie case in their favor, hence, the burden of evidence has shifted to [Rivera] to prove his allegation of
forgery. Unfortunately for [Rivera], he failed to substantiate his defense.14

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed
by the appellate court, are accorded the highest degree of respect and are considered conclusive between
the parties.15 A review of such findings by this Court is not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of
facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or are contradicted by
evidence on record.16 None of these exceptions obtains in this instance. There is no reason to depart from
the separate factual findings of the three (3) lower courts on the validity of Rivera’s signature reflected in
the Promissory Note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer to the
plaintiff’s claim or cause of action, upon which issue is joined, whether they relate to the whole case or only
to certain issues in the case.17 chanRob lesvi rtual Lawli bra ry

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a
handwriting expert from the NBI. While it is true that resort to experts is not mandatory or indispensable to
the examination or the comparison of handwriting, the trial courts in this case, on its own, using the
handwriting expert testimony only as an aid, found the disputed document valid.18 cha nRoblesvi rt ualLawl ibra ry

Hence, the MeTC ruled that: chanroble svirtual lawlib rary

[Rivera] executed the Promissory Note after consideration of the following: categorical statement of
[respondent] Salvador that [Rivera] signed the Promissory Note before him, in his ([Rivera’s]) house; the
conclusion of NBI Senior Documents Examiner that the questioned signature (appearing on the Promissory
Note) and standard specimen signatures “Rodrigo Rivera” “were written by one and the same person”;
actual view at the hearing of the enlarged photographs of the questioned signature and the standard
specimen signatures.19

Specifically, Rivera insists that: “[i]f that promissory note indeed exists, it is beyond logic for a money
lender to extend another loan on May 4, 1998 secured by a real estate mortgage, when he was already in
default and has not been paying any interest for a loan incurred in February 1995.”20 chanRoble svirtual Lawli bra ry

We disagree.

It is likewise likely that precisely because of the long standing friendship of the parties as “kumpadres,”
Rivera was allowed another loan, albeit this time secured by a real estate mortgage, which will cover
Rivera’s loan should Rivera fail to pay. There is nothing inconsistent with the Spouses Chua’s two (2) and
successive loan accommodations to Rivera: one, secured by a real estate mortgage and the other, secured
by only a Promissory Note.

Also completely plausible is that given the relationship between the parties, Rivera was allowed a substantial
amount of time before the Spouses Chua demanded payment of the obligation due under the Promissory
Note.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant
defense to assail the authenticity and validity of the Promissory Note. Although the burden of proof rested
on the Spouses Chua having instituted the civil case and after they established a prima facie case against
Rivera, the burden of evidence shifted to the latter to establish his defense.21 Consequently, Rivera failed to
discharge the burden of evidence, refute the existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder. On the whole, there was no question left
on where the respective evidence of the parties preponderated—in favor of plaintiffs, the Spouses Chua.

Rivera next argues that even assuming the validity of the Promissory Note, demand was still necessary in
order to charge him liable thereunder. Rivera argues that it was grave error on the part of the appellate
court to apply Section 70 of the Negotiable Instruments Law (NIL).22 chanRoblesvi rtua lLawl ibra ry

We agree that the subject promissory note is not a negotiable instrument and the provisions of the NIL do
not apply to this case. Section 1 of the NIL requires the concurrence of the following elements to be a
negotiable instrument: c hanro blesvi rt uallawli bra ry

(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.

On the other hand, Section 184 of the NIL defines what negotiable promissory note is: chan roblesv irt uallawl ibra ry

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a
note is drawn to the maker’s own order, it is not complete until indorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua,
and not to order or to bearer, or to the order of the Spouses Chua as payees.

However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the coverage
of Section 70 of the NIL which provides that presentment for payment is not necessary to charge the person
liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable—
31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the
amount of P120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides: c hanro blesvi rt uallawl ibra ry

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Emphasis supplied)

There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is
an express stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling
motive or the principal inducement for the creation of the obligation; and (4) where demand would be
useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for performance;
it must further state expressly that after the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of interest: cha nrob lesvi rtu allawlib rary

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until the entire obligation is fully paid for.23

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of default” until
the entire obligation is fully paid for. The parties evidently agreed that the maturity of the obligation at a
date certain, 31 December 1995, will give rise to the obligation to pay interest. The Promissory Note
expressly provided that after 31 December 1995, default commences and the stipulation on payment of
interest starts.

The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the
due date of the obligation. On that date, Rivera became liable for the stipulated interest which the
Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995, demand was not
necessary before Rivera could be held liable for the principal amount of P120,000.00. Thereafter, on 1
January 1996, upon default, Rivera became liable to pay the Spouses Chua damages, in the form of
stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in the performance of
their obligations is laid down on Article 117024 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for
damages when the obligor incurs in delay: chan roblesv irtuallaw lib rary

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.
(Emphasis supplied)

Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the
debtor, Rivera, incurred in delay when he failed to pay on or before 31 December 1995; and (3) the
Promissory Note provides for an indemnity for damages upon default of Rivera which is the payment of a 5%
monthly interest from the date of default.

We do not consider the stipulation on payment of interest in this case as a penal clause although Rivera, as
obligor, assumed to pay additional 5% monthly interest on the principal amount of P120,000.00 upon
default.

Article 1226 of the Civil Code provides: chan roble svirtuallaw lib rary

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

The penal clause is generally undertaken to insure performance and works as either, or both, punishment
and reparation. It is an exception to the general rules on recovery of losses and damages. As an exception
to the general rule, a penal clause must be specifically set forth in the obligation.25 cha nRoblesvi rt u alLawli bra ry

In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal
clause, and is simply an indemnity for damages incurred by the Spouses Chua because Rivera defaulted in
the payment of the amount of P120,000.00. The measure of damages for the Rivera’s delay is limited to the
interest stipulated in the Promissory Note. In apt instances, in default of stipulation, the interest is that
provided by law.26 c hanRoble svirtual Lawlib ra ry

In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a
month or 60% per annum. On this score, the appellate court ruled: cha nrob lesvi rtua llawli bra ry

It bears emphasizing that the undertaking based on the note clearly states the date of payment to be 31
December 1995. Given this circumstance, demand by the creditor is no longer necessary in order that delay
may exist since the contract itself already expressly so declares. The mere failure of [Spouses Chua] to
immediately demand or collect payment of the value of the note does not exonerate [Rivera] from his
liability therefrom. Verily, the trial court committed no reversible error when it imposed interest from 1
January 1996 on the ratiocination that [Spouses Chua] were relieved from making demand under Article
1169 of the Civil Code.

xxxx

As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to legal
interests and attorney’s fees is, indeed, highly iniquitous and unreasonable. Stipulated interest rates are

i. is imposed.R. Since the interest rate agreed upon is void. the denial of the petition in G. Gallery Frames:33 chanRoble svirtua lLawli bra ry I. the actual amount owed by Rivera to the Spouses Chua could already be determined with reasonable certainty given the wording of the Promissory Note. the rate of interest. Significantly. 799. 416 in cases involving the loan or forbearance of money. 11 June 1999. Ultimately. When the obligation is breached. a loan or forbearance of money. the petitions in G. the date when Rivera defaulted. In the absence of stipulation. the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular No. the rate of interest should be 12% per annum computed from the date of judicial or extrajudicial demand. thus. quasi-contracts. the issue on payment of interest has been squarely disposed of in G. steep.e. before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. tantamount to it being illegal.R. In short. (2) the judgment or order must be on the merits. iniquitous and unconscionable. the date of default under the Promissory Note. Where the Court of Appeals’ disposition on the propriety of the reduction of the interest rate was raised by the Spouses Chua in G. the parties are considered to have no stipulation regarding the interest rate.29 Thus. law. 184472 is res judicata in its concept of “bar by prior judgment” on whether the Court of Appeals correctly reduced the interest rate stipulated in the Promissory Note. II. contracts. as well as the accrual thereof. regardless of its source. No.” At the time interest accrued from 1 January 1996. Series of 2013 reducing the rate of legal interest to 6% per annum. between the first and the second action.. When an obligation. 184472 denying the petition of the Spouses Chua for failure to sufficiently show any reversible error in the ruling of the appellate court. No. No. the contravenor can be held liable for damages. i.R.R. However. and (4) there must be. the legal interest accruing from the Promissory Note is 12% per annum from the date of default on 1 January 1996. the date of judicial demand to 30 June 2013.. As for the legal interest accruing from 11 June 1999. (3) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties. 184458 and 184472 involve an identity of parties and subject matter raising specifically errors in the Decision of the Court of Appeals.” From the time of judicial demand. specifically the reduction of the interest rate imposed on Rivera’s indebtedness under the Promissory Note. delicts or quasi-delicts is breached. Pursuant to our ruling in Nacar v. of subject matter and of causes of action.30 BSP Circular No. 799 is prospectively applied from 1 July 2013. to the date when this Decision becomes final and executory. 184472. Res judicata applies in the concept of “bar by prior judgment” if the following requisites concur: (1) the former judgment or order must be final. the 12% per annum rate of legal interest is only applicable until 30 June 2013. although the obligation may be silent on this point. such is likewise divided into two periods: (1) 12% per annumfrom 11 June 1999. identity of parties. the interest due should be that which may have been stipulated in writing. as follows: ChanRobles Vi rtua lawlib rary 1. and it consists in the payment of a sum of money. when judicial demand was made. the rate of interest shall . the applicable rate of legal interest from 1 January 1996. With regard particularly to an award of interest in the concept of actual and compensatory damages. Gallery Frames.[27 chanRoblesvi rtua lLaw lib rary The appellate court found the 5% a month or 60% per annum interest rate. to date when this Decision becomes final and executor is divided into two periods reflecting two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013. the interest due shall itself earn legal interest from the time it is judicially demanded.e.32 chanRob lesvi rtua lLawl ibra ry We cite our recent ruling in Nacar v.illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. our ruling thereon affirming the Court of Appeals is a “bar by prior judgment.31 We base this imposition of interest on interest due earning legal interest on Article 2212 of the Civil Code which provides that “interest due shall earn legal interest from the time it is judicially demanded. on top of the legal interest and attorney’s fees. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. Furthermore. Nos. and (2) 6% per annum from 1 July 2013 to date when this Decision becomes final and executor. and (2) 6% per annum FROM 1 July 2013 to date when this Decision becomes final and executory.28 chanRoblesvi rtua lLawl ibra ry In this case.

but when such certainty cannot be so reasonably established at the time the demand is made. The actual base for the computation of legal interest shall.34 Thus. 6% per B. 12% per P50. No interest. be on the amount finally adjudged. except when or until the demand can be established with reasonable certainty. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. judgments that have become final and executory prior to July 1. not constituting a loan or forbearance of money.00 Total annum on the annum on the total amount principal amount of amount of column of P120. 3. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. 1996 A. 2.00 as attorney’s fees is proper. the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). July 1 2013 to 30. When the judgment of the court awarding a sum of money becomes final and executory. When an obligation. 6% per 1-4 annum on the annum on the total .000. We award attorney’s fees. in recognition that the Spouses Chua were compelled to litigate and incurred expenses to protect their interests. The interest imposed in the Promissory Note already answers as liquidated damages for Rivera’s default in paying his obligation. 2013. be 6% per annum to be computed from default. in any case. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. Civil Code).000.00 2 Columns B. we agree with the reduction thereof but not the ratiocination of the appellate court that the attorney’s fees are in the nature of liquidated damages or penalty. the award of P50. January 1. albeit in a reduced amount. 1999 Wholesale 24.000. 12 % per A. (Emphasis supplied) On the reinstatement of the award of attorney’s fees based on the stipulation in the Promissory Note. shall be adjudged on unliquidated claims or damages. July 1. 2013 to Decision becomes date when this final and executory Decision becomes final and executory P120. 2013 date when this B. June 11. this interim period being deemed to be by then an equivalent to a forbearance of credit. however. is breached.00 A. 1169. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1995 to to June 30. in addition to the above. the rate of legal interest. For clarity and to obviate confusion. And. whether the case falls under paragraph 1 or paragraph 2.000. 2013 (date of judicial amount December demand) to June 31. i. where the demand is established with reasonable certainty.e. above. 1995 B. Accordingly. we chart the breakdown of the total amount owed by Rivera to the Spouses Chua: chanroblesv irt uallawl ibra ry Face value Stipulated Interest Interest due Attorney’s Total of the A&B earning legal fees Amount Promissory interest A & B Note February A.. shall be 6% per annum from such finality until its satisfaction.

SOLAR HARVEST. (5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date when this Decision becomes final and executor.00. date of judicial demand. ABAD. the petition in G.000. principal amount of amount of column P120. (6) Attorney’s fees in the amount of P50. No.000.000.. 90609 is MODIFIED. G.00 235 The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal interest at the rate of 6% per annum computed from its finality until full payment thereof. The Decision of the Court of Appeals in CA-G. and . No. Costs against petitioner Rodrigo Rivera. and (7) 6% per annum interest on the total of the monetary awards from the finality of this Decision until full payment thereof.R.00. as interest due earning legal interest.R. .000. (2) legal interest of 12% per annum of the principal amount of P120..versus - PERALTA.00 reckoned from 1 January 1996 until 30 June 2013. the interim period being deemed to be a forbearance of credit. as interest due earning legal interest. 176868 Petitioner. J. Petitioner Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the following:chan rob lesvi rt uallawlib ra ry (1) the principal amount of P120. (3) legal interest of 6% per annum of the principal amount of P120. Present: CARPIO. 184458 is DENIED. chanrob leslaw WHEREFORE.00 form 1 July 2013 to date when this Decision becomes final and executory. Chairperson.000. NACHURA. INC. SP No.R. (4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999. to 30 June 2013.

The case arose from the following antecedents: In the first quarter of 1998. petitioner.. for the purchase of corrugated carton boxes. petitioner deposited. J.10 each. 2010 x------------------------------------------------------------------------------------x DECISION NACHURA. at US$1. July 26. entered into an agreement with respondent. The assailed Decision denied petitioners claim for reimbursement for the amount it paid to respondent for the manufacture of corrugated carton boxes. The agreement was not reduced into writing. 2006 and Resolution[2] dated February 23. Solar Harvest. Inc. Davao Corrugated Carton Corporation. Respondent. which denied petitioners motion for reconsideration. JJ. To get the production underway. DAVAO CORRUGATED CARTON Promulgated: CORPORATION. 2007. specifically designed for petitioners business of exporting fresh bananas.: Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated September 21. MENDOZA. on .

contrary to petitioners allegation.[3] On February 19. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15. That because of the failure of the defendant to deliver the ordered boxes. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. 14. made an additional order of 24.500 boxes.000. petitioner filed a Complaint for sum of money and damages against respondent. Respondent stated that petitioner was . It further alleged 6. Respondent mentioned that petitioner even placed an additional order of 24.March 31. 2001.00 as storage fee. respondent replied that the boxes had been completed as early as April 3. as agreed upon. as full payment for the ordered boxes. out of which. out of which.150. petitioner.[4] In its Answer with Counterclaim.00 in respondents US Dollar Savings Account with Westmont Bank. 1998.150. petitioner did not receive any boxes from respondent.000 had been manufactured without any advanced payment from petitioner. On August 17. 7. Despite such payment. 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from completion.000 had been completed without waiting for petitioners payment. in fact.400. plaintiff ha[d] to cancel the same and demand payment and/or refund from the defendant but the latter refused to pay and/or refund the US$40. According to respondent. US$40.00 for the additional boxes and P132. That repeated follow-up was made by the plaintiff for the immediate production of the ordered boxes. as early as April 3.[5] respondent insisted that. On January 3. 2001. but every time. 14. 1998.00 payment made by the former for the ordered boxes.000 boxes. defendant [would] only show samples of boxes and ma[k]e repeated promises to deliver the said ordered boxes. it had already completed production of the 36. 2001. petitioner wrote a demand letter for reimbursement of the amount paid.000 boxes.

Que testified that he ordered the boxes from respondent and deposited the money in respondents account. attorneys fees. he followed-up the order and was told that the company had full production. plus interest.500 boxes and 14. was promised that production of the order would be rushed. In reply. Que visited the factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14. the ship could not proceed. when he visited respondents factory. Que further testified that China Zero Food. He told respondent that it should indeed rush production because the need for the boxes was urgent.[7] He specifically stated that. but petitioner failed to do so. but since there were no cartons.00.400. Alfred Ong.00 per square meter for every month from April 1998. bananas from Tagum Agricultural Development Corporation (TADECO) were already there. and thus. because petitioners transaction to ship bananas to China did not materialize. and costs of the suit.[9] On cross-examination.to pick up the boxes at the factory as agreed upon. petitioners representative. 1999. On February 20. on October 8. went to the factory and saw that the boxes were ready for pick up.[6] During trial.000 boxes out of the secondorder. He denied that . was sending a ship to Davao to get the bananas. He said that. at that time. Bobby Que (Que).000 boxes and that respondent already completed the initial order of 36. he saw that the boxes had no print of petitioners logo. he asked his partner.000 boxes without the required pre- payments. the Chinese company that ordered the bananas. As counterclaim. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60. Thereafter.[8] A few months later. respondent prayed that judgment be rendered ordering petitioner to pay $15.000 boxes. moral and exemplary damages. petitioner presented Que as its sole witness. petitioner denied that it made a second order of 24. 1998. to cancel the order because it was already late for them to meet their commitment to ship the bananas to China. Respondent averred that. It maintained that respondent only manufactured a sample of the ordered boxes and that respondent could not have produced 14.

[14] . accordingly. 1998 and that petitioner made a second order of 24.00. He explained that it took three years to refer the matter to counsel because respondent promised to pay.petitioner made an additional order of 24.[13] According to him. plaintiffs complaint is hereby ordered DISMISSED without pronouncement as to cost. disposing as follows: WHEREFORE. Defendants counterclaims are similarly dismissed for lack of merit.000 boxes at P20.00 each for a total of P100. but they. The RTC said that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive. told him to sell the cartons as rejects. during the last visit of Que and Estanislao. SO ORDERED. premises considered. also testified that his company finished production of the 36. He said that the agreement was for respondent to produce the boxes and for petitioner to pick them up from the warehouse. president of respondent. the Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. instead. He was able to sell 5.[11] Jaime Tan (Tan).000 boxes. It thus dismissed the complaint and respondents counterclaims.[10] For respondent. they inspected the boxes again and Que got more samples.500 boxes on April 3. judgment is hereby rendered in favor of defendant and against the plaintiff and. They then told him to apply the said amount to the unpaid balance. he asked them to withdraw the boxes immediately because they were occupying a big space in his plant. Estanislao said that petitioner did not pick up the boxes because the ship did not arrive.000.000 boxes. Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October 1998 to inspect the boxes and that the latter got samples of them. In February 2000. In its March 2.[12] He also said that the reason why petitioner did not pick up the boxes was that the ship that was to carry the bananas did not arrive. 2004 Decision.

Petitioner filed a notice of appeal with the CA. respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes. petitioner did not even demand for the delivery of the boxes. We find no reversible error in the assailed Decision that would justify the grant of this petition. it was unthinkable that. in case one of the obligors should not comply with what is incumbent upon him. The CA added that even assuming that the agreement was for respondent to deliver the boxes.[16] Petitioner moved for reconsideration. He may also seek rescission. The court shall decree the rescission claimed. if the latter should become impossible.[18] In this petition. The power to rescind obligations is implied in reciprocal ones. the CA denied the appeal for lack of merit. even after he has chosen fulfillment. 1191. with the payment of damages in either case. The injured party may choose between the fulfillment and the rescission of the obligation.[17] but the motion was denied by the CA in its Resolution of February 23. Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code. . 2006. According to the CA. On September 21.[15] The appellate court held that petitioner failed to discharge its burden of proving what it claimed to be the parties agreement with respect to the delivery of the boxes. petitioner insists that respondent did not completely manufacture the boxes and that it was respondent which was obliged to deliver the boxes to TADECO. 2007. which reads: Art. over a period of more than two years. unless there be just cause authorizing the fixing of a period.

Art. in accordance with Articles 1385 and 1388 and the Mortgage Law. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. 1169. In determining when default occurs. 1169 of the same law. which provides: Art. or (3) When demand would be useless. the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares. In reciprocal obligations. The right to rescind a contract arises once the other party defaults in the performance of his obligation. or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract. This is understood to be without prejudice to the rights of third persons who have acquired the thing. 1191 should be taken in conjunction with Art. as when the obligor has rendered it beyond his power to perform. neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is . However.

in petitions for review. we will not . The existence of a breach of contract is a factual matter not usually reviewed in a petition for review under Rule 45. the other party would incur in delay only from the moment the other party demands fulfillment of the formers obligation. From the moment one of the parties fulfills his obligation. Note is taken of the fact that. The Complaint only alleged that petitioner made a follow-up upon respondent. delay by the other begins. Thus. no demand is generally necessary because. even in reciprocal obligations. Petitioners witness also testified that they made a follow-up of the boxes. the general rule is that the fulfillment of the parties respective obligations should be simultaneous. Hence. incumbent upon him. the default for each obligation must be determined by the rules given in the first paragraph of the present article. In reciprocal obligations. which. with respect to their claim for reimbursement. especially when reiterated by the CA. Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. it is not a trier of facts. as in a contract of sale. must be given great respect if not considered as final.[20] The Court. and findings of fact made by the trial court.[19] that is. petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation. demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. the Complaint alleged and the witness testified that a demand letter was sent to respondent.[21] In dealing with this petition. limits its inquiry only to questions of law. But when different dates for performance of the obligations are fixed. the latter automatically incurs in delay. as the circumstances would show that respondent was not guilty of breach of contract. Even assuming that a demand had been previously made before filing the present case. if the period for the fulfillment of the obligation is fixed. petitioners claim for reimbursement would still fail. Without a previous demand for the fulfillment of the obligation. however. but not a demand. After all. once a party fulfills his obligation and the other party does not fulfill his. would not qualify as a demand for the fulfillment of the obligation.

during trial. implausible and suspicious. for respondent to deliver the boxes within 30 days from payment. We also believe that the agreement between the parties was for petitioner to pick up the boxes from respondents warehouse. it was due to petitioners fault that the boxes were not delivered to TADECO. aside from the pictures of the finished boxes and the production report thereof. Its sole witness. He testified that Tan pointed the boxes to him and that he got a sample and saw that it was blank. up to the present. Que. As correctly observed by the CA. In fact. Thus. respondent prays that petitioner be ordered to remove the boxes from its factory site. Que. in fact. Even in its Comment to this petition. during their first visit to the company. Ques absolute assertion that the boxes were not manufactured is. respondent would not have been so bold as to challenge the court to conduct an ocular inspection of their warehouse. therefore. therefore. as alleged in the Complaint. still in respondents premises. attesting that. that his client was willing to shoulder expenses for a representative of the court to visit the plant and see the boxes. we cannot give much credence to his . contrary to petitioners allegation. There is the testimony of Estanislao who accompanied Que to the factory. they saw the pile of petitioners boxes and Que took samples thereof.[23] which could only mean that the boxes are. we note that respondents counsel manifested in court. Petitioner had the burden to prove that the agreement was. petitioners witness. there is ample showing that the boxes had already been manufactured by respondent. himself confirmed this incident.veer away from this doctrine and will thus sustain the factual findings of the CA. which we find to be adequately supported by the evidence on record. was not even competent to testify on the terms of the agreement and.[22] Had it been true that the boxes were not yet completed.

the first call to Mr. The first time. Alfred Ong has a contact with Mr. It appeared from the testimony of Que that he did not personally place the order with Tan. First time it was Mr. you went to Davao City and placed your order there? A. Tan.[24] Q. Tan and placed the order for 36. Q. Q. Thats true.] not you? A. Alf[re]d Ong. So.500 boxes. your first statement that you were the one who placed the order is not true? A. It was Mr. thus: Q. Is it not a fact that the cartons were ordered through Mr. Q. The Solar Harvest made a contact with Mr.testimony. Yes. my question is. isnt it? A. I made a phone call. Q. Bienvenido Estanislao? . Tan and I deposited the money in the bank. Ong who placed the order[. You made a phone call to Mr. You said a while ago [t]hat you were the one who called Mr. Tan? A. sir. Alfred Ong. No.

sir. we must have to check the carton. before the delivery. Did you give authority to Mr. will you give authority to Mr. You dont have any authority yet given to Mr. because when I checked the plant. Yes. None. Are you trying to impress upon the [c]ourt that it is only after the boxes are completed. Tan to deliver the boxes to TADECO[?] A. Q. Because I have not seen any of my carton. Tan to rush the carton but not[26] Q. Tan? A. insisting that the boxes had not been manufactured. it could not have complied with such obligation. the quantity and quality. Tan to deliver these boxes to TADECO? A. Did you give any authority for Mr.[25] Moreover. Sir.[27] . assuming that respondent was obliged to deliver the boxes. A. admitted that he did not give respondent the authority to deliver the boxes to TADECO: Q. No. Q. Tan to deliver these boxes to TADECO? A. your Honor. But I have not seen a single carton. sir. I asked Mr. As I have said. Que. I have not seen any carton.

the Court finds that petitioner failed to establish a cause of action for rescission. The Court of Appeals Decision dated September 21. after paying the first installment and other fees. 2007 are AFFIRMED. having thereafter refused to make further payment of other stipulated installments until GSIS had made the house habitable. J. In sum. after petitioner is given a period of time within which to remove them from the premises. After the lapse of said period and petitioner fails to effect such removal. (GSIS. a condition that Agacoili tried to fulfill but could not for the reason that the house was absolutely uninhabitable. In addition. 1988 MARCELO AGCAOILI. As previously stated. respondent shall have the right to dispose of the boxes in any manner it may deem fit. Rizal. Agcaoili. we therefore relieve respondent from the burden of having to keep the boxes within its premises and. petitioner is given a period of 30 days from notice within which to cause the removal of the 36.: The appellant Government Service Insurance System.500 boxes from respondents warehouse. consequently. plaintiff-appellee vs. WHEREFORE. NARVASA. the evidence having shown that respondent did not commit any breach of its contractual obligation. give it the right to dispose of them.R. 2006 and Resolution dated February 23. Artemio L. defendant-appellant.Surely. the petition is DENIED. opting instead to cancel the award and demand the vacation by . Agcaoili for plaintiff-appellee. premises considered. without such authority. the subject boxes are still within respondents premises. To put a rest to this dispute. TADECO would not have allowed respondent to deposit the boxes within its premises. for short) having approved the application of the appellee Agcaoili for the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina. and appellant having refused to do so. G. subject to the condition that the latter should forthwith occupy the house. L-30056 August 30. GOVERNMENT SERVICE INSURANCE SYSTEM. No. Office of the Government Corporate Counsel for defendant-appellant.

a written protest was lodged by other awardees of housing units in the same subdivision. the GSIS having opted to dispense with presentation of its own proofs. 5 Pending the action. double walling. 2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to Lot No. because the house was nothing more than a shell. your application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant. 6 Judgment was in due course rendered . and Agcaoili having sued the GSIS in the Court of First Instance of Manila for specific performance with damages and having obtained a favorable judgment. bathroom. the case was appealled to this Court by the GSIS. The GSIS asked Agcaoili to pay the monthly amortizations and other fees. (48) 2. The judgment was in Agcaoili's favor and contained the following dispositions. a certain Villanueva. You are. 26. has been approved by this Office. Agcaoili lost no time in occupying the house. Agcaoili paid the first monthly installment and the incidental fees. together with the housing unit constructed thereon. The essential facts are not in dispute. to stay in the premises as some sort of watchman. and costs.00 as and for attorney's fees. (48) 2 of the Government Service Insurance System (GSIS) low cost housing project at Nangka Marikina. Marikina. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance and damages. and had to leave the very next day. Block No. Agcaoili did however ask a homeless friend. lighting facilities. reading as follows: Please be informed that your application to purchase a house and lot in our GSIS Housing Project at Nangka.7 on the basis of the evidence adduced by Agcaoili only. Rizal. toilet kitchen. were inexistent. therefore.and 4) Ordering the defendant to pay P100. drainage. pending completion of the construction of the house. water connection. What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. advised to occupy the said house immediately.00 as damages and P300. stairs. 8 to wit: 1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili) illegal and void. however. to no avail. Approval of Agcaoili's aforementioned application for purchase 1 was contained in a letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General Manager. Its appeal must fail. has been allocated to you. Rizal. Agcaoili thereafter complained to the GSIS. Appellant GSIS would have this Court reverse this judgment on the argument that— . 26. 3) Ordering the defendant to complete the house in question so as to make the same habitable and authorizing it (defendant) to collect the monthly amortization thereon only after said house shall have been completed under the terms and conditions mentioned in Exhibit A .Agcaoili of the premises. in such a state of incompleteness that civilized occupation was not possible: ceiling. He could not stay in it. Lot No. regarding the failure of the System to complete construction of their own houses. If you fail to occupy the same within three (3) days from receipt of this notice. Block No. 3 but refused to make further payments until and unless the GSIS completed the housing unit.

and was not willing to put the house in habitable state. there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina." and assuming indefiniteness of the contract in this regard.. This it failed to do. and the latter having failed to comply with the condition. the duty of the GSIS. and submitted it. and was being sold "as is. the creation of an unfair situation. and that indeed. 13 It was. that this was what was intended by the parties. (and) he is deemed to have accepted the same in the condition he found it when he accepted the award. As already mentioned." Neither the application form nor the acceptance or approval form of the GSIS — nor the notice to commence payment of a monthly amortizations. duly filled up. and it was by reasonable standards. together with the housing unit constructed thereon. habitable. and a roof. and from that moment the parties acquired the right to reciprocally demand performance.. Villanueva.10 3) Agcaoili's act of placing his homeless friend. and to theorize. the condition explicitly imposed on Agcaoili — "to occupy the said house immediately. which again refers to "the house and lot awarded" — contained any hint that the house was incomplete. entitled "Application to Purchase a House and/or Lot. a structure consisting only of four walls with openings. in possession." and that "Lot No. "without the prior or subsequent knowledge or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS at the same time of the reasonable rental value of the property." i. this form sent to Agcaoili. making do with whatever he found available in the envirornment. is to advocate an absurdity. signed it. the awardee should stay and live in it." or in any case within three (3) days from notice. such circumstance precludes a judgment for specific performance. 26. It sold a house to Agcaoili. MARIKINA. to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated .e. in whatever state of completion it might be at the time. Since GSIS did not fulfill that obligation. no contract ever came into existence between them . On the other hand. the contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price.56 per month. it could not be interpreted as meaning that the awardee would occupy it in the sense of a pioneer or settler in a rude wilderness. and required him to immediately occupy it under pain of cancellation of the sale. RIZAL. to be sure. since the contract did not clearly impose upon it the obligation to deliver a habitable house. as seller. advised him of the approval of his "application to purchase a house and lot in our GSIS Housing Project at NANGKA.12 The acceptance of the application was also set out in a form (mimeographed) also prepared by the GSIS. Block No. Under the circumstances there can hardly be any doubt that the house contemplated was one that could be occupied for purposes of residence in reasonable comfort and convenience. By any objective interpretation of its terms. to deliver the house subject of the contract in a reasonably livable state. 11 Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter. There would be no sense to require the awardee to immediately occupy and live in a shell of a house. as the GSIS does.14 in other words." Agcaoili filled up the form. (48) 2. 9 2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate occupancy of the house subject thereof. otherwise his "application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant" — would imply that construction of the house was more or less complete.1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit.. has been allocated to you. since said unit had been sold "in the condition and state of completion then existing . Rizal at a definite price payable in amortizations at P31. There was then a perfected contract of sale between the parties. it cannot invoke Agcaoili's suspension of payment of amortizations as .

oppressive. Inc. or imprecise as to its exact prestation Blame for the imprecision cannot be imputed to Agcaoili. the Court can not require specific performance of the contract in question according to its literal terms. The general rule is that this equitable relief will not be granted if. Finally. and the GSIS averse to completing construction. to compel the GSIS to do so so that Agcaoili's prestation to pay the price might in turn be demanded. however. but that the consequences of specific performance likewise be equitable and just. It will not do. as it were. the result of the specific enforcement of the contract would be harsh. he did try to occupy the house but found it to be so uninhabitable that he had to leave it the following day. As we . that offer being contained in a printed form supplied by the GSIS. Court of Industrial Relations (83 SCRA 579. which is precisely what has been the state of affairs between the parties for more than twenty (20) years now. " 16 In this case. "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law. to dispose of the controversy by simply declaring that the contract between the parties had not been validly cancelled and was therefore still in force. vs. 589 [1978]). as it is variously expressed by different courts. The cost to the GSIS of completion of construction at present prices would make the stipulated price disproportionate. Agcaoili unwilling to pay unless the house were first completed. .. It is axiomatic that "(i)n reciprocal obligations. who being homeless and hence willing to accept shelter even of the most rudimentary sort. Equity regards the spirit of and not the letter.. The record shows that Agcaoili did try to fulfill the condition. it was after all the GSIS which caused the contract to come into being by its written acceptance of Agcaoili's offer to purchase. agreed to stay therein and look after it. He did however leave a friend in the structure. the substance rather than the circumstance.. the GSIS should not be heard to say that the agreement between it and Agcaoili is silent. not only that the contract be just and equitable in its provisions. reaffirmed in Air Manila.cause to cancel the contract between them. neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases. On the other hand. would not be quite fair. and that Agcaoili could not be compelled by the GSIS to pay the stipulated price of the house and lot subject of the contract until and unless it had first completed construction of the house. unrealistic. or result in an unconscionable advantage to the plaintiff . and by allowing another person to stay in it without the consent of the GSIS. Said appellant having caused the ambiguity of which it would now make capital. Thus the argument that Agcaoili breached the agreement by failing to occupy the house. to the end that it may render complete justice to both parties. under the circumstances of the case."15 Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not complied with the condition of occupying the house within three (3) days. . assuming it to be feasible to still finish the construction of the house at this time. . The situation calls for the exercise by this Court of its equity jurisdiction. The prevailing rule is that in decreeing specific performance equity requires 17 — . the question of interpretation arising therefrom. as this would result in inequity. should be resolved against it. without modifying the price therefor.. inequitable. are incompetent so to do. must be rejected as devoid of merit. the intent and not the form. This would leave the contract hanging or in suspended animation.

no longer appears to be a feasible option in view of the not inconsiderable time that has already elapsed. and for the house itself. Therefore. and not by the circumstances attending the inception of the litigation. when these are significantly different from those existing at the time of generation of those rights. 23 WHEREFORE. this is an alternative relief proposed by Agcaoili himself.S. Edwards. Doughdrill v. facts and exigencies of the case demand at the close of the trial or at the time of the making of the decree.19 L. the relief would be denied unless the complaint would undertake to pay the equitable value of the land. it has been held that where the currency in which the plaintiff had contracted to pay had greatly depreciated before enforcement was sought. and orders the former to respect the aforesaid award and to pay damages in the amounts specified. "that judgment issue . as of the time of the contract. and with equitable norms.22 The completion of the unfinished house so that it may be put into habitable condition. but will give relief appropriate to events occuring ending the suit. in an action for the specific performance of a real estate contract. as one form of relief to the plaintiff Agcaoili. Thus. the Court will "balance the equities" or the respective interests of the parties. equity will administer such relief as the nature. i. give everyone his due. Block No. Ed 501. worth and value of the said house. 18 While equitable jurisdiction is generally to be determined with reference to the situation existing at the time the suit is filed. and correspondingly adjusting the amortizations to be paid by petitioner Agcaoili. in its unfinished state. That would require an adjustment of the price of the subject of the sale to conform to present prices of construction materials and labor. to simply require payment for the land on which the house stands. the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by respondent GSIS of the award in favor of petitioner Agcaoili of Lot No. The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was brought. Rizal. the cost of the house in its unfinished state also as of the time of perfection of the contract. rights. (o)rdering the defendant (GSIS) to execute a deed of sale that would embody and provide for a reasonable amortization of payment on the basis of the present actual unfinished and uncompleted condition. as of the time of perfection of the contract. (Willard & Tayloe [U.. and observe honesty and good faith. and take account of the relative hardship that one relief or another may occasion to them . In making up the final decree in an equity suit the judge may rightly consider matters arising after suit was brought." and instead it is hereby ORDERED that the contract between the parties relative to the property above described be modified by adding to the cost of the land. 19 That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must act with justice. Marikina. In fact. the modification to be effected after determination by the Court a quo of the value of said house on the basis of the . It is more in keeping with the realities of the situation.] 8 Wall 557. 20 Adjustment of rights has been held to be particularly applicable when there has been a depreciation of currency. as a general rule. (48) 2 of the GSIS low cost housing project at Nangka.In the exercise of its equity jurisdiction. Said judgments is however modified by deleting the requirement for respondent GSIS "to complete the house in question so as to make the same habitable. 59 Ala 424) 21 In determining the precise relief to give. the relief to be accorded by the decree is governed by the conditions which are shown to exist at the time of making thereof. . 26.e. is AFFIRMED as being in accord with the facts and the law. the Court may adjust the rights of parties in accordance with the circumstances obtaining at the time of rendition of judgment. Depreciation of the currency or other medium of payment contracted for has frequently been held to justify the court in withholding specific performance or at least conditioning it upon payment of the actual value of the property contracted for.

and all personnel are transferred "to the Rice and Corn Administration (RCA). All references. took the first to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter Credit. "the National Rice and Corn Administration (NARIC) is hereby abolished and all its assets. NATIONAL RICE AND CORN CORPORATION. currency in favor of the plaintiff-appellee and/or supplier in Burma. that the defendant corporation. confirmed and assignable letter of credit in U. 1952. In turn. to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the aforementioned law. functions. we will appreciate it if this application could be considered special case. 1952. .. or if this is not possible by such commissioner or commissioners as the Court may appoint.000 metric tons of Burmess Rice at $203. or a full month from the execution of the contract. Arrieta and the appellant corporation entered into a Contract of Sale of Rice. awarding to the plaintiffs-appellees the amount of $286. SO ORDERED. powers which are not inconsistent with the provisions of this Act. 1958. under the terms of which the former obligated herself to deliver to the latter 20. As her bid of $203. INC. on July 1. defendant-appellee. The application was accompanied by a transmittal letter. it was only on July 30. plaintiff-appellee Paz P. MANILA UNDERWRITERS INSURANCE CO. Accordingly.. G. Isidro A." Despite the commitment to pay immediately "by means of an irrevocable. therefore.000. CIF Manila.agreement of the parties. she was awarded the contract for the same.R.00 per metric ton. In accordance with Section 13 of Republic Act No. 1964 PAZ P. L-15645 January 31. liabilities. plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20. The Government Corporate Counsel for defendant-appellant.00 per metric ton was the lowest. On May 19. thru its general manager. ARRIETA and VITALIADO ARRIETA. J.000 metric tons of Burmese rice. No. the relevant paragraphs of which read: In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount required to be deposited as a condition for the opening of letters of credit. 1952. immediately. vs. No pronouncement as to costs. Teehankee and Carreon for plaintiffs-appellees. 3452." however. Vera for defendant-appellee. the defendant corporation committed itself to pay for the imported rice "by means of an irrevocable. plaintiffs-appellees.S.00 as damages for breach of contract and dismissing the counterclaim and third party complaint of the defendant- appellant NARIC. defendant-appellant. REGALA.: This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20. confirmed and assignable Letter of Credit.

Mrs. however. or. the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit. the credit instrument applied for was opened only on September 8. was rejected by the appellant in a resolution dated November 15.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4." (Emphasis supplied. When the futility of reinstating the same became apparent.00..614. We would therefore request your full cooperation on this matter. J-pl. Mrs. and/or assignee for $3. the NARIC bluntly confessed to the appellee its dilemma: "In this connection. Furthermore. Burma. in a letter dated August 2..00 was forfeited. . the appellant corporation not in any financial position to meet the condition. U. she offered to substitute Thailand rice instead to the defendant NARIC.000.000 kyats or approximately P200.O. 25—Def. but failed.. 10-def. it must be made of record that although the Burmese authorities had set August 4. has a deadline to meet which is August 4. 1-Pe. The appellee endeavored.000. p. 1952. the appellee sent a letter to the appellant." On August 4. Folder of Exhibits) Consequently. however. amounting to 524. 1952. 1952.614. p.. 1952 "in favor of Thiri Setkya. currency. 9-Def.B. a counterclaim was filed and the Manila Underwriters Insurance Company was brought to the suit as a third party defendant to hold it liable on the performance bond it executed in favor of the plaintiff-appellee.00." (Exh. demanding compensation for the damages caused her in the sum of $286. 19. Exh. The demand having been rejected she instituted this case now on appeal. Rangoon. We understand that our supplier. 1äwphï1.000. In this connection. representing unrealized profit. it is imperative that the L/C be opened prior to that date. Arrieta.000 tons at $180. On the same day. the Bank represented that it "will hold your application in abeyance pending compliance with the above stated requirement. Exh. the Philippine National Bank informed the appellant corporation that its application. please be advised that our application for opening of the letter of credit has been presented to the bank since July 30th but the latter requires that we first deposit 50% of the value of the letter amounting to aproximately $3. 1952. As matter of fact. Exh..000. "for a letter of credit for $3. 1952.. At the instance of the NARIC. This offer for substitution. to restore the cancelled Burmese rice allocation. 1952." (Exh. Paz P." As it turned out. even with the 15-day grace. Folder of Exhibits).00 in favor of Thiri Setkya has been approved by the Board of Directors with the condition that marginal cash deposit be paid and that drafts are to be paid upon presentment. On the foregoing.ñët As a result of the delay.00 which we are not in a position to meet. 18. as the deadline for the remittance of the required letter of credit. price of 20. 1952.S. July 30. the cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20. a full half month after the expiration of the deadline. Burma. X-Pe. communicating at the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time. And yet." (which is more than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of credit.000. p. Arrieta thru counsel. 38. Exh. Folder of Exhibits). 1952. advised the appellant corporation of the extreme necessity for the immediate opening of the letter credit since she had by then made a tender to her supplier in Rangoon. Paz P. "equivalent to 5% of the F.614. appellant corporation was unable to make good its commitment to open the disputed letter of credit. and in order to comply therewith.

Burma. in turn. The explanation refers to a question of fact. if any in opening the letter of credit was due to the failure of plaintiff to name the supplier. therefore. Appellant's explanation has neither force nor merit. Stated differently. Belmonte to testify or refute this. We do not think the appellant corporation can refute the fact that had it been able to put up the 50% marginal cash deposit demanded by the bank. GABRIEL BELMONTE. the disposition of this case depends on a determination of who was responsible for such failure. Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the ruling. "(1) the amount of the letter of credit. was the inability of the appellant corporation to meet the condition importation by the Bank for granting the same. We are denied. failed to seasonably furnish data necessary and required for opening the same. opened and released as early as August 4." Appellant would have this Court believe. Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. 1952) to Mr. Appellant contends that the disputed negotiable instrument was not promptly secured because the appellee . General Manager of the NARIC. "A" (the contract of July 1. His conclusion on the matter is sufficiently borne out by the evidence presented. consonant to the time-honored tradition of this Tribunal to hold trial judges better situated to make conclusions on questions of fact. it insists that the fault lies with the appellee. it is clear that what singularly delayed the opening of the stipulated letter of credit and which. therefore... the amount and the bank is not tenable. stems not alone from this failure or inability to satisfy the requirements of the bank. therefore. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the said date. On the contrary.. the prerogative to disturb that finding. from the correspondence and communications which form part of the record of this case. has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment. the issue is whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the contract of July 1. These statements have not been controverted and defendant NARIC. then the letter of credit would have been approved. and (3) the place and bank where it may be negotiated. both orally and in writing and that she also pressed for the opening of the letter of credit on these occasions. be taken as the immediate cause for the consequent damage which resulted. however. . We quote hereunder the lower court's ruling on the point: The defense that the delay.. 1952 for which it may be held liable in damages. that had these informations been forthwith furnished it. caused the cancellation of the allocation in Burma. namely.We find for the appellee." (Emphasis supplied) The liability of the appellant. the explanation reaches into an area of the proceedings into which We are not at liberty to encroach. As it is then. In the first place. was the failure of the letter of credit to be opened with the contemplated period. 1952. failed to present Mr. there would have been no delay in securing the instrument. Secondly. appellant's "application for a letter of credit . (2) the person. It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the appellee herein in Rangoon. This failure must. We base this judgment upon the letter which accompanied the application filed by the . notwithstanding its previous intention to do so. For the record. company or corporation in whose favor it is to be opened. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the prestation. She stated too that she had given the necessary data immediately after the execution of Exh. Plaintiff stated in Court that these facts were known to defendant even before the contract was executed because these facts were necessarily revealed to the defendant before she could qualify as a bidder.

it should have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired into the possibility of its issuance. the NARIC bound itself to buy 20. and all in U. Pasumil v. C. Diaz. 49 Phil. Waivers are not presumed. Cajuigan. The phrase "any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind or defective performance. it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the importation within the required period. not only debtors guilty of fraud. 18 Phil. insurance and charges incident to its shipment here and the forfeiture of the 5% deposit.. second.appellant with the bank. all net shipped weight. but must be clearly and convincingly shown. negligence. Court of Appeals. (IV Tolentino.) In the case at bar. ." it must be similarly held to have bound itself to answer for all and every consequences that would result from the representation. When. We would like to make reference also to Article 11 of the Civil Code which provides: Those who in the performance of their obligation are guilty of fraud. 46 Phil. Enriquez. Having called for bids for the importation of rice involving millions. and those who in any manner contravene the tenor thereof.00 to be exact. 330. First.. Having entered in the contract. especially since it had imposed the supplier the 90- day period within which the shipment of the rice must be brought into the Philippines. 916. We disagree. are liable in damages.. Manila . currency. Gimenez.. no such intent to waive has been established. citing authorities. every debtor who fails in performance of his obligations is bound to indemnify for the losses and damages caused thereby (De la Cruz Seminary of Manila.. Considering freights. In the said accompanying correspondence. 103. De la Cavada v. Civil Code of the Philippines. Under the contract." On the other hand. 54 Phil. 459. a part of which letter was quoted earlier in this decision.S. Municipality of Moncada v. 1003. A number of logical inferences may be drawn from the aforementioned admission. documentary and other evidence establish with equal certainty that the plaintiff-appellee was able to secure the contracted commodity at the cost price of $180.70 per metric ton from her supplier in Burma.00 U. 37 Phil. confirm and assignable letter of credit. Acme Films v. despite this awareness that was financially incompetent to open a letter of credit immediately. Under this provision.S. Chong. it should have a certained its ability and capacity to comply with the inevitably requirements in cash to pay for such importation. appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable. 982. Theaters Supply. p. the award .260. in general. 63 Phil.G. appellant admitted and owned that it did "not have sufficient deposit with your institution (the PNB) with which to cover the amount required to be deposited as a condition for the opening of letters of credit.) The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have derived from the breach of the contract. or delay. (Ramirez v.F. 52 O. In relation to the aforequoted observation of the trial court. 184. 657).. aptly observed by the trial court: . $4. therefore. .000. that the appellant knew the bank requirements for opening letters of credit. v. 21 Phil.000 metric tons of Burmese rice at "$203. Dollars per metric ton.I. negligence or default in the performance of obligations a decreed liable. that appellant also knew it could not meet those requirement. Having announced the bid. either by express stipulation or acts admitting no other reasonable explanation. Maluenda & Co. Pando v. We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the lower court based its award. 779.

And yet. and other communications subsequent thereto for the opening by your corporation of the required letter of credit. under the cost study submitted by the appellant. even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency. and the cost price of my rice is $180. . Currency. So adding the cost of the rice. how much is the damage you suffered? A. the freight. currency and not in Philippine Peso. the insurance.00) in the same currency per ton for shipping and other handling expenses.00 We had to pay also $6.S.S. Should it be at the time of the breach. that is my supposed profit if I went through the contract. 115.000. the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of the judgment rather than at the rate of exchange prevailing on the date of defendant's breach. Thus.00 from the disputed transaction inspite of the extra expenditures from which the herein appellee was exempt. herein appellant filed a counterclaim asserting that it has suffered. We reproduce below the testimony of the appellee. however. per ton or a total of Two Hundred and Eighty Six Thousand Dollars ($286.99 that would be $15. did not have to incur. including an Import License Fee of 2% and superintendence fee of $0. Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180. multiply by 20. the total would be about $187.00 per metric ton.000.S.25 for shipping and about $164 for insurance.00). Lastly. the said amount of P406. For a clearer view of the equity of the damages awarded.. can neither ..25 per metric ton. a minor modification must be effected in the dispositive portion of the decision appeal from insofar as it expresses the amount of damages in U. in the aforesaid transaction. however." In view of that law.. Will you please tell the court. If the NARIC stood to profit over P400 000. In the case of Engel v. at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation of this decision. A precise and more exact demonstration of the equity of the award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant. Currency.S. hereunder quoted so far as germane. In the premises. 47 Phil. likewise by way of unrealized profit damages in the total sum of $406.00 was realizable by appellant despite a number of expenses which the appellee under the contract. NARIC would have realized in profit the amount asserted in the counterclaim. U. Because the selling price of my rice is $203. U. so that she is already assured of a net profit of Fourteen Dollars and Thirty Cents ($14. We ruled that in an action for recovery of damages for breach of contract. Currency. The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction. Mrs.30). we are convicted of the fairness of the judgment presently under appeal. the award should be converted into and expressed in Philippine Peso.01 gross profit per metric ton. banking and unloading charges were to be shouldered by it. It is equally of record now that as shown in her request dated July 29. This brings us to a consideration of what rate of exchange should apply in the conversion here decreed..00 from the failure of the projected contract to materialize. adequately supported by the evidence and record: Q. per ton plus Eight Dollars ($8. Velasco & Co. 1959. This ruling.000 equals $300.70) in U.200.000. This counterclaim was supported by a cost study made and submitted by the appellant itself and wherein it was illustrated how indeed had the importation pushed thru.granted by the lower court is fair and equitable. Republic Act 529 specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debts. therefore.

C. is relieved of any liability under this suit. On November 2." UPON ALL THE FOREGOING. Ltd. respondents. The appellee insurance company.R. 1987.R.R. The incident was entered in the police blotter of the Southern Police District. Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number. INC. 2007 ROBERTO C. petitioners.00. and its Resolution2 dated August 8. Parañaque Police Station as follows: Investigation shows that at above TDPO. It appears that on different dates from September to October 1987. But now we have Republic Act No. 2003..3 Petitioner Sicam sent respondent Lulu a letter dated October 19. v. and the most that could be demanded is to pay said obligation in Philippine currency "to be measured in the prevailing rate of exchange at the time the obligation was incurred (Sec. No pronouncement as to costs. On October 19. BF Homes Parañaque. in the light of this judgment. 17 Aguirre Ave. as We already pronounced in the case of Eastboard Navigation. SICAM. SICAM and AGENCIA de R. C. Inc. 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Sicam. respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened. 1957. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Metro Manila. two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. Lulu V. DECISION AUSTRIA-MARTINEZ. Inc.. 1952 when the contract was executed. CV No.C. No.. 529 which expressly declares such stipulations as contrary to public policy. with the sole modification that the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1. G. if there is any agreement to pay an obligation in a currency other than Philippine legal tender. 159617 August 8.. JORGE and CESAR JORGE. No. void and of no effect. J. Juan Ysmael & Co. Jr.500. two (2) male unidentified persons entered into the said office with guns drawn. while victims were inside the office. vs. 2003. And. to secure a loan in the total amount of P59. (petitioner Sicam) and Agencia de R. L-9090. idem). Sicam.be applied nor extended to the case at bar for the same was laid down when there was no law against stipulating foreign currencies in Philippine contracts. . the same is null and void as contrary to public policy (Republic Act 529). September 10. in CA G. 1987.: Before us is a Petition for Review on Certiorari filed by Roberto C. G. (petitioner corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31. Sicam located at No. 56633. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above. 1. the decision appealed from is hereby affirmed. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. LULU V.

the RTC rendered its Decision6 dated January 12. Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20. respondent Lulu joined by her husband. Sicam". The RTC denied the motion in an Order dated November 8. the corporate debt or credit is not the debt or credit of a stockholder. petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. In a Decision dated March 31. The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery. moral and exemplary damages as well as attorney's fees. 1174 of the Civil Code. 1989. The case was docketed as Civil Case No.7 and that the parties’ transaction was that of a pledgor and pledgee and under Art. Thereafter. Branch 62. and that as a consequence of the separate juridical personality of a corporation. Cesar Jorge. that in the Amended Complaint of respondents. Inc.all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw. is hereby REVERSED and SET ASIDE. 1993. citing the case of Austria v. 1987 and known as Agencia de R. ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272.of the Regional Trial Court of Makati. 1987 but petitioner Sicam failed to return the jewelry. 88-2035.5 After trial on the merits. the CA reversed the RTC. On September 28.8 In finding petitioner Sicam liable together with petitioner corporation.00.C. the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction. the dispositive portion of which reads as follows: WHEREFORE.200. dismissing respondents’ complaint as well as petitioners’ counterclaim. Sicam. . they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop". advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. the pawnshop as a pledgee is not responsible for those events which could not be foreseen. premises considered. that robbery is a fortuitous event which exempts the victim from liability for the loss. Respondents subsequently filed an Amended Complaint to include petitioner corporation. Court of Appeals. filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual.00. that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. the instant Appeal is GRANTED. 1988. Respondents opposed the same. and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation. 1993. and attorney' fees of P27. and the Decision dated January 12. Respondents appealed the RTC Decision to the CA.C.000. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6. 2003.

(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court.9 Anent the first assigned error. WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF. petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents’ brief which had the following defects: (1) There were unrebutted evidence on record that petitioners had observed the diligence required of them. 2003. Hence. 5-6 of the Appellants’ brief. Inc. WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD. The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry.e. Anent the second error.The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do. THE COURT OF APPEALS ERRED. it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members. IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT. the instant petition for review with the following assignment of errors: THE COURT OF APPEALS ERRED AND WHEN IT DID. i. Petitioners’ motion for reconsideration was denied in a Resolution dated August 8. that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day.C. that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries. they wanted to open a vault with a nearby bank for purposes of . and (3) By reason of the above infirmities. is the present owner of Agencia de R. Sicam Pawnshop. and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee."10 Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from infirmities. WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.C. the CA cannot rule against said conclusive assertion of respondents. IT OPENED ITSELF TO REVERSAL. AND WHEN IT DID. and therefore. petitioners point out that the CA’s finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. as follows: (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R. Sicam.

or at the very least. Upon examination of the Decision. The parties subsequently submitted their respective Memoranda. The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. Respondents filed their Comment and petitioners filed their Reply thereto. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. in all the pawnshop receipts issued to respondent Lulu in September 1987." notwithstanding that the pawnshop was allegedly incorporated in April 1987. although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents’ (appellants’) brief filed with the CA. To begin with. expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. Chairman. Sicam. However. after a careful examination of the records. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties. we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8. as long as these are legally tenable and supported by law and the facts on records. Even petitioners’ counsel. As correctly observed by the CA. Generally. Atty.15 Notably. the pawnshop was owned by petitioner Sicam himself. the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo. the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers. that the pawnshop was owned solely by petitioner Sicam and not by a corporation. .12 This rule. all bear the words "Agencia de R. but it is judicial notice that due to high incidence of crimes. we find the same to be not fatally infirmed." thus inevitably misleading. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. We find no merit in the petition. is not without exceptions. C. Balgos. safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place. Sicam. Article VIII of the Constitution. 45-46). Commission on Audit (179 SCRA 39. (3) In Hernandez v. such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case. Marcial T. however. creating the wrong impression to respondents and the public as well. the evidence on record shows that at the time respondent Lulu pawned her jewelry. 1987 addressed to the Central Bank. in his letter16 dated October 15. we find no justification to absolve petitioner Sicam from liability. insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies.11 Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. (2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries. C. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them.

We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop. admits of two exceptions. a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry. not in the sense in which the admission is made to appear. in their Opposition to petitioners’ Motion to Dismiss Amended Complaint. i. It is a matter of defense. they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987." then the one making the "admission" may show that he made no "such" admission. In paragraph 1 of his Answer. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R. or that his admission was taken out of context. Sicam Pawnshop was a corporation. he admitted the allegations in paragraph 1 and 2 of the Complaint.e. the merit of which can only be reached after consideration of the evidence to be presented in due course. The latter exception allows one to contradict an admission by denying that he made such an admission. insofar as petitioner Sicam is concerned. Moreover. respondents. He merely added "that defendant is not now the real party in interest in this case.. the CA is bound to decide the case on that basis. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. made by a party in the course of the proceedings in the same case. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.18 (Emphasis supplied). Markedly.19 ." the rule would not really be providing for a contradiction of the admission but just a denial. Thus. Section 4 Rule 129 of the Rules of Court provides that an admission. and (2) when it is shown that no such admission was in fact made. That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made. to wit: (1) when it is shown that such admission was made through palpable mistake.C." It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. verbal or written.17 The Committee on the Revision of the Rules of Court explained the second exception in this wise: x x x if a party invokes an "admission" by an adverse party. does not require proof. While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop. the general rule that a judicial admission is conclusive upon the party making it and does not require proof. but cites the admission "out of context. x x x that the party can also show that he made no "such admission". averred as follows: Roberto C.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all. though foreseen. he submitted that as far as he was concerned. Ineluctably. Fortuitous events by definition are extraordinary events not foreseeable or avoidable. 22 .C. This Court sustains the contention of the defendant Roberto C. the issue was squarely passed upon. by the trial court in its Decision in this manner: x x x The defendant Roberto Sicam. In the pre-trial brief filed by petitioner Sicam. The mere difficulty to foresee the happening is not impossibility to foresee the same. Jr. the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case. 1174. Article 1174 of the Civil Code provides: Art. the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in- interest because since April 20.20 In fact. nor is the stockholder's debt or credit that of a corporation. It is therefore. although erroneously. the pawnshop business initiated by him was incorporated and known as Agencia de R. Sicam. or when the nature of the obligation requires the assumption of risk. Moreover. 1987. in view of the alleged incorporation of the pawnshop. We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation. as it was not an issue raised and litigated before the RTC. Except in cases expressly specified by the law. were inevitable. the corporate debt or credit is not the debt or credit of the stockholder. the basic issue was whether he is the real party in interest against whom the complaint should be directed. The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop. The next question is whether petitioners are liable for the loss of the pawned articles in their possession. the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name militates for the piercing of the corporate veil. We are not persuaded." It has been held that " as a consequence of the separate juridical personality of a corporation. Sicam. as is commonly believed but it must be one impossible to foresee or to avoid. Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction. he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. not enough that the event should not have been foreseen or anticipated. no person shall be responsible for those events which could not be foreseen or which.Unmistakably. or when it is otherwise declared by stipulation.21 Clearly.

Petitioner Sicam’s testimony. neglect or failure to act -. in order for a fortuitous event to exempt one from liability. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable. he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. Robbery per se.27 the Court held: It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. 25 It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. 23 The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. contradicts petitioners’ defense of fortuitous event. petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. A police report of an alleged crime. the burden of proving that the loss was due to a fortuitous event rests on him who invokes it — which in this case is the private respondent.the whole occurrence is humanized and removed from the rules applicable to acts of God. and.28 . showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. It does not foreclose the possibility of negligence on the part of herein petitioners. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. it must be impossible to avoid. no other evidence was presented by private respondent to the effect that the incident was not due to its fault. carnapping entails more than the mere forceful taking of another's property. One's negligence may have concurred with an act of God in producing damage and injury to another. in effect. (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner. However. just like carnapping. (d) the obligor must be free from any participation in the aggravation of the injury or loss. In Co v. Court of Appeals. To be considered as such. as in cases of carnapping. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation.To constitute a fortuitous event. it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. does not suffice to establish the carnapping. He likewise testified that when he started the pawnshop business in 1983. does not automatically give rise to a fortuitous event. other than the police report of the alleged carnapping incident. nonetheless. but actually foreseen and anticipated. is not a fortuitous event. the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will. 26 Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. The fact that a thing was unlawfully and forcefully taken from another's rightful possession. to which only private respondent is privy. (b) it must be impossible to foresee the event that constitutes the caso fortuito or. if it can be foreseen. When the effect is found to be partly the result of a person's participation -- whether by active intervention. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Moreover. Carnapping per se cannot be considered as a fortuitous event. In accordance with the Rules of Evidence.24 And.

or the doing of something which a prudent and reasonable man would not do. particularly Article 2099 of the Civil Code. the provisions on pledge. Such report also does not prove that petitioners were not at fault. Then how come that the robbers were able to enter the premises when according to you there was a security guard? A. would do. The provision on pledge. if these robbers can rob a bank. of time and of the place. the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code. In this connection. are liable for damages. paragraph 2 shall apply. Petitioners were guilty of negligence in the operation of their pawnshop business. thus: Court: Q. Gangan30 that negligence is the omission to do something which a reasonable man. or delay. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. When negligence shows bad faith. that which is expected of a good father of a family shall be required. If the law or contract does not state the diligence which is to be observed in the performance. your honor. 1170. and subsidiarily. Article 1173 of the Civil Code further provides: Art. how much more a pawnshop. the special laws and regulations concerning them shall be observed. I am asking you how were the robbers able to enter despite the fact that there was a security guard? . by the very evidence of petitioners. Q.Just like in Co. mortgage and antichresis. the provisions of Articles 1171 and 2201. Petitioner Sicam testified. 1173. guided by those considerations which ordinarily regulate the conduct of human affairs. and those who in any manner contravene the tenor thereof. On the contrary. Those who in the performance of their obligations are guilty of fraud. Do you have security guards in your pawnshop? A. provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. We expounded in Cruz v. negligence. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons. Q. Sir. to wit: Art.31 It is want of care required by the circumstances.29 Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges. petitioners merely presented the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Yes.

so one of my employees allowed him to come in and it was only when it was announced that it was a hold up.45 pistols each. it is even doubtful that there was a security guard. that he had sufficient training in securing a pawnshop. Under Section 17 of Central Bank Circular No. and which was issued pursuant to Presidential Decree No. Yes sir. to wit: Sec. In fact.The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic). Q. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque they pretended to pawn an article in the pawnshop. 17.32 revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. which were allegedly poked at the employees. which took effect on July 13. precaution and vigilance that the circumstances justly demanded. Or if there was one. there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. they let open the vault. A. 114. Q. No one open (sic) the vault for the robbers? A. We. there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Pawnshop Regulation Act. however. Q. Did you come to know how the vault was opened? A. Furthermore. Further. since it is quite impossible that he would not have noticed that the robbers were armed with caliber . No one your honor it was open at the time of the robbery. do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries. Instead of taking the precaution to protect them. A. 374. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Parañaque at that time was quiet. The combination is off. Rules and Regulations for Pawnshops. . petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to you inside the vault. Evidently. Insurance of Office Building and Pawns. no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. not one of petitioners' employees who were present during the robbery incident testified in court. Petitioner Sicam testified that once the pawnshop was open. providing no difficulty for the robbers to cart away the pawned articles. by an insurance company accredited by the Insurance Commissioner. the combination was already off. 1973. the alleged security guard was not presented at all to corroborate petitioner Sicam's claim. it is provided that pawns pledged must be insured.33 Significantly. There was no clear showing that there was any security guard at all. When the pawnshop is official (sic) open your honor the pawnshop is partly open.

that Maria Abad was guilty of negligence. In contrast. (emphasis supplied). find no application to the present case. 1961.38 We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971. Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform.34 Thus. where the victims of robbery were exonerated from liability. the debtor must. that to be free from liability for reason of fortuitous event. Chairman. Nevertheless. took place without any concurrent fault on the debtor’s part. but the Abads set up the defense that the robbery extinguished their obligation. The incident became the subject of a criminal case filed against several persons. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a pawnshop must be insured against fire. 1174 of the Civil Code. it would only be sufficient that the unforeseen event. In Austria. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. the cases of Austria v. the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value. The CA. Moreover. 764 which took effect on October 1. however. that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. where the requirement that insurance against burglary was deleted. i. In the morning of July 1. this Section was subsequently amended by CB Circular No. we found petitioners negligent in securing their pawnshop as earlier discussed.e. However we did not hold Abad liable for negligence since. Commission on Audit36 and Cruz v. the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code.However.35 Hernandez v. the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. The RTC ruled in favor of Austria. Gangan37 cited by petitioners in their pleadings. when criminality had not reached the level of incidence obtaining in 1971. the robbery. as the Abads failed to prove robbery. to wit: Sec. Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis. In Hernandez. be free of any concurrent or contributory fault or negligence. there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent. and considering the above-quoted amendment. he went to . unlike in Austria.. if committed. the robbery happened ten years previously. a Friday. reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. the Central Bank considered it not feasible to require insurance of pawned articles against burglary. in addition to the casus itself. or. Obviously. but which Abad failed to subsequently return because of a robbery committed upon her in 1961. and this can be done by preponderance of evidence. 1983. Court of Appeals. The robbery in the pawnshop happened in 1987. 1980. where no negligence was committed.

Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate. Dr. the thief was not located. Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day. that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day. when the main office would open. boarded the Light Rail Transit (LRT) from Sen. Unlike in Hernandez where the robbery happened in a public utility. and leave for Ternate the following day. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of transit was influenced by time and money considerations. Filonila O. the jeep was held up and the money kept by Hernandez was taken. a non-working.m. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao.m. that any prudent and rational person under similar circumstance can reasonably be expected to do the same. . would have caused discomfort to laborers who were dependent on their wages for sustenance. She also reported the loss to the Regional Director of TESDA. he had two choices: (1) return to Ternate. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. At that time. She then reported the incident to the police authorities. being nearer. the earliest time. because to encash the check on July 5. said decision seemed logical at that time. and the cellphone was not recovered. Bulacan instead of Ternate. Among those stolen were her wallet and the government-issued cellular phone. In Cruz. thinking it was the safer one. However for some reason. the next working day after July 1. a Saturday. Cavite for safekeeping. the risk of theft would have also been present. she was not expected to have her own vehicle or to ride a taxicab. that because of her relatively low position and pay. otherwise. The other robber who held the stolen money escaped. While the jeep was on Epifanio de los Santos Avenue. Bulacan. the robbery in this case took place in the pawnshop which is under the control of petitioners. a little past 3 p. Camanava District Director of Technological Education and Skills Development Authority (TESDA). which is the normal procedure in the handling of funds. and in view of the comparative hazards in the trips to the two places. Nevertheless.Manila to encash two checks covering the wages of the employees and the operating expenses of the project. Thus. Cavite that same afternoon and arrive early evening. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. spend the night there. which paved the way for the robbers to easily cart away the pawned articles. that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus. that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting. the workers would have to wait until July 5. he decided to encash the check because the project employees would be waiting for their pay the following day. or (2) take the money with him to his house in Marilao. he took a passenger jeep bound for Bulacan.238. she did not have a government assigned vehicle. however. and the robbers jumped out of the jeep and ran..00. and (2) that choosing Marilao as a safer destination. Cruz. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4. The COA found no sufficient justification to grant the request for relief from accountability. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence. the processing of the check was delayed and was completed at about 3 p. and she requested that she be freed from accountability for the cellphone. He chose the second option. that the records did not show any specific act of negligence on her part and negligence can never be presumed.

which will exempt NPC from liability. Some portion of the Bicti site were still under construction (2nd phase). Inc. all the equipment no longer needed there were transferred to another site where some projects were yet to be completed. the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop. ECI for brevity). and Appurtenant Features at Norzagaray. (Angat Hydro-electric Project and Dam) 2. Intake and Outlet Structures. 3. On November 4. The ECI already had completed the first major phase of the work (Tunnel Excavation Work). being a successful bidder. lost or destroyed. and hit the installations and construction works of ECI at Ipo site with terrific impact. Extraordinary large volume of water rushed out of the gates. the water in the reservoir of the Angat Dam was rising perilously at the rate of 60 cm per hour. to furnish all tools. Court of Appeals 161 SCRA 334. equipment and materials. 1998) Facts: 1. executed a contract in Manila with the National Waterworks and Sewerage Authority (NAWASA). (petitioner. whereby the former undertook: 1. 5. 1967. L-47379 (May 16. The project involves two (2) major phases: (1) tunnel work covering a distance of 7 kilometres and (2) the outworks at both ends of the tunnel. . 2003. National Power Corporation v. passing through corporations’ Angat Hydro-electric Project and Dam. 4. except for the insurance aspect. 6. to construct the proposed 2nd Ipo-Bicti Tunnel. G. Typhoon “Welming” hit Central Luzon. Engineering Construction. WHEREFORE. No. as a result of which the latter’s stockpile of materials supplies. 2003 and its Resolution dated August 8. Bulacan and to complete said works within 800 calendar days. the National Power Corporation(NPC) caused the opening of the spillway gates. Due to the heavy downpour. To prevent an overflow of water from the dam. labor. Issue/s: 1. and 2. Whether or not the destruction and loss of ECI’s equipment and facilities were due to force majeure.R. and Appurtenant Structures.Unlike in the Cruz case. camp facilities and permanent structures and accessories whether washed away. are AFFIRMED. Costs against petitioners. the Decision of the Court of Appeals dated March 31.

Ruling:

1. No, NPC will not be exempted from liability. NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height of
typhoon “Welming” when it knew very well that it was safer to have opened the
same gradually and earlier, as it was also undeniable that NPC know of the
coming typhoon at least four days before it actually struck.

The typhoon was an act of God or what we may call force majeure, NPC cannot escape
liability because its negligence was the proximate cause of the loss and damage.

As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:

“If upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation, which results in loss or damage, the obligor cannot escape
liability.

The principle embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and human agencies are to be
excluded from creating or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the result of the participation
of man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby HUMANIZED, as it were, and removed from the rules applicable
to the acts of God.

G.R. No. 185798 January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil
Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed
the Decision of the Office of the President in O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower
while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses
Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium
unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of FIVE

MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (₱5,174,000.00). On 29 August
1997, respondents executed and signed a Reservation Application Agreement wherein they
deposited ₱200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment
of ₱1,552,200.00 and had been paying the ₱63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their
monthly amortization. Claiming to have paid a total of ₱2,198,949.96 to petitioners, respondents
through two (2) successive letters, demanded a full refund of their payment with interest. When their
demands went unheeded, respondents were constrained to file a Complaint for Refund and
Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for
reimbursement/refund of ₱2,198,949.96 representing the total amortization payments, ₱200,000.00
as and by way of moral damages, attorney’s fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their
Answer within the reglementary period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their position paper attributing the delay
in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or
misrepresentation which could entitle respondents to an award of moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering
petitioners to jointly and severally pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE
HUNDRED FORTY NINE PESOS & 96/100 (₱2,198,949.96) with interest thereon at twelve
percent (12%) per annum to be computed from the time of the complainants’ demand for
refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this Office
fifteen (15) days upon receipt of this decision, for violation of Section 20 in relation to Section
38 of PD 957.3

The Arbiter considered petitioners’ failure to develop the condominium project as a substantial
breach of their obligation which entitles respondents to seek for rescission with payment of damages.
The Arbiter also stated that mere economic hardship is not an excuse for contractual and legal delay.

Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII of the
1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners of the
HLURB denied4 the petition and affirmed the Arbiter’s Decision. The HLURB reiterated that the
depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which will
exempt petitioners from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter,
petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007, petitioners’

appeal was dismissed6 by the Office of the President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied7 on 26 July 2007.

Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43
containing the same arguments they raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE HONORABLE HOUSING AND LAND USE REGULATORY BOARD AND ORDERING
PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM OF
₱2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID,
CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST
PETITIONERS-APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-
APPELLEES THE SUM OF ₱100,000.00 AS MORAL DAMAGES AND ₱50,000.00 AS
ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE HOUSING AND LAND USE REGULATORY BOARD ORDERING PETITIONERS-
APPELLANTS TO PAY ₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate
court echoed the HLURB Arbiter’s ruling that "a buyer for a condominium/subdivision unit/lot unit
which has not been developed in accordance with the approved condominium/subdivision plan
within the time limit for complying with said developmental requirement may opt for reimbursement
under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate
court supported the HLURB Arbiter’s conclusion, which was affirmed by the HLURB Board of
Commission and the Office of the President, that petitioners’ failure to develop the condominium
project is tantamount to a substantial breach which warrants a refund of the total amount paid,
including interest. The appellate court pointed out that petitioners failed to prove that the Asian
financial crisis constitutes a fortuitous event which could excuse them from the performance of their
contractual and statutory obligations. The appellate court also affirmed the award of moral damages
in light of petitioners’ unjustified refusal to satisfy respondents’ claim and the legality of the
administrative fine, as provided in Section 20 of Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by
the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION
OF THE OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN
FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER
THE PREMISES, THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE
HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE
DECISION OF THE OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF ₱100,000.00
AS MORAL DAMAGES, ₱50,000.00 AS ATTORNEY’S FEES AND ₱10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT
SUCH CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because they allegedly have not
committed any act of misrepresentation amounting to bad faith which could entitle respondents to a
refund. Petitioners claim that there was a mere delay in the completion of the project and that they
only resorted to "suspension and reformatting as a testament to their commitment to their buyers."
Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate industry.
Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held liable for a
fortuitous event.

Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas Bank v.
Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central Bank.

Lastly, petitioners aver that they should not be ordered to pay moral damages because they never
intended to cause delay, and again blamed the Asian economic crisis as the direct, proximate and
only cause of their failure to complete the project. Petitioners submit that moral damages should not
be awarded unless so stipulated except under the instances enumerated in Article 2208 of the New
Civil Code. Lastly, petitioners refuse to pay the administrative fine because the delay in the project
was caused not by their own deceptive intent to defraud their buyers, but due to unforeseen
circumstances beyond their control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a
fortuitous event which would justify delay by petitioners in the performance of their contractual
obligation; 2) assuming that petitioners are liable, whether or not 12% interest was correctly imposed
on the judgment award, and 3) whether the award of moral damages, attorney’s fees and
administrative fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings
were consistent that first, the Asian financial crisis is not a fortuitous event that would excuse
petitioners from performing their contractual obligation; second, as a result of the breach committed
by petitioners, respondents are entitled to rescind the contract and to be refunded the amount of
amortizations paid including interest and damages; and third, petitioners are likewise obligated to
pay attorney’s fees and the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the
Office of the President and the Court of Appeals.

Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under
Article 1191 of the New Civil Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

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

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision
1âw phi 1

or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner
or developer when the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the subdivision or condominium
project according to the approved plans and within the time limit for complying with the same. Such
buyer may, at his option, be reimbursed the total amount paid including amortization interests but
excluding delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and
demand reimbursement for the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v.
Spouses Go13promulgated on 17 August 2007, where the Court stated that the Asian financial crisis
is not an instance of caso fortuito. Bearing the same factual milieu as the instant case, G.R. No.
165164 involves the same company, Fil-Estate, albeit about a different condominium property. The
company likewise reneged on its obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the contract price. Fil-Estate advanced the
same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of
the construction project. First off, the Court classified the issue as a question of fact which may not
be raised in a petition for review considering that there was no variance in the factual findings of the
HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the previous
rulings of Asian Construction and Development Corporation v. Philippine Commercial International
Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals15 holding that the 1997
Asian financial crisis did not constitute a valid justification to renege on obligations. The Court
expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the
control of a business corporation. It is unfortunate that petitioner apparently met with considerable
difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its
real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency movements
and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market
is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not
an instance of caso fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are
substantially the same, as in this case. The principle of stare decisis, which means adherence to
judicial precedents, applies.

In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6%
legal interest computed from the date of demand. The Court also awarded attorney’s fees. We follow
that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar
v. Gallery Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas
Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6% regardless of the
source of obligation.

We likewise affirm the award of attorney’s fees because respondents were forced to litigate for 14
years and incur expenses to protect their rights and interest by reason of the unjustified act on the
part of petitioners.18 The imposition of ₱10,000.00 administrative fine is correct pursuant to Section
38 of Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten
thousand pesos for violations of the provisions of this Decree or of any rule or regulation thereunder.
Fines shall be payable to the Authority and enforceable through writs of execution in accordance
with the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in
breach of contract cases, the defendant must have acted in bad faith, must be found guilty of gross
negligence amounting to bad faith, or must have acted in wanton disregard of contractual
obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their
contract, when they failed to address respondents’ grievances and when they adamantly refused to
refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and
Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the time of respondents' demand for refund on 8 October 1998.

SO ORDERED.

G.R. No. L-29155 May 13, 1970

UNIVERSAL FOOD CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N.
FRANCISCO, respondents.

Wigberto E. Tañada for petitioner.

Teofilo Mendoza for respondents.

CASTRO, J.:

Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals
of February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco,
plaintiffs-appellants vs. Universal Food Corporation, defendant-appellee), the dispositive portion of
which reads as follows: "WHEREFORE the appealed decision is hereby reversed; the BILL OF
ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant is hereby ordered to return to
plaintiff Magdalo V. Francisco, Sr., his Mafran sauce trademark and formula subject-matter of Exhibit
A, and to pay him his monthly salary of P300.00 from December 1, 1960, until the return to him of
said trademark and formula, plus attorney's fees in the amount of P500.00, with costs against
defendant."1

On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of
First Instance of Manila, against, the Universal Food Corporation, an action for rescission of a
contract entitled "Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as
without any right to the use of the Mafran trademark and formula, and order the latter to restore to
them the said right of user; to order the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary
from December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs of suit.1

On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3
thereof "admits the allegations contained in paragraph 3 of plaintiffs' complaint." The answer further
alleged that the defendant had complied with all the terms and conditions of the Bill of Assignment
and, consequently, the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V.
Francisco, Sr. was not dismissed from the service as permanent chief chemist of the corporation as
he is still its chief chemist; and, by way of special defenses, that the aforesaid plaintiff is estopped
from questioning 1) the contents and due execution of the Bill of Assignment, 2) the corporate acts
of the petitioner, particularly the resolution adopted by its board of directors at the special meeting
held on October 14, 1960, to suspend operations to avoid further losses due to increase in the prices
of raw materials, since the same plaintiff was present when that resolution was adopted and even
took part in the consideration thereof, 3) the actuations of its president and general manager in
enforcing and implementing the said resolution, 4) the fact that the same plaintiff was negligent in
the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said
plaintiff was delinquent in the payment of his subscribed shares of stock with the corporation. The
defendant corporation prayed for the dismissal of the complaint, and asked for P750 as attorney's
fees and P5,000 in exemplary or corrective damages.

On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim
for damages and attorney's fees, with costs against the former, who promptly appealed to the Court
of Appeals. On February 13, 1969 the appellate court rendered the judgment now the subject of the
present recourse.

The Court of Appeals arrived at the following "uncontroverted" findings of fact:

That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a
formula for the manufacture of a food seasoning (sauce) derived from banana fruits
popularly known as MAFRAN sauce; that the manufacture of this product was used
in commercial scale in 1942, and in the same year plaintiff registered his trademark
in his name as owner and inventor with the Bureau of Patents; that due to lack of
sufficient capital to finance the expansion of the business, in 1960, said plaintiff
secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
formed with others defendant Universal Food Corporation eventually leading to the
execution on May 11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1).

Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco,
Sr. was appointed Chief Chemist with a salary of P300.00 a month, and plaintiff
Victoriano V. Francisco was appointed auditor and superintendent with a salary of
P250.00 a month. Since the start of the operation of defendant corporation, plaintiff
Magdalo V. Francisco, Sr., when preparing the secret materials inside the laboratory,
never allowed anyone, not even his own son, or the President and General Manager
Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the formula
secret to himself. However, said plaintiff expressed a willingness to give the formula
to defendant provided that the same should be placed or kept inside a safe to be
opened only when he is already incapacitated to perform his duties as Chief Chemist,
but defendant never acquired a safe for that purpose. On July 26, 1960, President
and General Manager Tirso T. Reyes wrote plaintiff requesting him to permit one or
two members of his family to observe the preparation of the 'Mafran Sauce' (Exhibit
C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes
did not compel or force plaintiff to accede to said request. Thereafter, however, due
to the alleged scarcity and high prices of raw materials, on November 28, 1960,
Secretary-Treasurer Ciriaco L. de Guzman of defendant issued a Memorandum
(Exhibit B), duly approved by the President and General Manager Tirso T. Reyes that
only Supervisor Ricardo Francisco should be retained in the factory and that the
salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being
until the corporation should resume its operation. Some five (5) days later, that is, on
December 3, 1960, President and General Manager Tirso T. Reyes, issued a
memorandom to Victoriano Francisco ordering him to report to the factory and
produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope
with the orders of the corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees without employing
permanent employees (Exhibit B). Again, on December 6, 1961, another
memorandum was issued by the same President and General Manager instructing
the Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are
connected in the production of Mafran Sauce and also some additional daily
employees for the production of Porky Pops (Exhibit B-1). On December 29, 1960,
another memorandum was issued by the President and General Manager instructing
Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent,
to produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with
further instructions to hire daily laborers in order to cope with the full blast protection
(Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist
in the amount of P300.00 a month only until his services were terminated on
November 30, 1960. On January 9 and 16, 1961, defendant, acting thru its President
and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a
buyer of the corporation including its trademarks, formula and assets at a price of not
less than P300,000.00 (Exhibits D and D-1). Due to these successive memoranda,
without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the latter filed
the present action on February 14, 1961. About a month afterwards, in a letter dated
March 20, 1961, defendant, thru its President and General Manager, requested said
plaintiff to report for duty (Exhibit 3), but the latter declined the request because the
present action was already filed in court (Exhibit J).

1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued
that under article 1191 of the new Civil Code, the right to rescind a reciprocal obligation is not
absolute and can be demanded only if one is ready, willing and able to comply with his own
obligation and the other is not; that under article 1169 of the same Code, in reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him; that in this case the trial court found that the respondents

not only have failed to show that the petitioner has been guilty of default in performing its contractual
obligations, "but the record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco
who had been remiss in the compliance of his contractual obligation to cede and transfer to the
defendant the formula for Mafran sauce;" that even the respondent Court of Appeals found that as
"observed by the lower court, 'the record is replete with the various attempt made by the defendant
(herein petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that upon
the foregoing findings, the respondent Court of Appeals unjustly concluded that the private
respondents are entitled to rescind the Bill of Assignment.

The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent
Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran
sauce.2

The Bill of Assignment sets forth the following terms and conditions:

THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive
owner of the MAFRAN trade-mark and the formula for MAFRAN SAUCE;

THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net
annual profit which the PARTY OF THE Second Part [Universal Food Corporation]
may realize by and/or out of its production of MAFRAN SAUCE and other food
products and from other business which the Party of the Second Part may engage in
as defined in its Articles of Incorporation, and which its Board of Directors shall
determine and declare, said Party of the First Part hereby assign, transfer, and
convey all its property rights and interest over said Mafran trademark and formula for
MAFRAN SAUCE unto the Party of the Second Part;

THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net
profit which the Party of the Second Part obligates itself to pay unto the Party of the
First Part as founder and as owner of the MAFRAN trademark and formula for
MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after the proper
accounting and inventories has been undertaken by the Party of the Second Part and
after a competent auditor designated by the Board of Directors shall have duly
examined and audited its books of accounts and shall have certified as to the
correctness of its Financial Statement;

THAT it is hereby understood that the Party of the First Part, to improve the quality of
the products of the Party of the First Part and to increase its production, shall
endeavor or undertake such research, study, experiments and testing, to invent or
cause to invent additional formula or formulas, the property rights and interest
thereon shall likewise be assigned, transferred, and conveyed unto the Party of the
Second Part in consideration of the foregoing premises, covenants and stipulations:

THAT in the operation and management of the Party of the First Part, the Party of the
First Part shall be entitled to the following Participation:

(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President
and Chief Chemist of the Party of the Second Part, which appointments are
permanent in character and Mr. VICTORIANO V. FRANCISCO shall be appointed
Auditor thereof and in the event that the Treasurer or any officer who may have the
custody of the funds, assets and other properties of the Party of the Second Part
comes from the Party of the First Part, then the Auditor shall not be appointed from

the latter; furthermore should the Auditor be appointed from the Party representing
the majority shares of the Party of the Second Part, then the Treasurer shall be
appointed from the Party of the First Part;

(b) THAT in case of death or other disabilities they should become incapacitated to
discharge the duties of their respective position, then, their shares or assigns and
who may have necessary qualifications shall be preferred to succeed them;

(c) That the Party of the First Part shall always be entitled to at least two (2)
membership in the Board of Directors of the Party of the Second Part;

(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the
Party of the Second Part, the Chief Chemist shall have and shall exercise absolute
control and supervision over the laboratory assistants and personnel and in the
purchase and safekeeping of the Chemicals and other mixtures used in the
preparation of said products;

THAT this assignment, transfer and conveyance is absolute and irrevocable in no
case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its
rights and interest over said MAFRAN trademark and mafran formula, except when a
dissolution of the Party of the Second Part, voluntary or otherwise, eventually arises,
in which case then the property rights and interests over said trademark and formula
shall automatically revert the Party of the First Part.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the
respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation
the formula for Mafran sauce. Thus, the last part of the second paragraph recites that the
respondent patentee "assign, transfer and convey all its property rights and interest over said Mafran
trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last
paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and)
in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and
interest over said MAFRAN trademark and mafran formula."

However, a perceptive analysis of the entire instrument and the language employed therein3 would
lead one to the conclusion that what was actually ceded and transferred was only the use of the
Mafran sauce formula. This was the precise intention of the parties,4 as we shall presently show.

Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of
TWO (2%) PER CENTUM of the net annual profit" which the petitioner corporation may realize by
and/or out of its production of Mafran sauce and other food products, etc. The word "royalty," when
employed in connection with a license under a patent, means the compensation paid for the use of a
patented invention.

'Royalty,' when used in connection with a license under a patent, means the
compensation paid by the licensee to the licensor for the use of the licensor's
patented invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d
10, 16.)5

Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized
proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be
appointed "chief chemist ... permanent in character," and that in case of his "death or other
disabilities," then his "heirs or assigns who may have necessary qualifications shall be preferred to

succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the same
respondent shall have and shall exercise absolute control and supervision over the laboratory
assistants and personnel and over the purchase and safekeeping of the chemicals and other
mixtures used in the preparation of the said product. All these provisions of the Bill of Assignment
clearly show that the intention of the respondent patentee at the time of its execution was to part, not
with the formula for Mafran sauce, but only its use, to preserve the monopoly and to effectively
prohibit anyone from availing of the invention.6

Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation
eventually take place, "the property rights and interests over said trademark and formula shall
automatically revert to the respondent patentee. This must be so, because there could be no
reversion of the trademark and formula in this case, if, as contended by the petitioner, the
respondent patentee assigned, ceded and transferred the trademark and formula — and not merely
the right to use it — for then such assignment passes the property in such patent right to the
petitioner corporation to which it is ceded, which, on the corporation becoming insolvent, will become
part of the property in the hands of the receiver thereof.7

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and
transferred by virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself).
This incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioner's answer.
Hence, it does "not require proof and cannot be contradicted."8 The last part of paragraph 3 of the
complaint and paragraph 3 of the answer are reproduced below for ready reference:

3. — ... and due to these privileges, the plaintiff in return assigned to said corporation
his interest and rights over the said trademark and formula so that the defendant
corporation could use the formula in the preparation and manufacture of the mafran
sauce, and the trade name for the marketing of said project, as appearing in said
contract ....

3. — Defendant admits the allegations contained in paragraph 3 of plaintiff's
complaint.

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce
formula by the respondent patentee.

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be
interpreted to effect "the least transmission of right,"9 and is there a better example of least
transmission of rights than allowing or permitting only the use, without transfer of ownership, of the
formula for Mafran sauce.

The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually
ceded and transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of the
petitioner corporation was only the use of the formula. Properly speaking, the Bill of Assignment
vested in the petitioner corporation no title to the formula. Without basis, therefore, is the observation
of the lower court that the respondent patentee "had been remiss in the compliance of his
contractual obligation to cede and transfer to the defendant the formula for Mafran sauce."

2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr.
was dismissed from his position as chief chemist of the corporation without justifiable cause, and in
violation of paragraph 5-(a) of the Bill of Assignment which in part provides that his appointment is
"permanent in character."

The petitioner submits that there is nothing in the successive memoranda issued by the corporate
officers of the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the
respondent patentee was being dismissed from his position as chief chemist of the corporation. The
fact, continues the petitioner, is that at a special meeting of the board of directors of the corporation
held on October 14, 1960, when the board decided to suspend operations of the factory for two to
four months and to retain only a skeletal force to avoid further losses, the two private respondents
were present, and the respondent patentee was even designated as the acting superintendent, and
assigned the mission of explaining to the personnel of the factory why the corporation was stopping
operations temporarily and laying off personnel. The petitioner further submits that exhibit B
indicates that the salary of the respondent patentee would not be paid only during the time that the
petitioner corporation was idle, and that he could draw his salary as soon as the corporation
resumed operations. The clear import of this exhibit was allegedly entirely disregarded by the
respondent Court of Appeals, which concluded that since the petitioner resumed partial production of
Mafran sauce without notifying the said respondent formally, the latter had been dismissed as chief
chemist, without considering that the petitioner had to resume partial operations only to fill its
pending orders, and that the respondents were duly notified of that decision, that is, that exhibit B-1
was addressed to Ricardo Francisco, and this was made known to the respondent Victoriano V.
Francisco. Besides, the records will show that the respondent patentee had knowledge of the
resumption of production by the corporation, but in spite of such knowledge he did not report for
work.

The petitioner further submits that if the respondent patentee really had unqualified interest in
propagating the product he claimed he so dearly loved, certainly he would not have waited for a
formal notification but would have immediately reported for work, considering that he was then and
still is a member of the corporation's board of directors, and insofar as the petitioner is concerned, he
is still its chief chemist; and because Ricardo Francisco is a son of the respondent patentee to whom
had been entrusted the performance of the duties of chief chemist, while the respondent Victoriano
V. Francisco is his brother, the respondent patentee could not feign ignorance of the resumption of
operations.

The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is
dated December 29, 1960, the records will show that the petitioner was set to resume full capacity
production only sometime in March or April, 1961, and the respondent patentee cannot deny that in
the very same month when the petitioner was set to resume full production, he received a copy of
the resolution of its board of directors, directing him to report immediately for duty; that exhibit H, of a
later vintage as it is dated February 1, 1961, clearly shows that Ricardo Francisco was merely the
acting chemist, and this was the situation on February 1, 1961, thirteen days before the filing of the
present action for rescission. The designation of Ricardo Francisco as the chief chemist carried no
weight because the president and general manager of the corporation had no power to make the
designation without the consent of the corporation's board of directors. The fact of the matter is that
although the respondent Magdalo V. Francisco, Sr. was not mentioned in exhibit H as chief chemist,
this same exhibit clearly indicates that Ricardo Francisco was merely the acting chemist as he was
the one assisting his father.

In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28,
1960 the secretary-treasurer of the corporation issued a memorandum (exh. B), duly approved by its
president and general manager, directing that only Ricardo Francisco be retained in the factory and
that the salary of respondent patentee, as chief chemist, be stopped for the time being until the
corporation resumed operations. This measure was taken allegedly because of the scarcity and high
prices of raw materials. Five days later, however, or on December 3, the president and general
manager issued a memorandum (exh. B-1) ordering the respondent Victoria V. Francisco to report to
the factory and to produce Mafran sauce at the rate of no less than 100 cases a day to cope with the
orders of the various distributors and dealers of the corporation, and instructing him to take only the

Sr. requested the respondent patentee to report for duty (exh. The injured party may choose between the fulfillment and the rescission of the obligation. such request was a "recall to placate said plaintiff. 1961. 3). in case one of the obligors should not comply with what is incumbent upon him. Francisco. 1961 when the complaint for rescission of the Bill of Assignment was filed. with payment of damages in either case. starting January 2. S-2). 1961. instructing Ricardo Francisco. the petitioner corporation. The power to rescind obligations is implied in reciprocal ones. to produce Mafran sauce and. The injured party may choose between fulfillment and rescission of the obligation. if the latter should become impossible. The power to rescind obligations is implied in reciprocal ones." The facts narrated in the preceding paragraph were the prevailing milieu on February 14. The action for rescission is subsidiary. as assistant chief chemist. 1384. He may also seek rescission even after he has chosen fulfillment. This is understood to be without prejudice to the rights of third persons who have acquired the thing. The petitioner corporation violated the Bill of Assignment. In this case before us. in case one of the obligors should not comply with what is incumbent upon him. we shall concern ourselves with the first two paragraphs of article 1191. 1383. The fact that a month after the institution of the action for rescission. unless there be just cause authorizing the fixing of a period. there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The court shall decree the rescission claimed. And finally. Twenty-three days afterwards. with the payment of damages in either case. at the hearing held on October 24. with the further instruction to hire daily laborers in order to cope with the full blast production. separate and dismiss the said respondent from the service as permanent chief chemist. Rescission shall be only to the extent necessary to cover the damages caused. as acting superintendent. 1191. specifically paragraph . In this connection. At the moment. We now come to the question of rescission of the Bill of Assignment. Porky Pops in full swing. or on December 29. 11 schemed and maneuvered to ease out. it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. the same president and general manager issued yet another memorandum (exh. to recall all daily employees connected with the production of Mafran sauce and to hire additional daily employees for the production of Porky Pops. As the Court of Appeals correctly observed. we quote for ready reference the following articles of the new Civil Code governing rescission of contracts: ART. Then on December 6. ART. ART. as Chief Chemist" and Porfirio Zarraga. is of no consequence. They clearly prove that the petitioner. in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. in accordance with articles 1385 and 1388 of the Mortgage Law. directing "Ricardo Francisco. the same president and general manager issued still another memorandum (exh. thru its president and general manager. the same president and general manager admitted that "I consider that the two months we paid him (referring to respondent Magdalo V. B-2).) is the separation pay.necessary daily employees without employing permanent ones. acting through its corporate officers." 3.

One of the considerations for the transfer of the use thereof was the undertaking on the part of the petitioner corporation to . in the process afford and secure for himself a lifetime job and steady income. It is to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis. for on March 20. However. that a plaintiff cannot ask for both remedies. and that if the said respondent is entitled to be paid any back salary. rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The salient provisions of the Bill of Assignment. namely. by terminating the services of the respondent patentee Magdalo V. that the appellate court awarded the respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that the respondent patentee is entitled to his salary aforesaid. The above contention is without merit. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent patentee is entitled to payment of his monthly salary of P300 from December 1. we hold that the contract placed the use of the formula for Mafran sauce with the petitioner. that in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products. is rescission of the Bill of Assignment proper? The general rule is that rescission of a contract will not be permitted for a slight or casual breach. the corporation never had. in this case the dismissal of the respondent patentee Magdalo V. the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status. the fact is that the said respondent patentee refused to go back to work. the right to specific performance is not conjunctive with the right to rescind a reciprocal contract. He was dismissed without any fault or negligence on his part. moreover. Thus. the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation. arguing that under articles 1191.. 1960 to March 31. prevent its proliferation. the appellate court itself found. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. apart from the legal principle that the option — to demand performance or ask for rescission of a contract — belongs to the injured party. subject to defined limitations. enjoy its monopoly. 12 The question of whether a breach of a contract is substantial depends upon the attendant circumstances. without lawful and justifiable cause. Francisco. because under article 1383. 1961 the petitioner had already formally called him back to work. 1960 to "kingdom come. 1960. Sr. 14 the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. that this is a gross error of law. until the return to him of the Mafran trademark and formula. and. the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product — all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest. but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. that." as the said holding requires the petitioner to make payment until it returns the formula which. 4. 13 The petitioner contends that rescission of the Bill of Assignment should be denied. Reading once more the Bill of Assignment in its entirety and the particular provisions in their proper setting.5-(a) and (b). Upon the factual milieu. Sr." and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula. 1961. when it is considered that such holding would make the petitioner liable to pay respondent patentee's salary from December 1. the same should be computed only from December 1. notwithstanding the call for him to return — which negates his right to be paid his back salaries for services which he had not rendered. the transfer to the corporation of only the use of the formula. Francisco.

. effective immediately. subject-matter of the Bill of Assignment. Sr. with costs against the petitioner corporation. took no part. but only its use and the right to such use. C. the said judgment is affirmed. at a monthly salary of P300." As thus modified. the total amount due to him to earn legal interest from the date of the finality of this judgment until it shall have been fully paid. Barredo and Villamor. Fernando. Zaldivar. Under these circumstances.B. plus attorney's fees in the amount of P500. when both the decision of the appellate court and that of the lower court state that the corporation is not aware nor is in possession of the formula for Mafran sauce.. as long as the use. Teehankee J. the right to the use of his Mafran sauce trademark and formula. the formula for Mafran sauce remained with the corporation. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to the respondents the trademark and formula for Mafran sauce. his monthly salary of P300 from December 1. until the date of finality of this judgment. and to this end the defendant corporation and all its assigns and successors are hereby permanently enjoined.. the respondents in their complaint for rescission specifically and particularly pray." ACCORDINGLY. but I would like to add that the argument of petitioner. Separate Opinions REYES. Thus. as well as the right to use. Dizon. Concepcion. JJ. that the rescission demanded by the respondent-appellee. The Bill of Assignment (Exhibit A) is hereby rescinded. Francisco. Article 1385 of the new Civil Code provides that rescission creates the obligation to return the things which were the object of the contract. among others. inclusive. 5. from using in any manner the said Mafran sauce trademark and formula. unless "death or other disabilities supervened. J. conformably with the observations we have above made.. Francisco. Makalintal. it is a logical inference from the appellate court's decision that what was meant to be returned to the respondent patentee is not the formula itself. The defendant corporation shall also pay to Magdalo V. Sr.L. According to the petitioner these findings would render it impossible to carry out the order to return the formula to the respondent patentee. the judgment of the Court of Appeals is modified to read as follows: "Wherefore the appealed decision is reversed.. with costs against the defendant corporation. concur. should be denied because under Article 1383 of the Civil Code of the Philippines . The petitioner's predicament is understandable. But that as it may. Magdalo Francisco. 1960. and the respondent patentee admittedly never gave the same to the corporation. that the petitioner corporation be adjudged as "without any right to use said trademark and formula.J. concurring: I concur with the opinion penned by Mr. and the defendant corporation is ordered to return and restore to the plaintiff Magdalo V. Justice Fred Ruiz Castro. the petitioner corporation could not escape liability to pay the private respondent patentee his agreed monthly salary. J.employ the respondent patentee as the Second Vice-President and Chief Chemist on a permanent status.

G." Hence. L-47774 March 14. the Magdalena Estate. 1930. Andres C. petitioner-appellant. because it is the raison d'etre as well as the measure of the right to rescind. the vendee executed and delivered to the vendor a promissory note (Exhibits C and 2) for the whole purchase price.: On January 2. It is not a subsidiary action. the last being on October 4. and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. entonces todos el saldo no pagado del mismo con cualesquiera intereses que hubiese devengado. et seq. ademas. As expressed in the old Latin aphorism: "Non servanti fidem. considering the patent difference in causes and results of either action. apply to cases under Article 1191. It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as rescission without distinctions between them. y en tal caso me comprometo. the vendee made several monthly payments amounting to P2. 1928. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines." In pursuance of said agreement. the cause of action is subordinated to the existence of that prejudice. wherein it was stipulated that "si cualquier pago o pagos de este pagare quedasen en mora por mas de dos meses. that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. Aguilar for respondent. Inc. although the first installment due and unpaid was that . where the defendant makes good the damages caused.953 shall be payable in 120 equal monthly installments of P96. sold to Louis J. INC. vs. under Article 1381. their contract of sale No. respondent-appellee. a pagar al tenedor de este pagare el 10 por ciento de la cantidad en concepto de honorarios de abogado. 1941 MAGDALENA ESTATE.08. MYRICK. San Juan Rizal. Simultaneously. as expressly provided in Articles 1383 and 1384. J.39 each on the second day of every month beginning the date of execution of the agreement. Felipe Ysmael and Eusebio C. it being unjust that a party be held bound to fulfill his promises when the other violates his..596. 28 and 29 of Block 1. SJ-639 (Exhibits B and 1) providing that the price of P7. This rescission is in principal action retaliatory in character. the action cannot be maintained or continued. No.R. non est fides servanda. in the rescission by reason of lesion or economic prejudice. LOUIS J. vercera y sera exigible inmediatamente y devengara intereses al mismo tipo de 9 por ciento al año hasta su completo pago. Encarnacion for petitioner. that violates the reciprocity between the parties. unlike the previous Spanish Civil Code of 1889. and does not. the reparation of damages for the breach is purely secondary.rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation. Hence. is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice. LAUREL.1 But the terminological vagueness does not justify confusing one case with the other. Parcel 9 of the San Juan Subdivision. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant.. On the contrary. Myrick lots Nos.

thereby relieving him of any further obligation thereunder. Inc. 5037. XXXVIII Off. the Magdalena Estate. Inc. on December 14. and for costs of the suit. Hemady. even if it ever was intended." and the testimony of Sebastian San Andres. 1940. that the lots were never offered for sale after the mailing of the letter aforementioned. Louis J. A motion for reconsideration was presented. 1035 (Exhibit G). Inc. 1936. 84. one of its employees. appealed to the Court of Appeals. the Court of First Instance of Albay. 63 Phil. the herein petitioner. Petitioner-appellant assigns several errors which we proceed to discuss in the course of this opinion. and of April 10. To this communication. commenced the present action in the Court of First Instance of Albay. wherein he stated that the word "cancelled" in the letter of December 14. 1932 was not assented to by the respondent. the present petition for a writ of certiorari. filed his answer consisting in a general denial and a cross-complaint and counterclaim. president of the Magdalena Estate. Abena. K. Hemady. 1936. dated December 14. on September 7. (Guico vs. cannot be deemed to have produced a cancellation. which is approved by the judgment of the proper court.08 with legal interest thereon from the filing of the complaint until its payment. 1940. and submits the following propositions: (1) That the intention of the author of a written instrument shall always prevail over the literal sense of its wording. but is reiterated in the letters which the president of the defendant corporation states that plaintiff lost his rights for the land for being behind more than two years. notified the vendee that. 1930. Gaz. rendered its decision ordering the defendant to pay the plaintiff the sum of P2. 1932. The intent to resolve the contract is expressed unmistakably not only in the letter of December 14." This conclusion of fact of the Court of Appeals is final and should not be disturbed.) Where the terms of a writing are clear.of May 2. SJ-639. 6-7. positive and unambiguous. 1932. introduced in evidence the disposition of Mr. Petitioner contends that the letter in dispute is a mere notification and. and it appears likewise that the vendor thereafter did not require him to make any further disbursements on account of the purchase price. No. From this judgment. the vendee did not reply. His testimony is an afterthought. the vendor. in its decision of August 23. and which. "es un error de mi interpretacion sin ninguna intencion de cancelar. therefore. the intention of the parties should be gleaned . 1940. praying for an entry of judgment against the Magdalena Estate. and that all amounts paid by him had been forfeited in favor of the vendor. 1932 until paid and costs. president of the defendant corporation. Louis J. Said defendant. deposition Exhibit 1-a).H. the Court of Appeals. and (3) that the letter of December 14. 328. and dismissing defendant's counterclaim. for the sum of P2. on January 31. K. with the only modification that the payment of interest was to be computed from the date of the filing of the complaint instead of from the date of the cancellation of the contract.596. Myrick. on August 23. 1932. faith and credit cannot be given to such testimony in view of the clear terms of the letter which evince his unequivocal intent to resolve the contract. through its president. Mamuyac vs. which was denied on September 6. to this end. where defendant's president makes the following statements: "Confirming the verbal arrangement had between you and our Mr. Hence. where the cause was docketed as CA-G. By reason of this default. 1939. alleging that contract SJ-639 was still in full force and effect and that. Petitioner holds that contract SJ-639 has not been rendered inefficacious by its letter to the respondent. already cancelled. the plaintiff should be condemned to pay the balance plus interest and attorneys' fees. confirmed the decision of the lower court. Mayuga and Heirs of Mayuga. respondent herein. K. to the effect that the contract was not cancelled nor was his intention to do so when he wrote the letter of December 14.H. (2) that a bilateral contract may be resolved or cancelled only by the prior mutual agreement of the parties. Myrick under contract No. Hemady regarding the account of Mr. who assumes the absolute right over the lots in question. already referred to (Exhibit 6 and D). Hemady. Upon the other hand. and therefore. in view of his inability to comply with the terms of their contract.08 with legal interest from December 14. marked Exhibit 6 and D (pp. said agreement had been cancelled as of that date. After due trial. 1932.H.R. makes the finding that "notwithstanding the deposition of K.H.596.. On July 22. 1932.

Besides. petitioner. once ascertained. 298. They are: (1) the act of the petitioner in immediately taking possession of the lots in question and offering to resell them to Judge M. with costs against the petitioner. as demonstrated by his letter marked Exhibit G. in the event that one of the obligors should not perform his part. we have met with some circumstances of record which demonstrate the unequivocal determination of the petitioner to cancel their contract.... Civil Code). City of Manila vs. The fact that the contracting parties herein did not provide for resolution is now of no moment. del Rosario. be permitted to repudiate his representations. or. in the event of failure of the vendee to continue in the payment of the stipulated monthly installments. the petitioner cancelled the contract. which is conclusive in the absence of mistake (13 C. in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN QUEZON CITY. Lopez. Cleveland. in the letter of the Scotch law. Co. Cas. shortly after December 14. 206. 602. Co. in clear terms. et al. 52 Phil. 14 Phil.. 301. 41 Phil.) As a consequence of the resolution. 41 Phil. 523. L-28602 September 29. the court may not read into it any other which would contradict its plain import. 49 Phil. such obligations are governed by article 1124 of the Civil Code which declares that the power to resolve. computed from the date of the institution of the action. vs. Siguenza. supra) which can be approximated only by ordering.) The writ prayed for is hereby denied. when the text of the instrument is explicit and leaves no doubt as to its intention. or occupy inconsistent positions. & C. Bibaño & Beramo. for the reason that the obligations arising from the contract of sale being reciprocal. where. with their fruits and of the price.) Upon the other hand. Po Pauco vs. of the petitioner that it has the right to forfeit said sums in its favor is untenable. to retain the amounts paid to him on account of the purchase price.from the language therein employed. cannot avail himself of the other remedy of exacting performance. advised the respondent that he has been relieved of his obligations thereunder. however. page 673. Bennet & Provincial Board of Cavite. the return of the things which were the object of the contract. and the petitioner in this case. Siguenza. 1933 (Exhibit F-2) and April 10. respondents. 524. as far as practicable. he may choose between demanding the fulfillment of the contract or its resolution. contains no provision authorizing the vendor.V. is implied.J. These remedies are alternative and not cumulative. 1970 UNIVERSITY OF THE PHILIPPINES. Cortez vs. and led said respondent to believe it so and act upon such belief. may not be resolved by the mere act of the petitioner. 1932. Rizal Park Co. Under article 1124 of the Civil Code. the petitioner may not be allowed. Fed.099. Edaño. to "approbate and reprobate. Chua Jamco. . in any litigation the course of litigation or in dealings in nais. Cui. The proposition that the intention of the writer. in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court). as in this case." (Bigelow on Estoppel. The claim. 6 Phil. with its interest (article 1295. 41 Phil. (Osorio & Tirona vs. and (3) the letters of January 10. 1932.) The contract of sale. WALFRIDO DE LOS ANGELES. 404. (Mateos vs. therefore. vs. 801. the intention to cancel first announced by petitioner since December 14. So ordered.R. 14.. in the absence of a stipulation permitting its cancellation. to their original situation (Po Pauco vs. Yap Unki vs. 1935 (Exhibit G) reiterate.. having to cancel the contract. No. 46 Phil. (Verceluz vs. contract SJ-639. the parties should be restored. being a bilateral agreement.. (2) his failure to demand from the respondent the balance of the account after the mailing of the disputed letter.. Toppan v. shall prevail over the literal sense of the words employed is not absolute and should be deemed secondary to and limited by the primary rule that.R. as we do now. 515). Sun Chan. G. It is next argued that contract SJ-639.

xxx xxx xxx 5. UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority.L. and which stipulated the following: 3. Clara Lumber Company. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document. that ALUMCO cut and removed timber therefrom but. 9435. collect and remove timber from the Land Grant. 1960 as rescinded without the necessity of any judicial suit. In the event that the payments called for in Nos. the second order. as of 8 December 1964. a writ of preliminary injunction against the enforcement or implementation of the three (3) questioned orders was issued by this Court. issued in its Civil Case No. The petition alleged the following: That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP. Inc. are sought to be annulled in this petition for certiorari and prohibition. ALUMCO executed an instrument. J. to be operated and developed for the purpose of raising additional income for its support. Amores and Special Counsel Perfecto V. Quisumbing for private respondents. per its resolution on 9 February 1968. Fernandez for petitioner. Barredo.94. That on or about 2 November 1960. to cut. denied reconsideration of the order of contempt.B. despite repeated demands. an institution of higher learning. forest fees. adjudged UP in contempt of court. (or ALUMCO). dated 14 January 1967.362. dated 12 December 1967.. in consideration of payment to UP of royalties. the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30. entitled "Acknowledgment of Debt and Proposed Manner of Payments. The first order. pursuant to Act 3608. that after it had received notice that UP would rescind or terminate the logging agreement. filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company. and directed Sta. REYES. 1965. the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2. to refrain from exercising logging rights or conducting logging operations on the concession. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR. for a period starting from the date of the agreement to 31 December 1965." dated 9 December 1964. situated at the Lubayat areas in the provinces of Laguna and Quezon. Solicitor Augusto M. and the third order. Norberto J. etc. dated 25 February 1966. extendible for a further period of five (5) years by mutual agreement.. and . it had incurred an unpaid account of P219. it had failed to pay. which.Office of the Solicitor General Antonio P.: Three (3) orders of the Court of First Instance of Rizal (Quezon City). which was approved by the president of UP. J. Inc. As prayed for in the petition. enjoined UP from awarding logging rights over its timber concession (or Land Grant).

382. considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. and which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments". petitioner UP informed respondent ALUMCO that it had. and the concession was awarded to Sta. as it had alleged in its second amended answer to the complaint in Civil Case No. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation... That UP received the order of 25 February 1966 after it had concluded its contract with Sta. It reiterated. on motion dated 12 April 1966 by ALUMCO and one Jose Rico. anyway. That on 19 July 1965. Inc.. UP filed a complaint against ALUMCO.00) by way of and for liquidated damages. it prayed for and obtained an order. respondent judge issued the first of the questioned orders. for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. in addition to the indebtedness that it had previously acknowledged. in an order dated 14 January 1967. That. to refrain from exercising logging rights or conducting logging operations in the concession. dated 30 September 1965. that it failed to pursue the manner of payments.74. therefore.not seven (7) years. respondent corrected itself by stating that the period of the logging agreement is five (5) years . Clara Lumber Company. the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50. respondent ALUMCO did not deny the foregoing allegations in the petition. on 25 February 1966. and said company had started logging operations. together with other allegations. In its answer. ALUMCO continued its logging operations. Inc. the logging contract was signed on 16 February 1966. which purpose. Clara Lumber Company. however. The UP moved for reconsideration of the aforesaid order. but again incurred an unpaid account. 9435 of the Court of First Instance of Rizal (Quezon City).. Except that it denied knowledge of the purpose of the Land Grant. That. which maybe boiled down to: blaming its former general manager. Inc. under its contract "to buy and sell" with said firm. ALUMCO filed a petition to enjoin petitioner University from conducting the bidding. that bidding was conducted. the court. ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court. its defenses in the court below. Inc.94. for the period from 9 December 1964 to 15 July 1965. Cesar Guy. without a court order. that UP's unilateral rescission of the logging contract. on 27 November 1965. as stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" because the logs that it had cut turned out to be rotten and could not be sold to Sta. enjoining UP from awarding logging rights over the concession to any other party. which was docketed as Civil Case No. in the same order. directed Sta. in not turning over management of ALUMCO. as of that date. Clara Lumber Company.133. is embodied in Act 3608 and. thereby rendering it unable to pay the sum of P219. but the motion was denied on 12 December 1967. in the amount of P61. conclusively known.000. and. declared petitioner UP in contempt of court and. and on 7 September 1965. That on 12 November 1965. meantime. it filed a second petition for preliminary injunction. Clara Lumber Company. for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified. . 9435. by advertising an invitation to bid.

upon default by the debtor ALUMCO. and bring the matter to court. If the other party denies that rescission is justified. In the first place. We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation. In other words. and in connection with Article 1191 of the Civil Code. it is free to resort to judicial action in its own behalf. without previous court action. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. It is in this sense that judicial action will be necessary.1 since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. estoppel or prescription." As to such special stipulation. We find that position untenable. it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional.. the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code. being ever subject to scrutiny and review by the proper court. Then. that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut during the management of Cesar Guy be first sold.. that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.was invalid. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect. 12 SCRA 276: there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof. L- 11897. even without court intervention. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.P. and the consequent indemnity awarded to the party prejudiced. after due hearing.P. the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit. Otherwise. and act accordingly. in issuing the injunction order of 25 February 1966. In other words. UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that. the resolution will be affirmed. should the court. but it proceeds at its own risk. decide that the resolution of the contract was not warranted. Pan Oriental Shipping Co. 31 October 1964. Article 2203). can treat its contract with ALUMCO rescinded. as without it. the extrajudicial resolution will remain contestable and subject to judicial invalidation. that it had made several offers to petitioner for respondent to resume logging operations but respondent received no reply. Respondent ALUMCO contended. apparently sustained it (although the order expresses no specific findings in this regard). The basic issue in this case is whether petitioner U. the creditor (UP) has "the right and the power to consider. and the lower court. and may disregard the same before any judicial pronouncement to that effect. in the contrary case. the party who deems the contract violated may consider it resolved or rescinded. et al. that respondent was permitted to cut logs in the middle of June 1965 but petitioner's supervisor stopped all logging operations on 15 July 1965. this Court stated in Froilan vs. it is not always necessary for the injured party to resort to court for rescission of the contract. the responsible party will be sentenced to damages. unless attack thereon should become barred by acquiescence. Of course. .

Code is practically a reproduction). o Por la declaracion de voluntad de la otra hecha extraprocesalmente. fundada en el incumplimiento por una de las partes de su respectiva prestacion. interpretado por la jurisprudencia de esta Sala. IV. claro es. a reserva. Civil Code Anno. una actitud o conducta persistente y rebelde de laadversa o la satisfaccion de lo pactado. de 4 Nov.. segun jurisprudencia de este Tribunal. que puede ejercitarse. it becomes plain that the acts of the court a quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the issues tendered by the parties. segun el art. (Sent. siempre quese acredite. 1959. y 2. even without express provision conferring the power of cancellation upon one contracting party. ya fuera de ella. 16 November 1956. 447). of 10 April 1929. a resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in court. 897). fides non est servanda. Padilla. por declaracion del acreedor. puedetener lugar con eficacia" 1. page 140) but. has repeatedly held that. Sup. Aranzadi. cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios realmente causados.Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v. that it is not denied that the respondent company had profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of Payment"). in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our own Civil. surge immediatamente despuesque la otra parte incumplio su deber. Civ. 1124 regula la resolucioncomo una "facultad" atribuida a la parte perjudicada por el incumplimiento del contrato. que habran de declarar. 3. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit. instead of the rescinder. 106 Jur. Civil Law. queda aquella sometida el examen y sancion de los Tribunale. recogido del Canonico. bien hecha la resolucion o por el contrario. el Art. 0 Por la demanda de la perjudicada. and the rotten condition of the logs in private respondent's pond. 1956. entre otras. the Supreme Court of Spain. la cual tiene derecho do opcion entre exigir el cumplimientoo la resolucion de lo convenido. such as the misconduct of its former manager Cesar Guy. In fact. que si la declaracion de resolucion hecha por una de las partes se impugna por la otra. no ajustada a Derecho. 1967 ed. 1958 y 22 Jun. 1. In the light of the foregoing principles. por el cual fragenti fidem. and repeatedly denied its motions to lift the injunction. (Sent. ademas. definitivo o irreformable lo impida. as already observed. si no es impugnada en juicio luego con exito. La resolucion de los contratos sinalagmaticos.124. TS of Spain. Footnote. facultad que. inspiradas por el principio del Derecho intermedio. de 12 mayo 1955 y 16 Nov.) (Emphasis supplied). that the excuses offered in the second amended answer. and considering that the complaint of petitioner University made out a prima facie case of breach of contract and defaults in payment by respondent ALUMCO. Jurisp. sin necesidad de una declaracion previa de los Tribunales. ya en la via judicial. a un hecho obstativo que de un modoabsoluto. Segun reiterada doctrina de esta Sala. to the extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging operations. and in subsequently refusing to dissolve the . of the Tr. El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso de que uno de los obligados no cumpliese lo que le incumbe. (Ss. of Spain. Vol. en definitiva. contenida en las Ss. in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error. and considering that whatever prejudice may be suffered by respondent ALUMCO is susceptibility of compensation in damages. which said respondent was in a better position to know when it executed the acknowledgment of indebtedness. do not constitute on their face sufficient excuse for non-payment.

WHEREFORE. and LAMBERTO AVELLANA. Zulueta is the registered owner of a residential house and lot situated within the Antonio Subdivision. and the case is pending therein. petitioner seeks to compel respondent Judge to assume appellate. granting the Associated Lumber Company's petition for injunction. 1964. starting with December. L-29360 January 30. 1964. J. petitioner. and to take possession also extra-judicially whatever personal properties may be found within the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations BUYER may have with OWNER. It was further stipulated: 12) That upon failure of the BUYER to fulfill any of the conditions herein stipulated. For the reason that the order finding the petitioner UP in contempt of court has open appealed to the Court of Appeals. 1982 JOSE C.00 and a monthly installment of P630. and the order of the respondent court of 25 February 1966. ZULUETA. No.000. G. must be set aside.000. petitioner Zulueta and private respondent Lamberto Avellana. HERMINIO MARIANO. all payments made by the BUYER to OWNER shall be deemed as rental payments without prejudice to OWNER's right to collect from BUYER whatever other monthly installments and other money obligations which may have been paid until BUYER vacates the aforesaid premises.00 payable in advance before the 5th day of the corresponding month. Lamberto Avellana). MELENCIO-HERRERA. BUYER automatically and irrevocably authorizes OWNER to recover extra-judicially. therefore. 1190 entitled Jose C.: In this action for mandamus and Prohibition. Zulueta vs. On November 6.R. since appeal was not available or adequate. vs. and this contract shall be considered as without force and effect also from said date. HON.00 payable in twenty years with respondent buyer assuming to pay a down payment of P5. Such injunction. correctible by certiorari. is hereby set aside. and to issue a Writ of Execution in said case. Let the records be remanded for further proceedings conformably to this opinion. not original jurisdiction over an Ejectment case appealed from the Municipal Court of Pasig (CC No. entered into a "Contract to Sell" the aforementioned property for P75. Pasig.injunction. the writ of certiorari applied for is granted. upon his failure to comply with any of the . this Court abstains from making any pronouncement thereon. Rizal. respondents. The antecedental facts follow: Petitioner Jose C. in his capacity as Presiding Judge of Branch X of the Court of First Instance of Rizal. building and other improvements which are the subject of this contract. physical possession of the land. were in grave abuse of discretion. a movie director.

commenced an Ejectment suit against respondent before the Municipal Court of Pasig (CC No.093. according to their understanding. and attorney's fees. that who of the contending parties has the better right to possession of the properly in question.30 representing respondent's balance owing as of May. said indebtedness is only a claim still debatable and controversial and not a final judgment.629. and that thereby the contract was converted into one of lease.00 as monthly rental from and after May.751.matter of a separate action against. The counterclaim was dismissed by the Municipal Court for being in an amount beyond its jurisdiction. Respondent Avellana occupied the property from December. The issue in this case being that of possession.00 representing the cost of two movies respondent made for petitioner and used by the latter in his political campaign in 1964 when petitioner ran for Congressman. that prior to the execution of the contract to sell. BUYER shall not remove his personal properties without the previous written consent of OWNER.99 representing petitioner's pleaded indebtedness to private respondent. plaintiff Jose C. 1964. petitioner was already indebted to him in the sum of P31. 'It is our considered opinion that to admit and to allow such a defense would be tantamount to prejuding . who. demand is waived. As it is. private respondent sought to offset the sum of P31. and costs. petitioner. building and other improvements which are the subject of this Contract. Upon the allegation that respondent Avellana had failed to comply with the monthly amortizations stipulated in the contract. 1190). Respondent controverted by contending that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract. has no place as a defense here.269. 1967 until delivery of possession of that premises to petitioner.269. would be applied as down payment for the property and to whatever obligations respondent had with petitioner. Respondent's total counterclaim against petitioner was in the amount of P42.00 indebtedness. It should be the subject.269. claim for moral damages. as well as the cost of one 16 millimeter projector petitioner borrowed from respondent and which had never been returned. but title remained with petitioner Zulueta. which amounts. 1967.88 representing arrearages as of April.00 every month after May. should he take possession of such properties following the aforesaid failure of BUYER. The latter strongly denied such an understanding. praying that judgment be rendered ordering respondent 1) to vacate the premises. on June 22. However. the Municipal Court found that respondent Avellana had failed to comply with his financial obligations under the contract and ordered him to vacate the premises and deliver possession thereof to petitioner. 1967. 1966. as a special defense. and P630. in all cases herein. to pay petitioner the sum of P21. herein conditions BUYER forfeits all money claims against OWNER and shall pay a monthly rental equivalent to his monthly installment under Condition 1 of this Contract from the date of the said failure to the date of recovery of physical possession by OWNER of the land. the claim of defendant against plaintiff or P 31. despite demands to pay and to vacate the premises. That conclusion was premised on title finding that breach of any of the conditions by private respondent converted the agreement into a lease contractual and upon the following considerations: The question involved herein is that of possession. 2) to pay petitioner the sum of P11. 1966. shall return the same to BUYER only after the latter shall have fulfilled all money claims against him by OWNER. Deciding the case on May 10. 1966. 3) to pay petitioner the sum of P 630. Zulueta.00 against his obligations to petitioner.

while standing pat on its Order dismissing this case for lack of jurisdiction of the lower court over the subject matter. the claim on its merits prematurely in favor of defendant. hereby takes cognizance of the case and will try the case as if it has been filed originally in this Court. Thereat. there is no showing that before filing this case in the lower court. within its exclusive original jurisdiction. petitioner had alleged violation by respondent Avellana of the stipulations of their agreement to sell and thus unilaterally considered the contract rescinded. which the latter denied. In his Complaint.m. Respondent Avellana appealed to the Court of First Instance of Rizal presided by respondent Judge. the plaintiff has exercised or has pursued his right pursuant to the contract which should be the basis of the action in the lower court. inasmuch as the defense set up in his Answer was that he had not breached his contract with petitioner. Respondent Avellana denied any breach on his part and argued that the principal issue was one of interpretation and/or rescission of the contract as well as of set-off. the Court. or one for rescission or annulment of a contract. This court can not do without violating some rules of law. It is the contention of the defendant that the lower court had no jurisdiction to entertain the case as the same involves the interpretation of contract as to whether or not the same has been converted to lease contract. Although the contract to sell object of this case states that the same may be converted into a lease contract upon the failure of the defendant to pay the amortization of the property in question. explaining: The decision of the lower court declared said Contract to Sell to have been converted into a contract of lease. Petitioner opposed claiming that the Complaint had set out a clear case of unlawful detainer considering that judicial action for the rescission of the contract was unnecessary due to the automatic rescission clause therein and the fact that petitioner had cancelled said contract so that respondent's right to remain in the premises had ceased. Petitioner then availed of the instant recourse. let this case be set for pre-trial on July 12. 1968. Petitioner's Motion for Reconsideration was denied by respondent Judge as follows: The plaintiff having filed a motion for reconsideration of this Court's Order dismissing the appeal. On March 21. proof of violation is a . we uphold the ruling of respondent Judge that the Municipal Court of Pasig was bereft of jurisdiction to take cognizance of the case filed before it. therefore. Was the action before the Municipal Court of Pasig essentially for detainer and. 1968. respondent Judge dismissed the case on the ground of lack of jurisdiction of the Municipal Court. which should be litigated before a Court of First Instance? Upon a review of the attendant circumstances. On February 19. therefore. WHEREFORE. with notice to an parties. respondent Avellana filed a Motion to Dismiss Appeal alleging that. Respondent Judge held resolution thereof in abeyance. Under those circumstances. beyond the jurisdiction of the Municipal Court. 1968 at 8:30 a. the case necessarily involved the interpretation and/or rescission of the contract and. petitioner summoned for execution alleging private respondent's failure to deposit in accordance the monthly rentals. This is not the proper court and this is not the proper case in which to ventilate the claim.

unless the parties agree to the exercise by the CFI of its original jurisdiction to try the case on the merits. but it certainly cannot declare and hold that the contract is resolved or rescinded. to render unlawful the possession of the land or building erected thereon by the party who has violated the contract. however. An allegation of such violation in a detainer suit may be proved by competent evidence. 2 Where it is objected to. the Court of First Instance may try the case on the merits. 4 The foregoing premises considered. the contract between the parties provided for extrajudicial rescission. This has legal effect. A violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle the other party to resolved or rescind it. . in the face of the objection interposed by petitioner. the only authority of the CFI is to declare the inferior court to have acted without jurisdiction and dismiss the case. Rule 40. he erred in assuming original jurisdiction. therefore. It is only when the violation has been established that the contract can be declared resolved or rescinded. Section 11. And if proved a justice of the peace court might make a finding to that effect. petitioner's prayer for a Writ of Execution of the judgment of the Municipal Court of Pasig must perforce be denied. If an inferior court tries a case without jurisdiction over the subject-matter on appeal.. hinges a pronouncement that possession of the realty has become unlawful. 3 But while respondent Judge correctly ruled that the Municipal Court had no jurisdiction over the case and correctly dismissed the appeal. No costs. A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and' determination. a condition precedent to such resolution or rescission. . 10595 in the exercise of its original jurisdiction. Lack of jurisdiction —A case tried by an inferior court without jurisdiction over the subject matter shall be dismiss on appeal by the Court of First Instance.. if the parties therein file their pleadings and go to trial without any objection to such jurisdiction. which is beyond the jurisdiction of the Municipal Court to hear and determine. it follows that an allegation and proof of such violation.condition precedent to resolution or rescission. SO ORDERED. Upon such rescission. but the Writ of Prohibition is granted and respondent Court hereby permanently enjoined from taking cognizance of Civil Case No. It is beyond its power so to do. But instead of dismissing the case. 1 True. There was no other recourse left for respondent Judge. in turn. WHEREFORE. cannot be taken cognizance of by a justice of the peace court. a judicial determination of the issue is still necessary. where the other party does not oppose it. Thus. the basic issue is not possession but one of rescission or annulment of a contract. leaves no room for doubt on this point: Section 11. except to dismiss the appeal. the Writ of mandamus is denied. And as the illegality of the possession of realty by a party to a contract to sell is premised upon the resolution of the contract.

1983 PALAY. dated May 2. and owned by said corporation. 1459.42 until fully paid. No. He followed this up with another letter dated June 20. MELENCIO-HERRERA. Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and NAZARIO DUMPIT respondents. 1980. finding the rescission void in the absence of either judicial or notarial demand. JACOBO C.722. dated July 10. On May 10. directing petitioners Palay. are being assailed in this petition. 1979 in Case No. issued by Presidential Executive Assistant Jacobo Clave in O.722. a Contract to Sell a parcel of Land (Lot No.00 with 9% interest per annum. Nazario Dumpit. Rizal. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month. 1965. Inc. CLAVE. through its President. Respondent Dumpit paid the downpayment and several installments amounting to P13.covered by TCT No. 1980. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract. to refund to private respondent. . 2167). the amount of P13. private respondent wrote petitioner offering to update all his overdue accounts with interest. 1979. 1 On appeal to the Office of the President. 8. On March 28.50 with 12% interest per annum. 2167. and Alberto Onstott in his capacity as President of the corporation. and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. the NHA.R. Wilfredo E.660. vs. Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23. respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. 90454. Case No. L-56076 September 21. Inc.. and that the lot had already been resold. The last payment was made on December 5. ordered Palay.00 and monthly installments of P246.G. Case No. In a Resolution. as resolved by the National Housing Authority in its Resolution of July 10. and ALBERT ONSTOTT. to refund immediately to Nazario Dumpit the amount of P13. Block IV) of the Crestview Heights Subdivision in Antipolo. INC. on May 2. and Alberto Onstott jointly and severally. payable with a downpayment of P4.300.722. without need of notice and with forfeiture of all installments paid. petitioner. Albert Onstott executed in favor of private respondent.P. with an area of 1. respondent Presidential Executive Assistant. 1967 for installments up to September 1967. J. 1979. affirmed . as well as the Resolution of October 28. Santos. The sale price was P23. 1973 reiterating the same request.P. Calcetas-Santos & Geronimo Law Office for petitioner. 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2. upon the allegation that the NHA Resolution was contrary to law (O.50.: The Resolution. Nazario Dumpit.50 with 12% interest from the filing of the complaint on November 8. Inc. 1980.165 square meters. 1974. petitioner Palay. or almost six (6) years later. Questioning the validity of the rescission of the contract. 1459). 1973. jointly and severally. Dizon for private respondent.

may be dispensed with by stipulation in a contract to sell. petitioners maintain that it was justified in cancelling the contract to sell without prior notice or demand upon respondent in view of paragraph 6 thereof which provides- 6. Dumpit. and as a consequence thereof. 1981. the present petition wherein the following issues are raised: I Whether notice or demand is not mandatory under the circumstances and. On October 28. the SELLER shall have the right to declare this contract cancelled and of no effect without notice. On the first issue. Thus. II Whether petitioners may be held liable for the refund of the installment payments made by respondent Nazario M.the Resolution of the NHA. Dumpit thereby denying substantial justice to the petitioners. In case of such cancellation of this Contract. we dismissed the petition but upon petitioners' motion. That in case the BUYER falls to satisfy any monthly installment or any other payments herein agreed upon. particularly petitioner Onstott We issued a Temporary Restraining Order on Feb 11. therefore. III Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar. the SELLER may dispose of the lot/lots covered by this Contract in favor of other persons. an interest of ten (10%) per cent per annum shall be charged on the amounts the BUYER should have paid. Reconsideration sought by petitioners was denied for lack of merit. together with all the improvements made on the premises. all the amounts which may have been paid by the BUYER in accordance with the agreement. shall be considered as rents paid for the use and occupation of the above mentioned . that should the month of grace herein granted to the BUYER expire. the BUYER shall be granted a month of grace within which to make the payment of the t in arrears together with the one corresponding to the said month of grace. 1982. 1980. IV Whether respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the decision of respondent NHA holding petitioners solidarily liable for the refund of the installment payments made by respondent Nazario M. that should a period of NINETY (90) DAYS elapse to begin from the expiration of the month of grace hereinbefore mentioned. reconsidered the dismissal and gave due course to the petition on March 15. -It shall be understood. and the BUYER shall not have paid all the amounts that the BUYER should have paid with the corresponding interest up to the date. however. without the payment & corresponding to both months having been satisfied. it is understood further. 1981 enjoining the enforcement of the questioned Resolutions and of the Writ of Execution that had been issued on December 2. as if this contract had never been entered into.

without previous court action.. vs. and the consequent indemnity awarded to the party prejudiced. estoppel or prescription. If the other party denies that rescission is justified it is free to resort to judicial action in its own behalf.Then. and act accordingly. the resolution will be affirmed. Vol. Well settled is the rule. 37 Phil. in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error. Civil Code Anno. We quote the pertinent excerpt: Of course. instead of the rescinder (Emphasis supplied). it must be understood that the act of a party in treating a contract as cancelled or resolved in account of infractions by the other contracting party must be made known to the other and is always provisional being ever subject to scrutiny and review by the proper court. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit. in the contrary case. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. should the court. 84 Phil 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. International Banking Corp. IV.. We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation (Ocejo Perez & Co. Walfrido de los Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. 631. Padilla Civil Law. and bring the matter to court. In other words. . the extrajudicial resolution will remain contestable and subject to judicial invalidation unless attack thereon should become barred by acquiescense. as held in previous jurisprudence. decide that the resolution of the contract was not warranted. the party who deems the contract violated may consider it resolved or rescinded. the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code. Article 2203). However. Footnote. Hospital de San Juan De Dios. et al. 2 that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. after due hearing. as already observed. Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v.. but it proceeds at its own risk. 1967 ed.. there was at least a written notice sent to the defaulter informing him of the rescission. the responsible party will be sentenced to damages. even in the cited cases. As stressed in University of the Philippines vs. as without it. It is in this sense that judicial action win be necessary. Republic vs. page 140) but. Otherwise. premises and for liquidated damages suffered by virtue of the failure of the BUYER to fulfill his part of this agreement : and the BUYER hereby renounces his right to demand or reclaim the return of the same and further obligates peacefully to vacate the premises and deliver the same to the SELLER.

Rescission creates the obligation to return the things which were the object of the contract." However. together with their fruits. resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. reading: A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex propio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and determination. and private respondent had no freedom to stipulate. It is now for the Court to determine whether resolution of the contract by petitioners was warranted..Of similar import is the ruling in Nera vs. This was reiterated in Zulueta vs. We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments.P. . supra Petitioner relies on Torralba vs. 1385. 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments. such waiver follows only where liberty of choice has been fully accorded. De los Angeles 8 where it was held that "there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments. 7 In this case. it shall be subject to judicial determination. A waiver must be certain and unequivocal. If the debtor impugns the declaration. 9 Moreover. and intelligently made. as held in the U. Article 1385 of the Civil Code provides: ART. (Emphasis supplied)." which took effect on September 14. The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it was a contract of adhesion. Regarding the second issue on refund of the installment payments made by private respondent. 1972. when it specifically provided: Sec. it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. and the price with its interest.6 Where it is objected to. Angeles case. Vacante 4 . the contract between the parties was deemed ipso facto rescinded. Mariano 5 where we held that extrajudicial rescission has legal effect where the other party does not oppose it.. the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. a judicial determination of the issue is still necessary. private respondent has denied that rescission is justified and has resorted to judicial action. In other words. it should be noted that even in that case notice in writing was made to the vendee of the cancellation and annulment of the contract although the contract entitled the seller to immediate repossessing of the land upon default by the buyer. 3(b) . a standard form of petitioner corporation. vs.

He cannot. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen as from that of any other legal entity to which it may be related. consequently. a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. justify wrong. a modification of the Resolution under review is called for. 14 . be made personally liable just because he "appears to be the controlling stockholder". the questioned Resolution of respondent public official.R. 1974. Dumpit the amount of P13. or to perpetuate fraud or confuse legitimate issues 15 . In this case. therefore. Inc. albeit mistakenly. the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice 12 . L-42283 March 18. WHEREFORE. the date of the filing of the Complaint. We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was made jointly and severally liable with petitioner corporation for refund to private respondent of the total amount the latter had paid to petitioner company. considering that the property had already been sold to a third person and there is no evidence on record that other lots are still available. indemnity for damages may be demanded from the person causing the loss. 10 It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another. 18 In this respect then. SO ORDERED. with interest at twelve (12%) percent per annum from November 8. 1980. G. However. No. is directed to refund to respondent Nazario M. adjunct or business conduit for the sole benefit of the stockholders. rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. However. or to defeat public convenience. As a consequence of the resolution by petitioners. petitioner Onstott was made liable because he was then the President of the corporation and he a to be the controlling stockholder. or for purposes that could not have been intended by the law that created it 13 . 11 As a general rule. 1985 . dated May 2.722. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. They had literally relied. In this case. Neither sham rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. or to circumvent the law or perpetuate deception 16. protect fraud. 17 We find no badges of fraud on petitioners' part. on paragraph 6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person.50. Petitioner Palay. is hereby modified. Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. or as an alter ego. No costs. or defend crime. The temporary Restraining Order heretofore issued is hereby lifted.

vs. when their aggregate payment already amounted to P4.. The facts being undisputed. thereby constraining the defendants-appellants to cancel the said contract. Seventh Judicial District. On January 28. Rizal for the amount of P3. based on the foregoing considerations. the defendants-appellants cancelled the said contract because the plaintiffs- appellees failed to meet subsequent payments. On December 7.. 1967.533. On December 19.920.BUENAVENTURA ANGELES.00 upon the execution of the contract.38. Branch X. plaintiffs-appellees. the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees.. 1957.00 attorney's fees and costs.00 plus 7% interest per annum. On numerous occasions. the Court hereby renders judgment in favor of the plaintiffs and against the defendants declaring that the . The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants.533. JR.38 including interests. The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August. 8943 with the Court of First Instance of Rizal. The plaintiffs-appellees filed Civil Case No. The plaintiffs-appellees made a downpayment of P392. ET AL. The dispositive portion of the decision reads: WHEREFORE. 1966 for more than five (5) months. ET AL. defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta. realty taxes and incidental expenses for the registration and transfer of the land. declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees.: This is an appeal from the decision of the Court of First Instance of Rizal. The lower court rendered judgment in favor of the plaintiffs-appellees. to pay P500. Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question. They promised to pay the balance in monthly installments of P 41. URSULA TORRES CALASANZ. The plaintiffs-appellees paid the monthly installments until July 1966. they found out that they have already paid the total amount of P4.20 until fully paid. the installments being due and payable on the 19th day of each month. the Court of Appeals certified the case to us since only pure questions of law have been raised for appellate review. GUTIERREZ. J. 1966. the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts. defendants-appellants. Seventh Judicial District.

he is granted a month of grace within which to make the retarded payment. the party of the FIRST PART has the right to declare this contract cancelled and of no effect. it is understood further. Consequently. to begin from the expiration of the month of grace herein mentioned. The defendants-appellants assigned the following alleged errors of the lower court: First Assignment of Error THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED. and the party of SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date. Third Assignment of Error THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF P500. however. Second Assignment of Error EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED.00 by way of attorney's fees. THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF. that should a period of 90 days elapse. Costs against the defendants. as if this contract . and as consequence thereof. without the payments corresponding to both months having been satisfied. the party of the FIRST PART may dispose of the parcel of land covered by this contract in favor of other persons. an interest of 10% per annum will be charged on the amounts he should have paid. A motion for reconsideration filed by the defendants-appellants was denied. As earlier stated.—In case the party of the SECOND PART fails to satisfy any monthly installments. it is understood. or any other payments herein agreed upon. the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P500. together with the one corresponding to the said month of grace. The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract which provides: xxx xxx xxx SIXTH. The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the defendants-appellants. the then Court of Appeals certified the case to us considering that the appeal involves pure questions of law.00 AS ATTORNEY'S FEES. contract subject matter of the instant case was NOT VALIDLY cancelled by the defendants. that should the month of grace herein granted to the party of the SECOND PART expired.

R. . Capitol Subdivision (G. He may also seek rescission. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. had never been entered into. they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines. The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. because it granted the sellers an absolute and automatic right of rescission. and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of the agreement. and cases cited therein) Resort to judicial action for rescission is obviously not contemplated . 12 SCRA 276)— Well settled is. et al. however. all the amounts paid in accordance with this agreement together with all the improvements made on the premises. 1966 installment despite demands for more than four (4) months. xxx xxx xxx Article 1191 is explicit. 1955) where this Court upheld the right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The validity of the stipulation can not be seriously disputed. Pan Oriental Shipping. the sellers have the right to declare the contract cancelled and of no effect. The injured party may choose between the fulfillment and the rescission of the obligation. shall be considered as rents paid for the use and occupation of the above mentioned premises. (Emphasis supplied by appellant) xxx xxx xxx The defendants-appellants argue that the plaintiffs-appellees failed to pay the August. Commissioner of Customs. (Ponce Enrile v. if the latter should become impossible. even after he has chosen fulfillment.. with the payment of damages in either case. February 28. They state that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms. In reciprocal obligations. the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v. . In case of such cancellation of the contract. Moreover.. either party the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. Article 1191 of the Civil Code on the rescission of reciprocal obligations provides: The power to rescind obligations is implied in reciprocal ones. Court of Appeals. in case one of the obligors should not comply with what is incumbent upon him. No. . The defendants-appellants also argue that even in the absence of the aforequoted provision. Co. L-6573. 37 SCRA 327. and the party of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART. The defendants-appellants point to Jocson v. 29 SCRA 504). there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v.

L-23707 & L-23720. International Banking Corp. being ever subject to scrutiny and review by the proper court. Republic v. as follows: . 37 Phil. Hospital de San Juan de Dios. was qualified by this Court in University of the Philippines v. In Universal Food Corp. it is free to resort to judicial action in its own behalf. v. but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3. the resolution will be affirmed. without previous court action. v. The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides: SECOND. as without it. et al.The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions. 47 Phil. after due hearing. Jan. Court of Appeals (33 SCRA 1) the Court stated that— The general rule is that rescission of a contract will not be permitted for a slight or casual breach. (Corpus v. and bring the matter to court. Alikpala. 631. the extrajudicial resolution will remain contestable and subject to judicial invalidation. plus interest at the rate of 7% per annum. 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. Then. 1968). . For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional. Philippine Currency. Hon. 17.00)... If the other party denies that rescission is justified. in the contrary case. therefore. estoppel or prescription.. 821. the responsible party will be sentenced to damages..—That in consideration of the agreement of sale of the above described property. 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. It is in this sense that judicial action will be necessary. the party who deems the contract violated many consider it resolved or rescinded. ... (35 SCRA 102) where we explained that: Of course. decide that the resolution of the contract was not warranted. . et al. and the consequent indemnity awarded to the party prejudiced. The right to rescind the contract for non-performance of one of its stipulations. (Ocejo. We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation. (Song Fo & Co. In other words..920. is not absolute. Perez & Co. and act accordingly. unless attack thereon should become barred by acquiescence. Hawaiian- Philippine Co. De los Angeles.. but it proceeds at its own risk. 84 Phil. v. . should the court.

despite demand. The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely once.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART. v. in case of default or non-compliance by the party of the SECOND PART. We agree with the observation of the lower court to the effect that: Although the primary object of selling subdivided lots is business. it cannot be denied that this subdivision is likewise purposely done to afford those landless. The defendants-appellants cannot rely on paragraph 9 of the contract which provides: NINTH. In other words. should not be interpreted as a renunciation on the part of the party of the FIRST PART of any right granted it by this contract. low income group people of realizing their dream of a little parcel of land which they can really call their own. Inc. have accepted and received delayed payments of installments. including interest.M.533. the entire obligation would have been paid. Tuazon and Co. We agree with the plaintiffs-appellees that when the defendants-appellants. also militates against the unilateral act of the defendants-appellants in cancelling the contract. though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract. (See J. as well as any other condonation that the party of the FIRST PART may give to the party of the SECOND PART with regards to the obligations of the latter. instead of availing of their alleged right to rescind. from this date until the total payment of the price above stipulated.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. although the principal obligation was only P 3. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs. Javier. but for as many times as he wishes.38. yet. for more than four (4) months. the defendants-appellants have . Furthermore. as not exacting a strict compliance with the conditions of paragraph 6 of this contract.appellees had already paid an aggregate amount of P 4. The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392. because they failed to pay the August installment. Article 1234 of the Civil Code which provides that: If the obligation has been substantially performed in good faith. 31 SCRA 829) It would unjustly enrich the defendants-appellants. (a) The amount of THREE HUNDRED NINETY TWO only (P392. the plaintiffs..appellees.920. in only a short time.00) when this contract is signed. the obligor may recover as though there had been a strict and complete fulfillment. less damages suffered by the obligee. The defendants-appellants' contention is without merit.00 excluding the 7 percent interests. and (b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of each month.

. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendants-appellants rely on paragraph 2 of the contract which provides: SECOND. Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of adhesion. . It was offered to them on a "take it or leave it" basis. that au the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND PART. Philippine Currency.00). even took steps to cancel the option or to eject the appellees from the home-lot in question. it is admitted that the delayed payments were received without protest or qualification.00. We cannot but agree with the lower court that at the time appellees exercised their option. as above stated. the party to the FIRST PART will execute in favor of the party of the SECOND PART..67 due from the plaintiffs-appellees.920.. the defendants-appellants must now be compelled to execute the final deed of sale pursuant to paragraph 12 of the contract which provides: TWELFTH. affixed their signatures and assented to the terms and conditions of the contract.920.38. v. however. They had no opportunity to question nor change any of the terms of the agreement. . (Emphasis supplied) The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the defendants-appellants a total sum of P4. plus interest at the rate of 7% per annum . the necessary deed or deeds to transfer to the latter the title of the parcel of land sold. Inc. eager to acquire a lot upon which they could build a home. Under these circumstances. The plaintiffs-appellees. On the contrary. Teves (83 SCRA 36 1). The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671. it is understood. we held that: xxx xxx xxx But defendants do not deny that in spite of the long arrearages.—That in consideration of the agreement of sale of the above described property.waived and are now estopped from exercising their alleged right of rescission. neither they nor their predecessor. 1964 the full payment by appellees of all their arrearages. the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P 3. They submit that while it is true that the total monthly installments paid by the plaintiffs-appellees may have exceeded P3.00. We agree with the plaintiffs-appellees. appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the non-payment of six months rentals by appellees by their having accepted without qualification on July 21.—That once the payment of the sum of P3. Teodoro de Guzman. Guieb (48 SCRA 68). The defendants-appellants drafted and prepared the contract. free from all hens and encumbrances other than those expressly provided in this contract.533. the total price of the sale is completed.920. In Sweet Lines. a substantial portion of the said payments were applied to the interests since the contract specifically provides for a 7% interest per annum on the remaining balance. In De Guzman v. we held that: xxx xxx xxx ..

. V. Insurance contracts.00 price sale.R. stipulations in a contract come about after deliberate drafting by the parties thereto. and MANUEL NIETO. Inc. SR. there are certain contracts almost all the provisions of which have been drafted only by one party. LOPE SARREAL.533. because the only participation of the party is the signing of his signature or his "adhesion" thereto. defendants- appellees. it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the P3. in essence. RESOLUTION . Nieto. (Paras. . INC. The decision appealed from is AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671. Del Rosario & Associates for defendant-appellee M. plaintiffs-appellants. Such contracts are called contracts of adhesion. A. . JR. G. Naravasa & Pol Tiglao. No. Costs against the defendants-appellants. (W)hile generally. for defendant-appellee Interphil Promotions.67) without any interests. the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. L-22590 March 20. SO ORDERED. must be construed against the party causing it. usually a corporation.920.67 without any interest thereon... being a contract of adhesion. Seventh ed.. YULO. condemnable in its lopsidedness and injurious in its effect which.E..) (Emphasis supplied) While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3. .. JR. Jr. contracts of sale of lots on the installment plan fall into this category. Felipe Torres and Associates for plaintiffs-appellants. The attorney's fees are justified. bills of lading. Vol." Thus. WHEREFORE. p.38. 80. . The contract to sell.R. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same. and in its entirety is most unfair to the buyers. the defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. vs. Jr. after having invested a big amount of money.920. since the principal obligation under the contract is only P3. Civil Code of the Philippines..00 plus 7% interest per annum. 1987 SOLOMON BOYSAW and ALFREDO M. Upon payment of the balance of P671.00 and the plaintiffs-appellees have already paid an aggregate amount of P4.920. INTERPHIL PROMOTIONS. 1. are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology. the instant petition is DENIED for lack of merit. especially where such interpretation will help effect justice to buyers who.

Jr. Jr. signed with Interphil Promotions. 1961. Willie Ketchum. Yulo. The antecedent facts of the case are as follows: On May 1. represented by Lope Sarreal. On June 19..00 as moral damages aside from costs. On May 3. among others.000. and that Boysaw would not.00. 1961. P250.. U. and Lope Sarreal. Jr. Q-5063. broken down into P20. 1961. a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. the managerial rights over Boysaw that he earlier acquired from Ketchum and Ruskay. 1961. [pp. Branch V in Civil Case No. J. entitled "Solomon Boysaw and Alfredo M. On the same date. On July 2. Amado Araneta the managerial rights over Solomon Boysaw. assigned to J.s.00 as moral damages and P5. . 1961.000. Quezon City. 1961. Inc. a supplemental agreement on certain details not covered by the principal contract was entered into by Ketchum and Interphil. the additional amount of P20. Jr. of which he had not been formally notified. prior to the date of the boxing contest... informing him of his arrival and presence in the Philippines.: This is an appeal interposed by Solomon Boysaw and Alfredo Yulo. Sr. Jr. 1963]. Lope Sarreal..000. Nevada.. Alfredo Yulo. Solomon Boysaw and his then Manager.. the defendants-appellees Interphil Promotions.A. Boysaw wrote Lope Sarreal. On September 1.n. J. Yulo. 1961. to engage Boysaw in a title fight at the Rizal Memorial Stadium on September 30. Interphil signed Gabriel "Flash" Elorde to a similar agreement. that is. 1961. Ketchum on his own behalf and on behalf of his associate Frank Ruskay. September 2.00 as attorney's fees. Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las Vegas. Plaintiffs versus Interphil Promotions. session of March 14. 1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal. Jr. On September 5.72 as actual damages and P5. and defendant-appellee Lope Sarreal. 26-27. 1961.000..FERNAN. Sr. and Manuel Nieto.00 as attorney's fees. wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract of May 1. Sr. ordered them to jointly and severally pay defendant-appellee Manuel Nieto. Defendants. The next day. and requesting that Boysaw be called to an inquiry to clarify the situation. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30. Amado Araneta assigned to Alfredo J.S. t. Sr. Solomon Boysaw arrived in the Philippines on July 31. the total sum of P25. 1961.. Presumably in preparation for his engagement with Interphil." which. engage in any other such contest without the written consent of Interphil Promotions. Sr. Inc. Thereafter.369.000. P33. on behalf of Interphil Sarreal wrote a letter to the Games and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers in the case of Boysaw. Inc.000. 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon.00 as unrealized profits. Inc. from the decision dated July 25.

on October 12. the following principal issues can be deduced: . plaintiffs represented by a new counsel. therefore. Jr. Jr. When defendant's counsel was about to present their case. refused to accept the change in the fight date. Yulo informed Besa that he was willing to approve the fight date of November 4. From the errors assigned by the plaintiffs. 1963. a local boxing promoter. 1961. on May 13. Boysaw and Yulo. 1961. but was granted as regards the disqualification of Atty. Thus. hence. Since Boysaw was still abroad on the later date. Sr. sued Interphil. plaintiff Boysaw left the country without informing the court and. In one of such communications dated October 6. The case dragged into 1963 when sometime in the early part of said year. exchanged communications with one Mamerto Besa. plaintiff's counsel after asking the court's permission. 1963 trial. Early in October 1961. After the lower court rendered its judgment dismissing the plaintiffs' complaint. the fight contemplated in the May 1. aided and abetted by Nieto. Jr.1961. as having been committed by the lower court. The motion was denied. 1961. Jr. 1963. 1961 boxing contract never materialized. On the first scheduled date of trial. The USA National Boxing Association which has supervisory control of all world title fights approved the date set by the GAB Yulo. Jr. Jr. in the CFI of Rizal [Quezon City Branch] for damages allegedly occasioned by the refusal of Interphil and Sarreal. 1963 upon assurance of Boysaw's counsel that should Boysaw fail to appear on said date. he was scheduled to take the witness stand. filed an urgent motion for postponement of the July 23. Edu. 1961. Yulo. plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor General's Office and Atty. pleading anew Boysaw's inability to return to the country on time. 1963 with plaintiff's case being deemed submitted after the plaintiffs declined to submit documentary evidence when they had no other witnesses to present. then GAB Chairman. the plaintiffs moved for a new trial. While an Elorde-Boysaw fight was eventually staged. took no further part in the proceedings.1961 provided the same was promoted by Besa. On or about July 16. this appeal taken directly to this Court by reason of the amount involved. 1961. As a result of the foregoing occurrences. his counsel. 1963.The GAB called a series of conferences of the parties concerned culminating in the issuance of its decision to schedule the Elorde-Boysaw fight for November 4. He was still abroad when. on the ground that the latter had been sued in his personal capacity and. plaintiff's case would be deemed submitted on the evidence thus far presented.. the lower court reset the trial for June 20. for a possible promotion of the projected Elorde-Boysaw title bout. to honor their commitments under the boxing contract of May 1. The motion was denied insofar as Solicitor General Coquia was concerned. so was the motion for reconsideration filed by plaintiffs on July 22. and Manuel Nieto. Romeo Edu of the GAB Legal Department from appearing for defendant Nieto. 1961 which was within the 30- day period of allowable postponements provided in the principal boxing contract of May 1. was not entitled to be represented by government counsel. Sarreal. another postponement was granted by the lower court for July 23. as alleged. The motion was denied. maintaining his refusal even after Sarreal on September 26. 1963. The trial proceeded as scheduled on July 23. offered to advance the fight date to October 28.

Emphasis supplied]. Civil Code]. Appellant Yulo admitted this fact during the trial. in case one of the obligors should not comply with what is incumbent upon him. and those who in any manner contravene the terms thereof. who was guilty of such violation. Civil Code of the Philippines. 4. 1963]. are liable for damages. [Part 1. and in which each party is a debtor and a creditor of the other.s. without the approval or consent of Interphil. . Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach.1961. Whether or not there was a violation of the fight contract of May 1. 2. 1961. [Art. "Reciprocal obligations are those which arise from the same cause. of the managerial rights over Boysaw without the knowledge or consent of Interphil. 1. on the basis of the evidence adduced. Thus: Those who in the performance of their obligations are guilty of fraud.n. Another violation of the contract in question was the assignment and transfer. to November 4. erred in awarding the appellees damages of the character and amount stated in the decision. They are to be performed simultaneously. Whether or not the lower court erred in denying the appellant's motion for a new trial. On the issue pertaining to the violation of the May 1. or recover damages by reason of his own breach " [Seva vs. first to J. March 14. 3. Whether or not the lower court. to appellant Yulo. the evidence established that the contract was violated by appellant Boysaw himself when. IV. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant. Art. Whether or not there was legal ground for the postponement of the fight date from September 1. this does not grant any of the parties the unbridled liberty to breach it with impunity. p. While the contract imposed no penalty for such violation. 175. Also: The power to rescind obligations is implied. 1961 in Las Vegas Nevada. Whether or not the lower court erred in the refusing a postponement of the July 23. 1961. 26-27. 1963 trial. 1191. and if there was. Amado Araneta. [pp.. he fought Louis Avila on June 19.1 The power to rescind is given to the injured party. 1961 boxing contract. 5.. Alfredo Berwin 48 Phil. 1961 fight contract. There is no doubt that the contract in question gave rise to reciprocal obligations. such that the obligation of one is dependent upon the obligation of the other. as stipulated in the May 1. in reciprocal ones. 581. negligence or delay. Civil Code]. 1170. so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino. t. and subsequently. Vol. Jr.

In a show of accommodation. Novation which consists in substituting a new debtor in the place of the original one. appellees cannot be deemed to have consented to such changes. it is clear that the appellees. through a letter. the GAB did not act arbitrarily in acceding to the appellee's request to reset the fight date to November 4. the aggrieved creditor is not bound to deal with the substitute. acceded to the "substitution" by Yulo of the original principal obligor. and appellants' claims. That the appellees had the justification to renegotiate the original contract. the creditor should agree to accept the substitution in order that it may be binding on him.day limit of allowable postponements stipulated in the original boxing contract. with Interphil's letter to the GAB expressing concern over reported managerial changes and requesting for clarification on the matter. indispensable requirement . Jr. to the enforcement of the contract hung entirely upon the former's pleasure and sufferance. may be made even without the knowledge or against the will of the latter. The logical presumption can only be that. Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another. particularly the fight date is undeniable from the facts aforestated. There is no showing that Interphil. who is Ketchum. Civil Code. Not being reliably informed. instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute obligor Yulo. It must be noted that appellant Yulo had earlier agreed to abide by the GAB ruling. The consent of the creditor to the change of debtors. emphasis supplied]. if any. but such transfer is not consented to or approved by x. 1961 just to place it within the 30. the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable. Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor. were in fact novations of the original contract which. . Thus. That appellant Yulo. if y enters into a contract with z. and the prior acquisition of such rights by Araneta were done without the consent of Interphil. should have been consented to by Interphil.[Art. to be valid. they have forfeited any right to its enforcement. whether in expromision or delegacion is an. 1961 fight to October 28. Civil Code of the Philippines. in a contract where x is the creditor and y is the debtor. IV. 3611. the appellees offered to advance the November 4. Under the circumstances. From the evidence. together with the obligations thereunder. The refusal of appellants to accept a postponement without any other reason but the implementation of the terms of the original boxing contract entirely overlooks the fact that by virtue of the violations they have committed of the terms thereof. . 1293. . the appellees were not reliably informed of the changes of managers. under which he transfers to z all his rights under the first contract. X can still bring his action against y for performance of their contract or damages in case of breach. there is no novation. advised Interphil on September 5. and from Araneta to Yulo. [Tolentino. 1961 of his acquisition of the managerial rights over Boysaw cannot change the fact that such acquisition.The assignments.. We uphold the appellees' contention that since all the rights on the matter rested with the appellees. p. but not without the consent of the creditor. 1961. hence. really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. Vol. upon receipt of Yulo's letter. from Ketchum to Araneta.

On the validity of the fight postponement. . 17. 1963].n. such clearances might have impelled the Court to grant the postponement prayed for by them had they been presented on time. Such evidence cannot alter the result of the case even if admitted for they can only prove that Boysaw did not leave the country without notice to the court or his counsel. alone. it would alter the result of the judgment. Record on Appeal]. The alleged newly discovered evidence. the absence of evidence to the contrary. Appellant Yulo himself admitted that it was the GAB Board that set the questioned fight date. made the decision for postponement. That they sought to seek an adjustment of one particular covenant of the contract. the clearances are not even material to the issues raised.n.s. [pp. [pp. the lower court would have allowed the postponement of the trial. [pp. 1961 was a GAB Board decision and not of Manuel Nieto. The records do not support appellants' contention. it being convinced that Boysaw did not leave without notice to the court or to his counsel. within the appellee's rights. The question of the denial of the postponement sought for by counsel for plaintiffs is a moot issue . Anent the lower court's refusal to postpone the July 23..s. thereby arrogating to himself the prerogatives of the whole GAB Board. have altered the results of the case. On the denial of appellant's motion for a new trial. Jan. we find that the lower court did not commit any reversible error. The testimony of Boysaw cannot be considered newly discovered evidence for as appellees rightly contend. Jr. L-21506. 17. upon which the motion for new trial was made to rest. 1963]. The argument of appellants is that if the clearances were admitted to support the motion for a new trial. 296-297. it is their contention that only Manuel Nieto. 44-49. it must be stated that one of the strongest presumptions of law is that official duty has been regularly performed. In fact. We uphold the lower court's ruling that: The said documents [clearances] are not evidence to offset the evidence adduced during the hearing of the defendants. . . including the setting of dates thereof.R. Jan. warrants the full application of said presumption that the decision to set the Elorde-Boysaw fight on November 4. The denial of the petition for certiorari and prohibition filed by them. . is under the circumstances. then. suffice it to say that the same issue had been raised before Us by appellants in a petition for certiorari and prohibition docketed as G. No. consists merely of clearances which Boysaw secured from the clerk of court prior to his departure for abroad. The dismissal by the Court of said petition had laid this issue to rest. In this case. . It is the opinion of the Court that the 'newly discovered evidence' contemplated in Rule 37 of the Rules of Court. We find the argument without merit because it confuses the evidence of the clearances and the testimony of Boysaw. that if it were presented. Jr. is such kind of evidence which has reference to the merits of the case. t. 32-42. While the appellants concede to the GAB's authority to regulate boxing contests.. had he effect of sustaining such ruling of the court . t. the violations of the terms of the original contract by appellants vested the appellees with the right to rescind and repudiate such contract altogether. 1963 trial. Boysaw's testimony upon his return would. As admitted by the counsel in their pleadings. Also. such evidence has been in existence waiting only to be elicited from him by questioning. and appellants cannot now hope to resurrect the said issue in this appeal. of such a nature and kind.

26. rape or other lascivious acts.000. the appellants contend that a conclusion or finding based upon the uncorroborated testimony of a lone witness cannot be sufficient. 3) Seduction. the records bear sufficient evidence presented by appellees of actual damages which were neither objected to nor rebutted by appellants. . in the matter of moral damages. inhered separately on two unrelated species of proof" which "creates a legal monstrosity that deserves no recognition. The award of attorney's fees in the amount of P5. 6) Illegal search. 29. we are inclined to uphold the appellant's contention that the award is not sanctioned by law and well. However. 21. Sr. . 2219.000. it must be noted that because the appellants wilfully refused to participate in the final hearing and refused to present documentary evidence after they no longer had witnesses to present. 34 and 35. especially where such testimony has not been contradicted or rebutted.We cite with approval appellee's contention that "the two qualities that ought to concur or dwell on each and every of evidence that is invoked as a ground for new trial in order to warrant the reopening . 2) Quasi-delict causing physical injuries.. 4) Adultery or concubinage. .000. by their own acts prevented themselves from objecting to or presenting proof contrary to those adduced for the appellees. Moral damages may be recovered in the following analogous cases: 1) A criminal offense resulting in physical injuries. 32.00 in favor of defendants-appellees Interphil Promotions. 30.00 in favor of defendant-appellee Manuel Nieto. cannot also be regarded as excessive considering the extent and nature of defensecounsels' services which involved legal work for sixteen [16] months. Art. and Lope Sarreal. 7) Libel.00 as and for unrealized profits to the appellees. 2219 of the Civil Code provides: Art. they. jointly. again because they adamantly refused to participate in the court proceedings.settled authorities. 309. On the actual damages awarded to appellees. Thus. we find no reason to disturb the award of P250.. and another P5. abduction. Inc. 9) Acts mentioned in Art." On the issue pertaining to the award of excessive damages. 27. 5) Illegal or arbitrary detention or arrest. 28. On the award of actual damages to Interphil and Sarreal. We hold that in civil cases. slander or any other form of defamation. 8) Malicious prosecution. Jr. 10) Acts and actions referred to in Arts. there is no rule requiring more than one witness or declaring that the testimony of a single witness will not suffice to establish facts.

The court's discretion in granting or refusing it is governed by reason and justice.936 square meters and to execute in their favor the necessary deed of absolute sale therefor. 19660. 5818. The grant of moral damages is not subject to the whims and caprices of judges or courts. 52 O. the law requires that his act be wrongful.160. defendant-appellant" which affirmed the decision 2 of the Court of First Instance of Rizal (Pasig Branch XXI) in Civil Case No. 1984 in CA- G.00 less the amount due on the contract (i. DIOKNO and CARMEN I. DIOKNO. No. To pay the sum of P556. 67205 entitled "Jose W. 13. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. respondents-appellees. p. plaintiffs-appellees. such right is so precious that moral damages may not be charged on those who may exercise it erroneously. SO ORDERED.The award of moral damages in the instant case is not based on any of the cases enumerated in Art. To deliver to the plaintiffs the parcel of land described in Contract to Sell No. Arevalo.R. and cannot. PARAS. No. [Barreto vs. 1966 until the contract would have been fully paid together with . as such. 27. VV-18-(a) in the total area of 5. The MANUFACTURERS BANK AND TRUST COMPANY. Aug. The Manufacturers Bank and Trust Company.: This is an appeal by certiorari from the Decision 1 of the respondent court dated May 31. the unpaid installments from December. The law could not have meant to impose a penalty on the right to litigate.. For these the law taxes costs. al. petitioner-appellant vs. ordering the defendant Manufacturers Bank & Trust Company: 1. L-7748. L-67881 PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to.e. The action herein brought by plaintiffs-appellants is based on a perceived breach committed by the defendants-appellees of the contract of May 1. CV No. 1961. No. 1956. In order that a person may be made liable to the payment of moral damages. et. except for the award of moral damages which is herein deleted. Diokno. such litigant may be penalized for costs.G. be arbitrarily considered as a case of malicious prosecution.. Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously because if the action has been erroneously filed.] WHEREFORE. vs. 2219 of the Civil Code. G. judgment is rendered in favor of the plaintiffs and against the defendant. 2. the dispositive portion of which reads: WHEREFORE.R. the decision of the lower court is hereby affirmed. INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division). J. and JOSE W. Diokno and Carmen I.

July and August. was to be paid over a period of 8-1/2 years starting on May 1. 1965. 14-15) The following are the undisputed facts of the case: 1. VV-18 (a) (Exh. In partial compliance with the aforesaid Statements of Account. starting on April 1. 4. F-1) requesting remittance of installment arrears showing partial payments for the month of April 1965 and May 1965 and complete default for June.00 was applied thereto so as to reduce the balance on the principal to P35.00.306. three or more consecutive installments as stipulated therein or to comply with any of the terms and conditions thereof. Hacienda Benito. (c) The aforesaid balance. 1965.86.10 until fully paid-although this monthly installment was later adjusted to the higher amount of P797. On July 27. Costs of suit. Rizal.000.000. (petitioner's predecessor-in-interest) as vendor.00 by way of moral damages. 3.00 by way of exemplary damages. 1974) with legal interest on said balance from April 22. 1974 until the same is fully paid. petitioner sent to private respondents a Statement of Account (Exh. petitioner sent to private respondents another Statement of Account with the additional entries of interests and the incoming installment for September. Ten per cent (10%) of the judgment by way of attorney's fees.00. P50. as vendees executed Contract to Sell No. 1965. SO ORDERED. 1965. 1965. Inc. on August 31. an amount of Pl2.182. (d) Upon complete payment by the vendee of the total price of the lot the vendor shall execute a deed of sale in favor of the vendee. subject to the following terms and conditions. (b) Of the total sum. 3. Likewise. A) over a parcel of land with an area of 5.488. and 6. among others. On April 18. 4. . interest thereon up to March 25.00 which answers for the installments for the months of June 1965 to August 1965. together with the stipulated interest of 6% per annum.397.936 square meters of the Victoria Valley Subdivision in Antipolo. 1961 at a monthly installment of P446. 5. 2. (Rollo. relevant to this petition: (a) The total contract price for the entire 5. P50. private respondents paid on September 3.936 square-meter-lot was P47. forfeiting payments made by the vendee as liquidated damages. and private respondents. (e) The contract shall be considered automatically rescinded and cancelled and of no further force and effect upon failure of the vendee to pay when due. pp. 1965 the sum of Pl. 1961. in which case the vendor shall have right to resell the said parcel of land to any person interested.

but this time advising that unless they up-date their installment payments.00 as partial payment and requested an extension of another 30 days from September 18. J). 1967. private respondents wrote a letter to petitioner expressing their desire to fully settle their obligation. petitioner wrote a letter to private respondents. claiming that Contract to Sell No. to which letter was annexed a "Demand for Rescission of Contract".5. 1974. Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees. On March 17. 10. private respondents made a partial payment of P2. 8. 9). 1974. On March 14. 1967 within which to up-date their account (Exh. On March 27. 1973. 6. 15. informing them that the contract to sell had been rescinded/cancelled by a notarial act. 11).000. More than two (2) years from May 19. private respondents paid P5. On May 17. 12). 1967. 7. In view of the foregoing. 16. petitioner again sent private respondents a demand letter showing total arrearages of 20 months as of April 1965. On October 19. 1967 within which to update their account (Exh. private respondent Carmen I. or on July 16. 1971. 1967.00 with the request for an extension of 60 days from May 17. On March 25. to which petitioner made a reply on July 22. 1974 (Exh. Diokno went to see the Chairman of petitioner's Board of Directors on the matter informing him that she had a buyer who was ready to purchase the property. 10-a). 1970. 1967. VV-18 (a). 10). 13. 1970 (Exh. 10-d). 1973. . which has not been complied with despite several follow-ups (Exh. private respondents wrote a letter to petitioner requesting for a Statement of Account as of date in arrears and interests(Exh. 1971 or on July 5. After almost three (3) years. private respondents wrote a letter to petitioner asking another extension of sixty (60) days to pay all their arrearages and update their payments under Contract No. On May 19. On September 18. and to deliver to them the title of the lot in question. petitioner wrote a letter to private respondents. 14. 12. 17. private respondents failed to update their arrearages and did not request for any further extension of time within which to update their account. O). private respondents wrote a letter reiterating their request in their letter dated July 5. petitioner shall be constrained to avail of the automatic rescission clause (Exh. 1967.000. requesting for a complete statement of all the balance due including interests. 9. 18. however. On April 17. reminding them of their balance which will be due on the 31st instant (Exh. 1967. notarized on March 25. On July 17. 11. 10-c). VV-18(a) has been automatically rescinded or cancelled by virtue of private respondents' failure to pay the installments due in the contract under the automatic rescission clause. private respondents filed Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale in their favor. petitioner sent private respondents a simple demand letter showing a delinquency in their monthly amortizations for 19 months (Exh. 1974.

vs.30 square meters for the total contract price of P7. the petitioner never called attention to the proviso on "automatic rescission. raising the main issue of whether or not the Contract to Sell No.. Respondent. 121175. (Decision. v. On September 24. resolution or cancellation) is VALID. pp.371. Makati City. and by sending letters advising private respondents of the balances due.80. and Myers Building Co. holding that petitioner could not rescind the contract to sell. (b) in any event.80 for the unit while making . under the automatic rescission clause contained therein. 207133. In all these extensions. Burgos corner Caceres Sts. so. JAYNE YU. respondent paid the full purchase price of P7. Hence.R. located at P. Inc. payable in equal monthly installments until September 24. 1995 covering one residential condominium unit. Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on July 25. 141- 148.000. SO ORDERED. 1997. 1977 (when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could