Co v CA 312 scra 528

Tan v. CA 105/175 scra 102

133 scra 274

G.R. No. L-55480

June 30, 1987

PACIFICA MILLARE, petitioner,

vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of Instance
of Abra, Second Judicial District, Branch I, ANTONIO CO and ELSA CO, respondents.

FELICIANO, J.:

On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner

Pacifica Millare as lessor and private respondent Elsa Co, married to Antonio Co, as
lessee. Under the written agreement, which was scheduled to expire on 31 May
1980, the lessor-petitioner agreed to rent out to thelessee at a monthly rate of
P350.00 the "People's Restaurant", a commercial establishment located at the
corner of McKinley and Pratt Streets in Bangued, Abra.

The present dispute arose from events which transpired during the months of May
and July in 1980. According to the Co spouses, sometime during the last week of
May 1980, the lessor informed them that they could continue leasing the People's
Restaurant so long as they were amenable to paying creased rentals of P1,200.00 a
month. In response, a counteroffer of P700.00 a month was made by the Co
spouses. At this point, the lessor allegedly stated that the amount of monthly
rentals could be resolved at a later time since "the matter is simple among us",

which alleged remark was supposedly taken by the spouses Co to mean that the
Contract of Lease had been renewed, prompting them to continue occupying the
subject premises and to forego their search for a substitute place to rent. 2 In
contrast, the lessor flatly denied ever having considered, much less offered, a
renewal of the Contract of Lease.

The variance in versions notwithstanding, the record shows that on 22 July 1980,
Mrs. Millare wrote the Co spouses requesting them to vacate the leased premises as
she had no intention of renewing the Contract of Lease which had, in the meantime,
already expirecl. 3 In reply, the Co spouses reiterated their unwillingness to pay the
Pl,200.00 monthly rentals supposedly sought bv Mrs. Millare which they considered
"highly excessive, oppressive and contrary to existing laws". They also signified
their intention to deposit the amount of rentals in court, in view of Mrs. Millare's
refusal to accept their counter-offer. 4 Another letter of demand from Mrs. Millare
was received on 28 July 1980 by the Co spouses, who responded by depositing the
rentals for June and July (at 700.00 a month) in court.

On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and
filed a Complaint 5 (docketed as Civil Case No. 1434) with the then Court of First
Instance of Abra against Mrs. Millare and seeking judgment (a) ordering the renewal
of the Contract of Lease at a rental rate of P700.00 a nionth and for a period of ten
years, (b) ordering the defendant to collect the sum of P1,400.00 deposited by
plaintiffs with the court, and (c) ordering the defendant to pay damages in the
amount of P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare
filed an ejectment case against the Co spouses in the Municipal Court of Bangued,
Abra, docketed as Civil Case No. 661. The spouses Co, defendants therein,
sut)sequently set up lis pendens as a Civil Case No. 661. The spouses Co,
defendants therein, subsequently set up lis pendens as a defense against the
complaint for ejectment.

Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus Motion to
Dismiss 6 rounded on (a) lack of cause of action due to plaintiffs' failure to establish
a valid renewal of the Contract of Lease, and (b) lack of jurisdiction by the trial court
over the complaint for failure of plaintiffs to secure a certification from the Lupong
Tagapayapa of the barangay wherein both disputants reside attesting that no
amicable settlement between them had been reached despite efforts to arrive at
one, as required by Section 6 of Presidential Decree No. 1508. The Co spouses
opposed the motion to dismiss. 7

In an Order dated 15 October 1980, respondent judge denied the motion to dismiss
and ordered the renewal of the Contract of Lease. Furthermore plaintiffs were
allowed to deposit all accruing monthly rentals in court, while defendant Millare was
directed to submit her answer to the complaint. 8 A motion for reconsideration 9
was subsequently filed which, however, was likewise denied. 10 Hence, on 13
November 1980, Mrs. Millare filed the instant Petition for Certiorari, Prohibition and
Mandamus, seeking injunctive relief from the abovementioned orders. This Court
issued a temporary restraining order on 21 November 1980 enjoining respondent,
judge from conducting further proceedings in Civil Case No. 1434. 11 Apparently,
before the temporary restraining order could be served on the respondent judge, he
rendered a "Judgment by Default" dated 26 November 1980 ordering the renewal of
the lease contract for a term of 5 years counted from the expiration date of the
original lease contract, and fixing monthly rentals thereunder at P700.00 a month,
payable in arrears. On18 March 1981, this Court gave due course to the Petition for
Certiorari, Prohibition and Mandamus. 12

Two issues are presented for resolution: (1) whether or not the trial court acquired
jurisdiction over Civil Case No. 1434; and (2) whether or not private respondents
have a valid cause of action against petitioner.

Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must
fail, though for reasons different from those cited by the respondent judge. 13 We
would note firstly that the conciliation procedure required under P.D. 1508 is not a
jurisdictional requirement in the sense that failure to have prior recourse to such
procedure would not deprive a court of its jurisdiction either over the subject matter
or over the person of the defendant.14 Secondly, 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. It appears further that both complaints were, in fact, heard by
the Lupong Tagapayapa in the afternoon of 30 August 1980. After attempts at
conciliation had proven fruitless, Certifications to File Action authorizing the parties
to pursue their respective claims in court were then issued at 5:20 p.m. of that
same aftemoon, as attested to by the Barangay Captain in a Certification presented
in evidence by petitioner herself. 15

Petitioner would, nonetheless, assail the proceedings in the trial court on a

technicaety, i.e., private respondents allegedly filed their complaint at 4:00 p.m. of
30 August 1980, or one hour and twenty minutes before the issuance of the
requisite certification by the Lupng Tagapayapa. The defect in procedure admittedly
initially present at that particular moment when private respondents first filed the

complaint in the trial court was cured by the subsequent issuance of the
Certifications to File Action by the barangay Lupong Tagapayapa Such certifications
in any event constituted substantial comphance with the requirement of P.D. 1508.

We turn to the second issue, that is, whether or not the complaint in Civil Case No.
1434 filed by the respondent Co spouses claiming renewal of the contract of lease
stated a valid cause of action. Paragraph 13 of the Contract of Lease reads as
follows:

13.
This contract of lease is subject to the laws and regulations ofthe
goverrunent; and that this contract of lease may be renewed after a period of five
(5) years under the terms and conditions as will be mutually agreed upon by the
parties at the time of renewal; ... (Emphasis supplied.)

The respondent judge, in his Answer and Comment to the Petition, urges that under
paragraph 13 quoted above.

there was already a consummated and finished mutual agreement of the parties to
renew the contract of lease after five years; what is only left unsettled between the
parties to the contract of lease is the amount of the monthly rental; the lessor
insists Pl,200 a month, while the lessee is begging P700 a month which doubled the
P350 monthly rental under the original contract .... In short, the lease contract has
never expired because paragraph 13 thereof had expressly mandated that it is
renewable. ... 16

In the "Judgment by Default" he rendered, the respondent Judge elaborated his

views obviously highly emotional in character in the following extraordinary
tatements:

However, it is now the negative posture of the defendant-lessor to block, reject and
refuse to renew said lease contract. It is the defendant-lessor's assertion and
position that she can at the mere click of her fingers, just throw-out the plaintiffslessees from the leased premises and any time after the original term of the lease
contract had already expired; This negative position of the defendantlessor, to the
mind of this Court does not conform to the principles and correct application of the
philosophy underlying the law of lease; for indeed, the law of lease is impressed

with public interest, social justice and equity; reason for which, this Court cannot
sanction lot owner's business and commercial speculations by allowing them with
"unbridled discretion" to raise rentals even to the extent of "extraordinary
gargantuan proportions, and calculated to unreasonably and unjustly eject the
helpless lessee because he cannot afford said inflated monthly rental and thereby
said lessee is placed without any alternative, except to surrender and vacate the
premises mediately,-" Many business establishments would be closed and the public
would directly suffer the direct consequences; Nonetheless, this is not the correct
concept or perspective the law of lease, that is, to place the lessee always at the
mercy of the lessor's "Merchant of Venice" and to agit the latter's personal whims
and caprices; the defendant-lessor's hostile attitude by imposing upon the lessee
herein an "unreasonable and extraordinary gargantuan monthly rental of
P1,200.00", to the mind of this Court, is "fly-by night unjust enrichment" at the
expense of said lessees; but, no Man should unjustly enrich himself at the expense
of another; under these facts and circumstances surrounding this case, the action
therefore to renew the lease contract! is "tenable" because it falls squarely within
the coverage and command of Articles 1197 and 1670 of the New Civil Code, to wit:

xxx

xxx

xxx

The term "to be renewed" as expressly stipulated by the herein parties in the
original contract of lease means that the lease may be renewed for another term of
five (5) years; its equivalent to a promise made by the lessor to the lessee, and as a
unilateral stipulation, obliges the lessor to fulfill her promise; of course the lessor is
free to comply and honor her commitment or back-out from her promise to renew
the lease contract; but, once expressly stipulated, the lessor shall not be allowed to
evade or violate the obligation to renew the lease because, certainly, the lessor may
be held hable for damages caused to the lessee as a consequence of the
unjustifiable termination of the lease or renewal of the same; In other words, the
lessor is guilty of breach of contract: Since the original lease was fixed for five (5)
years, it follows, therefore, that the lease contract is renewable for another five (5)
years and the lessee is not required before hand to give express notice of this fact
to the lessor because it was expressly stipulated in the original lease contract to be
renewed; Wherefore, the bare refusal of the lessor to renew the lease contract
unless the monthly rental is P1,200.00 is contrary to law, morals, good customs,
public policy, justice and equity because no one should unjustly enrich herself at the
expense of another. Article 1197 and 1670 of the New Civil Code must therefore
govern the case at bar and whereby this Court is authorized to fix the period thereof
by ordering the renewal of the lease contract to another fixed term of five (5) years.
17

Clearly, the respondent judge's grasp of both the law and the Enghsh language is
tenuous at best. We are otherwise unable to comprehend how he arrived at the
reading set forth above. Paragraph 13 of the Contract of Lease can only mean that
the lessor and lessee may agree to renew the contract upon their reaching
agreement on the terms and conditions to be embodied in such renewal contract.
Failure to reach agreement on the terms and conditions of the renewal contract will
of course prevent the contract from being renewed at all. In the instant case, the
lessor and the lessee conspicuously failed to reach agreement both on the amount
of the rental to be payable during the renewal term, and on the term of the renewed
contract.

The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the
"Judgment by Default" by which he ordered the renewal of the lease for another
term of five years and fixed monthly rentals thereunder at P700.00 a month. Article
1197 of the Civil Code provides as follows:

If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of
the debtor.

In every case, the courts shall determine such period as may, under the
circumstances, have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them. (Emphasis supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the Contract of
Lease did in fact fix an original period of five years, which had expired. It is also
clear from paragraph 13 of the Contract of Lease that the parties reserved to
themselves the faculty of agreeing upon the period of the renewal contract. The
second paragraph of Article 1197 is equally clearly inapplicable since the duration of
the renewal period was not left to the wiu of the lessee alone, but rather to the will
of both the lessor and the lessee. Most importantly, Article 1197 applies only where
a contract of lease clearly exists. Here, the contract was not renewed at all, there
was in fact no contract at all the period of which could have been fixed.

Article 1670 of the Civil Code reads thus:

If at the end of the contract the lessee should continue enjoying the thing left for 15
days with the acquiescence of the lessor and unless a notice to the contrary by
either party has previously been given. It is understood that there is an implied new
lease, not for the period of the original contract but for the time established in
Articles 1682 and 1687. The ther terms of the original contract shall be revived.
(Emphasis suplied.)

The respondents themselves, public and private, do not pretend that the continued
occupancy of the leased premises after 31 May 1980, the date of expiration of the
contract, was with the acquiescence of the lessor. Even if it be assumed that tacite
reconduccion had occurred, the implied new lease could not possibly have a period
of five years, but rather would have been a month-to-month lease since the rentals
(under the original contract) were payable on a monthly basis. At the latest, an
implied new lease (had one arisen) would have expired as of the end of July 1980 in
view of the written demands served by the petitioner upon the private respondents
to vacate the previously leased premises.

It follows that the respondent judge's decision requiring renewal of the lease has no
basis in law or in fact. Save in the limited and exceptional situations envisaged
inArticles ll97 and 1670 of the Civil Code, which do not obtain here, courts have no
authority to prescribe the terms and conditions of a contract for the parties. As
pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine Long Distance
Telephone,Co., 18

[P]arties cannot be coerced to enter into a contract where no agreement is had

between them as to the principal terms and conditions of the contract. Freedom to
stipulate such terms and conditions is of the essence of our contractual system, and
by express provision of the statute, a contract may be annulled if tainted by
violence, intimidation or undue influence (Article 1306, 1336, 1337, Civil Code of
the Philippines).

Contractual terms and conditions created by a court for two parties are a
contradiction in terms. If they are imposed by a judge who draws upon his own

private notions of what morals, good customs, justice, equity and public policy"
demand, the resulting "agreement" cannot, by definition, be consensual or
contractual in nature. It would also follow that such coerced terms and conditions
cannot be the law as between the parties themselves. Contracts spring from the
volition of the parties. That volition cannot be supplied by a judge and a judge who
pretends to do so, acts tyrannically, arbitrarily and in excess of his jurisdiction. 19

WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is granted. The
Orders of the respondent judge in Civil Case No. 1434 dated 26 September 1980
(denying petitioner's motion to dismiss) and 4 November 1980 (denying petitioner's
motion for reconsideration), and the "Judgment by Default" rendered by the
respondent judge dated 26 November 1980, are hereby annulled and set aside and
Civil Case No. 1434 is hereby dismissed. The temporary restraining order dated 21
November 1980 issued by this ourt, is hereby made permanent. No pronouncement
as to costs.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ.,

concur.

University of the Philippines vs. De los Angeles, 35 SCRA 102, No. L-28602,
September 29, 1970

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST
INSTANCE IN QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and
Special Counsel Perfecto V. Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.

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

Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its
Civil Case No. 9435, are sought to be annulled in this petition for certiorari and
prohibition, filed by herein petitioner University of the Philippines (or UP) against the
above-named respondent judge and the Associated Lumber Manufacturing
Company, Inc. (or ALUMCO). The first order, dated 25 February 1966, enjoined UP
from awarding logging rights over its timber concession (or Land Grant), situated at
the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated
14 January 1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber
Company, Inc. to refrain from exercising logging rights or conducting logging
operations on the concession; and the third order, dated 12 December 1967, denied
reconsideration of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction against the
enforcement or implementation of the three (3) questioned orders was issued by
this Court, per its resolution on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the public domain and
given as an endowment to UP, an institution of higher learning, to be operated and
developed for the purpose of raising additional income for its support, pursuant to
Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a logging
agreement under which the latter was granted exclusive authority, for a period
starting from the date of the agreement to 31 December 1965, extendible for a
further period of five (5) years by mutual agreement, to cut, collect and remove
timber from the Land Grant, in consideration of payment to UP of royalties, forest
fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December
1964, it had incurred an unpaid account of P219,362.94, which, despite repeated
demands, it had failed to pay; that after it had received notice that UP would rescind
or terminate the logging agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December
1964, which was approved by the president of UP, and which stipulated the
following:
3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are
not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said payments have been applied
shall be paid by the DEBTOR in full no later than June 30, 1965;
xxx xxx xxx

5. In the event that the DEBTOR fails to comply with any of its promises or
undertakings in this document, the DEBTOR agrees without reservation that the
CREDITOR shall have the right and the power to consider the Logging Agreement
dated December 2, 1960 as rescinded without the necessity of any judicial suit, and
the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos
(P50,000.00) by way of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid account, for
the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in
addition to the indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of
that date, considered as rescinded and of no further legal effect the logging
agreement that they had entered in 1960; and on 7 September 1965, UP filed a
complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court
of First Instance of Rizal (Quezon City), for the collection or payment of the herein
before stated sums of money and alleging the facts hereinbefore specified, together
with other allegations; it prayed for and obtained an order, dated 30 September
1965, for preliminary attachment and preliminary injunction restraining ALUMCO
from continuing its logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary injunction UP had taken steps
to have another concessionaire take over the logging operation, by advertising an
invitation to bid; that bidding was conducted, and the concession was awarded to
Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February
1966.
That, meantime, ALUMCO had filed several motions to discharge the writs of
attachment and preliminary injunction but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University
from conducting the bidding; on 27 November 1965, it filed a second petition for
preliminary injunction; and, on 25 February 1966, respondent judge issued the first
of the questioned orders, enjoining UP from awarding logging rights over the
concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its contract
with Sta. Clara Lumber Company, Inc., and said company had started logging
operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an
order dated 14 January 1967, declared petitioner UP in contempt of court and, in the
same order, directed Sta. Clara Lumber Company, Inc., to refrain from exercising
logging rights or conducting logging operations in the concession.

The UP moved for reconsideration of the aforesaid order, but the motion was denied
on 12 December 1967.
Except that it denied knowledge of the purpose of the Land Grant, which purpose,
anyway, is embodied in Act 3608 and, therefore, conclusively known, respondent
ALUMCO did not deny the foregoing allegations in the petition. In its answer,
respondent corrected itself by stating that the period of the logging agreement is
five (5) years - not seven (7) years, as it had alleged in its second amended answer
to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in the
court below, which maybe boiled down to: blaming its former general manager,
Cesar Guy, in not turning over management of ALUMCO, thereby rendering it unable
to pay the sum of P219,382.94; that it failed to pursue the manner of payments, 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.
Clara Lumber Company, Inc., under its contract "to buy and sell" with said firm, and
which contract was referred and annexed to the "Acknowledgment of Debt and
Proposed Manner of Payments"; that UP's unilateral rescission of the logging
contract, without a court order, was invalid; 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 respondent was permitted to cut logs
in the middle of June 1965 but petitioner's supervisor stopped all logging operations
on 15 July 1965; that it had made several offers to petitioner for respondent to
resume logging operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat its contract with
ALUMCO rescinded, and may disregard the same before any judicial pronouncement
to that effect. Respondent ALUMCO contended, and the lower court, in issuing the
injunction order of 25 February 1966, apparently sustained it (although the order
expresses no specific findings in this regard), that it is only after a final court decree
declaring the contract rescinded for violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the agreement as breached and of no
force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment
of Debt and Proposed Manner of Payments" that, upon default by the debtor
ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging
Agreement dated 2 December 1960 as rescinded without the necessity of any
judicial suit." As to such special stipulation, and in connection with Article 1191 of
the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L11897, 31 October 1964, 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, even

without court intervention. In other words, it is not always necessary for the injured
party to resort to court for rescission of the contract.
Of course, 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, being ever subject to
scrutiny and review by the proper court. If the other party denies that rescission is
justified, it is free to resort to judicial action in its own behalf, and bring the matter
to court. Then, should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but it proceeds at
its own risk. 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. 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. Otherwise, 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).
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, 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. It is in this sense that
judicial action will be necessary, as without it, the extrajudicial resolution will remain
contestable and subject to judicial invalidation, unless attack thereon should
become barred by acquiescence, estoppel or prescription.
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. Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140)
but, as already observed, in case of abuse or error by the rescinder the other party
is not barred from questioning in court such abuse or error, the practical effect of
the stipulation being merely to transfer to the defaulter the initiative of instituting
suit, instead of the rescinder.
In fact, even without express provision conferring the power of cancellation upon
one contracting party, the Supreme Court of Spain, in construing the effect of Article
1124 of the Spanish Civil Code (of which Article 1191 of our own Civil; Code is

practically a reproduction), has repeatedly held that, a resolution of reciprocal or

synallagmatic contracts may be made extrajudicially unless successfully impugned
in court.
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,
facultad que, segun jurisprudencia de este Tribunal, surge immediatamente
despuesque la otra parte incumplio su deber, sin necesidad de una declaracion
previa de los Tribunales. (Sent. of the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ.
897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una
"facultad" atribuida a la parte perjudicada por el incumplimiento del contrato, la
cual tiene derecho do opcion entre exigir el cumplimientoo la resolucion de lo
convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella, por
declaracion del acreedor, a reserva, claro es, que si la declaracion de resolucion
hecha por una de las partes se impugna por la otra, queda aquella sometida el
examen y sancion de los Tribunale, que habran de declarar, en definitiva, bien
hecha la resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of Spain, 16
November 1956; Jurisp. Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por
una de las partes de su respectiva prestacion, puedetener lugar con eficacia" 1. o
Por la declaracion de voluntad de la otra hecha extraprocesalmente, si no es
impugnada en juicio luego con exito. y 2. 0 Por la demanda de la perjudicada,
cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios
realmente causados, siempre quese acredite, ademas, una actitud o conducta
persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un hecho
obstativo que de un modoabsoluto, definitivo o irreformable lo impida, segun el art.
1.124, interpretado por la jurisprudencia de esta Sala, contenida en las Ss. de 12
mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio del Derecho
intermedio, recogido del Canonico, por el cual fragenti fidem, fides non est
servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, 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, to the extent that the court below issued a writ
of preliminary injunction stopping ALUMCO's logging operations, and repeatedly
denied its motions to lift the injunction; 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"); that the
excuses offered in the second amended answer, such as the misconduct of its
former manager Cesar Guy, and the rotten condition of the logs in private
respondent's pond, 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; and considering that whatever prejudice may be
suffered by respondent ALUMCO is susceptibility of compensation in damages, 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, and in subsequently refusing to dissolve the injunction, were in grave abuse
of discretion, correctible by certiorari, since appeal was not available or adequate.
Such injunction, therefore, must be set aside.
For the reason that the order finding the petitioner UP in contempt of court has open
appealed to the Court of Appeals, and the case is pending therein, this Court
abstains from making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and the order of the
respondent court of 25 February 1966, granting the Associated Lumber Company's
petition for injunction, is hereby set aside. Let the records be remanded for further
proceedings conformably to this opinion.

Republic of the Philippines

SUPREME COURT
Manila SECOND DIVISION
G.R. No. 73893 June 30, 1987MARGARITA SURIA AND GRACIA R. JOVEN, petitioners,
vs. HON. INTERMEDIATE APPELLATE COURT, HON. JOSE MAR GARCIA (Presiding
Judge of the RTC of Laguna, Branch XXIV, Bian, Laguna), and SPOUSES HERMINIO
A. CRISPIN and NATIVIDAD C. CRISPIN respondents. De Castro & Cagampang Law
Offices for petitioners. Nelson A. Loyola for private respondents.
RESOLUTION
GUTIERREZ, JR.,
J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
dismissing for lack of merit the petition for certiorari filed there in. As factual

background, we quote from the Court of Appeals' decision: The factual and
procedural antecedents of this case may be briefly stated as follows: On June 20,
1983, private-respondents filed a complaint before the Regional Trial Court of
Laguna, Branch XXIV, for rescission of contract and damages, alleging
amongothers: 1. x x x 2. That on March 31, 1975, plaintiffs being the owners of a
parcel of land situated at Barrio San Antonio, San Pedro, Laguna, entered into a
contract denominated as DEED OF SALE WITH MORTGAGE, with herein defendants,
a true copy of said contract(which is made an integral part hereof) is hereto
attached as ANNEX ."A": 3. x x x4. That the defendants violated the terms and
conditions of the contract by failing to pay the stipulated instalments and in fact
only one instalment due in July 1975 (paid very late in the month of September,
1975) was made all the others remaining unsettled to the present time;5. That
repeated verbal and written demands were made by plaintiff upon the defendants
for the payment of the instalments, some of said written demands having been
made on September 24, 1981, February 7, 1982,February 24, 1983, March 13, 1983,
and April12, 1983, but defendants for no justifiable reason failed to comply with the
demands of plaintiffs;6. x x x On November 14, 1983, petitioners filed their answer
with counter claim. On July 16, 1984, petitioners filed a motion to dismiss complaint,
alleging that: 1. that plaintiffs are not entitled to the subsidiary remedy of rescission
because of the presence of remedy of foreclosure in the Deed of Sale with Mortgage
(Annex "A, Complaint); 2. That, assuming argue do that rescission were a proper
remedy, it is apparent in the face of the Complaint that the plaintiffs failed to
comply with the requirements of law, hence the rescission was ineffective, illegal,
null and void, and invalid. On July 26, 1984, private-respondents filed their
opposition to the above motion. In the meantime, on August 6, 1984, petitioners
formerly offered to pay private-respondents all the outstanding balance under the
Deed of Sale with Mortgage, which offer was rejected by private respondents on
August 7, 1984.On November 26, 1984, and the respondent-Court denied the
motion to dismiss. The order reads: Defendants through counsel filed a Second
Motion to Dismiss dated July 24, 1984 based on an affirmative defense raised in
their answer, that is, that the complaint fails to state a cause of action for rescission
against defendants because (1) plaintiffs are not entitled to the subsidiary
remedy of rescission because of the presence of the remedy of foreclosure in the
Deed of Sale with Mortgage (Annex "A", Complaint) and(2) assuming arguendo
that rescission were a proper remedy, it is apparent from the face of the Complaint
that the plaintiffs failed to comply with the requirements of law, hence the
rescission was ineffective, illegal, null and void, and invalid. After a careful perusal
of the allegations of the complaint considered in the light of existing applicable law
and jurisprudence touching on the matters in issue, and mindful of the settled rule
that in a motion to dismiss grounded on lack of cause of action the allegations of
the complaint must be assumed to be true, the Court finds and holds that the
motion to dismiss dated July24, 1984 filed by defendants lacks merit and therefore
denied the same. SO ORDERED.

G.R. No. L-42542

August 5, 1991

CARLOS DIMAYUGA, petitioner,

vs.
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and COURT OF APPEALS, respondents.

Magno T. Bueser for petitioners.

Graciano J. Tobias for respondent PCIB.

BIDIN, J.:p

This is a petition for review on certiorari seeking to set aside the resolutions of the
respondent Court of Appeals dated: (a) September 30,1975, dismissing the appeal
of petitioner in CA-G.R. No. 57556-R entitled "Philippine Commercial and Industrial
Bank, Plaintiff-appellee vs. Pedro C. Tanjuatco, et. al., Defendants-appellants", (b)
November 21, 1975 denying petitioner's motion for reconsideration, and (c) January
13, 1976 denying petitioner's second motion for reconsideration.

Petitioner Carlos Dimayuga is the defendant-appellant in a case for collection of

sum of money against whom the decision was rendered by the trial court on May
28, 1974.

Plaintiff, who is now the respondent in the instant petition, is a banking institution
duly organized and existing under and by virtue of the laws of the Philippines and is
the creditor of petitioner.

On February 6, 1962, petitioner borrowed from the plaintiff the sum of ten thousand
(Pl0,000.00) pesos as evidenced by a promissory note executed and signed by
Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7, 1
962 with interest at the rate of ten percent (10%) per annum in case of nonpayment at maturity as evidenced by and in accordance with the terms and
conditions of the promissory note executed jointly and severally by defendants.

In the aforementioned promissory note, Carlos Dimayuga bound himself to pay

jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on
the said amount of P10,000.00 until frilly paid. Moreover, both undertook to "jointly
and severally authorize the respondent Philippine Commercial and Industrial Bank,
at its option to apply to the payment of this note any and all funds, securities or
other real or personal property of value which hands (sic) on deposit or otherwise
belonging to anyone or all of us." (p. 56, RA Rollo, p. 15).

Upon the default of the promissors to pay, a complaint was filed on July 11, 1969 by
the Philippine Commercial and Industrial Bank for sum of money.

Defendant Carlos Dimayuga, now petitioner, however, had remitted to the plaintiff
(now respondent) the amount totalling P4,000.00 by way of partial payments made
from August 1, 1969 to May 7, 1970 as evidenced by corresponding receipts
thereto. These payments were nevertheless applied to past interests, charges and
partly on the principal.

On May 28, 1974, the trial court rendered a decision holding defendants jointly and
severally liable to pay the plaintiff the sum of P9,139.60 with interest at 10% per
annum until fully paid plus P913.96 as attorneys' fees and costs against defendants.

On July 11, 1974, petitioner filed a motion alleging that since Pedro Tanjuatco died
on December 23, 1973, the money claim of the respondents should be dismissed
and prosecuted against the estate of the late Pedro Tanjuatco as provided in Sec. 5,
Rule 86, New Rules of Court. On June 22, 1974, the trial court denied the motion for
lack of merit.

Not satisfied, the petitioner appealed to the respondent court. The appeal was
opposed by the respondent PCIB in a motion to dismiss the appeal, on the ground
that the record on appeal did not disclose data showing that the appeal was
perfected on time. In opposition to the respondent's motion to dismiss, the
petitioner Carlos Dimayuga insisted that the appeal was perfected on time. On
September 30, 1975, the Court of Appeals in a resolution dated September 30, 1975
dismissed the appeal for failure of the Record on Appeal to show on its face that the
appeal was timely perfected.

Hence, this petition.

It is alleged by herein petitioner that the Court of Appeals erred in dismissing the
appeal on the ground that the printed records on appeal failed to show that it was
perfected on time.

On March 18, 1976, the respondent Philippine Commercial and Industrial Bank filed
its comment. In the resolution dated April 2, 1976, the Supreme Court through its
Second Division resolved to treat the petition for review as a special civil action and
required both parties to submit their simultaneous memoranda.

On May 10, 1976, the petitioner submitted his memorandum while private
respondent submitted its corresponding memorandum on May 25, 1976.

The main issue in this case is whether or not the Court of Appeals erred in
dismissing the appeal for failure of the Record of Appeal to show on its face that the
appeal had been timely perfected.

Among others, respondent PCIB's objection to this appeal is predicated on the fact
that petitioner failed to state in his record on appeal the date when he received the
copy of the decision, the denial and/or granting of the second motion filed although
the same may be found in a motion for reconsideration. Respondent bank insisted
that petitioner's belated act in reciting the data in a motion for reconsideration of
the resolution of the Court of Appeals did not cure this defect.

This issue has long been laid to rest. Although no record on appeal is now required
to take an appeal (section 39, BPB 129), this Court had long discarded the rigid
application of the material data rule (section 6, Rule 41) in appeals from Courts of
First Instance to the Appellate Court (Luzon Concrete Products, Inc. v. Court of
Appeals, 135 SCRA 463 [1985]; Abando v. C.A., 83 SCRA 511 [1978]). Thus, the
mere absence of a formal order granting the motion for extension of time to file
record on appeal should not be fatal to the petitioner if the record on appeal filed
within the requested period was approved by the court a quo. The approval thereof,
as in the case at bar, carries with it the approval of the motion for extension and the
mere failure of the record on appeal to show such approval should not defeat the
right to appeal Berkenkotter v. Court of Appeals, 53 SCRA 22 [1973]). The appellate
court may properly rely on the trial court's order of approval and could determine
therefrom without sending for or examining any other records that the appeal was
perfected on time as expressly found by the trial court. (Saura Import & Export Co.,
Inc. v. Court of Appeals, 83 SCRA 276 [1978]).

In fine, the appeal interposed by the petitioner from the decision of the trial court
should be given due course. However, to remand the case to the Court of Appeals
would only delay the final disposition of this case. On the other hand, this Court has
consistently ruled that remand of a case to a lower court for the reception of
evidence is not necessary where the Supreme Court could resolve the dispute
already based on the records before it (Quisumbing v. C.A., 122 SCRA 704 [1983];
Board of Liquidators vs. Zulueta, 115 SCRA 549 [1982]; Velasco v. C.A., 95 SCRA 617
[1980]). A case involving an interlocutory order which would have been referred to
the Court of Appeals was decided by the Supreme Court if only to make up for time
lost (Sacdalan v. Bautista, 56 SCRA 176 [1974]). Finally, in view of the long
pendency of a case, this Court finds "that the greater interest of justice demands
that the case should be disposed on the merits at this stage ... " Limpan Investment
Corporation v. Sundiam, 157 SCRA 209 [1988]).

From the evidence presented, there can be no dispute that Carlos Dimayuga bound
himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the
obligation with PCIB in the amount of P10,000.00 plus 10% interest per annum. In
addition, as above stated, in case of non-payment, they undertook among others to
jointly and severally authorize respondent bank, at its option to apply to the
payment of this note, any and all funds, securities, real or personal properties, etc.
belonging to anyone or all of them. Otherwise stated, the promissory note in
question provides in unmistakable language that the obligation of petitioner
Dimayuga is joint and several with Pedro C. Tanjuatco.

It is the position of the petitioner that Pedro Tanjuatco having died on December
23,1973, the money claim of PCIB should be dismissed and prosecuted against the
estate of the late Tanjuatco.

This contention is untenable.

It is well settled under the law and jurisprudence that when the obligation is
solidary, the creditor may bring his action in toto against the debtors obligated in
solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor may
proceed against any one of the solidary debtors or some or all of them
simultaneously. "Hence, there is nothing improper in the creditor's filing of an action
against the surviving solidary debtors alone, instead of instituting a proceeding for
the settlement of the estate of the deceased debtor wherein his claim could be
filed." (Imperial Insurance Inc. v. David, 133 SCRA 317 [1984]). The notice is
undoubtedly left to the solidary creditor to determine against whom he will enforce
collection (PNB v. Independent Planters Association Inc., 122 SCRA 113 [1983]).

WHEREFORE, the resolutions of the Court of Appeals dated September 30, 1975,
November 21, 1975 and January 13, 1976 are Reversed and Set Aside. The appeal
interposed by petitioner-appellant is Dismissed for lack of merit and the decision of
the Court of First Instance of Manila, Branch VI dated May 28, 1974, is Affirmed in
toto.

SO ORDERED.

G.R. No. 81262

August 25, 1989

GLOBE MACKAY CABLE AND RADIO CORP., and HERBERT C. HENDRY, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and RESTITUTO M. TOBIAS, respondents.

Atencia & Arias Law Offices for petitioners.

Romulo C. Felizmena for private respondent.

CORTES, J.:

Private respondent Restituto M. Tobias was employed by petitioner Globe Mackay

Cable and Radio Corporation (GLOBE MACKAY) in a dual capacity as a purchasing
agent and administrative assistant to the engineering operations manager. In 1972,
GLOBE MACKAY discovered fictitious purchases and other fraudulent transactions for
which it lost several thousands of pesos.

According to private respondent it was he who actually discovered the anomalies

and reported them on November 10, 1972 to his immediate superior Eduardo T.
Ferraren and to petitioner Herbert C. Hendry who was then the Executive VicePresident and General Manager of GLOBE MACKAY.

On November 11, 1972, one day after private respondent Tobias made the report,
petitioner Hendry confronted him by stating that he was the number one suspect,
and ordered him to take a one week forced leave, not to communicate with the
office, to leave his table drawers open, and to leave the office keys.

On November 20, 1972, when private respondent Tobias returned to work after the
forced leave, petitioner Hendry went up to him and called him a "crook" and a
"swindler." Tobias was then ordered to take a lie detector test. He was also
instructed to submit specimen of his handwriting, signature, and initials for
examination by the police investigators to determine his complicity in the
anomalies.

On December 6,1972, the Manila police investigators submitted a laboratory crime

report (Exh. "A") clearing private respondent of participation in the anomalies.

Not satisfied with the police report, petitioners hired a private investigator, retired
Col. Jose G. Fernandez, who on December 10, 1972, submitted a report (Exh. "2")
finding Tobias guilty. This report however expressly stated that further investigation
was still to be conducted.

Nevertheless, on December 12, 1972, petitioner Hendry issued a memorandum

suspending Tobias from work preparatory to the filing of criminal charges against
him.

On December 19,1972, Lt. Dioscoro V. Tagle, Metro Manila Police Chief Document
Examiner, after investigating other documents pertaining to the alleged anomalous
transactions, submitted a second laboratory crime report (Exh. "B") reiterating his
previous finding that the handwritings, signatures, and initials appearing in the
checks and other documents involved in the fraudulent transactions were not those
of Tobias. The lie detector tests conducted on Tobias also yielded negative results.

Notwithstanding the two police reports exculpating Tobias from the anomalies and
the fact that the report of the private investigator, was, by its own terms, not yet
complete, petitioners filed with the City Fiscal of Manila a complaint for estafa
through falsification of commercial documents, later amended to just estafa.
Subsequently five other criminal complaints were filed against Tobias, four of which
were for estafa through Falsification of commercial document while the fifth was for
of Article 290 of' the Revised Penal Code (Discovering Secrets Through Seizure of
Correspondence).lwph1.t Two of these complaints were refiled with the Judge
Advocate General's Office, which however, remanded them to the fiscal's office. All
of the six criminal complaints were dismissed by the fiscal. Petitioners appealed four
of the fiscal's resolutions dismissing the criminal complaints with the Secretary of
Justice, who, however, affirmed their dismissal.

In the meantime, on January 17, 1973, Tobias received a notice (Exh. "F") from
petitioners that his employment has been terminated effective December 13, 1972.
Whereupon, Tobias filed a complaint for illegal dismissal. The labor arbiter dismissed
the complaint. On appeal, the National Labor Relations Commission (NLRC) reversed
the labor arbiter's decision. However, the Secretary of Labor, acting on petitioners'
appeal from the NLRC ruling, reinstated the labor arbiter's decision. Tobias appealed
the Secretary of Labor's order with the Office of the President. During the pendency

of the appeal with said office, petitioners and private respondent Tobias entered into
a compromise agreement regarding the latter's complaint for illegal dismissal.

Unemployed, Tobias sought employment with the Republic Telephone Company

(RETELCO). However, petitioner Hendry, without being asked by RETELCO, wrote a
letter to the latter stating that Tobias was dismissed by GLOBE MACKAY due to
dishonesty.

Private respondent Tobias filed a civil case for damages anchored on alleged
unlawful, malicious, oppressive, and abusive acts of petitioners. Petitioner Hendry,
claiming illness, did not testify during the hearings. The Regional Trial Court (RTC) of
Manila, Branch IX, through Judge Manuel T. Reyes rendered judgment in favor of
private respondent by ordering petitioners to pay him eighty thousand pesos
(P80,000.00) as actual damages, two hundred thousand pesos (P200,000.00) as
moral damages, twenty thousand pesos (P20,000.00) as exemplary damages, thirty
thousand pesos (P30,000.00) as attorney's fees, and costs. Petitioners appealed the
RTC decision to the Court of Appeals. On the other hand, Tobias appealed as to the
amount of damages. However, the Court of Appeals, an a decision dated August 31,
1987 affirmed the RTC decision in toto. Petitioners' motion for reconsideration
having been denied, the instant petition for review on certiorari was filed.

The main issue in this case is whether or not petitioners are liable for damages to
private respondent.

Petitioners contend that they could not be made liable for damages in the lawful
exercise of their right to dismiss private respondent.

On the other hand, private respondent contends that because of petitioners'

abusive manner in dismissing him as well as for the inhuman treatment he got from
them, the Petitioners must indemnify him for the damage that he had suffered.

One of the more notable innovations of the New Civil Code is the codification of
"some basic principles that are to be observed for the rightful relationship between
human beings and for the stability of the social order." [REPORT ON THE CODE
COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The
framers of the Code, seeking to remedy the defect of the old Code which merely

stated the effects of the law, but failed to draw out its spirit, incorporated certain
fundamental precepts which were "designed to indicate certain norms that spring
from the fountain of good conscience" and which were also meant to serve as
"guides for human conduct [that] should run as golden threads through society, to
the end that law may approach its supreme ideal, which is the sway and dominance
of justice" (Id.) Foremost among these principles is that pronounced in Article 19
which provides:

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

This article, known to contain what is commonly referred to as the principle of abuse
of rights, sets certain standards which must be observed not only in the exercise of
one's rights but also in the performance of one's duties. These standards are the
following: to act with justice; to give everyone his due; and to observe honesty and
good faith. The law, therefore, recognizes a primordial limitation on all rights; that in
their exercise, the norms of human conduct set forth in Article 19 must be observed.
A right, though by itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is exercised in a
manner which does not conform with the norms enshrined in Article 19 and results
in damage to another, a legal wrong is thereby committed for which the wrongdoer
must be held responsible. But while Article 19 lays down a rule of conduct for the
government of human relations and for the maintenance of social order, it does not
provide a remedy for its violation. Generally, an action for damages under either
Article 20 or Article 21 would be proper.

Article 20, which pertains to damage arising from a violation of law, provides that:

Art. 20. Every person who contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same.

However, in the case at bar, petitioners claim that they did not violate any provision
of law since they were merely exercising their legal right to dismiss private
respondent. This does not, however, leave private respondent with no relief because
Article 21 of the Civil Code provides that:

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

This article, adopted to remedy the "countless gaps in the statutes, which leave so
many victims of moral wrongs helpless, even though they have actually suffered
material and moral injury" [Id.] should "vouchsafe adequate legal remedy for that
untold number of moral wrongs which it is impossible for human foresight to provide
for specifically in the statutes" [Id. it p. 40; See also PNB v. CA, G.R. No. L-27155,
May 18,1978, 83 SCRA 237, 247].

In determining whether or not the principle of abuse of rights may be invoked, there
is no rigid test which can be applied. While the Court has not hesitated to apply
Article 19 whether the legal and factual circumstances called for its application [See
for e.g., Velayo v. Shell Co. of the Phil., Ltd., 100 Phil. 186 (1956); PNB v. CA, supra;
Grand Union Supermarket, Inc. v. Espino, Jr., G.R. No. L-48250, December 28, 1979,
94 SCRA 953; PAL v. CA, G.R. No. L-46558, July 31,1981,106 SCRA 391; United
General Industries, Inc, v. Paler G.R. No. L-30205, March 15,1982,112 SCRA 404;
Rubio v. CA, G.R. No. 50911, August 21, 1987, 153 SCRA 183] the question of
whether or not the principle of abuse of rights has been violated resulting in
damages under Article 20 or Article 21 or other applicable provision of law, depends
on the circumstances of each case. And in the instant case, the Court, after
examining the record and considering certain significant circumstances, finds that
all petitioners have indeed abused the right that they invoke, causing damage to
private respondent and for which the latter must now be indemnified.

The trial court made a finding that notwithstanding the fact that it was private
respondent Tobias who reported the possible existence of anomalous transactions,
petitioner Hendry "showed belligerence and told plaintiff (private respondent
herein) that he was the number one suspect and to take a one week vacation leave,
not to communicate with the office, to leave his table drawers open, and to leave
his keys to said defendant (petitioner Hendry)" [RTC Decision, p. 2; Rollo, p. 232].
This, petitioners do not dispute. But regardless of whether or not it was private
respondent Tobias who reported the anomalies to petitioners, the latter's reaction
towards the former upon uncovering the anomalies was less than civil. An employer
who harbors suspicions that an employee has committed dishonesty might be
justified in taking the appropriate action such as ordering an investigation and
directing the employee to go on a leave. Firmness and the resolve to uncover the

truth would also be expected from such employer. But the high-handed treatment
accorded Tobias by petitioners was certainly uncalled for. And this reprehensible
attitude of petitioners was to continue when private respondent returned to work on
November 20, 1972 after his one week forced leave. Upon reporting for work, Tobias
was confronted by Hendry who said. "Tobby, you are the crook and swindler in this
company." Considering that the first report made by the police investigators was
submitted only on December 10, 1972 [See Exh. A] the statement made by
petitioner Hendry was baseless. The imputation of guilt without basis and the
pattern of harassment during the investigations of Tobias transgress the standards
of human conduct set forth in Article 19 of the Civil Code. The Court has already
ruled that the right of the employer to dismiss an employee should not be confused
with the manner in which the right is exercised and the effects flowing therefrom. If
the dismissal is done abusively, then the employer is liable for damages to the
employee [Quisaba v. Sta. Ines-Melale Veneer and Plywood Inc., G.R. No. L-38088,
August 30, 1974, 58 SCRA 771; See also Philippine Refining Co., Inc. v. Garcia, G.R.
No. L-21871, September 27,1966, 18 SCRA 107] Under the circumstances of the
instant case, the petitioners clearly failed to exercise in a legitimate manner their
right to dismiss Tobias, giving the latter the right to recover damages under Article
19 in relation to Article 21 of the Civil Code.

But petitioners were not content with just dismissing Tobias. Several other tortious
acts were committed by petitioners against Tobias after the latter's termination from
work. Towards the latter part of January, 1973, after the filing of the first of six
criminal complaints against Tobias, the latter talked to Hendry to protest the actions
taken against him. In response, Hendry cut short Tobias' protestations by telling him
to just confess or else the company would file a hundred more cases against him
until he landed in jail. Hendry added that, "You Filipinos cannot be trusted." The
threat unmasked petitioner's bad faith in the various actions taken against Tobias.
On the other hand, the scornful remark about Filipinos as well as Hendry's earlier
statements about Tobias being a "crook" and "swindler" are clear violations of
'Tobias' personal dignity [See Article 26, Civil Code].

The next tortious act committed by petitioners was the writing of a letter to
RETELCO sometime in October 1974, stating that Tobias had been dismissed by
GLOBE MACKAY due to dishonesty. Because of the letter, Tobias failed to gain
employment with RETELCO and as a result of which, Tobias remained unemployed
for a longer period of time. For this further damage suffered by Tobias, petitioners
must likewise be held liable for damages consistent with Article 2176 of the Civil
Code. Petitioners, however, contend that they have a "moral, if not legal, duty to
forewarn other employers of the kind of employee the plaintiff (private respondent
herein) was." [Petition, p. 14; Rollo, p. 15]. Petitioners further claim that "it is the

accepted moral and societal obligation of every man to advise or warn his
fellowmen of any threat or danger to the latter's life, honor or property. And this
includes warning one's brethren of the possible dangers involved in dealing with, or
accepting into confidence, a man whose honesty and integrity is suspect" [Id.].
These arguments, rather than justify petitioners' act, reveal a seeming obsession to
prevent Tobias from getting a job, even after almost two years from the time Tobias
was dismissed.

Finally, there is the matter of the filing by petitioners of six criminal complaints
against Tobias. Petitioners contend that there is no case against them for malicious
prosecution and that they cannot be "penalized for exercising their right and
prerogative of seeking justice by filing criminal complaints against an employee who
was their principal suspect in the commission of forgeries and in the perpetration of
anomalous transactions which defrauded them of substantial sums of money"
[Petition, p. 10, Rollo, p. 11].

While sound principles of justice and public policy dictate that persons shall have
free resort to the courts for redress of wrongs and vindication of their rights
[Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the right to institute criminal
prosecutions can not be exercised maliciously and in bad faith [Ventura v. Bernabe,
G.R. No. L-26760, April 30, 1971, 38 SCRA 5871.] Hence, in Yutuk V. Manila Electric
Co., G.R. No. L-13016, May 31, 1961, 2 SCRA 337, the Court held that the right to
file criminal complaints should not be used as a weapon to force an alleged debtor
to pay an indebtedness. To do so would be a clear perversion of the function of the
criminal processes and of the courts of justice. And in Hawpia CA, G.R. No. L-20047,
June 30, 1967. 20 SCRA 536 the Court upheld the judgment against the petitioner
for actual and moral damages and attorney's fees after making a finding that
petitioner, with persistence, filed at least six criminal complaints against
respondent, all of which were dismissed.

To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a design to vex and humiliate a person and that it was initiated
deliberately by the defendant knowing that the charges were false and groundless
[Manila Gas Corporation v. CA, G.R. No. L-44190, October 30,1980, 100 SCRA 602].
Concededly, the filing of a suit by itself, does not render a person liable for
malicious prosecution [Inhelder Corporation v. CA, G.R. No. 52358, May 301983122
SCRA 576]. The mere dismissal by the fiscal of the criminal complaint is not a
ground for an award of damages for malicious prosecution if there is no competent
evidence to show that the complainant had acted in bad faith [Sison v. David, G.R.
No. L-11268, January 28,1961, 1 SCRA 60].

In the instant case, however, the trial court made a finding that petitioners acted in
bad faith in filing the criminal complaints against Tobias, observing that:

Defendants (petitioners herein) filed with the Fiscal's Office of Manila a total of six
(6) criminal cases, five (5) of which were for estafa thru falsification of commercial
document and one for violation of Art. 290 of the Revised Penal Code "discovering
secrets thru seizure of correspondence," and all were dismissed for insufficiency or
lack of evidence." The dismissal of four (4) of the cases was appealed to the
Ministry of Justice, but said Ministry invariably sustained the dismissal of the cases.
As above adverted to, two of these cases were refiled with the Judge Advocate
General's Office of the Armed Forces of the Philippines to railroad plaintiffs arrest
and detention in the military stockade, but this was frustrated by a presidential
decree transferring criminal cases involving civilians to the civil courts.

To be sure, when despite the two (2) police reports embodying the findings of Lt.
Dioscoro Tagle, Chief Document Examiner of the Manila Police Department, clearing
plaintiff of participation or involvement in the fraudulent transactions complained of,
despite the negative results of the lie detector tests which defendants compelled
plaintiff to undergo, and although the police investigation was "still under follow-up
and a supplementary report will be submitted after all the evidence has been
gathered," defendants hastily filed six (6) criminal cases with the city Fiscal's Office
of Manila, five (5) for estafa thru falsification of commercial document and one (1)
for violation of Art. 290 of the Revised Penal Code, so much so that as was to be
expected, all six (6) cases were dismissed, with one of the investigating fiscals,
Asst. Fiscal de Guia, commenting in one case that, "Indeed, the haphazard way this
case was investigated is evident. Evident likewise is the flurry and haste in the filing
of this case against respondent Tobias," there can be no mistaking that defendants
would not but be motivated by malicious and unlawful intent to harass, oppress,
and cause damage to plaintiff.

[RTC Decision, pp. 5-6; Rollo, pp. 235-236].

In addition to the observations made by the trial court, the Court finds it significant
that the criminal complaints were filed during the pendency of the illegal dismissal
case filed by Tobias against petitioners. This explains the haste in which the
complaints were filed, which the trial court earlier noted. But petitioners, to prove
their good faith, point to the fact that only six complaints were filed against Tobias
when they could have allegedly filed one hundred cases, considering the number of
anomalous transactions committed against GLOBE MACKAY. However, petitioners'
good faith is belied by the threat made by Hendry after the filing of the first
complaint that one hundred more cases would be filed against Tobias. In effect, the
possible filing of one hundred more cases was made to hang like the sword of
Damocles over the head of Tobias. In fine, considering the haste in which the
criminal complaints were filed, the fact that they were filed during the pendency of
the illegal dismissal case against petitioners, the threat made by Hendry, the fact
that the cases were filed notwithstanding the two police reports exculpating Tobias
from involvement in the anomalies committed against GLOBE MACKAY, coupled by
the eventual dismissal of all the cases, the Court is led into no other conclusion than
that petitioners were motivated by malicious intent in filing the six criminal
complaints against Tobias.

Petitioners next contend that the award of damages was excessive. In the complaint
filed against petitioners, Tobias prayed for the following: one hundred thousand
pesos (P100,000.00) as actual damages; fifty thousand pesos (P50,000.00) as
exemplary damages; eight hundred thousand pesos (P800,000.00) as moral
damages; fifty thousand pesos (P50,000.00) as attorney's fees; and costs. The trial
court, after making a computation of the damages incurred by Tobias [See RTC
Decision, pp. 7-8; Rollo, pp. 154-1551, awarded him the following: eighty thousand
pesos (P80,000.00) as actual damages; two hundred thousand pesos (P200,000.00)
as moral damages; twenty thousand pesos (P20,000.00) as exemplary damages;
thirty thousand pesos (P30,000.00) as attorney's fees; and, costs. It must be
underscored that petitioners have been guilty of committing several actionable
tortious acts, i.e., the abusive manner in which they dismissed Tobias from work
including the baseless imputation of guilt and the harassment during the
investigations; the defamatory language heaped on Tobias as well as the scornful
remark on Filipinos; the poison letter sent to RETELCO which resulted in Tobias' loss
of possible employment; and, the malicious filing of the criminal complaints.
Considering the extent of the damage wrought on Tobias, the Court finds that,

contrary to petitioners' contention, the amount of damages awarded to Tobias was

reasonable under the circumstances.

Yet, petitioners still insist that the award of damages was improper, invoking the
principle of damnum absque injuria. It is argued that "[t]he only probable actual
damage that plaintiff (private respondent herein) could have suffered was a direct
result of his having been dismissed from his employment, which was a valid and
legal act of the defendants-appellants (petitioners herein).lwph1.t " [Petition, p.
17; Rollo, p. 18].

According to the principle of damnum absque injuria, damage or loss which does
not constitute a violation of a legal right or amount to a legal wrong is not
actionable [Escano v. CA, G.R. No. L-47207, September 25, 1980, 100 SCRA 197;
See also Gilchrist v. Cuddy 29 Phil, 542 (1915); The Board of Liquidators v. Kalaw,
G.R. No. L-18805, August 14, 1967, 20 SCRA 987]. This principle finds no application
in this case. It bears repeating that even granting that petitioners might have had
the right to dismiss Tobias from work, the abusive manner in which that right was
exercised amounted to a legal wrong for which petitioners must now be held liable.
Moreover, the damage incurred by Tobias was not only in connection with the
abusive manner in which he was dismissed but was also the result of several other
quasi-delictual acts committed by petitioners.

Petitioners next question the award of moral damages. However, the Court has
already ruled in Wassmer v. Velez, G.R. No. L-20089, December 26, 1964, 12 SCRA
648, 653, that [p]er express provision of Article 2219 (10) of the New Civil Code,
moral damages are recoverable in the cases mentioned in Article 21 of said Code."
Hence, the Court of Appeals committed no error in awarding moral damages to
Tobias.

Lastly, the award of exemplary damages is impugned by petitioners. Although

Article 2231 of the Civil Code provides that "[i]n quasi-delicts, exemplary damages
may be granted if the defendant acted with gross negligence," the Court, in Zulueta
v. Pan American World Airways, Inc., G.R. No. L- 28589, January 8, 1973, 49 SCRA 1,
ruled that if gross negligence warrants the award of exemplary damages, with more
reason is its imposition justified when the act performed is deliberate, malicious and
tainted with bad faith. As in the Zulueta case, the nature of the wrongful acts shown
to have been committed by petitioners against Tobias is sufficient basis for the
award of exemplary damages to the latter.

WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals
in CA-G.R. CV No. 09055 is AFFIRMED.

SO ORDERED.

G.R. No. 117246

August 21, 1995

BENIGNO MANUEL, LIBERATO MANUEL, LORENZO MANUEL, PLACIDA MANUEL,

MADRONA MANUEL, ESPERANZA MANUEL, AGAPITA MANUEL, BASILISA MANUEL,
EMILIA MANUEL and NUMERIANA MANUEL, petitioners,
vs.
HON. NICODEMO T. FERRER, Presiding Judge, Regional Trial Court, Branch 37,
Lingayen, Pangasinan, MODESTA BALTAZAR and ESTANISLAOA MANUEL,
respondents.

VITUG, J.:

The property involved in this petition for review on certiorari is the inheritance left
by an illegitimate child who died intestate without any surviving descendant or
ascendant.

Petitioners, the legitimate children of spouses Antonio Manuel and Beatriz Guiling,
initiated this suit. During his marriage with Beatriz, Antonio had an extra-marital
affair with one Ursula Bautista. From this relationship, Juan Manuel was born.
Several years passed before Antonio Manuel, his wife Beatriz, and his mistress
Ursula finally crossed the bar on, respectively, 06 August 1960, 05 February 1981
and 04 November 1976.

Juan Manuel, the illegitimate son of Antonio, married Esperanza Gamba. In

consideration of the marriage, a donation propter nuptias over a parcel of land, with
an area of 2,700 square meters, covered by Original Certificate of Title ("OCT") No.
P-20594 was executed in favor of Juan Manuel by Laurenciana Manuel. Two other
parcels of land, covered by OCT P-19902 and Transfer Certificate of Title ("TCT") No.
41134, were later bought by Juan and registered in his name. The couple were not
blessed with a child of their own. Their desire to have one impelled the spouses to
take private respondent Modesta Manuel-Baltazar into their fold and so raised her
as their own "daughter".

On 03 June 1980, Juan Manuel executed in favor of Estanislaoa Manuel a Deed of

Sale Con Pacto de Retro (with a 10-year period of redemption) over a one-half (1/2)
portion of his land covered by TCT No. 41134. Juan Manuel died intestate on 21
February 1990. Two years later, or on 04 February 1992, Esperanza Gamba also
passed away.

On 05 March 1992, a month after the death of Esperanza, Modesta executed an

Affidavit of Self-Adjudication claiming for herself the three parcels of land covered
by OCT P-20594, OCT P-19902 and TCT No. 41134 (all still in the name of Juan
Manuel). Following the registration of the document of adjudication with the Office
of the Register of Deeds, the three titles
(OCT P-20594, OCT P-19902 and TCT No. 41134) in the name of Juan Manuel were
canceled and new titles, TCT No. 184223, TCT No. 184224 and TCT No. 184225,
were issued in the name of Modesta Manuel-Baltazar. On 19 October 1992, Modesta
executed in favor of her co-respondent Estanislaoa Manuel a Deed of Renunciation
and Quitclaim over the unredeemed one-half (1/2) portion of the land (now covered
by TCT No. 184225) that was sold to the latter by Juan Manuel under the 1980 Deed
of Sale Con Pacto de Retro. These acts of Modesta apparently did not sit well with
petitioners. In a complaint filed before the Regional Trial Court of Lingayen,
Pangasinan, the petitioners sought the declaration of nullity of the aforesaid
instruments.

The case, there being no material dispute on the facts, was submitted to the court a
quo for summary judgment.

The trial court, in its now assailed 15th August 1994 decision, dismissed the
complaint holding that petitioners, not being heirs ab intestato of their illegitimate
brother Juan Manuel, were not the real parties-in-interest to institute the suit.
Petitioners were also ordered to jointly and severally (solidarily) pay
(a) respondent Modesta Manuel-Baltazar the sum of P5,000.00 for moral damages,
P5,000.00 for exemplary damages, P5,000.00 for attorney's fees and P500.00 for
litigation expenses and (b) Estanislaoa Manuel the sum of P5,000.00 for moral
damages, P5,000.00 for exemplary damages and P500.00 for attorney's fees.

Petitioners' motion for reconsideration was denied by the trial court.

The petition before us raises the following contentions: That

1.
THE LOWER COURT (HAS) FAILED TO CONSIDER THE LAST PARAGRAPH OF
ARTICLE 994 OF THE NEW CIVIL CODE, AS THE CONTROLLING LAW APPLICABLE BY
VIRTUE OF THE ADMITTED FACTS, AND NOT ARTICLE 992 OF THE SAME CODE.

2.
THE LOWER COURT, IN NOT ANNULLING ALL THE ACTS OF, AND VOIDING ALL
DOCUMENTS EXECUTED BY, RESPONDENT MODESTA BALTAZAR, WHO ARROGATED
UNTO HERSELF THE RIGHTS OF AN HEIR TO THE ESTATE OF DECEDENT JUAN
MANUEL, (HAS) VIRTUALLY GRANTED SAID RESPONDENT THE STATUS OF AN HEIR
MANIFESTLY CONTRARY TO LAW, MORALS AND PUBLIC POLICY.

3.
TO ENFORCE ONE'S RIGHT WHEN THEY ARE VIOLATED IS NEVER A LEGAL
WRONG. 1

Petitioners argue that they are the legal heirs over one-half of Juan's intestate
estate (while the other half would pertain to Juan's surviving spouse) under the
provision of the last paragraph of Article 994 of the Civil Code, providing thusly:

Art. 994.
In default of the father or mother, an illegitimate child shall be
succeeded by his or her surviving spouse, who shall be entitled to the entire estate.

If the widow or widower should survive with brothers and sisters, nephews and
nieces, she or he shall inherit one-half of the estate, and the latter the other half.
(Emphasis supplied)

Respondents, in turn, submit that Article 994 should be read in conjunction with
Article 992 of the Civil Code, which reads:

Art. 992.
An illegitimate child has no right to inherit ab intestato from the
legitimate children and relatives of his father or mother; nor shall such children or
relative inherit in the same manner from the illegitimate child. (Emphasis supplied)

Article 992, a basic postulate, enunciates what is so commonly referred to in the

rules on succession as the "principle of absolute separation between the legitimate
family and the illegitimate family." The doctrine rejects succession ab intestato in
the collateral line between legitimate relatives, on the one hand, and illegitimate
relatives, on other hand, although it does not totally disavow such succession in the
direct line. Since the rule is predicated on the presumed will of the decedent, it has
no application, however, on testamentary dispositions.

This "barrier" between the members of the legitimate and illegitimate family in
intestacy is explained by a noted civilist. 2 His thesis:

What is meant by the law when it speaks of brothers and sisters, nephews and
nieces, as legal or intestate heirs of an illegitimate child? It must be noted that
under Art. 992 of the Code, there is a barrier dividing members of the illegitimate
family from members of the legitimate family. It is clear that by virtue of this barrier,
the legitimate brothers and sisters as well as the children, whether legitimate or
illegitimate, of such brothers and sisters, cannot inherit from the illegitimate child.
Consequently, when the law speaks of "brothers and sisters, nephews and nieces"
as legal heirs of an illegitimate child, it refers to illegitimate brothers and sisters as
well as to the children, whether legitimate or illegitimate, of such brothers and
sisters. (Emphasis supplied)

The Court, too, has had occasions to explain this "iron curtain", firstly, in the early
case of Grey v. Fabie 3 and, then, in the relatively recent cases of Diaz v.

Intermediate Appellate Court 4 and De la Puerta v. Court of Appeals. 5 In Diaz, we

have said:

Article 992 of the New Civil Code . . . prohibits absolutely a succession ab intestato
between the illegitimate child and the legitimate children and relatives of the father
or mother of said legitimate child. They may have a natural tie of blood, but this is
not recognized by law for the purposes of Article 992. Between the legitimate family
and the illegitimate family there is presumed to be an intervening antagonism and
incompatibility. The illegitimate child is disgracefully looked down upon by the
legitimate family; the legitimate family is, in turn, hated by the illegitimate child;
the latter considers the privileged condition of the former, and the resources of
which it is thereby deprived; the former, in turn, sees in the illegitimate child
nothing but the product of sin, palpable evidence of a blemish broken in life; the law
does no more than recognize this truth, by avoiding further grounds of resentment.

The rule in Article 992 has consistently been applied by the Court in several other
cases. Thus, it has ruled that where the illegitimate child had
half-brothers who were legitimate, the latter had no right to the former's
inheritance; 6 that the legitimate collateral relatives of the mother cannot succeed
from her illegitimate child; 7 that a natural child cannot represent his natural father
in the succession to the estate of the legitimate grandparent; 8 that the natural
daughter cannot succeed to the estate of her deceased uncle who is a legitimate
brother of her natural father; 9 and that an illegitimate child has no right to inherit
ab intestato from the legitimate children and relatives of his father. 10 Indeed, the
law on succession is animated by a uniform general intent, and thus no part should
be rendered inoperative 11 by, but must always be construed in relation to, any
other part as to produce a harmonious whole. 12

In passing, we might, in easy graphic presentation, collate the order of preference

and concurrence in intestacy expressed in Article 978 through
Article 1014, inclusive, of the Civil Code; viz.:

Order of Preference

Order of Concurrence

(a)

Legitimate Children and

(a)

Legitimate Children and

Descendants

Descendants, Illegitimate

Children and Descendants,

and Surviving Spouse

(b)

Legitimate Parents and

(b)

Legitimate Parents and

Ascendants

Ascendants Illegitimate

Children and Descendants,

and Surviving Spouse

(c)

Illegitimate Children and

(c)

Illegitimate Children and

Descendants (in the absence

Descendants and Surviving

of ICDs and LPAs, the

Spouse

Illegitimate Parents)

(d)

Surviving Spouse

(d)

Surviving Spouse and

Illegitimate Parents

(e)

Brothers and Sisters/

(e)

Brothers and Sisters/

Nephews and

Nephews and Nieces

Nieces

and Surviving Spouse

(f)

Other Collateral Relatives

(f)

Alone

(within the fifth civil degree)

(g)

State

(g)

Alone

In her answer to the complaint, Modesta candidly admitted that she herself is not an
intestate heir of Juan Manuel. She is right. A ward (ampon), without the benefit of
formal (judicial) adoption, is neither a compulsory nor a legal heir. 13

We must hold, nevertheless, that the complaint of petitioners seeking the nullity of
the Affidavit of Self-Adjudication executed by Modesta, the three (3) TCT's issued to
her favor, as well as the Deed of Renunciation and Quitclaim in favor of Estanislaoa
Manuel, was properly dismissed by the trial court. Petitioners, not being the real
"parties-in-interest" 14 in the case, had neither the standing nor the cause of action
to initiate the complaint.

The Court, however, sees no sufficient reason to sustain the award of amounts for
moral and exemplary damages, attorney's fees and litigation expenses. An adverse
result of a suit in law does not mean that its advocacy is necessarily so wrongful as
to justify an assessment of damages against the actor. 15

WHEREFORE, the appealed decision of the Regional Trial Court of Pangasinan

(Branch 37) is AFFIRMED, except insofar as it has awarded moral and exemplary
damages, as well as attorney's fees and litigation expenses, in favor of private
respondents, which portion is hereby DELETED. No special pronouncement on costs.

SO ORDERED.

G.R. No. 103073

March 13, 2001

REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and R & B SURETY AND INSURANCE COMPANY,
INC., respondents.

RESOLUTION

VITUG, J.:

Submitted for resolution is a motion for reconsideration of the decision, dated 14

September 1999, of the Court. Respondent-movant R & B Surety and Insurance, Inc.
("R & B"), contends that

"I

"THE SUSPENSION OF ENDELO'S LICENSE TO OPERATE RENDERED THE OBLIGATION

TO RE-EXPORT IMPOSSIBLE OF PERFORMANCE AND/OR EQUIVALENT TO
CANCELLATION OR REVOCATION OF SAID LICENSE, THEREBY DISCHARGING THE
SURETY FROM ITS OBLIGATION.

"II

"ASSUMING ARGUENDO THAT R & B SURETY IS LIABLE, IT IS NOT SOLIDARILY LIABLE

WITH THE OTHER SURETY, COMMUNICATIONS INSURANCE COMPANY, INC. (CICI) AS
ERRONEOUSLY HELD BY THE RTC.

"III

"IN BOND NUMBERS 0064 AND 0073, R & B SURETY WAS ERRONEOUSLY CHARGED
FOR MORE THAN THE FACE VALUE OF THE BOND WHILE IN BOND NUMBER 0067, R &
B SURETY WAS MISTAKENLY CHARGED TWICE IN PALPABLE VIOLATION OF SECTION
176 OF THE INSURANCE CODE LIMITING THE SURETY'S LIABILITY TO THE AMOUNT
OF THE BOND."1

Additionally, respondent argues that it should not be held liable for the payment of
legal interest which would increase its liability beyond the amount of the bond.

The Court, in its resolution of 15 November 1999, required the Solicitor General to
comment on the motion for reconsideration. In his concluding statement, the
Solicitor General stated:

"WHEREFORE, except for its plea for modification of this Honorable Court's Decision
on the amount of its liability, it is respectfully prayed that private respondent's
Motion for Reconsideration be denied for lack of merit."2

Relative to the first ground invoked by movant, suffice it to state that was not
clearly shown that the suspension of Endelo's license had rendered it impossible for
Endelo to re-export the articles in question, or that such a suspension had

amounted to a cancellation or revocation of its license that could thereby justify a

discharge of respondent R & B from its liability. The matter was sufficiently
discussed in the Courts decision

"Admittedly, Endelo's license to operate was suspended sometime in 1970, a fact

clearly gleanable from the allegations of Endelo in its Answer to the Complaint,
claiming that its failure to export the imported raw materials in its original state or
as finished products was due to the suspension of its license to operate allegedly
done illegally and unnecessarily by the Board. Such allegation of illegal and
unnecessary suspension was, however, not backed by any supporting evidence.
Neither is there sufficient proof that the suspension of Endelo's license was made
during the two-year period. Much less has it been shown that such suspension
prevented it from complying with its obligations under the bonds.

"Records show that the pilferage by Endelo and the subsequent investigation
conducted thereon, which resulted in the suspension of its license in 1970, was
admitted by Atty. Casareno under cross-examination on October 23, 1986. That the
investigation report thereon could not be produced was adequately explained by
Atty. Casareno who testified that the investigation report and records pertaining to
such investigation have been condemned since the said documents were kept in the
custody of the Bureau of Customs only for a period of five (5) years.

"Having relied on the illegality of its suspension by way of defense, Endelo and not
petitioner has the burden of proving the same. In addition, Endelo was duty-bound
to prove whether or not the suspension of its license was for an indefinite period or
merely for a limited time. Despite this well-established rule, the Court of Appeals
shifted that burden to the petitioner, and without any sustainable basis, upheld the
theory of Endelo that the suspension of its license was invalid. But no such
implication can be drawn either from the failure of petitioner to show the propriety
of the suspension order or from the mere non-production of the documents or
records of the alleged investigation prior to the order of suspension. Further, absent
convincing evidence to the contrary, the presumption of regularity in the
performance of official functions has to be applied.

"xxx

xxx

xxx

"x x x What is more, Endelo was not without recourse insofar as its duty to comply
with its obligation was concerned. Assuming for the sake of argument that the
suspension in question was indeed illegal, records show no effort on the part of
Endelo to have the said suspension lifted by the Embroidery and Apparel Control
and Inspection Board. As aptly observed by petitioner, such omission has bolstered
the submission that the suspension of Endelo's license was proper and the alleged
pilferage was the main cause therefor. Moreover, it does not appear that Endelo was
precluded from exporting the imported materials subject of the controversy, in their
original state, within two (2) years from the time they were deposited in the bonded
warehouse of the Bureau of Customs."3

Movant next argues that R & B should not be held liable for more than the face
value of the bonds. This argument indeed has its merit. Section 176 of the
Insurance Code provides:

"SECTION 176.
The liability of the surety of sureties shall be joint and several
with the obligor and shall be limited to the amount of the bond. It is determined
strictly by the terms of the contract of suretyship in relation to the principal contract
between the obligor and the obligee, (as amended by P.D. No. 1455)."

The face values of the bonds issued by respondent-movant are hereunder itemized,
viz:

R & B Bond

Face Value of the Bond

(1)

0064 dated 20 February 1970

P500,000.00

(2)

0067 dated 18 March 1970 as increased by Bond Indorsement dated 29 April 1970

1,000,000.00

(3)

0067 dated 01 March 1970 as increased by Bond Indorsement dated 29 April 1970

1,000,000.00

(4)

0073 dated 10 April 1970

500,000.00

P3,000,000.00

The trial court required respondent-movant R & B to pay petitioner the total amount
of P4,305,017.00, representing taxes and duties due to it in the four causes of
actions covering the four embroidery bonds, which was well above the total face
value of the bonds in the sum of P3,000,000.00. R & B's liability should instead be
computed thusly:

Duties and Taxes Due Petitioner

R & B Bonds

Amount Due (Legal Interest excluded)

(1)

P1,515,798.00

(0064)

P500,000.00

P500,000.00

(2)

662,961.00

(0067)

1,000,000.00

662,961.00

(3)

1,200,651.00

(0073)

500,000.00

500,000.00

(4)

925,607.00

(0067)

1,000,000.00

925,607.00

TOTAL

P4,305,017.00

P3,000,000.00

P2,588,568.00

plus "legal interest" on the amount due (P2,588,568.00) from the time of the filing
of the complaint until fully paid. R & B's claim that it should not be held liable to pay
legal interest thereon cannot be sustained since the payment for legal interest is for
the incurrence of default and the necessity of judicial collection.4

Respondent-movant opines that its liability should be pro-rated with that of CICI
since R & B's liability is solidary with that of Endelo and not with CICI. The
contention is unacceptable considering that the joint and several liability of the
surety (R & B) and the obligor (Endelo) gave petitioner the right to compel
performance of the full obligation from both Endelo and R & B or from either of
them.5

WHEREFORE, the motion for reconsideration is partially granted by modifying the

decision of the Regional Trial Court, dated 13 February 1989, limiting the liability of
respondent R & B Surety and Insurance, Inc., for duties and taxes due to petitioner
only in the amount of P2,588,568.00 plus legal interest thereon, however, from the
filing of the complaint until fully paid. The decision of this Court sought to be
reconsidered is thusly modified.

SO ORDERED.