Republic of the Philippines Ultimately, during this period the nature of the possession of the
SUPREME COURT defendants had been good faith, public and with the belief that there has
Manila
SECOND DIVISION
G.R. No. L-52278 May 29, 1980
MARCIANA DE MORALES, petitioner,
vs.
THE HONORABLE COURT OF FIRST INSTANCE OF MISAMIS OCCIDENTAL, BRANCH II
OZAMIS CITY, FELICIDAD BUSARANG AND FORTUNATO GONZAGA, respondents.
ABAD SANTOS, J.:
This is a petition to review and set aside the Order, dated October 10, 1979, of the respondent
judge which dismissed the petitioner's complaint on ground of prescription. It has been filed
pursuant to the provisions of Republic Act No. 5440 for only a question of law is involved.
The antecedent facts are: On September 26, 1957, Rosario Morales-Terez and Santiago Terez,
petitioner's predecessors-in-interest, filed Civil Case No. 2031 in the Court of First Instance of
Misamis Occidental, Branch 11 at Ozamis City, against Felicidad Busarang and Fortunato
Gonzaga, private respondents herein, for the recovery of possession, ownership, unpaid rentals
and damages of one-half of a piece of land and one-half of the house built thereon situated at
the poblacion of Ozamis City. After issues had been joined, the trial court issued an Order, dated
January 24, 1963, dismissing the complaint, third-party complaint and counter-claim for failure
to prosecute. A motion for reconsideration was filed by the Terez spouses based on reasons which
need not be stated here so the court issued another Order, dated August 12, 1963, modifying
the dismissal to be without prejudice.
On May 7, 1978, petitioner as plaintiff and as successor-in-interest of Rosario Morales-Terez
filed Civil Case No. OZ-704 in the court presided by the respondent judge, against Felicidad
Busarang and Fortunato Gonzaga with allegations and reliefs substantially similar to those
stated in Civil Case No. 2031 which had been previously dismiss without prejudice.
On May 31, 1978, private respondents filed their answer, denying the allegations of the complaint
and setting up, among others, the affirmative defense that plaintiff's cause of action was barred
by prescription. On October 10, 1979, the respondent judge issued an Order which is the subject
of the present petition and which reads: t.hqw
During the hearing of the special affirmative defense of prescription, the
defendants presented as evidence the Order of the Court dated August 12,
1963 dismissing without prejudice Civil Case No. 2031 entitled Rosauro
Terez, et al., versus Felicidad Busarang, et al, and that after the lapse of
fifteen years, the right of the plaintiffs to recover possession and ownership
of the real property had already prescribed and/or that the plaintiffs had
been guilty of laches by sleeping on their rights during this period.
It appears that Civil Case No. 2031, involved the same parties and subject-
matter with the same relief prayed for in this case. After the former case
was dismissed on August 12, 1963 without prejudice, the herein plaintiffs
shall have refiled the case within ten (10) years, otherwise their right to
recover possession and ownership of the real property shall prescribed.
been no flaw in the title after the first case was dismissed.
WHEREFORE, the complaint is hereby dismissed on the ground of
prescription without pronouncement as to costs.
The questioned Order has to be set aside as prayed by the petitioner.
There are two kinds of prescription provided in the Civil Code. One is acquisitive, i.e. the
acquisition of a right by the lapse of time. (Art. 1106, par. 1) Other names for acquisitive
prescription are adverse possession and usucapcion. The other kind is extinctive prescription
whereby rights and actions are lost by the lapse of time. (Arts, 11 06, par. 2 and 1139.) Another
name for extinctive prescription is litigation of action.
The differences between acquisitive and extinctive prescriptions are well-stated as
follows: t.hqw
Prescription was a statute of limitations. Whereas usucaption expressly
'vests the property' and raised a new title in the occupant, prescription did
nothing more than bar the right of action. The concept most fundamental
to a system of title by possession is that the relationship between the
occupant and he land in terms of possession is capable of producing legal
consequences. In other words, it is the possessor who is the actor. Under a
statute of stations, however, one does not look to the act of the possessor
but to the neglect of the owner. In the former the important feature is the
claimant in possession, and in the latter it is the owner out of possession
which controls.
(Montgomery, Prescriptive Acquisition of land Titles, XXVI, Philippine Law
Journal, 353, 356-357 [195].)
In the present case, it is extinctive prescription which is involved and the subject matter being
real or immovable property, the relevant provision of the Civil Code is Art. 1141 which
reads: t.hqw
Art. 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition
of ownership and other real rights by prescription.
Indubitably, from August 12, 1963, to May 7, 1978, less than thirty (30) years had elapsed.
Hence the action had not yet prescribed. However, the respondent judge apparently relying on
paragraph 2 of the above-quoted article has ruled in effect that the action is barred because the
defendants have acquired the subject matter of the action by acquisitive prescription of ten (10)
years (See Art. 1136, Civil Code.) This is manifest error for the defendants have not claimed
acquisitive prescription in their answer and even if they did, it cannot be given judicial sanction
on mere allegations. The law requires one who asserts ownership by adverse possession to prove
the presence of the essential elements which in ordinary acquisitive prescription of real estate
are good faith, a just title (which according to Art. 1131 is, never presumed but must be proved),
and the lapse of time fixed by law. (Art. 1117, par. 2, Civil Code.) This was not done by the
defendants before the respondent judge dismissed the complaint against them.
WHEREFORE, the Order, dated October 10, 1979, of the respondent judge is hereby set aside
and he is ordered to reinstate Civil Case No. OZ-704. Costs against the private respondents.
1
SO ORDERED.

Barredo (Chairman), Concepcion, Jr., and De Castro, JJ., concur.1wph1.t

Aquino, J., concurs in the result.

2
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 112519 November 14, 1996
CATHOLIC BISHOP OF BALANGA, respresented by CRISPULO TORRICO, petitioner,
vs.
THE HON. COURT OF APPEALS and AMANDO DE LEON, respondents.
HERMOSISIMA, JR., J.:
It is the cardinal principle in Land Registration that a torrens title is indefeasible and
inprescriptible. Considering that private respondent in this case, by himself and
through his predecessor-in-interest, had been in uninterrupted, open and adverse
possession of a portion of the land covered by said title for 49 years, by virtue of a duly
accepted donation, although unregistered, will private respondent, under this
circumstance, prevail over the titled owner?
Thus, we have before us this petition for review of a decision 1 of the Court of
Appeals 2 reversing the Regional Trial Court (RTC) 3 which rendered judgment 4 in
favor of petitioner and ordered private respondent to vacate the subject property and
surrender possession thereof to petitioner and to pay rent from the finality of the RTC
judgment until the said property is actually vacated.
We quote, as the herein parties have done so in their pleadings, the following narration
of facts rendered by the respondent appellate court:
The parties do not dispute that the Roman Catholic Archbishop [sic] of
Manila was the owner of a parcel of land (Lot No. 1272, Balanga Cadastre)
situated in the Barrio of Puerto Rivas, Municipality of Balanga, Bataan,
having an area of 3,368 sq. m., more or less covered by OCT No. 14379 of
de Registry of Deeds for the province of Bataan. With respect to its rights
over its properties in Bataan (inclusive of Lot No. 1272), the said church
was succeeded by the Roman Catholic Bishop of San Fernando, Pampanga
which was, likewise, succeeded by . . . Catholic Bishop of Balanga
registered as a corporation on 15 December 1975.
Prior thereto, or on 23 August 1936, by virtue of the authority given him by
the Roman Catholic Archbishop of Manila to donate a portion of Lot No.
1272, the then parish priest and administrator of all the properties of the
said church in the Municipality of Balanga Bataan, Rev. Fr. Mariano Sarili,
executed an Escritura De Donacion donating an area of 12.40 meters by
21.40 meters or 265.36 sq. m (the subject property) of Lot No. 1272 to Ana
de los Reyes and her heirs, as a reward for her long and satisfactory service
to the church. Her acceptance of the donation, as well as her possession of
the subject property, is indicated in the deed of donation, which deed, for
unknown reasons, was refused registration by the Register of Deeds. Six (6)
The court a quo having rendered judgment against private respondent, the latter lost
years later, or in 1939, Ana de los Reyes died without issue.
no time in bringing the case to the respondent Court of Appeals for review.
Nevertheless, before her death, she had given the subject property to her
nephew who had been living with her, the herein defendant-appellant
[private respondent]. The latter immediately took possession of the property
in the concept of owner, built his house thereon and, through the years,
declared the land for taxation purposes as well as paid the taxes due
thereon.
His possession of the subject property was never disturbed by anybody until
plaintiff-appellee [petitioner] filed the instant complaint against him on 5
November 1985, or more than 49 years after the deed of donation was
executed, alleging, among others, that: (1) during the Japanese occupation
of the country, defendant-appellant [private respondent], without the
knowledge and prior consent of the plaintiff-appellee [petitioner], and its
predecessors-in-interest, entered and occupied the subject property, and
(2) despite requests by plaintiff-appellee [petitioner], defendant-appellant
[private respondent] refused to vacate the property in question. In support
of the above contention, Crispulo Torrico, the sole witness and authorized
representative of plaintiff-appellee [petitioner] testified, among others, that:
the subject property is situated at the corner of Lot No. 1272, and
defendant-appellant [private respondent] has, on the strength of the deed
of donation, publicly claimed ownership and occupied the same as early as
before the 2nd World War and has built his store thereon.
As his defense, defendant-appellant [private respondent] maintains that by
virtue of the deed of donation of 23 August 1936 executed in favor of his
predecessor-in-interest, he is the lawful owner of the subject property and
the complaint states no cause of action as it was filed only to harass him.
xxx xxx xxx
On 27 and 30 October 1986, 10 months after he filed his answer on 10
December 1985 and almost 3 months after plaintiff-appellee [petitioner]
rested its case . . . defendant-appellant [private respondent] filed his
motions [sic] to dismiss the complaint on the ground that . . . the instant
action is barred by the statute of limitations. Plaintiff-appellee [petitioner]
filed on 3 November 1986 its opposition to the motion alleging that the
defense of prescription was not raised in a timely filed motion to dismiss,
and as an affirmative defense in the answer . . .
On 13 November 1989 the lower court rendered the judgment . . . It opined
that, since: (1) defendant-appellant [private respondent] failed to present
the necessary power of attorney executed by the Roman Catholic
Archbishop of Manila giving Rev. Fr. Mariano Sarili the authority to execute
the deed of donation; (2) the first 2 paragraphs of the Excritura de Donacion
indicates that the parish priest . . . was only the administrator of all, hence,
had no authority to dispose in whatever manner any of the properties of the
Roman Catholic Church of Balanga, Bataan; (3) the parish priest was not a
corporation sole and registered owner of Lot No. 1272; and, (4) he did not,
in his own behalf or that of the Roman Catholic Archbishop of Manila,
secure any prior leave of court to donate a portion of Lot No. 1272 in
consonance with Sec. 159 of the old Corporation
Code . . . Rev. Fr. Mariano Sarili was not authorized to, and could not
validly, donate the subject lot. Thus, the deed of donation he executed is
unenforceable under Art. 1403 of the New Civil Code and defendant-
appellant [private respondent], as well as his predecessor-in-interest, never
acquired ownership over the subject property. 5
3
 In his appeal, defendant-appellant [private respondent] contend[ed] that the
lower court erred in not ruling on the issue of prescription which he raised
in his amended answer and motion to dismiss. The thrust of his argument
[was] that, since the instant case [was] basically and fundamentally a suit
for the recovery of possession of a real property and the complaint was filed
. . . more than 49 years after the deed of donation was executed . . . the
instant action should have been dismissed on the ground of prescription .
. .6
Respondent court is in agreement with private respondent's insistence that the
defense of prescription is not deemed waived when prescription is apparent from the
allegations in the complaint, citing this court's ruling in the cases of Gicano
vs. Gegato, 7 Garcia vs. Mathis, 8 and PNB vs. Pacific Commission House. 9 But
respondent court also stated that private respondent could not have acquired
ownership over the subject property through acquisitive prescription because the
same having been duly registered under the Torrens system, title thereto was
indefeasible.
Nonetheless, respondent Court of Appeals ultimately ruled that under the doctrine of
laches, the consequence of petitioner's inaction for 49 years since the execution of the
deed of donation, despite its apparently undeniable knowledge of private respondent's
adverse, peaceful and continuous possession of the subject property in the concept of
an owner from 1936 to the institution of the recovery suit in 1985, is that it has lost
its rights to the subject property and can no longer recover the same due to its own
inexcusable negligence and grave lack of vigilance in protecting its rights over a
tremendously long period of time. In the words of the respondent court:
. . . He (private respondent] and his predecessor-in-interest have been in
adverse, peaceful and continuous possession of the subject property in the
concept of owners since the execution of the deed of donation on 23 August
1936 and were never ousted therefrom by plaintiff-appellee's [petitioner's]
predecessors-in-interest. It was not until almost 5 decades later or on 5
November 1985 that plaintiff-appellee [petitioner] instituted the instant
action. The inaction for almost half a century now bars plaintiff-appellee
[petitioner] from recovering the land in question on the equitable principles
of laches, which is defined as "such neglect or omission to assert a right
taken in conjunction with the lapse of time and other circumstances
causing prejudice to the adverse party as will operate as a bar in equity."
Registered lands may not be acquired by prescription but the same can be
lost or acquired by Laches, [citing Lola vs. CA, 145 SCRA 439] Plaintiff-
appellee [petitioner] has lost, while defendant-appellant [private
respondent] has acquired, the subject property by laches. 10
Now aggrieved by the aforecited decision of the respondent Court of Appeals, petitioner
comes before us mainly claiming that it was contrary to the law and settled
jurisprudence for the respondent court to have applied the doctrine of laches in the
instant case and to have considered a mere administrator as authorized to donate one
of the properties under administration.
Petitioner's asseverations are devoid of merit.
First, petitioner postulates that the respondent Court of Appeals should not have, in
the first place, applied the doctrine of laches in the instant controversy because private
respondent did not assign the same as an error on appeal.
True, the appealing party is legally required to indicate in his brief an assignment of
errors, 11 and only those assigned shall be considered by the appellate court in
deciding the case. 12 However, equally settled in jurisprudence is the exception to this
general rule.
. . . Roscoe Pound states that "according to Ulpian in Justinian's Digest,
appeals are necessary to correct the unfairness or unskillfulness of those
who judge." Pound comments that "the purpose of review is prevention quite
as much as correction of mistakes. The possibility of review by another
tribunal, especially a bench of judges . . . is an important check upon
tribunals of first instance. It is a preventive of unfairness. It is also a
stimulus to care and thoroughness as not to make mistakes." Pound adds
that "review involves matters of concern both to the parties to the case and
to the public . . . It is of public concern that full justice be done to [e]very
one." This judicial injunction would best be fulfilled and
the interest of full justice would best be served if it should be maintained
that . . . appeal brings before the reviewing court the totality of the
controversy resolved in the questioned judgment and order apart from the
fact that such full-scale review by appeal is expressly granted as a matter
of right and therefore of due process by the Rules of Court. 13
Guided by the foregoing precepts, we have ruled in a number of cases that the
appellate court is accorded a broad discretionary power to waive the lack of proper
assignment of errors and to consider errors not assigned. 14 It is clothed with ample
authority to review rulings even if they are not assigned as errors in the
appeal.15 Inasmuch as the Court of Appeals may consider grounds other than those
touched upon in the decision of the trial court and uphold the same on the basis of
such other grounds, 16 the Court of Appeals may, with no less authority, reverse the
decision of the trial court on the basis of grounds other than those raised as errors on
appeal. We have applied this rule, as a matter of exception, in the following instances:
(1) Grounds not assigned as errors but affecting jurisdiction over the subject matter; 17
(2) Matters not assigned as errors on appeal but are evidently plain or clerical errors
within contemplation of law; 18
(3) Matters not assigned as errors on appeal but consideration of which is necessary
in arriving at a just decision and complete resolution of the case 19 or to serve the
interests of justice 20 or to avoid dispensing piecemeal justice; 21
(4) Matters not specifically assigned as errors on appeal but raised in the trial court
and are matters of record having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored; 22
(5) Matters not assigned as errors on appeal but closely related to an error
assigned; 23 and
(6) Matters not assigned as errors on appeal but upon which the determination of a
question properly assigned, is dependent. 24
The instant controversy falls squarely under the exception to the general rule that only
assigned errors may be passed upon by the appellate court. A just, fair and complete
resolution of the present case necessitates the consideration and the application of
the doctrine of laches which is not the same as but is undoubtedly closely related to,
the issue of prescription which was properly raised by private respondent before the
respondent Court of Appeals.
4
Laches means the failure or neglect for an unreasonable and unexplained length of
time, to do that which, by exercising due diligence, could or should have been done
earlier; it is negligence or omission to assert a right within a reasonable time,
warranting the presumption that the party entitled to assert it either has abandoned
or declined to assert it. 25 It has also been defined as such neglect or omission to assert
a right taken in conjunction with the lapse of time and other circumstances causing
prejudice to an adverse party, as will operate as a bar in equity. 26
The principle of laches is a creation of equity which, as such, is applied not really to
penalize neglect or sleeping upon one's right, but rather to avoid recognizing a right
when to do so would result in a clearly inequitable
situation. 27 As an equitable defense, laches does not concern itself with the character
of the defendant's title, but only with whether or not by reason of the plaintiff's long
in action or inexcusable neglect, he should be barred from asserting this claim at all,
because to allow him to do so would be inequitable and unjust to the defendant. 28
The doctrine of laches or of stale demands is based upon grounds of public
policy which requires, for the peace of society, the discouragement of stale
claims and . . . is principally a question of the inequity or unfairness of
permitting a right or claim to be enforced or asserted. 29
The time-honored rule anchored on public policy is that relief will be denied to a
litigant whose claim or demand has become "stale", or who has acquiesced for an
unreasonable length of time, or who has not been vigilant or who has slept on his
rights either by negligence, folly or inattention. 30 In other words, public policy
requires, for the peace of society, the discouragement of claims grown stale for non-
assertion; thus laches is an impediment to the assertion or enforcement of a right
which has become, under the circumstances, inequitable or unfair to permit. 31
The following are the essential elements of laches:
(1) Conduct on the part of the defendant, or of one under whom he claims, giving rise
to the situation complained of;
(2) Delay in asserting complainant's right after he had knowledge of the defendant's
conduct and after he has an opportunity to sue;
(3) Lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and
(4) Injury or prejudice to the defendant in the event relief is accorded to the
complainant. 32
Under the present circumstances, all of the aforegoing elements are attendant in this
case.
On or some time before August 23, 1936, Rev. Fr. Mariano Sarili, the parish priest
and administrator of the church property in the Municipality of Balanga, Bataan,
executed a deed of donation over a 265-square meter church lot in favor of Ana de los
Reyes and her heirs in recognition of her long and satisfactory service to the church
of Balanga, Bataan. For some reason or another, the said deed was refused
registration by the Register of Deeds. However, she accepted the donation, indicated
such acceptance in the said deed, occupied the donated property, and exercised acts
of ownership thereupon.
In 1945, the donee, Ana de los Reyes, died without issue. She had, however, given the
subject property to her nephew who is the private respondent in the instant case.
Upon acceptance of the gift, private respondent immediately took possession of the
subject property in the concept of owner, built his house thereon, and thenceforth
paid land taxes therefor after declaring the subject property for that purpose.
The act of petitioner-defendant that culminated in the filing of the present action is
thus clearly his occupation since 1945 of the subject property in the concept of owner
in continuation of the occupation of the same nature regarding the same property by
the donee Ana de los Reyes starting in 1936. Undoubtedly, the first element of laches
exists.
The second element also exists in this case. The second element is three-tiered: (a)
knowledge of defendant's action; (b) opportunity to sue defendant after obtaining such
knowledge; and (c) delay in the filing of such suit. Petitioner, in his complaint filed in
the trial court, alleged that without its consent, private respondent entered and
occupied the subject property during the Second World War. By its own admission,
therefore, petitioner was clearly aware of private respondent's possession of the
subject property in the concept of owner. Petitioner did not also rebut the testimony
of its own authorized representative and sole witness, one Crispulo Torrico, that the
subject property was so proximately located to the rest of petitioner's church property
as to foreclose assertion of ignorance of private respondent's possession of the subject
property, on the part of petitioner.
From that time during the Second World War to 1985 when petitioner actually
commenced suit against private respondent, there was doubtlessly all the opportunity
to file the appropriate action to have the donation of the subject property to Ana de
los Reyes and her heirs, declared null and void and to demand reconveyance of said
property from its present occupants.
Notwithstanding such opportunity available to petitioner, however, forty (40) years
had to first pass by for petitioner to finally institute the appropriate court proceedings.
As such, the second element of knowledge, opportunity to file suit, and delay in filing
such suit, is undoubtedly present in the instant controversy.
The third element of laches is likewise present. There is nothing on the record that
impresses us as clear evidence of at least an inkling on the part of private respondent
as to petitioner's serious intention to revoke the donated property. There was neither
a demand letter nor positive testimony of any person who actually informed private
respondent of petitioner's intentions. In other words, private respondent manifestly
had every reason to believe that, with the passing of almost half a century since his
predecessor-in-interest accepted the donated property and without unambiguous
intimation of petitioner's non-recognition of such donation, he was secure in his
possession of the subject property in the concept of owner.
In the light of all the above, it goes without saying that private respondent will suffer
irreparable injury under the most unfair circumstances, were we to disregard
petitioner's inaction for more than forty (40) years in asserting its rights.
In applying the doctrine of laches, we had ruled that where a party allows the following
number of years to lapse from the emergence of his cause of action, before instituting
court action to enforce his claim, such action would be barred by the equitable defense
of laches: 36 years; 33 12 years; 34 50 years; 35 34 years; 3637 years; 37 32 years; 38 20
years; 39 47 years; 40 11 years; 41 25
years; 42 40 years; 43 19 years; 44 27 years; 45 7 years; 46 44 years; 47 4 years 48 and 67
years 49.
5
 In this case, petitioner filed its complaint in court only after forty nine (49) years had
lapsed since the donation in its behalf of the subject property to private respondent's
predecessor-in-interest. There is nary an explanation for the long delay in the filing by
petitioner of the complaint in the case at bench, and that inaction for an unreasonable
and unexplained length of time constitutes laches. As such, petitioner cannot claim
nullity of the donation as an excuse to avoid the consequences of its own unjustified
inaction and as a basis for the assertion of a right on which they had slept for so
long. 50 Courts cannot look with favor at parties who, by their silence, delay and
inaction, knowingly induce another to spend time, effort, and expense in cultivating
the land, paying taxes and making improvements thereon for an unreasonable period
only to spring an ambush and claim title when the possessor's efforts and the rise of
land values offer an opportunity to make easy profit at their own
expense. 51 Considerable delay in asserting one's right before a court of justice is
strongly persuasive of the lack of merit of his claim, since it is human nature for a
person to enforce his right when same is threatened or invaded; thus, it can also be
said that petitioner is estopped by laches from questioning private respondent's
ownership of the subject property. 52 At any rate, petitioner's right to recover the
possession of the subject property from private respondent has, by the latter's long
period of possession and by petitioner's inaction and neglect, been converted into a
stale demand. Such passivity in the face of what might have given rise to an action in
court is visited with the loss of such right, and ignorance resulting from inexcusable
negligence does not suffice to explain such failure to file seasonably the necessary
suit. 53

Finally, we agree with the respondent Court of Appeals that, while petitioner is
admittedly still the registered owner of the donated property, and jurisprudence is
settled as to the imprescriptibility and indefeasibility of a Torrens Title, there is equally
an abundance of cases in the annals of our jurisprudence where we categorically ruled
that a registered landowner may lose his right to recover the possession of his
registered property by reason of leaches. 54

WHEREFORE, the instant petition is DISMISSED with costs against petitioner.

SO ORDERED.

Bellosillo, Vitug and Kapunan, JJ., concur.

Padilla, J., took no part.

6
 Republic of the Philippines 2. Ordering defendant to pay plaintiff P20,000.00 as moral damages, P20,000.00 as
SUPREME COURT exemplary damages, P10,000.00 by way of attorneys fees and other litigation
Manila expenses, plus cost of suit.

FIRST DIVISION SO ORDERED.8

G.R. No. 155080 February 5, 2004 On appeal by the respondent, the Court of Appeals reversed the trial courts decision and
declared that the donation was valid. Furthermore, it held that petitioner lost her ownership of
the property by prescription.
SOLEDAD CALICDAN, represented by her guardian GUADALUPE CASTILLO, petitioner
vs.
SILVERiO CENDAA, substituted by his legal heir CELSA CENDAA-ALARAS, respondent. Hence, the instant petition for review on the following issues:

DECISION (1) whether or not the donation inter vivos is valid; and

YNARES-SANTIAGO, J.: (2) whether or not petitioner lost ownership of the land by prescription.

This petition for review seeks the reversal of the April 4, 2002 decision of the Court of Appeals in As a rule, our jurisdiction in cases brought from the Court of Appeals is limited to the review and
CA-G.R. CV No. 67266,1 which set aside the November 12, 1996 decision of the Regional Trial revision of errors of law allegedly committed by the appellate court. This is because its findings
Court of Dagupan City, Branch 44 in Civil Case No. D-10270.2 of fact are deemed conclusive and we are not duty-bound to analyze and weigh all over again the
evidence already considered in the proceedings below. 9

The instant controversy involves a 760 square meter parcel of unregistered land located in
Poblacion, Mangaldan, Pangasinan. The land was formerly owned by Sixto Calicdan, who died The rule, however, admits of the following exceptions:
intestate on November 4, 1941. He was survived by his wife, Fermina, and three children,
namely, petitioner Soledad, Jose and Benigno, all surnamed Calicdan. 3
(1) when the findings are grounded on speculation, surmises or conjectures;

On August 25, 1947, Fermina executed a deed of donation inter vivos whereby she conveyed the
land to respondent Silverio Cendaa,4 who immediately entered into possession of the land, built (2) when the inference made is manifestly mistaken, absurd or impossible;
a fence around the land and constructed a two-storey residential house thereon sometime in
1949, where he resided until his death in 1998. 5 (3) when there is grave abuse of discretion in the appreciation of facts;

On June 29, 1992, petitioner, through her legal guardian Guadalupe Castillo, filed a complaint (4) when the factual findings of the trial and appellate courts are conflicting;
for "Recovery of Ownership, Possession and Damages" against the respondent, alleging that the
donation was void; that respondent took advantage of her incompetence in acquiring the land;
and that she merely tolerated respondents possession of the land as well as the construction of (5) when the Court of Appeals, in making its findings, has gone beyond the issues of
his house thereon.6 the case and such findings are contrary to the admissions of both appellant and
appellee;
In his "Answer with Motion to Dismiss", respondent alleged, by way of affirmative defenses, that
the land was donated to him by Fermina in 1947; and that he had been publicly, peacefully, (6) when the judgment of the appellate court is premised on a misapprehension of
continuously, and adversely in possession of the land for a period of 45 years. Moreover, he facts or when it has failed to consider certain relevant facts which, if properly taken
argued that the complaint was barred by prior judgment in the special proceedings for the into account, will justify a different conclusion;
"Inventory of Properties of Incompetent Soledad Calicdan", where the court decreed the exclusion
of the land from the inventory of properties of the petitioner. 7
(7) when the findings of fact are conclusions without citation of specific evidence upon
which they are based; and
On November 12, 1996, the trial court rendered a decision in favor of the petitioner, the
dispositive portion of which reads as follows:
(8) when findings of fact of the Court of Appeals are premised on the absence of
evidence but are contradicted by the evidence on record. 10
WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant as follows:

In the case at bar, the factual findings of the trial court and the Court of Appeals are conflicting;
1. Ordering defendant Silverio Cendaa to vacate the land in question and surrender thus, we are constrained to review the findings of facts.
ownership and possession of the same to plaintiff; and

The trial court found the donation of the land void because Fermina was not the owner thereof,
considering that it was inherited by Sixto from his parents. Thus, the land was not part of the
conjugal property of the spouses Sixto and Fermina Calicdan, because under the Spanish Civil

7
Code, the law applicable when Sixto died in 1941, the surviving spouse had a right of usufruct
only over the estate of the deceased spouse. Consequently, respondent, who derived his rights
from Fermina, only acquired the right of usufruct as it was the only right which the latter could
convey.
After a review of the evidence on record, we find that the Court of Appeals ruling that the
donation was valid was not supported by convincing proof. Respondent himself admitted during
the cross examination that he had no personal knowledge of whether Sixto Calicdan in fact
purchased the subject land from Felomino Bautista. Pertinent portions of his testimony read:
Q. And Sixto Calicdan inherited this property from his parents?
A. No, sir.
Q. What do you mean by no?
A. To my knowledge and information, Sixto Calicdan bought the property from his
cousin, I think Flaviano or Felomino Bautista.
Q. So, in other words, you have no personal knowledge about how Sixto Calicdan
acquired this property?
A. I think it was by purchase.
Q. According to information, so you have no actual personal knowledge how Sixto
Calicadan acquired this property?
A. Yes, because when the property was bought by my uncle, I was not yet born, so
information only.
Q. So when you were born, you came to know already that Sixto Calicdan is the owner
of this property?
A. Yes, thru the son of Felomino Bautista who is now, I think, in Baguio.
Q. You have not seen any document to show that Sixto Calicdan purchased the
property from one Felomino Bautista?
A. None, sir.11
In People v. Guittap,12 we held that:
Under Rule 130, Section 36 of the Rules of Court, a witness can testify only to those facts which
he knows of his own personal knowledge, i.e., which are derived from his own perception;
otherwise, such testimony would be hearsay. Hearsay evidence is defined as "evidence not of
what the witness knows himself but of what he has heard from others." The hearsay rule bars
the testimony of a witness who merely recites what someone else has told him, whether orally or
in writing. In Sanvicente v. People, we held that when evidence is based on what was supposedly
told the witness, the same is without any evidentiary weight for being patently hearsay. Familiar
and fundamental is the rule that hearsay testimony is inadmissible as evidence.
The Court of Appeals thus erred in ruling based on respondents bare hearsay testimony as
evidence of the donation made by Fermina.
Notwithstanding the invalidity of the donation, we find that respondent has become the rightful
owner of the land by extraordinary acquisitive prescription.
Prescription is another mode of acquiring ownership and other real rights over immovable
property. It is concerned with lapse of time in the manner and under conditions laid down by
law, namely, that the possession should be in the concept of an owner, public, peaceful,
uninterrupted and adverse. Acquisitive prescription is either ordinary or extraordinary. Ordinary
acquisitive prescription requires possession in good faith and with just title for ten years. In
extraordinary prescription ownership and other real rights over immovable property are acquired
through uninterrupted adverse possession thereof for thirty years without need of title or of good
faith.13
The good faith of the possessor consists in the reasonable belief that the person from whom he
received the thing was the owner thereof, and could transmit his ownership. 14 For purposes of
prescription, there is just title when the adverse claimant came into possession of the property
through one of the modes recognized by law for the acquisition of ownership or other real rights,
but the grantor was not the owner or could not transmit any right. 15
Assuming arguendo that ordinary acquisitive prescription is unavailing in the case at bar as it
demands that the possession be "in good faith and with just title," 16 and there is no evidence on
record to prove respondents "good faith", nevertheless, his adverse possession of the land for
more than 45 years aptly shows that he has met the requirements for extraordinary acquisitive
prescription to set in.
The records show that the subject land is an unregistered land. When the petitioner filed the
instant case on June 29, 1992, respondent was in possession of the land for 45 years counted
from the time of the donation in 1947. This is more than the required 30 years of uninterrupted
adverse possession without just title and good faith. Such possession was public, adverse and
in the concept of an owner. Respondent fenced the land and built his house in 1949, with the
help of Guadalupes father as his contractor. His act of cultivating and reaping the fruits of the
land was manifest and visible to all. He declared the land for taxation purposes and religiously
paid the realty taxes thereon.17 Together with his actual possession of the land, these tax
declarations constitute strong evidence of ownership of the land occupied by him. As we said in
the case of Heirs of Simplicio Santiago v. Heirs of Mariano Santiago:18
Although tax declarations or realty tax payment of property are not conclusive evidence of
ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one
in his right mind would be paying taxes for a property that is not in his actual or constructive
possession. They constitute at least proof that the holder has a claim of title over the property.
The voluntary declaration of a piece of property for taxation purposes manifests not only ones
sincere and honest desire to obtain title to the property and announces his adverse claim against
the State and all other interested parties, but also the intention to contribute needed revenues
to the Government. Such an act strengthens ones bona fide claim of acquisition of ownership.
Moreover, the deed of donation inter vivos, albeit void for having been executed by one who was
not the owner of the property donated, may still be used to show the exclusive and adverse
character of respondents possession. Thus, in Heirs of Segunda Maningding v. Court of
Appeals,19 we held:
Even assuming that the donation propter nuptias is void for failure to comply with formal
requisites, it could still constitute a legal basis for adverse possession. With clear and convincing
evidence of possession, a private document of donation may serve as basis for a claim of
ownership. In Pensader v. Pensader we ruled that while the verbal donation under which the
defendant and his predecessors-in-interest have been in possession of the lands in question is
8
not effective as a transfer of title, still it is a circumstance which may explain the adverse and
exclusive character of the possession. (Underscoring ours)

In sum, the Court of Appeals correctly ordered the dismissal of Civil Case No. D-10270 before
the Regional Trial Court of Dagupan City, Branch 44, and declared respondent the rightful owner
of the subject property, not on the basis of the Deed of Donation Inter Vivos, which is hereby
declared void, but on extraordinary acquisitive prescription.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of
Appeals dated April 4, 2002 in CA-G.R. CV No. 67266, which ordered the dismissal of Civil Case
No. D-10270 before the Regional Trial Court of Dagupan City, Branch 44, is AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.

Azcuna, J., on official leave.

9
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171068 September 5, 2007
HEIRS OF MARCELINA ARZADON-CRISOLOGO, represented by Leticia C. del Rosario,
MAURICIA ARZADON and BERNARDO ARZADON, petitioners,
vs.
AGRIFINA RAON, substituted by SUZIMA RAON-DUTERTE and OTHELO
RAON, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Certiorari under Rule 45 of the Rules of Court of the Decision1 and
Resolution2 of the Court of Appeals in CA-G.R. SP No. 72552, dated 10 November 2005 and 12
January 2006, respectively, which affirmed in toto the Decision 3 dated 8 August 2002 of the
Regional Trial Court (RTC) of Batac, Ilocos Norte, Branch 18, in Civil Case No. 3875-18. The RTC
reversed the 11 December 2001 Decision4 of the Municipal Circuit Trial Court (MCTC) of Badoc-
Pinili, Badoc, Ilocos Norte, in Civil Case No. 141-B.
Records show that on 18 October 1995, Agrifina Raon 5filed a Complaint6 against spouses
Conrado and Mila Montemayor (spouses Montemayor) with the MCTC of Badoc, Ilocos Norte,
claiming ownership over an unregistered residential lot (subject property) situated at Brgy. No.
2 Badoc, Ilocos Norte, covered by Tax Declaration No. 420809, more particularly described as
follows:
"RESIDENTIAL with an area of 472 sq. ms. (sic) Bounded on the North by Ladera St.;
on the East by Dionisio Ladera; on the South by Buenaventura Arzadon; and on the
West by Rafael Ladera; Assessed at P1700.00 under Tax Dec. No. 420809."7
According to Agrifina Raon, her family had enjoyed continuous, peaceful and uninterrupted
possession and ownership over the subject property since 1962, and had religiously paid the
taxes thereon. They had built a house on the subject property where she and her family had
resided. Unfortunately, in 1986, when her family was already residing in Metro Manila, fire razed
and destroyed the said house. Nonetheless, they continued to visit the subject property, as well
as pay the real estate taxes thereon. However, in August of 1986, her daughter, Zosie Raon,
discovered that the subject property was already in the name of the spouses Montemayor under
Tax Declaration No. 0010563 which was purportedly issued in their favor by virtue of an Affidavit
of Ownership and Possession which the spouses Montemayor executed themselves. The Affidavit
was alleged to have created a cloud of doubt over Raons title and ownership over the subject
property.
Hence, Agrifina Raon sought a Writ of Preliminary Injunction 8 against the spouses Montemayor
commanding them to cease and desist from further exercising any right of ownership or
possession over the subject property. She further prayed that she be finally declared the true
and lawful owner of the subject property.
The spouses Montemayor, for their part, alleged that they acquired the subject lot by purchase
from Leticia del Rosario and Bernardo Arzadon who are the heirs of its previous owners for a
consideration of P100,000.00.9
On 22 July 1996, the Heirs of Marcelina Arzadon-Crisologo, (represented by Leticia A. Crisologo
del Rosario), Mauricia Arzadon, and Bernardo Arzadon (petitioners) filed an Answer in
Intervention10 claiming, inter alia, that they are the rightful owners of the subject property,
having acquired the same from their predecessors-in-interest. They averred that there existed no
liens or encumbrances on the subject property in favor of Agrifina Raon; and that no person,
other than they and the spouses Montemayor, has an interest in the property as owner or
otherwise.
Per petitioners allegations, their predecessors-in-interest, spouses Timoteo and Modesta
Alcantara (spouses Alcantara) bought the subject property from its owner, Rafael Ladera, on 2
May 1936. The spouses Alcantara then built a house of strong materials on the subject property
which served as their conjugal home. Residing with them was Timoteo Alcantaras sister,
Augustina Alcantara-Arzadon. As the spouses Alcantara died without issue, their properties were
left to Timoteo Alcantaras nearest of kin, Augustina Alcantara-Arzadon and Tiburcio Alcantara,
sister and brother, respectively, of Timoteo Alcantara. Tiburcio Alcantara also died without any
known heir; thus, leaving the subject property in Augustina Alcantara-Arzadons sole favor.
Augustina Alcantara-Arzadon is the mother of petitioners Marcelina Arzadon-Crisologo (now
deceased and whose heirs are represented by Leticia del Rosario) and Mauricia Arzadon.
Bernardo Arzadon is the son of Mauricia Arzadon.
Petitioners asseverated further that Bernardo Arzadon had lived in the house constructed on the
subject property until 1985 when it was gutted by fire. To further support their claims,
petitioners averred that they had religiously paid the real estate taxes on the subject property.
Finally, by way of a counterclaim, petitioners sought compensation for the damages which they
allegedly suffered by reason of the baseless filing of the instant suit.
On 22 October 1999, the MCTC issued an Order11 dropping the name of the spouses Montemayor
from the caption of the case on the ground that sometime in 1996, Leticia del Rosario and
Bernardo Arzadon had repurchased the subject property from the spouses Montemayor for the
consideration of P100,000.00. As a result, the spouses Montemayor had no more interest or
claim whatsoever on the property in litigation.
On 11 December 2001, the MCTC rendered a Decision in favor of the petitioners. The decretal
portion thereof reads, thus:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Declaring the [petitioners] to be the true and lawful owners of one-half
(1/2) portion of the undivided whole of the lot-in-suit by mode of succession
pursuant to [A]rticle 1001 of the [C]ivil [C]ode of the Philippines;
2. Declaring the [petitioners] to have the better right over the other half of
the undivided whole of the lot-in-suit by mode of prescription pursuant to
[A]rticle 1137 of the Civil Code of the Philippines;
3. Dismissing the counter-claim of the [petitioners] against the
[respondents];
4. Ordering [petitioners] to pay the cost of the suit. 12
First, the MCTC ruled that while the adverse claims of Agrifina Raon on the subject lot against
the spouses Alcantara may have started in 1962, this adverse possession was interrupted in the
year 1977 due to the filing of an adverse claim by petitioner Marcelina Arzadon-Crisologo with
the Office of the Assessor. In 1977, the tax declaration in the name of Valentin Raon, Agrifina
Raons husband, was cancelled and a new tax declaration was issued in Marcelina Arzadon-
Crisologos name. The MCTC said that the period of possession of the spouses Raon in the
10
concept of an owner from 1962 to 1977 did not ripen into ownership because their occupation
was in bad faith. The Civil Code requires, for acquisitive prescription of real property, 30 years
of uninterrupted possession if the same is wanting in good faith and without a just title.
Second, the MCTC held that by virtue of succession, petitioners are entitled to one-half of the
subject property. This is because according to Article 1001 13 of the Civil Code, should brothers
and sisters or their children survive with the widow or the widower (who are without issue), the
latter shall be entitled to one-half of the inheritance and the brothers and sisters or their children
to the other half. The spouses Alcantara died without issue. As between Timoteo Alcantara and
Modesta Alcantara, the former predeceased the latter. Timoteo Alcantara was survived by (1) his
brother Tiburcio Alcantara, who also died without any known heir; and (2) his sister Augustina
Alcantara. Thus, following the death of the spouses Alcantara, only the children of Augustina
Alcantara, namely Marcelina Arzadon-Crisologo and Mauricia Arzadon, stand to inherit Timoteo
Alcantaras share in the subject property.
Moreover, the MCTC declared that for the part of Modesta Alcantara, there was no legal heir who
claimed the other half of the property which she14 inherited from her husband, Timoteo Alcantara
who predeceased her. On this portion, the MCTC held that petitioners exercised rights of
ownership and dominion over the same by periodically visiting the lot and cleaning it. 15 It also
held that from 31 August 1977, when petitioners predecessor-in-interest Marcelina Arzadon-
Crisologo filed an adverse claim for herself and for her brothers and sisters which led to the
issuance of Tax Declaration No. 44120 in her name, to 11 December 2001,16 there is a total of
33 years, three months and 10 days which is sufficient to claim ownership over the subject
property by adverse possession under Article 113717 of the Civil Code.
On appeal, the RTC reversed and set aside the Decision of the MCTC.
The RTC declared that the respondent Raons who are heirs of the original plaintiff had acquired
the subject property by virtue of acquisitive prescription, and therefore adjudged respondents to
be the absolute owners thereof; thus, in the 8 August 2002 Decision of the RTC, it held:
WHEREFORE, in view of the foregoing, the Decision of the trial [c]ourt is hereby
REVERSED and SET ASIDE, and judgment is hereby rendered:
1) Declaring the [respondents] as the absolute owners of the parcel of land in suit,
having acquired the same through extraordinary acquisitive prescription.
No costs.18
In its findings, the RTC declared that a more circumspect scrutiny of the evidence showed that
for a long time from the death of the spouses Alcantara, no one adjudicated the subject property
unto themselves. Although petitioners and their predecessors-in-interest claimed to have
successional rights over the subject property, they did not take action to have the same
adjudicated to themselves or, at least, to have the same declared for taxation purposes. The RTC
ruled that petitioners had slept on their rights. On the part of the respondent Raons, in 1962,
Valentin Raon, respondents father, declared the subject property in his name for taxation
purposes and paid the corresponding taxes thereon. In the years that followed, his wife, Agrifina
Raon, declared the same in her name for taxation purposes, as well as paid the real estate taxes
on the subject property. In 1977, the latter even mortgaged the subject property with the
Philippine National Bank. It was only in 1977 when petitioners predecessor-in-interest Marcelina
Arzadon-Crisologo executed an Adverse Claim and Notice of Ownership and declared the subject
property in her name and paid its taxes.
The RTC elucidated in this wise, to wit:
It bears to note that since the death of Timoteo Alcantara until the year 1977,
[petitioners], as well as their predecessors-in-interests (sic) had not taken any concrete
step in exercising their supposed successional rights over the parcel of land in suit,
or at least, the Intervenors should have always [stayed] on their guard or especially
vigilant against anyone who would secure a claim to the said parcel of land, more so
that Valentin Raon and plaintiff Agrifina Raon were then living with them. It is very
unfortunate that it was only in 1977 that the Intervenors made known to others of
their supposed successional rights over the parcel of land in suit. Relief is denied to a
claimant whose right has become stale for a long time, considering that some other
persons like [respondents] had wayback (sic) taken the necessary action in claiming
the parcel of land in suit. It is the vigilant and not the sleepy that is being assisted by
the laws. (Ledita Burce Jacob v. Court of Appeals, et al., G.R. No. 92159, July 1, 1993).
It stands to reason, therefore, to hold that because of the claim of the [respondents]
to have acquired the parcel of land in suit by acquisitive prescription, the Intervenors
who belatedly claimed to be the legal and compulsory heirs of the late Timoteo
Alcantara, as ruled by the trial court, had regrettably forfeited their such (sic)
successional rights, simply due to their inaction for a long period of time. Hence,
contrary to the findings of the trial court, the [petitioners] are not entitled to the one-
half (1/2) portion of the parcel of land in suit. 19
Likewise, the RTC reasoned that the Notice of Adverse Claim executed by petitioners
predecessor-in-interest Marcelina Arzadon-Crisologo against the Raons in 1977 implied that
respondents have been in possession of the subject property. On this matter, the RTC said, viz:
Evidently, the trial court considered by implication that the execution by Marcelina
Arzadon Crisologo of said Adverse Claim and Notice of Ownership in 1977 to have
interrupted the running of the prescriptive period on the possession by the
[respondents] of the parcel of land in suit. It bears to stress on (sic) this point, that
the Adverse Claim and Notice of Ownership executed by Marcelina Arzadon Crisologo
is nothing but a notice of a claim adverse to the [respondents]. By its nature, its
implication is that the [respondents] have been in possession of the parcel of land in
suit in some concept. But definitely, said Adverse Claim does not, upon its execution,
operate to toll or interrupt the running of the prescriptive period because there is a
necessity to determine the validity of the same. And this could only be done by the
filing of the necessary action in court such [as] contemplated in the provisions of
Article 1123 of the Civil Code. It is only on (sic) such instance that the prescriptive
period should be deemed interrupted. And undisputedly, nothing had been done by
the Intervenors after the execution of said Adverse Claim by Marcelina Crisologo,
except of course as they claimed, and as held by the trial court, they started to possess
the parcel of land in suit. Regretably (sic), however, such possession by the Intervenors
of the parcel of land in suit does not benefit them for purposes of prescription. 20
The RTC also declared that the Raons have been in possession of the parcel of land in the
concept of an owner since 1962. Even as they had gone to live in Manila following the burning
of the house on the subject property, they continued to exercise acts of dominion over the same
by visiting and looking after the property. The RTC also considered in favor of the respondents,
the admission of petitioner Bernardo Arzadon and the petitioners witnesses that Valentin Raon
and Agrifina Raon had been staying in the house on the subject lot since 1947, which shows
that they had been in possession of the subject property for a period of more than 50 years.
On review before the Court of Appeals, the Decision of the RTC was affirmed in toto.
The Court of Appeals held that when Valentin Raon executed the affidavit declaring himself to
be the true and lawful owner of the subject property in 1962, the same was a repudiation of
petitioners legal title over it. The repudiation, coupled with the payment of realty taxes, was
made with the knowledge of petitioners, who failed to act against it. Thus, from 1962 up to the
filing of the action in 1995, respondents continued to adversely occupy the property. In the
assailed 10 November 2005 Decision of the Court of Appeals, it ruled:
11
 Moreover, respondents payment of realty taxes made with the knowledge and consent
of petitioners and went unchallenged for a number of years, indubitably show their
positive claim as owners of the property. While it is true that by themselves tax receipts
and declarations of ownership for taxation purposes are not incontrovertible evidence
of ownership, they become strong evidence of ownership acquired by prescription
when accompanied by proof of actual possession of the property. It is only where
payment of taxes is accompanied by actual possession of the land covered by the tax
declaration that such circumstance may be material in supporting a claim of
ownership.
Needless to state, from 1962 onwards, prescription begun to run against petitioners
and was not in any way interrupted from their mere execution of the Notice of Adverse
Claim since the notice of adverse claim cannot take the place of judicial summons
which produces the civil interruption provided for under the law. And even if We are
to eliminate the question of good faith in determining the prescriptive period, evidence
are (sic) still abundant to substantiate respondents thirty years of possession in the
concept of owner commencing from 1962 until 1995 when the complaint below was
filed.21
Petitioners filed a Motion for Reconsideration thereon which was denied by the Court of Appeals
in the following manner, to wit:
After a careful study of the grounds relied upon by petitioners We find no new matters
raised to justify a modification much less, a reversal of the Decision sought to be
reconsidered. To reiterate, even assuming ex gratia argumenti that petitioner merely
tolerated the Raons (sic) occupancy of the subject property, it must be stressed that
the execution in 1962 of Valentin Raons Affidavit, the corresponding payment of
realty taxes and other acts of dominion which went unchallenged by the petitioners,
had effectively severed their alleged juridical relation. Suffice it to state that these acts,
taken as a whole, vest upon the Raons the right to claim ownership over the subject
property irrespective of whether the nature of their occupation was rooted from the
mere tolerance of the Arzadons or from a bona fide sale between Agrifina Raon and
Rafael Ladera.22
Hence, the instant Petition.
The primordial issue in the case at bar is whether the Court of Appeals erred in declaring that
respondents had acquired ownership over the subject property through uninterrupted and
adverse possession thereof for thirty years, without need of title or of good faith. Petitioners
dispute the findings of the Court of Appeals and the RTC in declaring that acquisitive prescription
has set in against them and in favor of the respondents. They claim that the evidence does not
support respondents contention that they have been in public, notorious, and uninterrupted
possession over the subject property in the concept of an owner since 1962 as alleged in their
Complaint. Instead, petitioners rely on the finding of the MCTC that respondents were not able
to prove their adverse claim for an uninterrupted period of thirty years.
At this juncture, we take an opportune look at the applicable rules on the acquisition of
ownership through prescription.
Prescription is another mode of acquiring ownership and other real rights over immovable
property.23 It is concerned with lapse of time in the manner and under conditions laid down by
law, namely, that the possession should be in the concept of an owner, public, peaceful,
uninterrupted and adverse.24 Possession is open when it is patent, visible, apparent, notorious
and not clandestine.25 It is continuous when uninterrupted, unbroken and not intermittent or
occasional;26 exclusive when the adverse possessor can show exclusive dominion over the land
and an appropriation of it to his own use and benefit; 27 and notorious when it is so conspicuous
that it is generally known and talked of by the public or the people in the neighborhood. 28 The
party who asserts ownership by adverse possession must prove the presence of the essential
elements of acquisitive prescription.
Article 1117 of the Civil Code is instructive:
Art. 1117. Acquisitive prescription of dominion and other real rights may be ordinary
or extraordinary.
Articles 1134 and 1137 of the Civil Code fix the periods of possession,29 which provide:
Art. 1134. Ownership and other real rights over immovable property are acquired by
ordinary prescription through possession of ten years.
Art. 1137. Ownership and other real rights over immovables also prescribe through
uninterrupted adverse possession thereof for thirty years, without need of title or of
good faith.
From the foregoing, it can be gleaned that acquisitive prescription of real rights may be ordinary
or extraordinary.30 Ordinary acquisitive prescription requires possession of things in good faith
and with just title for the time fixed by law; without good faith and just title, acquisitive
prescription can only be extraordinary in character. 31 Regarding real or immovable property,
ordinary acquisitive prescription requires a period of possession of ten years, while extraordinary
acquisitive prescription requires an uninterrupted adverse possession of thirty years. 32
Were respondents able to sufficiently satisfy the legal requirements to prove prescription?
To recapitulate, respondents traced their claim of ownership from the year 1962 until the filing
of their Complaint for Ownership before the MCTC on 18 October 1995. To support their
possession, they rely on an Affidavit executed on 19 October 1962 by Valentin Raon claiming
ownership over the subject property by virtue of an alleged sale. The MCTC, the RTC and the
Court of Appeals were unanimous in declaring that the execution by Valentin Raon of the
Affidavit in 1962 was an express repudiation of petitioners claim over the property. By virtue of
such Affidavit, respondents were able to cancel Tax Declaration No. 02853 in the name of
petitioners predecessor-in-interest Timoteo Alcantara who was shown to have paid taxes on the
subject property in 1950. Hence, in 1962, Tax Declaration No. 033062 was issued in the name
of Valentin Raon. The same was subsequently cancelled by Tax Declaration No. 033106, which
was in the name of his wife, Agrifina Raon. The same was likewise cancelled in 1967 by Tax
Declaration No. 420809, similarly under the name of Agrifina Raon. In 1977, however,
petitioners predecessor-in-interest Marcelina Arzadon-Crisologo filed an Adverse Claim and a
Notice of Ownership claiming that the subject property which is not yet registered in the Office
of the Register of Deeds of Laoag City is declared under Tax Declaration No. 420809 in the name
of Valentin Raon for taxation purposes only; but that they have been in possession of the said
land publicly, peacefully and continuously without any intervention or interruption for more
than 15 years.
However, a question must be asked: did the Notice of Adverse Claim filed by petitioners constitute
an effective interruption since 1962 of respondents possession of the subject property?
The answer is in the negative.
Article 112333 of the Civil Code is categorical. Civil interruption is produced by judicial summons
to the possessor. Moreover, even with the presence of judicial summons, Article 1124 34 sets
limitations as to when such summons shall not be deemed to have been issued and shall not
give rise to interruption, to wit: 1) if it should be void for lack of legal solemnities; 2) if the plaintiff
12
should desist from the complaint or should allow the proceedings to lapse; or 3) if the possessor
should be absolved from the complaint.
Both Article 1123 and Article 1124 of the Civil Code underscore the judicial character of civil
interruption. For civil interruption to take place, the possessor must have received judicial
summons. None appears in the case at bar. The Notice of Adverse Claim which was filed by
petitioners in 1977 is nothing more than a notice of claim which did not effectively interrupt
respondents possession. Such a notice could not have produced civil interruption. We agree in
the conclusion of the RTC, which was affirmed by the Court of Appeals, that the execution of the
Notice of Adverse Claim in 1977 did not toll or interrupt the running of the prescriptive period
because there remains, as yet, a necessity for a judicial determination of its judicial validity.
What existed was merely a notice. There was no compliance with Article 1123 of the Civil Code.
What is striking is that no action was, in fact, filed by petitioners against respondents. As a
consequence, no judicial summons was received by respondents. As aptly held by the Court of
Appeals in its affirmance of the RTCs ruling, the Notice of Adverse Claim cannot take the place
of judicial summons which produces the civil interruption provided for under the law.35 In the
instant case, petitioners were not able to interrupt respondents adverse possession since 1962.
The period of acquisitive prescription from 1962 continued to run in respondents favor despite
the Notice of Adverse Claim.
From another angle, we find that, quite clearly, questions of fact exist before us. There is a
question of fact when the doubt or difference arises as to the truth or falsehood of facts or when
the query invites calibration of the whole evidence considering mainly the credibility of the
witnesses, the existence and relevancy of specific surrounding circumstances as well as their
relation to each other and to the whole, and the probability of the situation. 36
Thus, we find proper the application of the doctrine that findings of facts of the Court of Appeals
upholding those of the trial court are binding upon this Court. 37 Even though the rule is subject
to exceptions,38 we do not find them applicable in the instant case.
As found by the RTC and affirmed by the Court of Appeals, nothing was done by petitioners to
claim possession over the subject property from the time their predecessors-in-interest had lost
possession of the property due to their deaths. Plainly, petitioners slept on their
rights. Vigilantibus sed non dormientibus jura subveniunt. The law comes to the succor only to
aid the vigilant, not those who slumber on their rights. It was only in 1977 when they attempted
to call the attention of respondents, which as earlier discussed, did not even operate as an
interruption on the latters possession. The RTC and the Court of Appeals held that from 1962
to the time they filed their Complaint before the MCTC and until the present time, respondents
occupied without interruption the subject property in the concept of an owner, thereby acquiring
ownership via extraordinary acquisitive prescription. To reiterate, the RTCs factual findings
based on the evidence on record were manifestly in favor of respondents, to wit:
Furthermore, the Court finds it (sic) significant the testimonies of [petitioner] Bernardo
Arzadon and his witnesses Leonila Arzadon and Elpidio Evangelista who categorically
testified to the effect that Valentin Raon and [respondent] Agrifina Raon had been
staying in the house standing on the parcel of land in suit since 1947. Basically, the
defendants are bound by their admissions and also bound by the testimonies of the
witnesses they presented. And going along with their respective testimonies, from
1947 to 1977 or for [a] period of thirty (30) years the [respondents] have been in
possession of the parcel of land in suit enough to invoke extraordinary acquisitive
prescription, pursuant to the provisions of Article 113439 (sic) of the New (sic) Civil
Code. However, as earlier stated, the [respondents], contrary to the claim of the
[petitioners] and findings of the trial court, have been in possession of the parcel of
land in suit continuously and uninterrupted from 1962 to the present but because of
the admissions of the [petitioners], the [respondents] have been in possession of the
same from 1947 to the present or for more than fifty (50) years now. 40
The open, continuous, exclusive and notorious possession by respondents of the subject property
for a period of more than 30 years in repudiation of petitioners ownership had been established.
During such length of time, respondents had exercised acts of dominion over the subject
property, and paid taxes in their name. Jurisprudence is clear that although tax declarations or
realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are
good indicia of possession in the concept of owner for no one in his right mind would be paying
taxes for a property that is not in his actual or at least constructive possession. 41 They constitute
at least proof that the holder has a claim of title over the property. 42 As is well known, the
payment of taxes coupled with actual possession of the land covered by the tax declaration
strongly supports a claim of ownership.43 The Court of Appeals did not err in affirming the factual
findings of the RTC that respondents had validly established their claim of ownership over the
subject property through acquisitive prescription.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals dated 10 November
2005 and the Resolution dated 12 January 2006 in CA-G.R. SP No. 72552 are AFFIRMED. No
costs.
SO ORDERED.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, Reyes, JJ., concur.

Thus, by preponderance of evidence, it has been established preponderantly that the

[respondents] have been in possession of the parcel of land in suit continuously,
peacefully, publicly, notoriously, uninterrupted and in the concept of an owner since
1962 to the present. The fact that the [respondents] have gone to live in Manila right
after the house built in the parcel of land in suit was burned in 1988, they, however,
then and thereafter intermittently come to Badoc, Ilocos Norte purposely to look after
and to visit the parcel of land in suit. Actual possession of land consists in the
manifestation of acts of dominion over it of such a nature as a party would naturally
exercise over his own property. One needs (sic) not to (sic) stay on it. The acts exercised
by the [respondents] over the parcel of land in suit are consistent with ownership.
Possession in the eyes of the law does not mean that a man has to have his feet on
every square meter of the ground before it can be said that he is in possession [thereof].
(Ramos v. Director of Lands, 39 Phil. 175, cited in the case of Somodio v. Court of
Appeals, et al., 235 SCRA 307). It is sufficient that the [respondents] were able to
subject the parcel of land to the action of their will.

13
 Republic of the Philippines
SUPREME COURT
Baguio
FIRST DIVISION
G.R. No. 175763 April 11, 2012
HEIRS OF BIENVENIDO AND ARACELI TANYAG, namely: ARTURO TANYAG, AIDA T.
JOCSON AND ZENAIDA T. VELOSO, Petitioners,
vs.
SALOME E. GABRIEL, NESTOR R. GABRIEL, LUZ GABRIEL-ARNEDO married to ARTURO
ARNEDO, NORA GABRIEL-CALINGO married to FELIX CALINGO, PILAR M. MENDIOLA,
MINERVA GABRIEL-NATIVIDAD married to EUSTAQUIO NATIVIDAD, and ERLINDA
VELASQUEZ married to HERMINIO VELASQUEZ, Respondents.
DECISION
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 which seeks to reverse the Decision1 dated August 18,
2006 and Resolution2 dated December 8, 2006 of the Court of Appeals (CA) in CA-G.R. CV No.
81224. The CA affirmed the Decision3 dated November 19, 2003 of the Regional Trial Court of
Pasig City, Branch 267 in Civil Case No. 67846 dismissing petitioners complaint for declaration
of nullity of Original Certificate of Title (OCT) No. 1035, reconveyance and damages, as well as
respondents counterclaims for damages and attorneys fees.
Subject of controversy are two adjacent parcels of land located at Ruhale, Barangay Calzada,
Municipality of Taguig (now part of Pasig City, Metro Manila). The first parcel ("Lot 1") with an
area of 686 square meters was originally declared in the name of Jose Gabriel under Tax
Declaration (TD) Nos. 1603 and 6425 issued for the years 1949 and 1966, while the second
parcel ("Lot 2") consisting of 147 square meters was originally declared in the name of Agueda
Dinguinbayan under TD Nos. 6418 and 9676 issued for the years 1966 and 1967. 4 For several
years, these lands lined with bamboo plants remained undeveloped and uninhabited.
Petitioners claimed that Lot 1 was owned by Benita Gabriel, sister of Jose Gabriel, as part of her
inheritance as declared by her in a 1944 notarized instrument ("Affidavit of Sale") whereby she
sold the said property to spouses Gabriel Sulit and Cornelia Sanga. Said document states:
DAPAT MALAMAN NG LAHAT NG MAKABABASA
Na, akong Benita Gabriel, balo sa nasirang Calixto Lontoc, Filipina may karapatang gulang
naninirahan sa nayon ng Palingon, Tagig, Rizal, x x x sa pamamaguitan nitoy
ISINASAYSAY KO AT PINAGTITIBAY
1.) Na, sarili ko at tunay na pagaari ang isang lagay na lupang kawayanan
na sapagkat itoy kabahagui ko sa aking kapatid na [J]ose Gabriel, na itoy
mana ko sa aking nasirang ama Mateo Gabriel sa kami lamang dalawa ng
aking kapatid na binabanguit ko na Jose Gabriel siyang mga anak at
tagapagmana ng aming amang nasirang Mateo Gabriel, maliban sa amin
ay wala nang iba, kayat kami ay naghati sa mga ari-arian na na iwan sa
amin ng nasirang ama namin na Mateo Gabriel, na ang lupang kawayanang
itoy may nakatanim na walong (8) punong kawayan at na sa pook na kung
pamagatan ay Ruhale nayon ng Calzada, Tagig, Rizal, at na sa loob ng mga
kahanganan at sukat na sumusunod[:]
Na, ang kahangan sa Hilagaan Sapang Ruhale at Vicente Bunye, sa
Amihanan Felipe Pagkalinawan, sa Timugan Juan Flores, at sa Habagatan
Apolonio Ocol may sukat na 6 areas at 85 centiareas may halagan
amillarada na P80.00) Pesos alinsunod sa Tax Blg. 20037, sa pangalan ng
aking kapatid na Jose Gabriel. Na, ang lupang itoy hindi natatala sa bisa
ng batas Blg. 496 ni sa susog gayon din sa Hipotecaria Espaola itoy may
mga mojon bato ang mga panulok at walang bakod.
2.) Na, alang-alang sa halagang SIYAMNAPO AT ANIM (P96.00) na Pisong
salaping guinagamit dito sa Filipinas na bago dumating ang mga sandaling
itoy tinaggap ko at ibinayad sa akin ng boong kasiyahang loob ko ng
magasawang GABRIEL SULIT AT CORNELIA SANGA, mga Filipinos may
mga karapatang gulang mga naninirahan sa nayon ng Calzada, Tagig,
Rizal, ngayon ay inilipat ko at ipinagbili ng bilihang tuluyan (Venta real
soluta) ang isinasaysay kong lupang kawayanan sa itaas nito ng nasabi
halagang SIYAMNAPO AT ANIM (P96.00) na Piso at sa nabanguit na
magasawang GABRIEL SULIT AT CORNELIA SANGA, gayon din sa lahat ng
mga tagapagmana nila, ngayong mga arao na ito ay ang may hawak at
namamahala ng lupang itoy ang mga nakabili sa akin na magasawang
GABRIEL SULIT AT CORNELIA SANGA.
3.) Na, ang kasulatang itoy ng bilihan ay nais na itala sa bisa ng batas Blg.
3344.
NA SA KATUNAYAN NG LAHAT NG ITOY ako ay lumagda sa kasulatang ito dito sa Tagig, Rizal,
ngayong ika - 28 ng Junio 1944.
(Nilagdaan)
BENITA GABRIEL5
Lot 1 allegedly came into the possession of Benita Gabriels own daughter, Florencia Gabriel
Sulit, when her father-in-law Gabriel Sulit gave it to her as part of inheritance of his son, Eliseo
Sulit who was Florencias husband. Florencia Sulit sold the same lot to Bienvenido S. Tanyag,
father of petitioners, as evidenced by a notarized deed of sale dated October 14, 1964.6 Petitioners
then took possession of the property, paid the real estate taxes due on the land and declared the
same for tax purposes, as shown by TD No. 11445 issued in 1969 in the name of Bienvenidos
wife, Araceli C. Tanyag; TD No. 11445 cancelled TD No. 6425 in the name of Jose Gabriel. TD
Nos. 3380 and 00486 also in the name of Araceli Tanyag were issued in the years 1974 and
1979.7
As to Lot 2, petitioners averred that it was sold by Agueda Dinguinbayan to Araceli Tanyag under
Deed of Sale executed on October 22, 1968. Thereupon, petitioners took possession of said
property and declared the same for tax purposes as shown by TD Nos. 11361, 3395, 120-014-
00482, 120-00-014-20-002-000, C-014-00180 and D-014-00182 issued for the years 1969,
1974, 1979, 1985, 1991 and 1994.8 Petitioners claimed to have continuously, publicly,
notoriously and adversely occupied both Lots 1 and 2 through their caretaker Juana Quinones 9;
they fenced the premises and introduced improvements on the land. 10
Sometime in 1979, Jose Gabriel, father of respondents, secured TD No. 120-014-01013 in his
name over Lot 1 indicating therein an increased area of 1,763 square meters. Said tax declaration
supposedly cancelled TD No. 6425 over Lot 1 and contained the following inscription11:
14
Note: Portions of this Property is Also Declared
in the name of Araceli C. Tanyag under
T.D.#120-014-00858 686 sq. m.
Also inscribed on TD No. 120-014-0085812 (1979) in the name of Araceli Tanyag covering Lot 1
are the following:
This property is also covered by T.D. #120-014-01013
in the name of Jose P. Gabriel
1-8-80
which notation was carried into the 1985, 1990 and 1991 tax declarations, all in the name of
Araceli Tanyag.
On March 20, 2000, petitioners instituted Civil Case No. 67846 alleging that respondents never
occupied the whole 686 square meters of Lot 1 and fraudulently caused the inclusion of Lot 2 in
TD No. 120-014-01013 such that Lot 1 consisting of 686 square meters originally declared in
the name of Jose Gabriel was increased to 1,763 square meters. They contended that the
issuance of OCT No. 1035 on October 28, 1998 over the subject land in the name of respondents
heirs of Jose Gabriel was null and void from the beginning. 13
On the other hand, respondents asserted that petitioners have no cause of action against them
for they have not established their ownership over the subject property covered by a Torrens title
in respondents name. They further argued that OCT No. 1035 had become unassailable one year
after its issuance and petitioners failed to establish that it was irregularly or unlawfully
procured.14
Respondents evidence showed that the subject land was among those properties included in the
Extrajudicial Settlement of Estate of Jose P. Gabriel15 executed on October 5, 1988, covered by
TD No. B-014-00643 (1985) in the name of Jose Gabriel. Respondents declared the property in
their name but the tax declarations (1989, 1991 and 1994) carried the notation that portions
thereof (686 sq. ms.) are also declared in the name of Araceli Tanyag. On October 28, 1998, OCT
No. 103516 was issued to respondents by the Register of Deeds of Pasig, Metro Manila under
Decree No. N-219177 pursuant to the Decision dated September 20, 1996 of the Land
Registration Court in LRC Case No. N-11260, covering Lot 1836 MCadm-590-D, Taguig Cadastral
Mapping, Plan Ap-04-002253, with an area of 1,560 square meters.
On the other hand, respondents TD Nos. D-014-00839 and D-014-01923 issued in 1993 and
1999 respectively, showed that respondents sold 468 square meters of Lot 1 to Jayson Sta.
Barbara.17 The segregation of said 468 square meters pertaining to Jayson Sta. Barbara was
reflected in the approved survey plan of Lot 1836 prepared by respondents surveyor on March
18, 2000.18
At the trial, petitioners presented their witness Arturo Tanyag, son of Bienvenido Tanyag and
Araceli Tanyag who died on March 30, 1968 and October 30, 1993, respectively. He testified that
according to Florencia Sulit, Benita Gabriel-Lontoc and her family were the ones in possession
of Lot 1 since 1944; Benita Gabriel had executed an Affidavit of Sale declaring said property as
her inheritance and conveying the same to spouses Gabriel and Cornelia Sulit. He affirmed that
they had been in possession of Lot 1 from the time Bienvenido Tanyag bought the land from
Florencia Sulit in 1964. Based on the boundaries indicated in the tax declaration, they fenced
the property, installed Juana Quinones as their caretaker who also attended to the piggery, put
up an artesian well and planted some trees. From 1964 up to 1978, nobody disturbed them in
their possession or claimed ownership of the land; four years after acquiring Lot 1, they also
purchased the adjacent property (Lot 2) to expand their piggery. Lot 2 was also separately
declared for tax purposes after their mother purchased it from Agueda Dinguinbayan. He had
personally witnessed the execution of the 1968 deed of sale including its notarization, and was
also present during the physical turn over of Lot 2 by the seller. In fact, he was one of the
instrumental witnesses to the deed of sale and identified his signature therein. He further
described the place as inaccessible at that time as there were no roads yet and they had to
traverse muddy tracks to reach their property. 19
Arturo further testified that the first time they met Jose Gabriel was when the latter borrowed
from their mother all the documents pertaining to their property. Jose Gabriel came looking for
a piece of property which he claims as his but he had no documents to prove it and so they
showed him their documents pertaining to the subject property; out of the goodness of her
mothers heart, she lent those documents to her brother Jose Gabriel. During the cadastral
survey conducted in 1976, they had both lots surveyed in preparation for their consolidation
under one tax declaration. However, they did not succeed in registering the consolidated lots as
they discovered that there was another tax declaration covering the same properties and these
were applied for titling under the name of Jose Gabriel sometime in 1978 or 1980, which was
after the time said Jose Gabriel borrowed the documents from their mother. No notice of the
hearings for application of title filed by Jose Gabriel was received by them. They never abandoned
the property and their caretaker never left the place except to report to the police when she was
being harassed by the respondents. He also recalled that respondents had filed a complaint
against them before the barangay but since no agreement was reached after several meetings,
they filed the present case.20
The next witness for petitioners was Juana Quinones, their caretaker who testified that she had
been staying on petitioners property since 1964 or for 35 years already. She had built a nipa
hut and artesian well, raised piggery and poultry and planted some root crops and vegetables on
the land. At first there was only one parcel but later the petitioners bought an additional lot;
Arturo Tanyag gave her money which she used for the fencing of the property. During all the
time she occupied the property there was nobody else claiming it and she also had not received
any notice for petitioners concerning the property, nor the conduct of survey on the land. On
cross-examination, she admitted that she was living alone and had no Voters ID or any
document evidencing that she had been a resident there since 1964. Although she was living
alone, she asks for help from other persons in tending her piggery. 21
Angelita Sulit-delos Santos, cousin of petitioners and also of respondents, testified that she came
to know the subject property because according to her paternal grandfather Gabriel Sta. Ana
Sulit, her maternal grandmother Benita Gabriel-Lontoc mortgaged the property to him. It was
Benita Gabriel Lontoc who took care of her, her siblings and cousins; they lived with her until
her death. She identified the signature of Benita Gabriel in the 1944 Affidavit of Sale in favor of
Gabriel Sulit. Lot 1 consisting of 600 square meters was vacant property at that time but her
family was in possession thereof when it was sold to Gabriel Sulit; it was her father Eliseo Sulit
and uncle Hilario Sulit, who were incharge of their property. On cross-examination, she was
asked details regarding the supposed mortgage of Lot 1 to Gabriel Sulit but she admitted she
does not know anything as she was still very young then. 22
Respondents first witness was Roberto Gabriel Arnedo, son of Luz Gabriel-Arnedo. He testified
that when he was about 5 or 6 years old (1953 or 1954), his grandfather Jose Gabriel used to
bring him along to visit the subject property consisting of 1,763 square meters based on the tax
declaration and OCT. They had picnics and celebrate his grandfathers birthday there. He
recalled accompanying his grandfather in overseeing the planting of gumamela which served as
the perimeter fence. Jose Gabriel had not mentioned anything about the claim of petitioners over
the same land; Jose Gabriel handed the documents pertaining to the land to his eldest aunt and
hence it now belongs to them.23 On cross-examination, he claimed that during those years he
had visited the land together with his grandfather, he did not see Florencia Sulit and her family. 24
Virginia Villanueva, daughter of Salome Gabriel, testified that they acquired the subject property
from their grandfather Jose Gabriel who had a tax declaration in his name. Her mother furnished
them with documents such as tax declarations and the extrajudicial settlement of the estate of
Jose Gabriel; they also have an approved survey plan prepared for Salome Gabriel. She does not
know the petitioners in this case.25 On cross-examination, she said that the subject property was
inherited by Jose Gabriel from his father Mateo Gabriel; Jose Gabriel was the sole owner of the
land while Benita Gabriel has separate properties in Palingon and Langkokak. 26 Though they are
not actually occupying the property, they visit the place and she does not know anybody
15
occupying it, except for the portion (486 square meters) which petitioners sold to Sta. Barbara.
A nine-door apartment was built on the said portion without their permission. She had talked to
both Sta. Barbara and with Arturo Tanyag they had meetings before the barangay; however,
petitioners filed the present case in court. She insisted that there is nobody residing in the
subject property; there is still the remaining 901 square meters which is owned by their mother.
She admitted there were plants on the land but she does not know who actually planted them;
it was her grandfather who built a wooden fence and gumamela in the 1960s. As to the hearings
on the application for title, she had not attended the same; she does not know whether the
petitioners were notified of the said hearings. She also caused the preparation of the survey plan
for Salome Gabriel. On the increased area of the property indicated in the later tax declarations,
she admitted the discrepancy but said there were barangay roads being built at the time. 27
Esmeraldo Ramos, Municipal Assessor of Taguig, testified that he was formerly a Land Appraiser
in the Office of the Municipal Assessor of Taguig and in the course of his duties had certified one
of the tax declarations in the name of respondents (TD No. EL-014-10585). He identified and
verified said document and the other tax declarations submitted in court by the respondents. He
admitted that on January 10, 1980, they made the entry on TD No. 6425 in the name of Jose
Gabriel that the same was cancelled by TD No. 120-014-01013 also in the name of Jose Gabriel
who presented a supposed deed of sale in favor of Araceli Tanyag which caused the earlier
cancellation of TD No. 6425 in his name. However, upon investigation they found out that the
seller Florencia Sulit was not the owner because the declared owner was Jose Gabriel; even the
deed of sale recognized that the property was declared in the name of Jose Gabriel. They also
discovered from the cadastral survey and tax mapping of Taguig that the property is in the name
of Jose Gabriel both in the Bureau of Lands and Municipal Assessors Office. As far as he knows,
it was Jose Gabriel who owned the subject property which he usually visited; he recalled that
around the late 70s and 80s, he ordered the fencing of barbed wire and bamboo stalks on the
land which is just 3 lots away from his own property. As to the discrepancy in the area of the
property as originally declared by Jose Gabriel, he explained that the boundaries in the original
tax declaration do not change but after the land is surveyed, the boundaries naturally would be
different because the previous owner may have sold his property or the present owner inherits
the property from his parents. He admitted that the tax declaration is just for tax purposes and
not necessarily proof of ownership or possession of the property it covers. 28
Respondents last witness was Antonio Argel who testified that he had resided for 52 years on a
land near the subject property and as far as he knows it was Jose Gabriel who owns it and
planted thereon. On cross-examination, he admitted that Jose Gabriel was not in physical
possession of the property. He just assumed that the present occupants of the property were
allowed by Jose Gabriel to stay therein because he is the owner. There is an apartment and three
small houses existing on the property, and about five families are living there. He confirmed that
there is a piggery being maintained by a certain Juana who had been residing there maybe for
fifteen years already.29
In rebuttal, petitioners presented two witnesses who are owners of properties adjoining that of
the subject land. Rodante Domingo testified that it was only now did he learn that the property
of Arturo Tanyag is already titled in the name of respondents. He was not aware of the titling
proceeding because he never received any notice as adjoining owner. His own property is already
titled in his name and he even asked Arturo Tanyag to act as a witness in his application for
titling.30 On the other hand, Dado Dollado testified that he acquired his property in 1979. He
likewise affirmed that he did not receive any notice of the proceedings for application for titling
filed by respondents and it was only now that he learned from Arturo Tanyag that the subject
property was already titled in the names of respondents. 31
The last rebuttal witness for petitioners was Dominador Dinguinbayan Ergueza, son of Agueda
Dinguinbayan. He testified that the subject property was formerly owned by his mother and the
present owner is Araceli Tanyag who bought the same from his mother in 1968. He described
the boundaries of the property in relation to the adjoining owners at that time; presently, the left
portion is already a street (Rujale St.) going towards the sea. He admitted that his wife, Livina
Ergueza was an instrumental witness in the 1968 deed of sale in favor of Araceli Tanyag.32
In its decision, the trial court dismissed the complaint as well as the counterclaim, holding that
petitioners failed to establish ownership of the subject property and finding the respondents to
be the declared owners and legal possessors. It likewise ruled that petitioners were unable to
prove by preponderance of evidence that respondents acquired title over the property through
fraud and deceit.
Petitioners appealed to the CA which affirmed the trial courts ruling. The CA found that apart
from the Affidavit executed by Benita Gabriel in 1944 claiming that she inherited Lot 1 from their
father, Mateo Gabriel, there is no evidence that she, not Jose Gabriel, was the true owner thereof.
It noted that just four years after Benita Gabriels sale of the subject property to the Sulit
spouses, Jose Gabriel declared the same under his name for tax purposes, paying the
corresponding taxes. The appellate court stressed that petitioners allegation of bad faith was not
proven.
Petitioners motion for reconsideration was likewise denied by the CA. Hence, this petition.
Petitioners assail the CA in not finding that the respondents obtained OCT No. 1035 in their
names fraudulently and in bad faith. They also claim to have acquired ownership of the subject
lots by virtue of acquisitive prescription.
The issues presented are: (1) whether respondents committed fraud and bad faith in registering
the subject lots in their name; and (2) whether petitioners acquired the property through
acquisitive prescription.
Registration of a piece of land under the Torrens System does not create or vest title, because it
is not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or
title over the particular property described therein. 33 Thus, notwithstanding the indefeasibility
of the Torrens title, the registered owner may still be compelled to reconvey the registered
property to its true owners. The rationale for the rule is that reconveyance does not set aside or
re-subject to review the findings of fact of the Bureau of Lands. In an action for reconveyance,
the decree of registration is respected as incontrovertible. What is sought instead is the transfer
of the property or its title which has been wrongfully or erroneously registered in another persons
name, to its rightful or legal owner, or to the one with a better right.34
An action for annulment of title or reconveyance based on fraud is imprescriptible where the
plaintiff is in possession of the property subject of the acts.35 The totality of the evidence on
record established that it was petitioners who are in actual possession of the subject property;
respondents merely insinuated at occasional visits to the land. However, for an action for
reconveyance based on fraud to prosper, this Court has held that the party seeking reconveyance
must prove by clear and convincing evidence his title to the property and the fact of fraud.36
The CA correctly observed that the only evidence of Benita Gabriels supposed title was the 1944
Affidavit of Sale whereby Benita Gabriel claimed sole ownership of Lot 1 as her inheritance from
their father, Mateo Gabriel. The property until 1949 was still declared in the name Jose Gabriel
despite the 1944 sale executed by Benita Gabriel in favor of spouses Gabriel and Cornelia Sulit.
As to the alleged fraud perpetrated by Jose Gabriel and respondents in securing OCT No. 1035
in their name, this was clearly not proven as Arturo Tanyag testified merely that Jose Gabriel
borrowed their documents pertaining to the property. No document or testimony was presented
to show that Jose Gabriel employed deceit or committed fraudulent acts in the proceedings for
titling of the property.
However, the CA did not address the issue of acquisitive prescription raised by the petitioners.
In their Complaint before the lower court, petitioners alleged
15. Defendants never occupied the whole area of the lot covered by Tax Declaration No. 1603
(686 sq. m.) neither were they able to set foot on the property covered by Tax Declaration No.
16
6542 [sic] for the reason that those lots had been in actual, open continuous, adverse and
notorious possession of the plaintiffs against the whole world for more than thirty years which
is equivalent to title.
x x x x37
Such character and length of possession of a party over a parcel of land subject of controversy
is a factual issue. Settled is the rule that questions of fact are not reviewable in petitions for
review on certiorari under Rule 45 of the Rules of Court, as only questions of law shall be raised
in such petitions. While this Court is not a trier of facts, if the inference drawn by the appellate
court from the facts is manifestly mistaken, it may, in the interest of justice, review the evidence
in order to arrive at the correct factual conclusions based on the record. 38
In this case, the CA was mistaken in concluding that petitioners have not acquired any right over
the subject property simply because they failed to establish Benita Gabriels title over said
property. The appellate court ignored petitioners evidence of possession that complies with the
legal requirements of acquiring ownership by prescription.
Acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite
lapse of time. In order to ripen into ownership, possession must be in the concept of an owner,
public, peaceful and uninterrupted.39 Possession is open when it is patent, visible, apparent,
notorious and not clandestine.40 It is continuous when uninterrupted, unbroken and not
intermittent or occasional; exclusive when the adverse possessor can show exclusive dominion
over the land and an appropriation of it to his own use and benefit; and notorious when it is so
conspicuous that it is generally known and talked of by the public or the people in the
neighborhood. The party who asserts ownership by adverse possession must prove the presence
of the essential elements of acquisitive prescription. 41
On the matter of prescription, the Civil Code provides:
Art. 1117. Acquisitive prescription of dominion and other real rights may be ordinary or
extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and with just title
for the time fixed by law.
Art. 1134. Ownership and other real rights over immovable property are acquired by ordinary
prescription through possession of ten years.
Art. 1137. Ownership and other real rights over immovables also prescribe through
uninterrupted adverse possession thereof for thirty years, without need of title or of good faith.
(Emphasis supplied.)
Petitioners adverse possession is reckoned from 1969 with the issuance of TD No. 1145 in the
name of Araceli Tanyag, which tax declaration cancelled TD No. 6425 in the name of Jose
Gabriel.42 It is settled that tax receipts and declarations are prima facie proofs of ownership or
possession of the property for which such taxes have been paid. Coupled with proof of actual
possession of the property, they may become the basis of a claim for ownership. 43 Petitioners
caretaker, Juana Quinones, has since lived in a nipa hut, planted vegetables and tended a
piggery on the land. Aside from paying taxes due on the property, petitioners also exercised other
acts of ownership such as selling the 468-square meter portion to Sta. Barbara who had
constructed thereon a nine-door apartment building.
It was only in 1979 that respondents began to assert a claim over the property by securing a tax
declaration in the name of Jose Gabriel albeit over a bigger area than that originally declared. In
1998, they finally obtained an original certificate of title covering the entire 1,763 square meters
which included Lot 1. Did these acts of respondents effectively interrupt the possession of
petitioners for purposes of prescription?
We answer in the negative.
In the case of Heirs of Marcelina Azardon-Crisologo v. Raon44 this Court citing Article 1123 of
the Civil Code45held that civil interruption takes place with the service of judicial summons to
the possessor and not by filing of a mere Notice of Adverse Claim. Thus:
Article 1123 of the Civil Code is categorical. Civil interruption is produced by judicial summons
to the possessor. Moreover, even with the presence of judicial summons, Article 1124 sets
limitations as to when such summons shall not be deemed to have been issued and shall not
give rise to interruption, to wit: 1) if it should be void for lack of legal solemnities; 2) if the plaintiff
should desist from the complaint or should allow the proceedings to lapse; or 3) if the possessor
should be absolved from the complaint.
Both Article 1123 and Article 1124 of the Civil Code underscore the judicial character of civil
interruption.1wphi1 For civil interruption to take place, the possessor must have received
judicial summons. None appears in the case at bar. The Notice of Adverse Claim which was filed
by petitioners in 1977 is nothing more than a notice of claim which did not effectively interrupt
respondents possession. Such a notice could not have produced civil interruption. We agree in
the conclusion of the RTC, which was affirmed by the Court of Appeals, that the execution of the
Notice of Adverse Claim in 1977 did not toll or interrupt the running of the prescriptive period
because there remains, as yet, a necessity for a judicial determination of its judicial validity.
What existed was merely a notice. There was no compliance with Article 1123 of the Civil Code.
What is striking is that no action was, in fact, filed by petitioners against respondents. As a
consequence, no judicial summons was received by respondents. As aptly held by the Court of
Appeals in its affirmance of the RTCs ruling, the Notice of Adverse Claim cannot take the place
of judicial summons which produces the civil interruption provided for under the law. In the
instant case, petitioners were not able to interrupt respondents adverse possession since 1962.
The period of acquisitive prescription from 1962 continued to run in respondents favor despite
the Notice of Adverse Claim. (Emphasis supplied.)
From 1969 until the filing of this complaint by the petitioners in March 2000, the latter have
been in continuous, public and adverse possession of the subject land for 31 years. Having
possessed the property for the period and in the character required by law as sufficient for
extraordinary acquisitive prescription, petitioners have indeed acquired ownership over the
subject property. Such right cannot be defeated by respondents acts of declaring again the
property for tax purposes in 1979 and obtaining a Torrens certificate of title in their name in
1998.
This notwithstanding, we uphold petitioners right as owner only with respect to Lot 1 consisting
of 686 square meters. Petitioners failed to substantiate their claim over Lot 2 by virtue of a deed
of sale from the original declared owner, Agueda Dinguinbayan. Respondents asserted that the
147 square meters covered by the tax declarations of Dinguinbayan being claimed by petitioners
is not the same lot included in OCT No. 1035.
Under Article 434 of the Civil Code, to successfully maintain an action to recover the ownership
of a real property, the person who claims a better right to it must prove two (2) things: first, the
identity of the land claimed; and second, his title thereto. In regard to the first requisite, in
an accion reinvindicatoria, the person who claims that he has a better right to the property must
first fix the identity of the land he is claiming by describing the location, area and boundaries
thereof.46 In this case, petitioners failed to identify Lot 2 by providing evidence of the metes and
bounds thereof, so that the same may be compared with the technical description contained in
OCT No. 1035, which would have shown whether Lot 2 consisting of 147 square meters was
erroneously included in respondents title. The testimony of Agueda Dinguinbayans son would
not suffice because said witness merely stated the boundary owners as indicated in the 1966
17
and 1967 tax declarations of his mother. On his part, Arturo Tayag claimed that he had the lots
surveyed in the 1970s in preparation for the consolidation of the two parcels. However, no such
plan was presented in court.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated August 18, 2006 of the
Court of Appeals in CA-G.R. CV No. 81224 is MODIFIED in that petitioners heirs of Bienvenido
and Araceli Tanyag are hereby declared the owners of 686 square meters previously declared
under Tax Declaration Nos. 11445, 120-014-00486, 120-014-0085, B-014-00501, E-014-01446,
C-014-00893 and D-014-00839 all in the name of Araceli Tanyag, which lot is presently covered
by OCT No. 1035 issued by the Register of Deeds of Pasig, Metro Manila in the name of
respondents Salome Gabriel, Nestor R. Gabriel, Luz Gabriel-Arnedo, Nora Gabriel-Calingo, Pilar
Gabriel-Mendiola, Minerva Gabriel-Natividad and Erlinda Gabriel-Velasquez. Respondents are
ORDERED to RECONVEY the said 686-square meter portion to the petitioners.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

18
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2524 April 27, 1906
CARMEN AYALA DE ROXAS, petitioner-appellee,
vs.
AGAPITA MAGLONSO, ET AL., respondent-appellants.
M. Mina for appellants.
Rafael Palma for appellee.
WILLARD, J.
On the 15th of March, 1904, Ayala de Roxas presented a petition to the Court of Land
Registration asking that be inscribed as the owner of a certain tract of land of P12,388.46
square meters in extent, fronting on Calle the San Miguel, in Manila. More than fifty people,
who are occupying the land, appeared and entered opposed the granting of the petition.
Judgment was entered in the court below on the 31st day of January, 1905. The oppositions of
Agapita Maglonso and forty others were not, sustained, and as to them judgment was entered
in favor of the petitioner. The oppositions of Alejandro Francisco and seventeen others were
sustained, and as to them the petition was denied.
Agapita Maglonso and her forty associates, whose petitions had been rejected, excepted to the
judgment, and have brought the case here by a new trial in the court below. The petitioner,
Carmen Ayala de Roxas, excepted tot he judgment so far as it sustained the oppositions of
Alejandro Francisco and his seventeen associates. She moved for a new trial in the court below,
which was denied and she has brought the case here by bill of exceptions.
(1) The appellants Agapita Maglonso and her forty associates not having moved for a new trial in
the court below, we are permitted to examine the evidence upon which the decision of the court
below against them was based. The only question presented upon the bill of exceptions prepared
by them is whether the findings of fact contained in the decision of the court below are sufficient
to justify the judgment as to them. The court made separate findings as to tone of the objectors,
and an examination of those findings shows that they support the judgment. It is claimed by
these appellants in their brief in this court that the court below found that certain of them
acquired their interest in the land in question by inheritance or purchase, and that therefore to
them is applicable the prescriptive period of ten years. When the whole of the decision is
examined it is seen that the court did not make the finding claimed. The court said:
While there is a legal upon which to base the allegation that those who are able to
prove a possession of ten years by hereditary title or by purchase can invoke the
benefits of the ordinary prescription under article 1940 of the Civil Code, the evidence
in the case relating tot heir status as heirs as well as to the fact of the purchase are
too uncertain to justify the application of such a rule.
The appellants signed in August, 1901, recognizing the ownership of the petition. This
interrupted the prescriptive period. The facts stated in the decision relating to threats made by
the notary are not sufficient as a matter of law as to make that recognition void.
No claim was made in the pleadings in the court below for the value of the improvements made
by the appellants, nor was any evidence introduced as to such value. The judgment as to Agapita
Maglonso and the persons who prepared and presented a bill of exceptions with her is affirmed,
with the costs of this instance against the said appellants.
(2) As tot he bill of exceptions prepared by the petitioner, it appears that she made a motion for
a new trial in the court below on the ground that the evidence was not sufficient to justify the
findings of fact stated in the decision of the judge. It is therefore necessary to discuss the evidence
in relation to that part of the decision.
On the 26th of November, 1874, the grantors of the petitioner acquired the beneficial interest in
the land in question by a deed of that date. On the 3rd of September, 1887, the petitioner
acquired the legal ownership of the whereof had passed to her from the grantees of the deed of
the 26th of November, 1847. The title deeds of the 1892. the evidence presented by her showed
that at the time of the presentation of the petition she was the lawful owner of the land in
question. The evidence presented by the objectors related solely to the possession of certain small
tract of land included in the land descriptive in the petition. Their entire claim is based upon the
statute of limitations. The court below held as to each of the appellees that each one of them had
been in possession of the land for more than thirty years; that the extraordinary period of
prescription applied, and that they became the owner of their respective parcels. each one of the
defendants of objectors testified for himself. He presented the same in all the cases, and was
limited to a statement by the defendant that he went on the land at a certain time, and lived
there ever since, had made improvements thereon by filing low places thereon, did not ask
permission from anybody, and had not been disturbed in his occupation. In rebuttal the
petitioner presented evidence which proved the following facts; When the land tax was
established in 1901 the petitioner made a demand upon a notary public that he should visit the
premises for the purpose of notifying the occupants of the land top abandon it within days. In
response tot his requisition the notary visited the premises on the 31st of August, 1901, and
delivered to each one of the occupants, including these appellees, such a written or printed
notice. The notary testified that he limited himself to delivering a copy of this notice to each one
of the occupants, and made no threats of any kind whatever. This testimony is corroborated by
other evidence in the case. The appellees, however, practically all them, testify that threats were
owner their houses would be torn down within three days. On the day when this notice was given
no documents were signed by the appellees, and none were presented to them for signature.
However, on the days following the 31st day of August, up to and including the 5th day of
September, 1901, and even later, the occupants at different times during those days, and one
day one voluntarily as far as appears went to the office of the agent of the petitioner and these
signed written instruments, each of which described by meters and bounds the land occupied
by the person who signed it, stated that the property belonged to the petitioner, and the person
who signed the document promised to pay as rent a certain number of cents per square meter
for the use of the property of cents per square meter for the use of the property, and also to pay
the land t ax upon the house occupied by him.
We do not think that the evidence is sufficient to show title in the appellees by prescription. (See
Veloso vs. Naguit,1 April 2, 1904, 2 Off. Gaz., 527.)
Articles 444 and 1942 of the Civil Code are as follows:
ART. 444. Acts which are merely tolerated and those clandestinely executed, without
knowledge of the possessors of a thing, or by force, do no effect the possession.
ART. 1942. Acts of a possessory character, performed by virtue of the license, or by
mere tolerance on the part of the owner, are of no effect for establishing possession.
The evidence in the case bring it within the provisions of these articles. the petitioner was the
owner of the land. She collected rent from the another part of the same land. She tolerated the
presence of the defendants upon the small parcels of land which they occupied, not compelling
them to pay any rent until the imposition of the land tax in 1901. The most persuasive evidence
that the defendants were there by her tolerance and that they knew it, is found in the fact that
in 1901, when a demand was made upon them to pay rent, they did so, and recognized the
ownership of the petitioner. The finding of the court below to the effect that the notary threatened
to destroy their houses is not in our opinion supported by the evidence.
19
The judgment of the court below, so far as it is against the petitioner, is reversed. The case is
remanded to the court below with instructions to enter judgment for the petitioner as prayed for
in her petition. No costs in this court will be allowed on the appeal of the petition. So ordered.

Arellano, C.J., Torres, Mapa, and Carson, JJ., concur.

20
 Republic of the Philippines part owner of the property or not. The fact that she was invited by Marta Dizon is immaterial;
SUPREME COURT Marta had no greater right than the defendant.
Manila

The appealed judgment is affirmed without costs. So ordered.

EN BANC

Johnson, Malcolm, Johns and Villa-Real, JJ., concur.

G.R. No. L-31919 March 24, 1930

VICENTE SANTIAGO, administrator of the deceased Juan Dizon, plaintiff-appellant,

vs.
CRISTINA CRUZ, defendant-appellant.

The plaintiff-appellant in his own behalf.

Guevara, Francisco and Recto for defendant-appellant.

OSTRAND, J.:

It appears from the record that one Juan Dizon died on July 20, 1927, in a house where he had
lived for at least twenty years prior to his death. After his death, a petition for the appointment
of a special administrator was filed with the Court of First Instance of Rizal. The petition was
opposed by Marta Dizon, a close relative of the deceased, but her opposition was overruled and
on July 27, 1927, the plaintiff, Vicente Santiago, was appointed special administrator. As such,
he took possession of the property left by the deceased, including the house above-mentioned.
Two months later, Marta Dizon entered the house and made it her abode, against the will of the
plaintiff. Three days later, Cristina Cruz, the herein defendant, also made the house her home
on the invitation of Marta Dizon and remained there notwithstanding the objections of the
plaintiff.

Trouble immediately ensued, and the plaintiff asserts that the other persons living in the house
were insulted and annoyed to such an extent that they were compelled to leave. To prevent
further alleged depredations on the part of Marta and Cristina, the plaintiff placed padlocks on
most of the doors in the house, and on October 8, 1927, he obtained an order from the Court of
First Instance authorizing him to employ sheriffs or Constabulary men to aid him in maintaining
order in the house. Three days later, the court revoked said order but authorized the plaintiff to
employ deputy sheriffs at his own expense.

Thereafter, Marta Dizon died, but Cristina Cruz still insisted on living in the house, and the
plaintiff brought the present action against her for forcible entry and detainer. The justice of the
peace rendered judgment in favor of the defendant and absolved her from the complaint. Upon
appeal to the Court of First Instance, that court rendered a judgment ordering the defendant to
vacate the premises in question but absolving her from a claim presented by the plaintiff in the
same case for expenses incurred by him in employing a deputy sheriff. The total amount of the
claim was P2,116.71. Both of the parties appealed to this court, the plaintiff for the denial of his
claim of the expenses and the defendant for ordering her to vacate the house.

In our opinion, neither appeal is well taken. The plaintiff's employment of deputy sheriffs seems
to have been unnecessary, and we cannot hold that the court below erred in declining to allow
him compensation for the resulting expenses.

The defendant-appellant claims that she has inherited an interest in the house and is a tenant
in common with the heirs of Juan Dizon and that she therefore cannot be legally ejected from
said house. This contention cannot be successfully maintained. The plaintiff held possession of
the house before Marta Dizon and the defendant took possession. They acquired such possession
by force and against the will of the plaintiff, taking the law in their own hands. In these
circumstances, the defendant must suffer the consequences of her lawlessness whether she is a

21
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24863 August 5, 1926
LEON RAZOTE, ET AL., plaintiffs-appellants,
vs.
JUAN RAZOTE (alias BANDONG), NORBERTO RAPATALO, GREGORIO RAPATALO, and
EUGENIA DE FRANCIA, defendant-appellees.
C. Primicias for appellants.
Antonio Bengson for appellees.
OSTRAND, J.:
This is an action for the partition of a parcel of land situated in the barrio of San Jose of the
municipality of Alaminos, Pangasinan, the plaintiffs alleging that they are the owners of a four-
fifths interest in the land, having inherited the same from their father, Juan Razote 1.0. The
original complaint was filed on September 30, 1920, Norberto Rapatalo and Juan Razote, a
brother of the plaintiffs, being the only parties defendant. Norberto Rapatalo, through his
counsel, filed an answer denying the allegations of the complaint and setting up as a special
defense "that he is in legal possession of the land in question, it being alleged in the complaint
itself that he purchased the land from Juan Razote in the year 1913." On November 24, 1923,
counsel for the defendant Norberto Rapatalo filed an amended answer in which he denied
generally the allegations of the complaint and pleaded as a special defense that the only had
possession of the land during the years 1913 and 1914 and that he, in 1915, made a donation
of the land propter nuptias to his son Gregorio Rapatalo by reason of the latter's marriage to
Eugenia de Francia, and that he, the said defendant, had no further interest in the land. The
plaintiffs thereupon on December 13, 1923, filed an amended complaint to the same effect as
the original complaint, but including Gregorio Rapatalo and Eugenia de Francia as additional
defendants.
At the beginning of the trial in the Court of First Instance the parties entered into the following
stipulation of facts:
1. That the identity of the land in question is known to the witnesses for both parties
and that they know the description of the land.
2. That on June 9, 1913, the defendant Juan Razote (alias Bandong) sold the land to
his codefendant Norberto Rapatalo and that on that the same date Norberto Rapatalo
entered into the possession of the land and enjoyed the fruits thereof until they year
1915.
3. That on March 26, 1915, the defendant Norberto Rapatalo granted said land by
donation propter nuptias that his son Gregorio Rapatalo and that from the date up to
the present time Gregorio Rapatalo has been in possession of the land and has enjoyed
the products thereof.
4. That a deed of sale was executed by the defendant Juan Razote (alias Bandong) in
favor of his codefendant Norberto Rapatalo, the deed having been acknowledged before
Mr. Jose Rivera, attorney and notary public.
5. That a deed was also executed by Norberto Rapatalo in favor of his son Gregorio
Rapatalo, which is Exhibit 2, ratified before the same notary public, attorney Jose
Rivera.
6. That on September 30, 1920, the plaintiffs filed a complain for partition of property
against Juan Razote and his codefendant Norberto Rapatalo.
7. That in December, 1923, the same plaintiffs filed an amended complaint, including
the spouses Gregorio Rapatalo and Eugenia de Francia as defendants, as a
consequence of the answer in which it alleged that the defendant Norberto Rapatalo
has no longer any right or interest in the land in question, having transferred the same
in 1915 to his son Gregorio Rapatalo.
Upon these stipulations counsel for the defendant Rapatalo moved that the case be dismissed
on the ground that Gregorio Rapatalo had acquired title to the land by prescription, but no ruling
was made upon this motion.
After receiving the testimony of some witnesses in regard to points not covered by the stipulation
of facts the trial court rendered judgment in favor of the defendants, denying the partition of the
property and absolving the defendants from the complaint. From this judgment the plaintiffs
appeal.
In our opinion the judgment appealed from must be affirmed. Leaving aside the question of
credibility of witnesses upon the disputed facts, and in regard to which opinions may differ, it
clearly appears from the stipulation of facts, which is not impugned and which binding upon the
parties, that the defendant Gregorio Rapatalo, by himself and through his predecessor in
interest, Norberto Rapatalo, had held adverse possession of the property for over ten years when
he was made a defendant in he case in December, 1923, and that he therefore has acquired title
to the land by prescription. But it has been suggested (1) that inasmuch as action was brought
against Norberto Rapatalo within ten years from the time he obtained possession of the land, his
possession cannot be tacked to that of Gregorio; and (2) that it is not clearly shown by the
evidence that the possession held by Norberto and Gregorio was of the character required by
section 41 of the Code of Civil Procedure.
Neither one of these contentions can be successfully maintained. Section 41, supra, reads as
follows:
Ten years actual adverse possession by any person claiming to be owner for that time
of any land or interest in land, uninterruptedly continued for ten years by occupancy,
descent, grants, or otherwise, in whatever way such occupancy may have
commenced or continued, shall vest in every actual occupant or possessor of such land
a full and complete title, saying to the persons under disabilities the rights secured by
the next section. In order to constitute such title by prescription or adverse possession,
the possession by the claimant or by the person under or through whom he claims
must have been actual open, public, continuous, under a claim of title exclusive of
any other right and adverse to all other claimants. . . .
The rule is almost universal that if there is privity between successive occupants, the adverse
possession of the predecessor may be tacked to the adverse possession of the successor, whether
the former had title to the land or not. (See 2 C. J., 82 et seq., 1 R. C. L., 717 et seq.) The very
few exceptions to this rule are based on special statutory provisions which do not exist in this
jurisdiction. The provisions of the section quoted are taken from section 2734 of the annotated
Code of Mississippi of 1892, under which Code, tacking of successive possessions has always
been allowed. (Crowder vs. Neal, 100 Miss., 730.) The same rule has also uniformly been followed
in this jurisdiction.
22
As already stated, it is stipulated that Norberto Rapatalo bought the land on June 19, 1913, and
held possession until March 26, 1915, when he ceded it to his son Gregorio, was continued the
possession uninterruptedly until December, 1923, when he was made a party to the case. It also
appears from uncontradicted that when the cession was made Gregorio moved from the barrio
of Pugo, where his father is living, to the barrio of San Jose, where the land in question is
situated, and that he alone enjoyed the fruits of the land during that time. There was therefore
no contenancy between him and his father and there is no indication of collusion between them
with intent to defraud the plaintiffs. As there was privity of possession between the two, the
predecessor's possession must, under the rule stated, be tacked to that of the successor.

At this point attention is called to the clear and positive language of the section above quoted. It
is there in effect stated that the manner in which the possession is commenced is immaterial; to
confer title it is sufficient that the possession has been actual, open, public, continuous and
adverse for the period of ten years saving only certain rights of persons under disability. Nowhere
in our statutes is any exception made in case such as the present, and if there is no exception it
stands to reason that section 41 applies with full force, and if the possession is of the character
described in said section for the period of ten years, it gives the possessor a "full and complete
title." That the possession in the present case was of that character, is fully shown by the
evidence. That it was continuous, is not disputed; that it was adverse and under claim of
ownership, is shown by the facts that both Norberto and Gregorio held the land under
conveyances in fee simple; that it was actual, open, and public, is sufficiently proven by the
testimony to the effect that the land was cultivated to its full and by the stipulation that Norberto
enjoyed its fruits during the time of his possession and that Gregorio received the products
during the succeeding period.

Now, as to the suggestion that Gregorio's rights were affected by the fact that an action for
partition of the land was brought against his father some five years after the father had divested
himself of all interest in the land, it must be considered that after the land had been ceded to
him, Gregorio held adverse possession not only against the plaintiffs but as against the whole
word, including his father. Can an action brought against a person, in regard to whom the
possessor of the land holds adversely, be regarded as an interruption of the possession of the
actual possessor? The question answers itself. It is elementary that an action against a stranger
to the possession cannot interrupt the running of the statute of limitations as to the actual
possessor if the latter's possession has been open and notorious as is admittedly the case here.

The blood relationship between Norberto and Gregorio has nothing to do with the question; and
action against the father is not an action against the son, and it is again to be noted that there
is no indication in the record of conclusion between the father and son to mislead the plaintiffs
into bringing the action against the wrong party. It is probable that Gregorio knew that an action
had been brought against his father, but that knowledge did not interrupt his possession; he
was under no obligation to inform the plaintiffs of their mistake; it was their duty to be vigilant
and to see that the action was brought against the proper party in interest.

Some stress has been laid on the admission of possession contained in the original answer filed
by Norberto's counsel. Aside from the fact that mistakes are frequently made by lawyers in
preparing pleadings and that when such pleadings are subsequently amended but little weight
can be given to original errors in the allegations, it is here to be observed that the question of
possession is not in controversy; that is definitely settled by the stipulation of facts. It may also
be noted that the wording of the allegation of possession in the answer indicates that it was not
based on information furnished by the defendants but upon allegations contained in the
complaint.

For the reasons stated the judgment appealed from is affirmed, with the costs against the
appellants. So ordered.

Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur.

Johns, J., dissents.

23
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 165552 January 23, 2007
PABLO R. ANTONIO, JR., Petitioner,
vs.
ENGR. EMILIO M. MORALES as Sole Proprietor of E. M. MORALES &
ASSOCIATES, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari assailing the Decision 1 of the
Court of Appeals dated June 11, 2004 in CA-G.R. SP No. 80001 and its Resolution2 of September
21, 2004 denying the motion for reconsideration.
Records show that on December 18, 1995, E. M. Morales & Associates filed with the Regional
Trial Court (RTC), Branch 56, Makati City a complaint for a sum of money (based upon an oral
contract) against Pablo R. Antonio, Jr., petitioner, and Design Consultancy, Inc., docketed as
Civil Case No. 95-1796.
Petitioner filed a motion to dismiss the complaint on two grounds: (1) plaintiffs failure to attach
to the complaint a certificate of non-forum shopping; and (2) plaintiffs lack of legal capacity to
sue, plaintiff being a sole proprietorship.
On September 30, 1996, respondent Engr. Emilio M. Morales, as plaintiff, filed an Amended
Complaint, attaching thereto a certificate of non-forum shopping.
The RTC issued an Order admitting the amended complaint and denying petitioners motion to
dismiss. Petitioner then filed a motion for reconsideration but it was denied, prompting him to
file with the Court of Appeals a petition for certiorari, docketed as CA-G.R. SP No. 59309, which
remained pending for more than six years.
Feeling that the pendency of CA-G.R. SP No. 59309 would be indefinite, respondent filed with
the RTC a motion to dismiss his complaint.lavvphil.net
On August 1, 2001, the RTC dismissed Civil Case No. 95-1796 without prejudice pursuant to
Section 2, Rule 17 of the 1997 Rules of Civil Procedure, as amended.
On August 3, 2001, respondent filed with the Court of Appeals a manifestation that the RTC
dismissed without prejudice Civil Case No. 95-1796. However, it was only on August 27, 2002,
or after more than one year, that the Court of Appeals issued a Resolution directing petitioner to
comment on respondents manifestation.
On September 17, 2002, petitioner filed his comment.
On June 11, 2004, the Court of Appeals rendered its Decision dismissing his petition in CA-G.R.
SP No. 59309.
Meanwhile, on September 23, 2002, respondent filed anew a complaint for the collection of a
sum of money, this time with Branch 215 of the Quezon City RTC, docketed as Civil Case No. Q-
02-47835.
Forthwith, petitioner filed a motion to dismiss the complaint on the ground of prescription
considering that under Article 1145 of the Civil Code, actions based on oral contracts prescribe
in six years. Petitioner maintains that from August 14, 1995, when he received respondents last
letter of demand, to September 23, 2002, when respondent filed Civil Case No. Q-02-47835, more
than seven years had elapsed; and that the first case, Civil Case No. 95-1796, did not interrupt
the running of the period.
However, the RTC denied petitioners motion to dismiss and his subsequent motion for
reconsideration. Petitioner seasonably filed with the Court of Appeals a petition for certiorari,
docketed as CA-G.R. SP No. 80001.
On June 11, 2004, the Court of Appeals promulgated its Decision dismissing the petition in CA-
G.R. SP No. 80001. Petitioner filed a motion for reconsideration but was denied in a Resolution
dated September 21, 2004.
Hence, the present petition raising the sole issue of whether the Court of Appeals erred in holding
that the trial court did not gravely abuse its discretion in denying petitioners motion to dismiss
the complaint by reason of prescription.
The petition lacks merit.
Articles 1139, 1145 and 1155 of the Civil Code provide:
ART. 1139. Actions prescribe by the mere lapse of time fixed by law.
xxx
ART. 1145. The following actions must be commenced within six years:
(1) Upon an oral-contract
(2) Upon a quasi-contract.
xxx
ART. 1155. The prescription of actions is interrupted when they are filed before the court, when
there is written extra-judicial demand by the creditors, and when there is any written
acknowledgement of the debt by the debtor.
In the early case of US v. Serapio,3 this Court held that under the Civil Code, the prescription of
an action refers to the time within which an action must be brought after the right of action has
accrued. The prescriptive statutes serve to protect those who are diligent and vigilant, not those
who sleep on their rights. The rationale behind the prescription of actions is to prevent fraudulent
and stale claims from springing up at great distances of time, thus surprising the parties or their
representatives when the facts have become obscure from the lapse of time or the defective
24
memory or death or removal of the witnesses.4 Prescription applies even to the most meritorious
claims.

Prescription as understood and used in this jurisdiction does not simply mean a mere lapse of
time. Rather, there must be a categorical showing that due to plaintiffs negligence, inaction, lack
of interest, or intent to abandon a lawful claim or cause of action, no action whatsoever was
taken, thus allowing the statute of limitations to bar any subsequent suit.1avvphi1.net

Petitioners invocation of prescription is misplaced. We recall that on December 18, 1995,

respondent initially filed with the RTC of Makati City Civil Case No. 95-1796. While it was later
dismissed without prejudice to his own motion, we note that the dismissal sought was not for
the purpose of voluntarily abandoning his claim. On the contrary, respondents intention was to
expedite the enforcement of his rights. Understandably, he felt frustrated at the snails pace at
which his case was moving. As mentioned earlier, CA-G.R. SP No. 59309 remained pending
before the Court of Appeals for six (6) long years.

We further observe that respondent acted swiftly after the dismissal of his case without prejudice
by the Makati RTC. He immediately filed with the Court of Appeals a manifestation that Civil
Case No. 95-1796 was dismissed by the lower court. But the Court of Appeals acted on his
manifestation only after one year. This delay, beyond respondents control, in turn further caused
delay in the filing of his new complaint with the Quezon City RTC. Clearly, there was no inaction
or lack of interest on his part.

The statute of limitations was devised to operate primarily against those who slept on their rights
and not against those desirous to act but could not do so for causes beyond their control. 5 Verily,
the Court of Appeals did not err in holding that the RTC, Branch 215, Quezon City did not gravely
abuse its discretion when it denied petitioners motion to dismiss respondents complaint and
ruled that respondents filing of the complaint in Civil Case No. Q-02-47835 is not barred by
prescription.

WHEREFORE, we DENY the petition and AFFIRM the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 80001. Costs against petitioner.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

25
 Republic of the Philippines On July 30, 2004, the Labor Arbiter (LA) issued an order granting petitioners Motion to Dismiss
SUPREME COURT on the ground of prescription, pertinent portions of which read:
Manila

As correctly cited by (PLDT), as ruled by the Supreme Court in the case of Callanta vs. Carnation
SECOND DIVISION Phils., 145 SCRA 268, the complaint for illegal dismissal must be filed within four (4) years from
and after the date of dismissal.
G.R. No. 182622 September 8, 2010
Needless to state, the money claims have likewise prescribed.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY [PLDT], Petitioner,
vs. Article 291 of the Labor Code provides:
ROBERTO R. PINGOL, Respondent.

All money claims arising from employer-employee relations accruing from the effectivity of this
DECISION Code shall be filed within three (3) years from the time the cause of action accrued, otherwise
they shall be forever barred.

MENDOZA, J.:
WHEREFORE, let this case be, as it is hereby DISMISSED on the ground of prescription.

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court filed by
petitioner Philippine Long Distance Telephone Company (PLDT) which seeks to reverse and set SO ORDERED.7
aside: (1) the December 21, 2007 Decision1 of the Court of Appeals (CA), in CA-G.R. SP No.
98670, affirming the November 15, 20062 and January 31, 20073 Resolutions of the National
Labor Relations Commission (NLRC); and (2) its April 18, 2008 Resolution4denying the Motion Pingol appealed to the NLRC arguing that the 4-year prescriptive period has not yet lapsed
for Reconsideration of petitioner. because PLDT failed to categorically deny his claims. The NLRC in its November 15, 2006
Resolution reversed the LAs resolution and favored Pingol. The dispositive portion thereof reads:

THE FACTS
WHEREFORE, the foregoing premises considered, the instant appeal is GRANTED and the Order
appealed from is REVERSED and SET ASIDE.
In 1979, respondent Roberto R. Pingol (Pingol) was hired by petitioner PLDT as a maintenance
technician.
Accordingly, let the entire records of the case be REMANDED to the Labor Arbiter a quo for
further proceedings.
On April 13, 1999, while still under the employ of PLDT, Pingol was admitted at The Medical
City, Mandaluyong City, for "paranoid personality disorder" due to financial and marital
problems. On May 14, 1999, he was discharged from the hospital. Thereafter, he reported for SO ORDERED.8
work but frequently absented himself due to his poor mental condition.
PLDT moved for reconsideration but the same was denied by the NLRC in its Resolution dated
From September 16, 1999 to December 31, 1999, Pingol was absent from work without official January 31, 2007.
leave. According to PLDT, notices were sent to him with a stern warning that he would be
dismissed from employment if he continued to be absent without official leave "pursuant to PLDT Unsatisfied, PLDT elevated the case to the CA by way of a petition for certiorari under Rule 65
Systems Practice A-007 which provides that Absence without authorized leaves for seven (7) alleging grave abuse of discretion on the part of the NLRC in issuing the assailed resolutions.
consecutive days is subject to termination from the service." 5Despite the warning, he failed to
show up for work. On January 1, 2000, PLDT terminated his services on the grounds of
unauthorized absences and abandonment of office. The CA denied the petition in its December 21, 2007 Decision, the fallo of which reads:

On March 29, 2004, four years later, Pingol filed a Complaint for Constructive Dismissal and WHEREFORE, the Petition for Certiorari is hereby DISMISSED. The Resolutions dated 15
Monetary Claims6against PLDT. In his complaint, he alleged that he was hastily dismissed from November 2006 and 31 January 2007 of the National Labor Relations Commission are
his employment on January 1, 2000. In response, PLDT filed a motion to dismiss claiming, AFFIRMED.
among others, that respondents cause of action had already prescribed as the complaint was
filed four (4) years and three (3) months after his dismissal.
SO ORDERED.9

Pingol, however, countered that in computing the prescriptive period, the years 2001 to 2003
must not be taken into account. He explained that from 2001 to 2003, he was inquiring from PLDT moved for reconsideration but the same was denied by the CA in a Resolution dated April
PLDT about the financial benefits due him as an employee who was no longer allowed to do his 18, 2008.
work, but he merely got empty promises. It could not, therefore, result in abandonment of his
claim.
THE ISSUES

26
Not in conformity with the ruling of the CA, PLDT seeks relief with this Court raising the following
issues:
THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY NOT PROBABLY IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.
THE HONORABLE COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION.10
The issues boil down to whether or not respondent Pingol filed his complaint for constructive
dismissal and money claims within the prescriptive period of four (4) years as provided in Article
1146 of the Civil Code11 and three (3) years as provided in Article 291 of the Labor
Code,12 respectively.
Petitioner PLDT argues that the declaration under oath made by respondent Pingol in his
complaint before the LA stating January 1, 2000 as the date of his dismissal, should have been
treated by the NLRC and the CA as a judicial admission pursuant to Section 4, Rule 129 of the
Revised Rules of Court.13 According to petitioner, respondent has never contradicted his
admission under oath. On the basis of said declaration, petitioner posits that the LA was correct
in finding that Pingols complaint for illegal dismissal was filed beyond the prescriptive period of
four (4) years from the date of dismissal pursuant to Article 1146 of the New Civil Code.
In his Comment,14 respondent Pingol counters that petitioner PLDT could not have sent those
notices with warning as that claim "has never been supported by sufficient proof not only before
the Labor Arbiter but likewise before the Court of Appeals."15 He further alleges that his dismissal
is likewise unsupported by any evidence. He insists that both the NLRC and the CA correctly
stated that his cause of action has not yet prescribed as he was not formally dismissed on
January 1, 2000 or his monetary claims categorically denied by petitioner.
THE COURTS RULING
The Court finds the petition meritorious.
Parties apparently do not dispute the applicable prescriptive period.
Article 1146 of the New Civil Code provides:
Art. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
xxx xxx xxx
As this Court stated in Callanta v. Carnation, 16 when one is arbitrarily and unjustly deprived of
his job or means of livelihood, the action instituted to contest the legality of one's dismissal from
employment constitutes, in essence, an action predicated "upon an injury to the rights of the
plaintiff," as contemplated under Art. 1146 of the New Civil Code, which must be brought within
four (4) years.
With regard to the prescriptive period for money claims, Article 291 of the Labor Code states:
Article 291. Money Claims. All money claims arising from employer-employee relations accruing
during the effectivity of this Code shall be filed within three (3) years from the time the cause of
action accrued; otherwise they shall be barred forever.
The pivotal question in resolving the issues is the date when the cause of action of respondent
Pingol accrued.
It is a settled jurisprudence that a cause of action has three (3) elements, to wit: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right; and (3) an
act or omission on the part of such defendant violative of the right of the plaintiff or constituting
a breach of the obligation of the defendant to the plaintiff. 17
Respondent asserts that his complaint was filed within the prescriptive period of four (4) years.
He claims that his cause of action did not accrue on January 1, 2000 because he was not
categorically and formally dismissed or his monetary claims categorically denied by petitioner
PLDT on said date. Further, respondent Pingol posits that the continuous follow-up of his claim
with petitioner PLDT from 2001 to 2003 should be considered in the reckoning of the prescriptive
period.
Petitioner PLDT, on the other hand, contends that respondent Pingol was dismissed from the
service on January 1, 2000 and such fact was even alleged in the complaint he filed before the
LA. He never contradicted his previous admission that he was dismissed on January 1, 2000.
Such admitted fact does not require proof.
The Court agrees with petitioner PLDT. Judicial admissions made by parties in the pleadings, or
in the course of the trial or other proceedings in the same case are conclusive and so does not
require further evidence to prove them. These admissions cannot be contradicted unless
previously shown to have been made through palpable mistake or that no such admission was
made.18 In Pepsi Cola Bottling Company v. Guanzon,19it was written:
xxx that the dismissal of the private respondent's complaint was still proper since it is apparent
from its face that the action has prescribed. Private respondent himself alleged in the
complaint that he was unlawfully dismissed in 1979 while the complaint was filed only on
November 14, 1984. xxx (Emphasis supplied. Citations omitted.)1avvphil
In the case at bench, Pingol himself alleged the date January 1, 2000 as the date of his dismissal
in his complaint20 filed on March 29, 2004, exactly four (4) years and three (3) months later.
Respondent never denied making such admission or raised palpable mistake as the reason
therefor. Thus, the petitioner correctly relied on such allegation in the complaint to move for the
dismissal of the case on the ground of prescription.
The Labor Code has no specific provision on when a claim for illegal dismissal or a monetary
claim accrues. Thus, the general law on prescription applies. Article 1150 of the Civil Code states:
Article 1150. The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought. (Emphasis
supplied)
The day the action may be brought is the day a claim starts as a legal possibility. 21 In the present
case, January 1, 2000 was the date that respondent Pingol was not allowed to perform his usual
and regular job as a maintenance technician. Respondent Pingol cited the same date of dismissal
in his complaint before the LA. As, thus, correctly ruled by the LA, the complaint filed had already
prescribed.
27
Respondent claims that between 2001 and 2003, he made follow-ups with PLDT management
regarding his benefits. This, to his mind, tolled the running of the prescriptive period.

The rule in this regard is covered by Article 1155 of the Civil Code. Its applicability in labor cases
was upheld in the case of International Broadcasting Corporation v. Panganiban 22 where it was
written:

Like other causes of action, the prescriptive period for money claims is subject to interruption,
and in the absence of an equivalent Labor Code provision for determining whether the said period
may be interrupted, Article 1155 of the Civil Code may be applied, to wit:

ART. 1155. The prescription of actions is interrupted when they are filed before the Court, when
there is a written extrajudicial demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor.

Thus, the prescription of an action is interrupted by (a) the filing of an action, (b) a written
extrajudicial demand by the creditor, and (c) a written acknowledgment of the debt by the debtor.

In this case, respondent Pingol never made any written extrajudicial demand. Neither did
petitioner make any written acknowledgment of its alleged obligation. Thus, the claimed "follow-
ups" could not have validly tolled the running of the prescriptive period. It is worthy to note that
respondent never presented any proof to substantiate his allegation of follow-ups.

Unfortunately, respondent Pingol has no one but himself to blame for his own predicament. By
his own allegations in his complaint, he has barred his remedy and extinguished his right of
action. Although the Constitution is committed to the policy of social justice and the protection
of the working class, it does not necessary follow that every labor dispute will be automatically
decided in favor of labor. The management also has its own rights. Out of Its concern for the less
privileged in life, this Court, has more often than not inclined, to uphold the cause of the worker
in his conflict with the employer. Such leaning, however, does not blind the Court to the rule
that justice is in every case for the deserving, to be dispensed in the light of the established facts
and applicable law and doctrine.23

WHEREFORE, the petition is GRANTED. The assailed December 21, 2007 Decision and April
18, 2008 Resolution of the Court of Appeals, in CA-G.R. SP No. 98670, are REVERSED and SET
ASIDE and a new judgment entered DISMISSING the complaint of Roberto R. Pingol.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

28
 Republic of the Philippines In response, Palao sent a letter dated January 10, 1986, 7 to Atty. Aquino, stating that he was
SUPREME COURT not amenable to the reimbursements claimed by Iringan.
Manila

On February 21, 1989, Iringan, now represented by anew counsel - Atty. Carmelo Z. Lasam,
SECOND DIVISION proposed that the P50,000 which he had already paid Palao be reimbursed 8 or Palao could sell
to Iringan, an equivalent portion of the land.
G.R. No. 129107 September 26, 2001
Palao instead wrote Iringan that the latter's standing obligation had reached P61,600,
representing payment of arrears for rentals from October 1985 up to March 1989. 9 The parties
ALFONSO L. IRINGAN, petitioner, failed to arrive at an agreement.
vs.
HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact,
FELISA P. DELOS SANTOS, respondents. On July 1, 1991, Palao filed a Complaint10 for Judicial Confirmation of Rescission of Contract
and Damages against Iringan and his wife.

QUISUMBING, J.:
This petition assails the Decision1 dated April 30, 1997 of the Court of Appeals in CA G.R. CV
No. 39949, affirming the decision of the Regional Trial Court and deleting the award of attorney's
fee.
In their Answer,11 the spouses alleged that the contract of sale was a consummated contract,
hence, the remedy of Palao was for collection of the balance of the purchase price and not
rescission. Besides, they said that they had always been ready and willing to comply with their
obligations in accordance with said contract.

In a Decision12 dated September 25, 1992, the Regional Trial Court of Cagayan, Branch I, ruled
The facts of the case are based on the records. in favor of Palao and affirmed the rescission of the contract. It disposed,

On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an
undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located at the Poblacion of
Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The parties executed a Deed
of Sale2 on the same date with the purchase price of P295,000.00, payable as follows:
WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff
and against the defendants and judgment is hereby rendered as follows:
(a) Affirming the rescission of the contract of sale;

(a) P10,000.00 - upon the execution of this instrument, and for this purpose, the
vendor acknowledges having received the said amount from the vendee as of this date; (b) Cancelling the adverse claim of the defendants annotated at the back of TCT No.
T-5790;

(b) P140,000.00 - on or before April 30, 1985;

(c) Ordering the defendants to vacate the premises;

(c) P145,000.00 - on or before December 31, 1985.3

When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao
sent a letter4 to Iringan stating that he considered the contract as rescinded and that he would
not accept any further payment considering that Iringan failed to comply with his obligation to
pay the full amount of the second installment.
(d) Ordering the defendants to pay jointly and severally the sum of P100,000.00 as
reasonable compensation for use of the property minus 50% of the amount paid by
them; and to pay P50,000.00 as moral damages; P10,000.00 as exemplary damages;
and P50,000.00 as attorney's fee; and to pay the costs of suit.
SO ORDERED.13

On August 20, 1985, Iringan through his counsel Atty. Hilarion L. Aquino, 5
replied that they
were not opposing the revocation of the Deed of Sale but asked for the reimbursement of the As stated, the Court of Appeals affirmed the above decision. Hence, this petition for review.
following amounts:

Iringan avers in this petition that the Court of Appeals erred:

(a) P50,000.00 - cash received by you;

1. In holding that the lower court did not err in affirming the rescission of the contract
(b) P3,200.00 - geodetic engineer's fee; of sale; and

(c) P500.00 - attorney's fee; 2. In holding that defendant was in bad faith for "resisting" rescission and was made
liable to pay moral and exemplary damages. 14

(d) the current interest on P53,700.00.6

We find two issues for resolution: (1) whether or not the contract of sale was validly rescinded,
and (2) whether or not the award of moral and exemplary damages is proper.

29
On the first issue, petitioner contends that no rescission was effected simply by virtue of the
letter15 sent by respondent stating that he considered the contract of sale rescinded. Petitioner
asserts that a judicial or notarial act is necessary before one party can unilaterally effect a
rescission.
Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the
obligee and since petitioner did not oppose the intent to rescind the contract, Iringan in effect
agreed to it and had the legal effect of a mutually agreed rescission.
Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable
property.
Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act. After the demand, the court may not grant
him a new term. (Italics supplied)
Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to
resolve the contract.16
In the case of Villaruel v. Tan King,17 we ruled in this wise,
...since the subject-matter of the sale in question is real property, it does not come
strictly within the provisions of article 1124 (now Article 1191) of the Civil Code, but
is rather subjected to the stipulations agreed upon by the contracting parties and to
the provisions of article 1504 (now Article 1592) of the Civil Code." 18
Citing Manresa, the Court said that the requirement of then Article 1504, "refers to a demand
that the vendor makes upon the vendee for the latter to agree to the resolution of the obligation
and to create no obstacles to this contractual mode of extinguishing obligations." 19
Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether
or not automatic rescission has been stipulated. It is to be noted that the law uses the phrase
"even though"20 emphasizing that when no stipulation is found on automatic rescission, the
judicial or notarial requirement still applies.
On the first issue, both the trial and appellate courts affirmed the validity of the alleged mutual
agreement to rescind based on Article 1191 of the Civil Code, particularly paragraphs 1 and 2
thereof.
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.
[Emphasis ours.]
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to
automatic rescission. In Escueta v. Pando,21 we ruled that under Article 1124 (now Article 1191)
of the Civil Code, the right to resolve reciprocal obligations, is deemed implied in case one of the
obligors shall fail to comply with what is incumbent upon him. But that right must be invoked
judicially. The same article also provides: "The Court shall decree the resolution demanded,
unless there should be grounds which justify the allowance of a term for the performance of the
obligation."
This requirement has been retained in the third paragraph of Article 1191, which states that "the
court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period."
Consequently, even if the right to rescind is made available to the injured party, 22 the obligation
is not ipso facto erased by the failure of the other party to comply with what is incumbent upon
him. The party entitled to rescind should apply to the court for a decree of rescission. 23 The right
cannot be exercised solely on a party's own judgment that the other committed a breach of the
obligation.24 The operative act which produces the resolution of the contract is the decree of the
court and not the mere act of the vendor.25 Since a judicial or notarial act is required by law for
a valid rescission to take place, the letter written by respondent declaring his intention to rescind
did not operate to validly rescind the contract.
Notwithstanding the above, however, in our view when private respondent filed an action for
Judicial Confirmation of Rescission and Damages26 before the RTC, he complied with the
requirement of the law for judicial decree of rescission. The complaint 27 categorically stated that
the purpose was 1) to compel appellants to formalize in a public document, their mutual
agreement of revocation and rescission; and/or 2) to have a judicial confirmation of the said
revocation/rescission under terms and conditions fair, proper and just for both
parties.28 In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,29 we held that even a
crossclaim found in the Answer could constitute a judicial demand for rescission that satisfies
the requirement of the law.30
Petitioner contends that even if the filing of the case were considered the judicial act required,
the action should be deemed prescribed based on the provisions of Article 1389 of the Civil
Code.31
This provision of law applies to rescissible contracts, 32 as enumerated and defined in Articles
138033 and 1381.34We must stress however, that the "rescission" in Article 1381 is not akin to
the term "rescission" in Article 1191 and Article 1592.35 In Articles 1191 and 1592, the rescission
is a principal action which seeks the resolution or cancellation of the contract while in Article
1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in
said article.36
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article
1144,37 which provides that the action upon a written contract should be brought within ten
years from the time the right of action accrues. The suit was brought on July 1, 1991, or six
years after the default. It was filed within the period for rescission. Thus, the contract of sale
between the parties as far as the prescriptive period applies, can still be validly rescinded.
On the issue of moral and exemplary damages, petitioner claims that the Court of Appeals erred
in finding bad faith on his part when he resisted the rescission38 and claimed he was ready to
pay but never actually paid respondent, notwithstanding that he knew that appellee's principal
motivation for selling the lot was to raise money to pay his SSS loan. 39 Petitioner would have us
reverse the said CA findings based on the exception40that these findings were made on a
misapprehension of facts.
30
The records do not support petitioner's claims. First, per the records, petitioner knew
respondent's reason for selling his property. As testified to by petitioner 41 and in the
deposition42 of respondent, such fact was made known to petitioner during their negotiations as
well as in the letters sent to petitioner by Palao.43 Second, petitioner adamantly refused to
formally execute an instrument showing their mutual agreement to rescind the contract of sale,
notwithstanding that it was petitioner who plainly breached the terms of their contract when he
did not pay the stipulated price on time, leaving private respondent desperate to find other
sources of funds to payoff his loan. Lastly, petitioner did not substantiate by clear and convincing
proof, his allegation that he was ready and willing to pay respondent. We are more inclined to
believe his claim of readiness to pay was an afterthought intended to evade the consequence of
his breach. There is no record to show the existence of such amount, which could have been
reflected, at the very least, in a bank account in his name, if indeed one existed; or, alternatively,
the proper deposit made in court which could serve as a formal tender of payment. 44 Thus, we
find the award of moral and exemplary damages proper.1wphi1.nt

WHEREFORE, the petition is DENIED. The assailed decision dated April 30, 1997 of the Court
of Appeals in CA G.R. CV No. 39949, affirming the Regional Trial Court decision and deleting the
award of attorney's fees, is hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena, De Leon, Jr., JJ., concur.

31
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 139033 December 18, 2002
JOVENDO DEL CASTILLO, petitioner,
vs.
HON. ROSARIO TORRECAMPO, Presiding Judge, RTC of Camarines Sur, Branch 33 and
PEOPLE OF THE PHILIPPINES, respondents.
DECISION
CORONA, J.:
The instant petition is one for the review, by way of appeal by certiorari, of the Decision 1 of the
Court of Appeals dated November 20, 1998, and of the Resolution dated June 14, 1999 denying
the motion for reconsideration thereof.
Petitioner was charged on March 8, 1983 with violation of Section 178 (nn)2 of the 1978 Election
Code in Criminal Case No. F-1447 before Branch 33, Regional Trial Court, Camarines Sur. The
Information alleged:
That on May 17, 1982, (Barangay Election Day), at around 8:15 P.M. in Barangay Ombao,
Municipality of Bula, Province of Camarines Sur, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused did, then and there unlawfully conducted himself in
a disorderly manner, by striking the electric bulb and two (2) kerosene petromax lamps lighting
the room where voting center no. 24 is located, during the counting of the votes in said voting
center plunging the room in complete darkness, thereby interrupting and disrupting the
proceedings of the Board of Election Tellers.3
On arraignment, petitioner pleaded not guilty. Thereafter, trial on the merits ensued.
On January 14, 1985, the trial court rendered judgment and declared petitioner guilty beyond
reasonable doubt of violating Section 178 (nn) of PD 1296, otherwise known as the 1978 Election
Code, as amended, and sentenced petitioner to suffer the indeterminate penalty of imprisonment
of 1 year as minimum to 3 years as maximum.
Aggrieved, petitioner appealed his conviction to the Court of Appeals which eventually affirmed
the decision of the trial court in toto. Said decision became final and executory. Thus, the
execution of judgment was scheduled on October 14, 1987.
On October 12, 1987, an urgent motion to reset the execution of judgment was submitted by
petitioner through his counsel. But it was denied for lack of merit.
During the execution of judgment, petitioner failed to appear which prompted the presiding judge
to issue an order of arrest of petitioner and the confiscation of his bond. However, petitioner was
never apprehended. He remained at large.
Ten years later, on October 24, 1997, petitioner filed before the trial court a motion to quash the
warrant issued for his arrest on the ground of prescription of the penalty imposed upon him.
However, it was denied. His motion for reconsideration thereof was likewise denied.
Dissatisfied, petitioner filed with the Court of Appeals a Petition for Certiorari assailing the orders
of the trial court denying both his motion to quash the warrant of arrest and motion for
reconsideration.
On November 20, 1998, the Court of Appeals rendered its now assailed decision dismissing the
petition for lack of merit.
Following the denial of his motion for reconsideration, the instant petition was filed before us.
Petitioner asserts that the Court of Appeals gravely erred in holding that the penalty imposed
upon petitioner has not prescribed. Petitioner maintains that Article 93 of the Revised Penal Code
provides that the period of prescription shall commence to run from the date when the culprit
should evade the service of his sentence. The Court of Appeals, in its interpretation of the said
provision, engaged in judicial legislation when it added the phrase "by escaping during the term
of the sentence" thereto, so petitioner claims.
Going over the merits of the petition, the Court finds that the Court of Appeals did not err in
dismissing the petition for certiorari.
The threshold issue in the instant case is the interpretation of Article 93 of the Revised Penal
Code in relation to Article 157 of the same Code.
In dismissing the petition, the Court of Appeals ruled:
"Article 92 of the Revised Penal Code provides as follows:
When and how penalties prescribe The penalties imposed by the final sentence prescribed as
follows:
1. Death and reclusion perpetua, in twenty years;
2. Other afflictive penalties, in fifteen years;
3. Correctional penalties, in ten years; with the exception of the penalty of arresto
mayor, which prescribes in five years;
4. Light penalties, in one year.
"And Article 93 of the Revised Penal Code, provides as follows:
Computation of the prescription of penalties The period of prescription of penalties shall
commence to run from the date when the culprit should evade the service of his sentence, and
it shall be interrupted if the defendant should give himself up, be captured, should go to some
foreign country with which his Government has no extradition treaty, or should commit another
crime before the expiration of the period of prescription.
"The penalty imposed upon the petitioner is one (1) year of imprisonment as minimum
to three (3) years of imprisonment as maximum.
32
 "The law under which the petitioner was convicted is a special law, the 1978 Election
Code. This law does not provide for the prescription of penalties. This being the case,
We have to apply the provision of the Revised Penal Code which allows the application
of said code in suppletory character when it provides that:
Article 93 of the Revised Penal Code provides when the prescription of penalties shall commence
to run. Under said provision, it shall commence to run from the date the felon evades the service
of his sentence. Pursuant to Article 157 of the same Code, evasion of service of sentence can be
committed only by those who have been convicted by final judgment by escaping during the term
of his sentence.

Offenses which are or in the future may be punishable under special laws are not
subject to the provision of this code. This code shall be supplementary to such laws,
unless the latter should specially provide the contrary.
"The penalty imposed upon the petitioner is a correctional penalty under Article 25 in
relation to Article 27 of the Revised Penal Code. Being a correctional penalty it
prescribed in ten (10) years.
"The petitioner was convicted by a final judgment on June 14, 1986. Such judgment
would have been executed on October 14, 1986 but the accused did not appear for
such proceeding. And he has never been apprehended.
"The contention of the petitioner is that said judgment prescribed on October 24, 1996.
"The issue here is whether or not the penalty imposed upon the petitioner has
prescribed.
As correctly pointed out by the Solicitor General, "escape" in legal parlance and for purposes of
Articles 93 and 157 of the RPC means unlawful departure of prisoner from the limits of his
custody. Clearly, one who has not been committed to prison cannot be said to have escaped
therefrom.
In the instant case, petitioner was never brought to prison. In fact, even before the execution of
the judgment for his conviction, he was already in hiding. Now petitioner begs for the compassion
of the Court because he has ceased to live a life of peace and tranquility after he failed to appear
in court for the execution of his sentence. But it was petitioner who chose to become a fugitive.
The Court accords compassion only to those who are deserving. Petitioners guilt was proven
beyond reasonable doubt but he refused to answer for the wrong he committed. He is therefore
not to be rewarded therefor.
The assailed decision of the Court of Appeals is based on settled jurisprudence and applicable
laws. It did not engage in judicial legislation but correctly interpreted the pertinent laws. Because
petitioner was never placed in confinement, prescription never started to run in his favor.

"The elements in order that the penalty imposed has prescribed are as follows: WHEREFORE, for lack of merit, the petition is hereby DENIED.

1. That the penalty is imposed by final sentence. SO ORDERED.

2. That the convict evaded the service of the sentence by escaping during Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Morales, JJ., concur.
the term of his sentence.

3. That the convict who escaped from prison has not given himself up, or
been captured, or gone to a foreign country with which we have no
extradition treaty or committed another crime.

4. That the penalty has prescribed, because of the lapse of time form the
date of the evasion of the service of the sentence by the convict.

(p. 93, Revised Penal Code by L. Reyes 93 ed.)

"From the foregoing elements, it is clear that the penalty imposed has not prescribed
because the circumstances of the case at bench failed to satisfy the second element,
to wit That the convict evaded the service of the sentence by escaping during the
service of his sentence. As a matter of fact, the petitioner never served a single minute
of his sentence.

The foregoing conclusion of the Court of Appeals is consistent with the ruling of this Court
in Tanega vs. Masakayan, et. al.,4 where we declared that, for prescription of penalty imposed
by final sentence to commence to run, the culprit should escape during the term of such
imprisonment.

The Court is unable to find and, in fact, does not perceive any compelling reason to deviate from
our earlier pronouncement clearly exemplified in the Tanega case.

33
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 139930 June 26, 2012
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. COJUANGCO, JR., JUAN PONCE ENRILE, MARIA CLARA LOBREGAT, JOSE
ELEAZAR, JR., JOSE CONCEPCION, ROLANDO P. DELA CUESTA, EMMANUEL M.
ALMEDA, HERMENEGILDO C. ZAYCO, NARCISO M. PINEDA, IAKI R. MENDEZONA,
DANILO S. URSUA, TEODORO D. REGALA, VICTOR P. LAZATIN, ELEAZAR B. REYES,
EDUARDO U. ESCUETA, LEO J. PALMA, DOUGLAS LU YM, SIGFREDO VELOSO and JAIME
GANDIAGA, Respondents.
DECISION
ABAD, J.:
This case, which involves another attempt of the government to recover ill-gotten wealth acquired
during the Marcos era, resolves the issue of prescription.
The Facts and the Case
On April 25, 1977 respondents Teodoro D. Regala, Victor P. Lazatin, Eleazar B. Reyes, Eduardo
U. Escueta and Leo J. Palma incorporated the United Coconut Oil Mills, Inc. (UNICOM) 1 with an
authorized capital stock of P100 million divided into one million shares with a par value of P100
per share. The incorporators subscribed to 200,000 shares worth P20 million and paid P5
million.
On September 26, 1978 UNICOM amended its capitalization by (1) increasing its authorized
capital stock to three million shares without par value; (2) converting the original subscription
of 200,000 to one million shares without par value and deemed fully paid for and non-assessable
by applying the P5 million already paid; and (3) waiving and abandoning the subscription
receivables of P15 million.2
On August 29, 1979 the Board of Directors of the United Coconut Planters Bank (UCPB)
composed of respondents Eduardo M. Cojuangco, Jr., Juan Ponce Enrile, Maria Clara L.
Lobregat, Jose R. Eleazar, Jr., Jose C. Concepcion, Rolando P. Dela Cuesta, Emmanuel M.
Almeda, Hermenegildo C. Zayco, Narciso M. Pineda, Iaki R. Mendezona, and Danilo S. Ursua
approved Resolution 247-79 authorizing UCPB, the Administrator of the Coconut Industry
Investment Fund (CII Fund), to invest not more than P500 million from the fund in the equity of
UNICOM for the benefit of the coconut farmers.3
On September 4, 1979 UNICOM increased its authorized capital stock to 10 million shares
without par value. The Certificate of Increase of Capital Stock stated that the incorporators held
one million shares without par value and that UCPB subscribed to 4 million shares worth P495
million.4
On September 18, 1979 a new set of UNICOM directors, composed of respondents Eduardo M.
Cojuangco, Jr., Juan Ponce Enrile, Maria Clara L. Lobregat, Jose R. Eleazar, Jr., Jose
Concepcion, Emmanuel M. Almeda, Iaki R. Mendezona, Teodoro D. Regala, Douglas Lu Ym,
Sigfredo Veloso, and Jaime Gandiaga, approved another amendment to UNICOMs capitalization.
This increased its authorized capital stock to one billion shares divided into 500 million Class
"A" voting common shares, 400 million Class "B" voting common shares, and 100 million Class
"C" non-voting common shares, all with a par value of P1 per share. The paid-up subscriptions
of 5 million shares without par value (consisting of one million shares for the incorporators and
4 million shares for UCPB) were then converted to 500 million Class "A" voting common shares
at the ratio of 100 Class "A" voting common shares for every one without par value share. 5
About 10 years later or on March 1, 1990 the Office of the Solicitor General (OSG) filed a
complaint for violation of Section 3(e) of Republic Act (R.A.) 3019 6 against respondents, the 1979
members of the UCPB board of directors, before the Presidential Commission on Good
Government (PCGG). The OSG alleged that UCPBs investment in UNICOM was manifestly and
grossly disadvantageous to the government since UNICOM had a capitalization of only P5 million
and it had no track record of operation. In the process of conversion to voting common shares,
the governments P495 million investment was reduced by P95 million which was credited to
UNICOMs incorporators. The PCGG subsequently referred the complaint to the Office of the
Ombudsman in OMB-0-90-2810 in line with the ruling in Cojuangco, Jr. v. Presidential
Commission on Good Government,7 which disqualified the PCGG from conducting the preliminary
investigation in the case.
About nine years later or on March 15, 1999 the Office of the Special Prosecutor (OSP) issued a
Memorandum,8stating that although it found sufficient basis to indict respondents for violation
of Section 3(e) of R.A. 3019, the action has already prescribed. Respondents amended UNICOMs
capitalization a third time on September 18, 1979, giving the incorporators unwarranted benefits
by increasing their 1 million shares to 100 million shares without cost to them. But, since
UNICOM filed its Certificate of Filing of Amended Articles of Incorporation with the Securities
and Exchange Commission (SEC) on February 8, 1980, making public respondents acts as board
of directors, the period of prescription began to run at that time and ended on February 8, 1990.
Thus, the crime already prescribed when the OSG filed the complaint with the PCGG for
preliminary investigation on March 1, 1990.
In a Memorandum9 dated May 14, 1999, the Office of the Ombudsman approved the OSPs
recommendation for dismissal of the complaint. It additionally ruled that UCPBs subscription
to the shares of stock of UNICOM on September 18, 1979 was the proper point at which the
prescription of the action began to run since respondents act of investing into UNICOM was
consummated on that date. It could not be said that the investment was a continuing act. The
giving of undue benefit to the incorporators prescribed 10 years later on September 18, 1989.
Notably, when the crime was committed in 1979 the prescriptive period for it had not yet been
amended. The original provision of Section 11 of R.A. 3019 provided for prescription of 10 years.
Thus, the OSG filed its complaint out of time.
The OSG filed a motion for reconsideration on the Office of the Ombudsmans action but the
latter denied the same;10 hence, this petition.
Meanwhile, the Court ordered the dismissal of the case against respondent Maria Clara L.
Lobregat in view of her death on January 2, 2004. 11
The Issue Presented
The pivotal issue in this case is whether or not respondents alleged violation of Section 3(e) of
R.A. 3019 already prescribed.
The Courts Ruling
Preliminarily, the Court notes that what Republic of the Philippines (petitioner) filed in this case
is a petition for review on certiorari under Rule 45. But the remedy from an adverse resolution
34
of the Office of the Ombudsman in a preliminary investigation is a special civil action of certiorari
under Rule 65.12 Still, the Court will treat this petition as one filed under Rule 65 since a reading
of its contents reveals that petitioner imputes grave abuse of discretion and reversible
jurisdictional error to the Ombudsman for dismissing the complaint. The Court has previously
treated differently labeled actions as special civil actions for certiorari under Rule 65 for
acceptable reasons such as justice, equity, and fair play. 13
As to the main issue, petitioner maintains that, although the charge against respondents was
for violation of the Anti-Graft and Corrupt Practices Act, its prosecution relates to its efforts to
recover the ill-gotten wealth of former President Ferdinand Marcos and of his family and cronies.
Section 15, Article XI of the 1987 Constitution provides that the right of the State to recover
properties unlawfully acquired by public officials or employees is not barred by prescription,
laches, or estoppel.
But the Court has already settled in Presidential Ad Hoc Fact-Finding Committee on Behest Loans
v. Desierto14that Section 15, Article XI of the 1987 Constitution applies only to civil actions for
recovery of ill-gotten wealth, not to criminal cases such as the complaint against respondents in
OMB-0-90-2810. Thus, the prosecution of offenses arising from, relating or incident to, or
involving ill-gotten wealth contemplated in Section 15, Article XI of the 1987 Constitution may
be barred by prescription.15
Notably, Section 11 of R.A. 3019 now provides that the offenses committed under that law
prescribes in 15 years. Prior to its amendment by Batas Pambansa (B.P.) Blg. 195 on March 16,
1982, however, the prescriptive period for offenses punishable under R.A. 3019 was only 10
years.16 Since the acts complained of were committed before the enactment of B.P. 195, the
prescriptive period for such acts is 10 years as provided in Section 11 of R.A. 3019, as originally
enacted.17
Now R.A. 3019 being a special law, the 10-year prescriptive period should be computed in
accordance with Section 2 of Act 3326,18 which provides:
Section 2. Prescription shall begin to run from the day of the commission of the violation
of the law, and if the same be not known at the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment.
The above-mentioned section provides two rules for determining when the prescriptive period
shall begin to run: first, from the day of the commission of the violation of the law, if such
commission is known; and second, from its discovery, if not then known, and the institution of
judicial proceedings for its investigation and punishment.19
Petitioner points out that, assuming the offense charged is subject to prescription, the same
began to run only from the date it was discovered, namely, after the 1986 EDSA Revolution.
Thus, the charge could be filed as late as 1996.
In the prosecution of cases of behest loans, the Court reckoned the prescriptive period from the
discovery of such loans.1wphi1 The reason for this is that the government, as aggrieved party,
could not have known that those loans existed when they were made. Both parties to such loans
supposedly conspired to perpetrate fraud against the government. They could only have been
discovered after the 1986 EDSA Revolution when the people ousted President Marcos from office.
And, prior to that date, no person would have dared question the legality or propriety of the
loans.20
Those circumstances do not obtain in this case. For one thing, what is questioned here is not
the grant of behest loans that, by their nature, could be concealed from the public eye by the
simple expedient of suppressing their documentations. What is rather involved here is UCPBs
investment in UNICOM, which corporation is allegedly owned by respondent Cojuangco,
supposedly a Marcos crony. That investment does not, however, appear to have been withheld
from the curious or from those who were minded to know like banks or competing businesses.
Indeed, the OSG made no allegation that respondent members of the board of directors of UCPB
connived with UNICOM to suppress public knowledge of the investment.
Besides, the transaction left the confines of the UCPB and UNICOM board rooms when UNICOM
applied with the SEC, the publicly-accessible government clearing house for increases in
corporate capitalization, to accommodate UCPBs investment. Changes in shareholdings are
reflected in the General Information Sheets that corporations have been mandated to submit
annually to the SEC. These are available to anyone upon request.
The OSG makes no allegation that the SEC denied public access to UCPBs investment in
UNICOM during martial law at the Presidents or anyone elses instance. Indeed, no accusation
of this kind has ever been hurled at the SEC with reference to corporate transactions of whatever
kind during martial law since even that regime had a stake in keeping intact the integrity of the
SEC as an instrumentality of investments in the Philippines.
And, granted that the feint-hearted might not have the courage to question the UCPB investment
into UNICOM during martial law, the second elementthat the action could not have been
instituted during the 10-year period because of martial lawdoes not apply to this case. The last
day for filing the action was, at the latest, on February 8, 1990, about four years after martial
law ended. Petitioner had known of the investment it now questions for a sufficiently long time
yet it let those four years of the remaining period of prescription run its course before bringing
the proper action.
Prescription of actions is a valued rule in all civilized states from the beginning of organized
society. It is a rule of fairness since, without it, the plaintiff can postpone the filing of his action
to the point of depriving the defendant, through the passage of time, of access to defense
witnesses who would have died or left to live elsewhere, or to documents that would have been
discarded or could no longer be located. Moreover, the memories of witnesses are eroded by time.
There is an absolute need in the interest of fairness to bar actions that have taken the plaintiffs
too long to file in court.
Respondents claim that, in any event, the complaint against them failed to show probable cause.
They point out that, prior to the third amendment of UNICOMs capitalization, the stated value
of the one million shares without par value, which belonged to its incorporators, was P5 million.
When these shares were converted to 5 million shares with par value, the total par value of such
shares remained at P5 million. But, the action having prescribed, there is no point in discussing
the existence of probable cause against the respondents for violation of Section 3(e) of R.A. 3019.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Memorandum dated May 14,
1999 of the Office of the Ombudsman that dismissed on the ground of prescription the subject
charge of violation of Section 3(e) of R.A. 3019 against respondents Eduardo M. Cojuangco, Jr.,
Juan Ponce Enrile, Jose R. Eleazar, Jr., Jose C. Concepcion, Rolando P. Dela Cuesta, Emmanuel
M. Almeda, Hermenegildo C. Zayco, Narciso M. Pineda, Iaki R. Mendezona, Danilo S. Ursua,
Teodoro D. Regala, Victor P. Lazatin, Eleazar B. Reyes, Eduardo U. Escueta, Leo J. Palma,
Douglas Lu Ym, Sigfredo Veloso, and Jaime Gandiaga.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
35
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 169588 October 7, 2013
JADEWELL PARKING SYSTEMS CORPORATION represented by its manager and
authorized representative Norma Tan, Petitioner,
vs.
HON. JUDGE NELSON F. LIDUA SR., Presiding Judge of The Municipal Trial Court Branch
3, Baguio City, BENEDICTO BALAJADIA, EDWIN ANG, "JOHN DOES" and "PETER
DOES" Respondents.
DECISION
LEONEN, J.:
We are asked to rule on this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the assailed Decision of Branch 7 of the Regional Trial Court of Baguio City and
Order dated August 15, 2005 be reversed and that Criminal Case Nos. 112934 and 112935 be
ordered reinstated and prosecuted before the Municipal Trial Court of Baguio City.
Petitioner Jadewell Parking Systems Corporation is a private parking operator duly authorized
to operate and manage the parking spaces in Baguio City pursuant to City Ordinance 003-2000.
It is also authorized under Section 13 of the City Ordinance to render any motor vehicle immobile
by placing its wheels in a clamp if the vehicle is illegally parked. 1
According to the Resolution of the Office of the Provincial Prosecutor, San Fernando City, La
Union, the facts leading to the filing of the Informations are the following:
Jadewell Parking Systems Corporation (Jadewell), thru [sic] its General Manager Norma Tan and
Jadewell personnel Januario S. Ulpindo and Renato B. Dulay alleged in their affidavit-complaint
that on May 17, 2003, the respondents in I.S No. 2003-1996 Edwin Ang, Benedicto Balajadia
and John Doe dismantled, took and carried away the clamp attached to the left front wheel of a
Mitsubishi Adventure with Plate No. WRK 624 owned by Edwin Ang. Accordingly, the car was
then illegally parked and left unattended at a Loading and Unloading Zone. The value of the
clamp belonging to Jadewell which was allegedly forcibly removed with a piece of metal
is P26,250.00. The fines of P500.00 for illegal parking and the declamping fee of P500.00 were
also not paid by the respondents herein.
In I.S. No., 2003-1997, Jadewell thru [sic] its General Manager Norina C. Tan, Renato B. Dulay
and Ringo Sacliwan alleged in their affidavit-complaint that on May 7, 2003, along Upper Mabini
Street, Baguio City, herein respondents Benedicto Balajadia, Jeffrey Walan and two (2) John
Does forcibly removed the clamp on the wheel of a Nissan Cefiro car with Plate No. UTD 933,
belonging to Jeffrey Walan which was then considered illegally parked for failure to pay the
prescribed parking fee. Such car was earlier rendered immobile by such clamp by Jadewell
personnel. After forcibly removing the clamp, respondents took and carried it away depriving its
owner, Jadewell, its use and value which is P26,250.00. According to complainants, the fine
of P500.00 and the declamping fee of P500.00 were not paid by the respondents.2
The incident resulted in two cases filed by petitioner and respondents against each other.
Petitioner Jadewell filed two cases against respondents: Robbery under I.S. Nos. 2003-1996 and
2003-1997. Petitioner filed an Affidavit-Complaint against respondents Benedicto Balajadia,
Jeffrey Walan, and three (3) John Does, one of whom was eventually identified as respondent
Ramon Ang. The Affidavit-Complaint was filed with the Office of the City Prosecutor of Baguio
City on May 23, 2003.3 A preliminary investigation took place on May 28, 2003. Respondent
Benedicto Balajadia likewise filed a case charging Jadewell president, Rogelio Tan, and four (4)
of Jadewell's employees with Usurpation of Authority/Grave Coercion in I.S. No. 2003-1935.
In his Counter-affidavit for the two cases he filed for himself and on behalf of his co-respondents,
respondent Benedicto Balajadia denied that his car was parked illegally. He admitted that he
removed the clamp restricting the wheel of his car since he alleged that the placing of a clamp
on the wheel of the vehicle was an illegal act. He alleged further that he removed the clamp not
to steal it but to remove the vehicle from its clamp so that he and his family could continue using
the car. He also confirmed that he had the clamp with him, and he intended to use it as a piece
of evidence to support the Complaint he filed against Jadewell. 4
In the Resolution5 of the Office of the Provincial Prosecutor of San Fernando City, La Union,
Acting City Prosecutor Mario Anacleto Banez found probable cause to file a case of Usurpation
of Authority against the petitioner. Regarding the case of Robbery against respondents,
Prosecutor Banez stated that:
We find no probable cause to charge respondents in these two (2) cases for the felony of Robbery.
The elements of Robbery, specifically the intent to gain and force upon things are absent in the
instant cases, thereby negating the existence of the crime.
xxxx
We, however, respectfully submit that the acts of respondents in removing the wheel clamps on
the wheels of the cars involved in these cases and their failure to pay the prescribed fees were in
violation of Sec. 21 of Baguio City Ordinance No. 003-2000 which prescribes fines and penalties
for violations of the provisions of such ordinance. Certainly, they should not have put the law
into their own hands. (Emphasis supplied)
WHEREFORE, premises considered, there is probable cause against all the respondents, except
Jeffrey Walan or Joseph Walan (who has been dragged into this controversy only by virtue of the
fact that he was still the registered owner of the Nissan Cefiro car) for violation of Section 21 of
City Ord. No. 003-2000 in both cases and we hereby file the corresponding informations against
them in Court.6
Prosecutor Banez issued this Resolution on July 25, 2003.
On October 2, 2003, two criminal Informations were filed with the Municipal Trial Court of
Baguio City dated July 25, 2003, stating:
That on May 17, 2003 at Baguio City and within the jurisdiction of this Honorable Court, the
above-named accused with unity of action and concerted design, did then and there, with unity
of action and concerted design, willfully, unlawfully and feloniously forcibly dismantled [sic] and
took [sic] an immobilizing clamp then attached to the left front wheel of a Mitsubishi Adventure
vehicle with Plate No. WRK 624 belonging to Edwin Ang which was earlier rendered immobilized
by such clamp by Jadewell Personnel's for violation of the Baguio City ordinance No. 003-2600
to the damage and prejudice of private complainant Jadewell Parking System Corporation
(Jadewell) which owns such clamp worth P26,250.00 and other consequential damages.
CONTRARY TO LAW,
San Fernando City, La Union for Baguio City, this 25th day of July 2003. 7
36
The cases were docketed as Criminal Case Nos. 112934 and 112935 with the Municipal Trial
Court of Baguio City, Branch 3. Respondent Benedicto Balajadia and the other accused through
their counsel Paterno Aquino filed a January 20, 2004 Motion to Quash and/or Manifestation 8 on
February 2, 2004. The Motion to Quash and/or Manifestation sought the quashal of the two
Informations on the following grounds: extinguishment of criminal action or liability due to
prescription; failure of the Information to state facts that charged an offense; and the imposition
of charges on respondents with more than one offense.
In their Motion to Quash, respondents argued that:
1. The accused in this case are charged with violation of Baguio City Ordinance No.
003-2000.
2. Article 89 of the Revised Penal [sic] provides that criminal liability is totally
extinguished by prescription of the crime.
3. Act No. 3326, as amended by Act No. 3763, provides: "Section 1. x x x Violations
penalized by municipal ordinances shall prescribed [sic] after two months."
4. As alleged in the Information, the offense charged in this case was committed on
May 7, 2003. 5. As can be seen from the right hand corner of the Information, the
latter was filed with this Honorable Court on October 2, 2003, almost five (5) months
after the alleged commission of the offense charged. Hence, criminal liability of the
accused in this case, if any, was already extinguished by prescription when the
Information was filed.9
In an Order10 dated February 10, 2004, respondent Judge Nelson F. Lidua, Sr., Presiding Judge
of the Municipal Trial Court of Baguio City, Branch 3, granted the accused's Motion to Quash
and dismissed the cases.
Petitioner filed a Motion for Reconsideration on February 27, 2004 responding to the February
10, 2004 Order11to argue among other points that:
6.b. For another, the offenses charged have not yet prescribed. Under the law, the period of
prescription of offenses shall be interrupted by the filing of the complaint or information. While
it may be true that the Informations in these cases have been filed only on October 2, 2003, the
private complainant has, however, filed its criminal complaint on May 23, 2003, well within the
prescribed period.12
Respondents filed their Opposition13 on March 24, 2004, and petitioner filed a Reply14 on April
1, 2004.
The respondent judge released a Resolution15 dated April 16, 2004 upholding the Order granting
respondents' Motion to Quash. The Resolution held that:
For the guidance of the parties, the Court will make an extended resolution on one of the ground
[sic] for the motion to quash, which is that the criminal action has been extinguished on grounds
of prescription.
These offenses are covered by the Rules on Summary Procedure being alleged violations of City
Ordinances.
Under Section 9 of the Rule [sic] on Summary Procedure, the running of the prescriptive period
shall be halted on the date the case is filed in Court and not on any date before that (Zaldivia vs.
Reyes, Jr. G.R. No. 102342, July 3, 1992, En Banc).
In case of conflict, the Rule on Summary Procedure as the special law prevails over Sec. 1 of Rule
110 of the Rules on Criminal Procedure and also Rule 110 of the Rules of Criminal Procedure
must yield to Act No. 3326 or "AN ACT TO ESTABLISH PERIODS OF PRESCRIPTION FOR
VIOLATIONS PENALIZED BY SPECIAL ACTS AND MUNICIPAL ORDINANCES AND TO PROVIDE
WHEN PRESCRIPTION SHALL BEGIN TO RUN" (Ibid).
Petitioner then filed a Petition16 for Certiorari under Rule 65 with the Regional Trial Court of
Baguio City. The case was raffled to Branch 7 of the Regional Trial Court of Baguio City.
Petitioners contended that the respondent judge committed grave abuse of discretion amounting
to lack or excess of jurisdiction in dismissing Criminal Case Nos. 112934 and 112935 on the
ground of prescription. Petitioners argued that the respondent judge ruled erroneously saying
that the prescriptive period for the offenses charged against the private respondents was halted
by the filing of the Complaint/Information in court and not when the Affidavit-Complaints were
filed with the Office of the City Prosecutor of Baguio City. Petitioner cited Section 1 of Rule 110
of the Rules on Criminal Procedure:
x x x "criminal actions shall be instituted x x x in x x x other chartered cities, the complaint shall
be filed with the office of the prosecutor unless otherwise provided in their charter" and the last
paragraph thereof states that "the institution of the criminal action shall interrupt the running
of the period of prescription of the offense charged unless otherwise provided in special laws." 17
Petitioner contended further that:
the filing of the criminal complaint with the Office of the City Prosecutor of Baguio City, not the
filing of the criminal information before this Honorable Court, is the reckoning point in
determining whether or not the criminal action in these cases had prescribed.
xxxx
The offenses charged in Criminal Case Nos. 112934 and 112935 are covered by the Revised Rules
on Summary Procedure, not by the old Rules on Summary Procedure. Considering that the
offenses charged are for violations of a City Ordinance, the criminal cases can only be
commenced by informations. Thus, it was only legally and procedurally proper for the petitioner
to file its complaint with the Office of the City Prosecutor of Baguio City as required by Section
11 of the new Rules on Summary Procedure, these criminal cases "shall be commenced only by
information." These criminal cases cannot be commenced in any other way.
Moreover, the ruling of the Supreme Court in Zaldivia vs. Reyes cited in the assailed Resolution
does not apply in this case. The offense charged in Zaldivia is a violation of municipal ordinance
in which case, the complaint should have been filed directly in court as required by Section 9 of
the old Rules on Summary Procedure. On the other hand, Criminal Case Nos. 112934 and
112935 are for violations of a city ordinance and as aforestated, "shall be commenced only by
information."18
Thus, petitioner contended that the filing of the criminal complaint with the Office of the City
Prosecutor stopped the running of the two-month prescriptive period. Hence, the offenses
charged have not prescribed.
In their Comment,19 respondents maintained that the respondent judge did not gravely abuse
his discretion. They held that Section 2 of Act No. 3326, as amended, provides that:
37
Sec. 2. Prescription shall begin to run from the day of the commission of the violation of the law,
and if the same be not known at the time, from the discovery thereof and the institution of judicial
proceeding for its investigation and punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty person,
and shall begin to run again if the proceedings are dismissed for reasons not constituting
jeopardy.20 (Emphasis supplied)
Respondents argued that Zaldivia v. Reyes21held that the proceedings mentioned in Section 2 of
Act No. 3326, as amended, refer to judicial proceedings . Thus, this Court, in Zaldivia, held that
the filing of the Complaint with the Office of the Provincial Prosecutor was not a judicial
proceeding. The prescriptive period commenced from the alleged date of the commission of the
crime on May 7, 2003 and ended two months after on July 7, 2003. Since the Informations were
filed with the Municipal Trial Court on October 2, 2003, the respondent judge did not abuse its
discretion in dismissing Criminal Case Nos. 112934 and 112935.
In a Decision dated April 20, 2005, the Regional Trial Court of Baguio City Branch 7, through
Judge Clarence F. Villanueva, dismissed the Petition for Certiorari. The Regional Trial Court held
that, since cases of city ordinance violations may only be commenced by the filing of an
Information, then the two-month prescription period may only be interrupted by the filing of
Informations (for violation of City Ordinance 003-2000) against the respondents in court. The
Regional Trial Court of Baguio City, Branch 7, ruled in favor of the respondents and upheld the
respondent judges Order dated February 10, 2004 and the Resolution dated April 16, 2004.
Petitioners then filed a May 17, 2005 Motion for Reconsideration which was denied by the
Regional Trial Court in an August 15, 2005 Order.
Hence, this Petition.
The principal question in this case is whether the filing of the Complaint with the Office of the
City Prosecutor on May 23, 2003 tolled the prescription period of the commission of the offense
charged against respondents Balajadia, Ang, "John Does," and "Peter Does."
Petitioner contends that the prescription period of the offense in Act No. 3326, as amended by
Act No. 3763, does not apply because respondents were charged with the violation of a city
ordinance and not a municipal ordinance. In any case, assuming arguendo that the prescriptive
period is indeed two months, filing a Complaint with the Office of the City Prosecutor tolled the
prescription period of two months. This is because Rule 110 of the Rules of Court provides that,
in Manila and in other chartered cities, the Complaint shall be filed with the Office of the
Prosecutor unless otherwise provided in their charters.
In their Comment,22 respondents maintain that respondent Judge Lidua did not err in dismissing
the cases based on prescription. Also, respondents raise that the other grounds for dismissal
they raised in their Motion to Quash, namely, that the facts charged constituted no offense and
that respondents were charged with more than one offense, were sustained by the Metropolitan
Trial Court. Also, respondents argue that petitioner had no legal personality to assail the Orders,
since Jadewell was not assailing the civil liability of the case but the assailed Order and
Resolution. This was contrary to the ruling in People v. Judge Santiago 23 which held that the
private complainant may only appeal the civil aspect of the criminal offense and not the crime
itself.
In the Reply,24 petitioner argues that the respondent judge only dismissed the case on the ground
of prescription, since the Resolution dated April 16, 2004 only cited that ground. The Order dated
February 10, 2004 merely stated but did not specify the grounds on which the cases were
dismissed. Petitioner also maintains that the proceedings contemplated in Section 2 of Act No.
3326 must include the preliminary investigation proceedings before the National Prosecution
Service in light of the Rules on Criminal Procedure25 and Revised Rules on Summary Procedure.
Lastly, petitioner maintains that it did have legal personality, since in a Petition for Certiorari,
"persons aggrieved x x x may file a verified petition"26 before the court.
The Petition is denied.
The resolution of this case requires an examination of both the substantive law and the
procedural rules governing the prosecution of the offense. With regard to the prescription period,
Act No. 3326, as amended, is the only statute that provides for any prescriptive period for the
violation of special laws and municipal ordinances. No other special law provides any other
prescriptive period, and the law does not provide any other distinction. Petitioner may not argue
that Act No. 3326 as amended does not apply.
In Romualdez v. Hon. Marcelo,27 this Court defined the parameters of prescription:
In resolving the issue of prescription of the offense charged, the following should be considered:
(1) the period of prescription for the offense charged; (2) the time the period of prescription starts
to run; and (3) the time the prescriptive period was interrupted. 28 (Citation omitted)
With regard to the period of prescription, it is now without question that it is two months for the
offense charged under City Ordinance 003-2000.
The commencement of the prescription period is also governed by statute. Article 91 of the
Revised Penal Code reads:
Art. 91. Computation of prescription of offenses. The period of prescription shall commence
to run from the day on which the crime is discovered by the offended party, the authorities, or
their agents, and shall be interrupted by the filing of the complaint or information, and shall
commence to run again when such proceedings terminate without the accused being convicted
or acquitted, or are unjustifiably stopped for any reason not imputable to him.
The offense was committed on May 7, 2003 and was discovered by the attendants of the petitioner
on the same day. These actions effectively commenced the running of the prescription period.
The procedural rules that govern this case are the 1991 Revised Rules on Summary Procedure.
SECTION 1. Scope This rule shall govern the summary procedure in the Metropolitan Trial
Courts, the Municipal Trial Courts in Cities, the Municipal Trial Courts, and the Municipal
Circuit Trial Courts in the following cases falling within their jurisdiction:
xxxx
B. Criminal Cases:
(1) Violations of traffic laws, rules and regulations;
(2) Violations of the rental law;
(3) Violations of municipal or city ordinances (Emphasis supplied)
38
Section 11 of the Rules provides that:
Sec. 11. How commenced. The filing of criminal cases falling within the scope of this Rule
shall be either by complaint or by information: Provided, however, that in Metropolitan Manila
and in Chartered Cities, such cases shall be commenced only by information, except when the
offense cannot be prosecuted de officio.
The Local Government Code provides for the classification of cities. Section 451 reads:
SEC. 451. Cities, Classified. A city may either be component or highly urbanized: Provided,
however, that the criteria established in this Code shall not affect the classification and corporate
status of existing cities. Independent component cities are those component cities whose charters
prohibit their voters from voting for provincial elective officials. Independent component cities
shall be independent of the province.
Cities in the Philippines that were created by law can either be highly urbanized cities or
component cities. An independent component city has a charter that proscribes its voters from
voting for provincial elective officials. It stands that all cities as defined by Congress are chartered
cities. In cases as early as United States v. Pascual Pacis, 29 this Court recognized the validity of
the Baguio Incorporation Act or Act No. 1963 of 1909, otherwise known as the charter of Baguio
City.
As provided in the Revised Rules on Summary Procedure, only the filing of an Information tolls
the prescriptive period where the crime charged is involved in an ordinance. The respondent
judge was correct when he applied the rule in Zaldivia v. Reyes.
In Zaldivia v. Reyes, the violation of a municipal ordinance in Rodriguez, Rizal also featured
similar facts and issues with the present case. In that case, the offense was committed on May
11, 1990. The Complaint was received on May 30, 1990, and the Information was filed with the
Metropolitan Trial Court of Rodriguez on October 2, 1990. This Court ruled that:
As it is clearly provided in the Rule on Summary Procedure that among the offenses it covers are
violations of municipal or city ordinances, it should follow that the charge against the petitioner,
which is for violation of a municipal ordinance of Rodriguez, is governed by that rule and not
Section 1 of Rule 110.
Where paragraph (b) of the section does speak of "offenses falling under the jurisdiction of the
Municipal Trial Courts and Municipal Circuit Trial Courts," the obvious reference is to Section
32(2) of B.P. No. 129, vesting in such courts:
(2) Exclusive original jurisdiction over all offenses punishable with imprisonment of not
exceeding four years and two months, or a fine of not more than four thousand pesos, or both
such fine and imprisonment, regardless of other imposable accessory or other penalties,
including the civil liability arising from such offenses or predicated thereon, irrespective of kind,
nature, value, or amount thereof; Provided, however, That in offenses involving damage to
property through criminal negligence they shall have exclusive original jurisdiction where the
imposable fine does not exceed twenty thousand pesos.
These offenses are not covered by the Rules on Summary Procedure.
Under Section 9 of the Rules on Summary Procedure, "the complaint or information shall be filed
directly in court without need of a prior preliminary examination or preliminary investigation."
Both parties agree that this provision does not prevent the prosecutor from conducting a
preliminary investigation if he wants to. However, the case shall be deemed commenced only
when it is filed in court, whether or not the prosecution decides to conduct a preliminary
investigation. This means that the running of the prescriptive period shall be halted on the date
the case is actually filed in court and not on any date before that.
This interpretation is in consonance with the afore-quoted Act No. 3326 which says that the
period of prescription shall be suspended "when proceedings are instituted against the guilty
party." The proceedings referred to in Section 2 thereof are "judicial proceedings," contrary to the
submission of the Solicitor General that they include administrative proceedings. His contention
is that we must not distinguish as the law does not distinguish. As a matter of fact, it does.
At any rate, the Court feels that if there be a conflict between the Rule on Summary Procedure
and Section 1 of Rule 110 of the Rules on Criminal Procedure, the former should prevail as the
special law. And if there be a conflict between Act No. 3326 and Rule 110 of the Rules on Criminal
Procedure, the latter must again yield because this Court, in the exercise of its rule-making
power, is not allowed to "diminish, increase or modify substantive rights" under Article VIII,
Section 5(5) of the Constitution. Prescription in criminal cases is a substantive right. 30
Jurisprudence exists showing that when the Complaint is filed with the Office of the Prosecutor
who then files the Information in court, this already has the effect of tolling the prescription
period. The recent People v. Pangilinan31categorically stated that Zaldivia v. Reyes is not
controlling as far as special laws are concerned. Pangilinan referred to other cases that upheld
this principle as well. However, the doctrine of Pangilinan pertains to violations of special laws
but not to ordinances.
There is no distinction between the filing of the Information contemplated in the Rules of Criminal
Procedure and in the Rules of Summary Procedure. When the representatives of the petitioner
filed the Complaint before the Provincial Prosecutor of Baguio, the prescription period was
running. It continued to run until the filing of the Information. They had two months to file the
Information and institute the judicial proceedings by filing the Information with the Municipal
Trial Court. The conduct of the preliminary investigation, the original charge of Robbery, and the
subsequent finding of the violation of the ordinance did not alter the period within which to file
the Information. Respondents were correct in arguing that the petitioner only had two months
from the discovery and commission of the offense before it prescribed within which to file the
Information with the Municipal Trial Court.
Unfortunately, when the Office of the Prosecutor filed the Informations on October 5, 2003, the
period had already prescribed. Thus, respondent Judge Nestor Lidua, Sr. did not err when he
ordered the dismissal of the case against respondents. According to the Department of Justice
National Prosecutors Service Manual for Prosecutors, an Information is defined under Part I,
Section 5 as:
SEC. 5. Information. - An information is the accusation in writing charging a person with an
offense, subscribed by the prosecutor, and filed with the court. The information need not be
placed under oath by the prosecutor signing the same.
The prosecutor must, however, certify under oath that
a) he has examined the complainant and his witnesses;
b) there is reasonable ground to believe that a crime has been committed and that the
accused is probably guilty thereof;
c) the accused was informed of the complaint and of the evidence submitted against
him; and
d) the accused was given an opportunity to submit controverting evidence.
39
As for the place of the filing of the Information, the Manual also provides that:
SEC. 12. Place of the commission of offense. - The complaint or information is sufficient if it
states that the crime charged was committed or some of the ingredients thereof occurred at some
place within the jurisdiction of the court, unless the particular place in which the crime was
committed is an essential element of the crime, e.g. in a prosecution for violation of the provision
of the Election Code which punishes the carrying of a deadly weapon in a "polling place," or if it
is necessary to identify the offense charged, e.g., the domicile in the offense of "violation of
domicile."
institution of the necessary judicial proceedings until it is too late. However, that possibility
should not justify a misreading of the applicable rules beyond their obvious intent as reasonably
deduced from their plain language.
The remedy is not a distortion of the meaning of the rules but a rewording thereof to prevent the
problem here sought to be corrected.33
WHEREFORE the Petition is DENIED.

Finally, as for the prescription period, the Manual provides that: SO ORDERED.

SEC. 20. How Period of Prescription Computed and Interrupted. - For an offense penalized under MARVIC MARIO VICTOR F. LEONEN
the Revised Penal Code, the period of prescription commences to run from the day on which the Associate Justice
crime is discovered by the offended party, the authorities, or their agents, and shall be
interrupted:

a) by the filing of the complaint with the Office of the City/Provincial Prosecutor; or
with the Office of the Ombudsman; or

b) by the filing of the complaint or information with the court even if it is merely for
purposes of preliminary examination or investigation, or even if the court where the
complaint or information is filed cannot try the case on its merits.

However, for an offense covered by the Rules on Summary Procedure, the period of prescription
is interrupted only by the filing of the complaint or information in court.

xxxx

For violation of a special law or ordinance, the period of prescription shall commence to run from
the day of the commission of the violation, and if the same is not known at the time, from the
discovery and the institution of judicial proceedings for its investigation and punishment. The
prescription shall be interrupted only by the filing of the complaint or information in court and
shall begin to run again if the proceedings are dismissed for reasons not constituting double
jeopardy. (Emphasis supplied).1wphi1

Presidential Decree No. 127532 reorganized the Department of Justices Prosecution Staff and
established Regional State Prosecution Offices. These Regional State Prosecution Offices were
assigned centers for particular regions where the Informations will be filed. Section 6 provides
that the area of responsibility of the Region 1 Center located in San Fernando, La Union includes
Abra, Benguet, Ilocos Norte, Ilocos Sur, La Union, Mt. Province, Pangasinan, and the cities of
Baguio, Dagupan, Laoag, and San Carlos.

The Regional Prosecutor for Region 1 or his/her duly assigned prosecutor was designated to file
the Information within the two-month period provided for in Act No. 3326, as amended.1wphi1

The failure of the prosecutor to seasonably file the Information is unfortunate as it resulted in
the dismissal of the case against the private respondents. It stands that the doctrine of Zaldivia
is applicable to ordinances and their prescription period. It also upholds the necessity of filing
the Information in court in order to toll the period. Zaldivia also has this to say concerning the
effects of its ruling:

The Court realizes that under the above interpretation, a crime may prescribe even if the
complaint is filed seasonably with the prosecutor's office if, intentionally or not, he delays the

40
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-3756 June 30, 1952
SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-
appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.
First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for
appellant.
Ramirez and Ortigas for appellee.
LABRADOR, J.:
This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the
plaintiff, in whose name the title was registered before the war. On January 4, 1943, during the
Japanese military occupation, the land was acquired by a Japanese corporation by the name of
Taiwan Tekkosho for the sum of P140,00, and thereupon title thereto issued in its name (transfer
certificate of title No. 64330, Register of Deeds, Manila). After liberation, more specifically on
April 4, 1946, the Alien Property Custodian of the United States of America took possession,
control, and custody thereof under section 12 of the Trading with the Enemy Act, 40 Stat., 411,
for the reason that it belonged to an enemy national. During the year 1946 the property was
occupied by the Copra Export Management Company under a custodianship agreement with
United States Alien Property Custodian (Exhibit G), and when it vacated the property it was
occupied by the defendant herein. The Philippine Government made representations with the
Office Alien Property Custodian for the use of property by the Government (see Exhibits 2, 2-A,
2-B, and 1). On March 31, 1947, the defendant was authorized to repair the warehouse on the
land, and actually spent thereon the repairs the sum of P26,898.27. In 1948, defendant leased
one-third of the warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later
raised to P1,000 a month. Sarile did not pay the rents, so action was brought against him. It is
not shown, however, if the judgment was ever executed.
Plaintiff made claim to the property before the Alien Property Custodian of the United States, but
as this was denied, it brought an action in court (Court of First Instance of Manila, civil case No.
5007, entitled "La Sagrada Orden Predicadores de la Provinicia del Santisimo Rosario de
Filipinas," vs. Philippine Alien Property Administrator, defendant, Republic of the Philippines,
intervenor) to annul the sale of property of Taiwan Tekkosho, and recover its possession. The
Republic of the Philippines was allowed to intervene in the action. The case did not come for trial
because the parties presented a joint petition in which it is claimed by plaintiff that the sale in
favor of the Taiwan Tekkosho was null and void because it was executed under threats, duress,
and intimidation, and it was agreed that the title issued in the name of the Taiwan Tekkosho be
cancelled and the original title of plaintiff re-issued; that the claims, rights, title, and interest of
the Alien Property Custodian be cancelled and held for naught; that the occupant National
Coconut Corporation has until February 28, 1949, to recover its equipment from the property
and vacate the premises; that plaintiff, upon entry of judgment, pay to the Philippine Alien
Property Administration the sum of P140,000; and that the Philippine Alien Property
Administration be free from responsibility or liability for any act of the National Coconut
Corporation, etc. Pursuant to the agreement the court rendered judgment releasing the
defendant and the intervenor from liability, but reversing to the plaintiff the right to recover from
the National Coconut Corporation reasonable rentals for the use and occupation of the premises.
(Exhibit A-1.)
The present action is to recover the reasonable rentals from August, 1946, the date when the
defendant began to occupy the premises, to the date it vacated it. The defendant does not contest
its liability for the rentals at the rate of P3,000 per month from February 28, 1949 (the date
specified in the judgment in civil case No. 5007), but resists the claim therefor prior to this date.
It interposes the defense that it occupied the property in good faith, under no obligation
whatsoever to pay rentals for the use and occupation of the warehouse. Judgment was rendered
for the plaintiff to recover from the defendant the sum of P3,000 a month, as reasonable rentals,
from August, 1946, to the date the defendant vacates the premises. The judgment declares that
plaintiff has always been the owner, as the sale of Japanese purchaser was void ab initio; that
the Alien Property Administration never acquired any right to the property, but that it held the
same in trust until the determination as to whether or not the owner is an enemy citizen. The
trial court further declares that defendant can not claim any better rights than its predecessor,
the Alien Property Administration, and that as defendant has used the property and had
subleased portion thereof, it must pay reasonable rentals for its occupation.
Against this judgment this appeal has been interposed, the following assignment of error having
been made on defendant-appellant's behalf:
The trial court erred in holding the defendant liable for rentals or compensation for
the use and occupation of the property from the middle of August, 1946, to December
14, 1948.
1. Want to "ownership rights" of the Philippine Alien Property Administration did not
render illegal or invalidate its grant to the defendant of the free use of property.
2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff
to the Japanese purchaser null and void ab initio and that the plaintiff was and has
remained as the legal owner of the property, without legal interruption, is not
conclusive.
3. Reservation to the plaintiff of the right to recover from the defendant corporation
not binding on the later;
4. Use of the property for commercial purposes in itself alone does not justify payment
of rentals.
5. Defendant's possession was in good faith.
6. Defendant's possession in the nature of usufruct.
In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration
(PAPA) was a mere administrator of the owner (who ultimately was decided to be plaintiff), and
that as defendant has used it for commercial purposes and has leased portion of it, it should be
responsible therefore to the owner, who had been deprived of the possession for so many years.
(Appellee's brief, pp. 20, 23.)
We can not understand how the trial court, from the mere fact that plaintiff-appellee was the
owner of the property and the defendant-appellant the occupant, which used for its own benefit
but by the express permission of the Alien Property Custodian of the United States, so easily
jumped to the conclusion that the occupant is liable for the value of such use and occupation. If
defendant-appellant is liable at all, its obligations, must arise from any of the four sources of
obligations, namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish
Civil Code.) Defendant-appellant is not guilty of any offense at all, because it entered the premises
and occupied it with the permission of the entity which had the legal control and administration
thereof, the Allien Property Administration. Neither was there any negligence on its part. There
was also no privity (of contract or obligation) between the Alien Property Custodian and the
41
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.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ, concur.

42
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 145391 August 26, 2002
AVELINO CASUPANAN and ROBERTO CAPITULO, petitioners,
vs.
MARIO LLAVORE LAROYA, respondent.
CARPIO, J.:
The Case
This is a petition for review on certiorari to set aside the Resolution 1 dated December 28, 1999
dismissing the petition for certiorari and the Resolution2 dated August 24, 2000 denying the
motion for reconsideration, both issued by the Regional Trial Court of Capas, Tarlac, Branch 66,
in Special Civil Action No. 17-C (99).
The Facts
Two vehicles, one driven by respondent Mario Llavore Laroya ("Laroya" for brevity) and the other
owned by petitioner Roberto Capitulo ("Capitulo" for brevity) and driven by petitioner Avelino
Casupanan ("Casupanan" for brevity), figured in an accident. As a result, two cases were filed
with the Municipal Circuit Trial Court ("MCTC" for brevity) of Capas, Tarlac. Laroya filed a
criminal case against Casupanan for reckless imprudence resulting in damage to property,
docketed as Criminal Case No. 002-99. On the other hand, Casupanan and Capitulo filed a civil
case against Laroya for quasi-delict, docketed as Civil Case No. 2089.
When the civil case was filed, the criminal case was then at its preliminary investigation stage.
Laroya, defendant in the civil case, filed a motion to dismiss the civil case on the ground of forum-
shopping considering the pendency of the criminal case. The MCTC granted the motion in the
Order of March 26, 1999 and dismissed the civil case.
On Motion for Reconsideration, Casupanan and Capitulo insisted that the civil case is a separate
civil action which can proceed independently of the criminal case. The MCTC denied the motion
for reconsideration in the Order of May 7, 1999. Casupanan and Capitulo filed a petition for
certiorari under Rule 65 before the Regional Trial Court ("Capas RTC" for brevity) of Capas,
Tarlac, Branch 66,3 assailing the MCTCs Order of dismissal.
The Trial Courts Ruling
The Capas RTC rendered judgment on December 28, 1999 dismissing the petition for certiorari
for lack of merit. The Capas RTC ruled that the order of dismissal issued by the MCTC is a final
order which disposes of the case and therefore the proper remedy should have been an appeal.
The Capas RTC further held that a special civil action for certiorari is not a substitute for a lost
appeal. Finally, the Capas RTC declared that even on the premise that the MCTC erred in
dismissing the civil case, such error is a pure error of judgment and not an abuse of discretion.
Casupanan and Capitulo filed a Motion for Reconsideration but the Capas RTC denied the same
in the Resolution of August 24, 2000.
Hence, this petition.
The Issue
The petition premises the legal issue in this wise:
"In a certain vehicular accident involving two parties, each one of them may think and
believe that the accident was caused by the fault of the other. x x x [T]he first party,
believing himself to be the aggrieved party, opted to file a criminal case for reckless
imprudence against the second party. On the other hand, the second party, together
with his operator, believing themselves to be the real aggrieved parties, opted in turn
to file a civil case for quasi-delict against the first party who is the very private
complainant in the criminal case."4
Thus, the issue raised is whether an accused in a pending criminal case for reckless imprudence
can validly file, simultaneously and independently, a separate civil action for quasi-delict against
the private complainant in the criminal case.
The Courts Ruling
Casupanan and Capitulo assert that Civil Case No. 2089, which the MCTC dismissed on the
ground of forum-shopping, constitutes a counterclaim in the criminal case. Casupanan and
Capitulo argue that if the accused in a criminal case has a counterclaim against the private
complainant, he may file the counterclaim in a separate civil action at the proper time. They
contend that an action on quasi-delict is different from an action resulting from the crime of
reckless imprudence, and an accused in a criminal case can be an aggrieved party in a civil case
arising from the same incident. They maintain that under Articles 31 and 2176 of the Civil Code,
the civil case can proceed independently of the criminal action. Finally, they point out that
Casupanan was not the only one who filed the independent civil action based on quasi-delict but
also Capitulo, the owner-operator of the vehicle, who was not a party in the criminal case.
In his Comment, Laroya claims that the petition is fatally defective as it does not state the real
antecedents. Laroya further alleges that Casupanan and Capitulo forfeited their right to question
the order of dismissal when they failed to avail of the proper remedy of appeal. Laroya argues
that there is no question of law to be resolved as the order of dismissal is already final and a
petition for certiorari is not a substitute for a lapsed appeal.
In their Reply, Casupanan and Capitulo contend that the petition raises the legal question of
whether there is forum-shopping since they filed only one action - the independent civil action
for quasi-delict against Laroya.
Nature of the Order of Dismissal
The MCTC dismissed the civil action for quasi-delict on the ground of forum-shopping under
Supreme Court Administrative Circular No. 04-94. The MCTC did not state in its order of
dismissal5 that the dismissal was with prejudice. Under the Administrative Circular, the order of
dismissal is without prejudice to refiling the complaint, unless the order of dismissal expressly
states it is with prejudice.6 Absent a declaration that the dismissal is with prejudice, the same is
deemed without prejudice. Thus, the MCTCs dismissal, being silent on the matter, is a
dismissal without prejudice.
Section 1 of Rule 417 provides that an order dismissing an action without prejudice is not
appealable. The remedy of the aggrieved party is to file a special civil action under Rule 65.
Section 1 of Rule 41 expressly states that "where the judgment or final order is not appealable,
the aggrieved party may file an appropriate special civil action under Rule 65." Clearly, the Capas
43
RTCs order dismissing the petition for certiorari, on the ground that the proper remedy is an
ordinary appeal, is erroneous.
Forum-Shopping
The essence of forum-shopping is the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, to secure a favorable
judgment.8 Forum-shopping is present when in the two or more cases pending, there is identity
of parties, rights of action and reliefs sought.9 However, there is no forum-shopping in the instant
case because the law and the rules expressly allow the filing of a separate civil action which can
proceed independently of the criminal action.
Laroya filed the criminal case for reckless imprudence resulting in damage to property based on
the Revised Penal Code while Casupanan and Capitulo filed the civil action for damages based
on Article 2176 of the Civil Code. Although these two actions arose from the same act or omission,
they have different causes of action. The criminal case is based on culpa criminal punishable
under the Revised Penal Code while the civil case is based on culpa aquiliana actionable under
Articles 2176 and 2177 of the Civil Code. These articles on culpa aquiliana read:
"Art. 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if there
is no pre-existing contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter.
Art. 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal
Code. But the plaintiff cannot recover damages twice for the same act or omission of
the defendant."
Any aggrieved person can invoke these articles provided he proves, by preponderance of evidence,
that he has suffered damage because of the fault or negligence of another. Either the private
complainant or the accused can file a separate civil action under these articles. There is nothing
in the law or rules that state only the private complainant in a criminal case may invoke these
articles.
Moreover, paragraph 6, Section 1, Rule 111 of the 2000 Rules on Criminal Procedure ("2000
Rules" for brevity) expressly requires the accused to litigate his counterclaim in a separate civil
action, to wit:
"SECTION 1. Institution of criminal and civil actions. (a) x x x.
No counterclaim, cross-claim or third-party complaint may be filed by the accused in
the criminal case, but any cause of action which could have been the subject thereof
may be litigated in a separate civil action." (Emphasis supplied)
Since the present Rules require the accused in a criminal action to file his counterclaim in a
separate civil action, there can be no forum-shopping if the accused files such separate civil
action.
Filing of a separate civil action
Section 1, Rule 111 of the 1985 Rules on Criminal Procedure ("1985 Rules" for brevity), as
amended in 1988, allowed the filing of a separate civil action independently of the criminal action
provided the offended party reserved the right to file such civil action. Unless the offended party
reserved the civil action before the presentation of the evidence for the prosecution, all civil
actions arising from the same act or omission were deemed "impliedly instituted" in the criminal
case. These civil actions referred to the recovery of civil liability ex-delicto, the recovery of
damages for quasi-delict, and the recovery of damages for violation of Articles 32, 33 and 34 of
the Civil Code on Human Relations.
Thus, to file a separate and independent civil action for quasi-delict under the 1985 Rules, the
offended party had to reserve in the criminal action the right to bring such action. Otherwise,
such civil action was deemed "impliedly instituted" in the criminal action. Section 1, Rule 111 of
the 1985 Rules provided as follows:
"Section 1. Institution of criminal and civil actions. When a criminal action is
instituted, the civil action for the recovery of civil liability is impliedly instituted with
the criminal action, unless the offended party waives the action, reserves his right to
institute it separately, or institutes the civil action prior to the criminal action.
Such civil action includes recovery of indemnity under the Revised Penal Code,
and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the
Philippines arising from the same act or omission of the accused.
A waiver of any of the civil actions extinguishes the others. The institution of, or the
reservation of the right to file, any of said civil actions separately waives the others.
The reservation of the right to institute the separate civil actions shall be made before
the prosecution starts to present its evidence and under circumstances affording the
offended party a reasonable opportunity to make such reservation.
In no case may the offended party recover damages twice for the same act or omission
of the accused.
x x x." (Emphasis supplied)
Section 1, Rule 111 of the 1985 Rules was amended on December 1, 2000 and now provides as
follows:
"SECTION 1. Institution of criminal and civil actions. (a) When a criminal action is
instituted, the civil action for the recovery of civil liability arising from the
offense charged shall be deemed instituted with the criminal action unless the
offended party waives the civil action, reserves the right to institute it separately or
institutes the civil action prior to the criminal action.
The reservation of the right to institute separately the civil action shall be made before
the prosecution starts presenting its evidence and under circumstances affording the
offended party a reasonable opportunity to make such reservation.
xxx
(b) x x x
Where the civil action has been filed separately and trial thereof has not yet
commenced, it may be consolidated with the criminal action upon application with the
court trying the latter case. If the application is granted, the trial of both actions shall
proceed in accordance with section 2 of this rule governing consolidation of the civil
and criminal actions." (Emphasis supplied)
44
Under Section 1 of the present Rule 111, what is "deemed instituted" with the criminal action is
only the action to recover civil liability arising from the crime or ex-delicto. All the other civil
actions under Articles 32, 33, 34 and 2176 of the Civil Code are no longer "deemed instituted,"
and may be filed separately and prosecuted independently even without any reservation in the
criminal action. The failure to make a reservation in the criminal action is not a waiver of the
right to file a separate and independent civil action based on these articles of the Civil Code. The
prescriptive period on the civil actions based on these articles of the Civil Code continues to run
even with the filing of the criminal action. Verily, the civil actions based on these articles of the
Civil Code are separate, distinct and independent of the civil action "deemed instituted" in the
criminal action.10
Under the present Rule 111, the offended party is still given the option to file a separate civil
action to recover civil liability ex-delicto by reserving such right in the criminal action before the
prosecution presents its evidence. Also, the offended party is deemed to make such reservation
if he files a separate civil action before filing the criminal action. If the civil action to recover civil
liability ex-delicto is filed separately but its trial has not yet commenced, the civil action may be
consolidated with the criminal action. The consolidation under this Rule does not apply to
separate civil actions arising from the same act or omission filed under Articles 32, 33, 34 and
2176 of the Civil Code.11
Suspension of the Separate Civil Action
Under Section 2, Rule 111 of the amended 1985 Rules, a separate civil action, if reserved in the
criminal action, could not be filed until after final judgment was rendered in the criminal action.
If the separate civil action was filed before the commencement of the criminal action, the civil
action, if still pending, was suspended upon the filing of the criminal action until final judgment
was rendered in the criminal action. This rule applied only to the separate civil action filed to
recover liability ex-delicto. The rule did not apply to independent civil actions based on Articles
32, 33, 34 and 2176 of the Civil Code, which could proceed independently regardless of the filing
of the criminal action.
The amended provision of Section 2, Rule 111 of the 2000 Rules continues this procedure, to
wit:
"SEC. 2. When separate civil action is suspended. After the criminal action has been
commenced, the separate civil action arising therefrom cannot be instituted until final
judgment has been entered in the criminal action.
If the criminal action is filed after the said civil action has already been
instituted, the latter shall be suspended in whatever stage it may be found
before judgment on the merits. The suspension shall last until final judgment
is rendered in the criminal action. Nevertheless, before judgment on the merits is
rendered in the civil action, the same may, upon motion of the offended party, be
consolidated with the criminal action in the court trying the criminal action. In case
of consolidation, the evidence already adduced in the civil action shall be deemed
automatically reproduced in the criminal action without prejudice to the right of the
prosecution to cross-examine the witnesses presented by the offended party in the
criminal case and of the parties to present additional evidence. The consolidated
criminal and civil actions shall be tried and decided jointly.
During the pendency of the criminal action, the running of the period of prescription
of the civil action which cannot be instituted separately or whose proceeding has been
suspended shall be tolled.
x x x." (Emphasis supplied)
Thus, Section 2, Rule 111 of the present Rules did not change the rule that the separate civil
action, filed to recover damages ex-delicto, is suspended upon the filing of the criminal action.
Section 2 of the present Rule 111 also prohibits the filing, after commencement of the criminal
action, of a separate civil action to recover damages ex-delicto.
When civil action may proceed independently
The crucial question now is whether Casupanan and Capitulo, who are not the offended parties
in the criminal case, can file a separate civil action against the offended party in the criminal
case. Section 3, Rule 111 of the 2000 Rules provides as follows:
"SEC 3. When civil action may proceed independently. - In the cases provided in
Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines, the independent civil
action may be brought by the offendedparty. It shall proceed independently of the
criminal action and shall require only a preponderance of evidence. In no case,
however, may the offended party recover damages twice for the same act or omission
charged in the criminal action." (Emphasis supplied)
Section 3 of the present Rule 111, like its counterpart in the amended 1985 Rules, expressly
allows the "offended party" to bring an independent civil action under Articles 32, 33, 34 and
2176 of the Civil Code. As stated in Section 3 of the present Rule 111, this civil action shall
proceed independently of the criminal action and shall require only a preponderance of evidence.
In no case, however, may the "offended party recover damages twice for the same act or omission
charged in the criminal action."
There is no question that the offended party in the criminal action can file an independent civil
action for quasi-delict against the accused. Section 3 of the present Rule 111 expressly states
that the "offended party" may bring such an action but the "offended party" may not recover
damages twice for the same act or omission charged in the criminal action. Clearly, Section 3 of
Rule 111 refers to the offended party in the criminal action, not to the accused.
Casupanan and Capitulo, however, invoke the ruling in Cabaero vs. Cantos12 where the Court
held that the accused therein could validly institute a separate civil action for quasi-delict against
the private complainant in the criminal case. In Cabaero, the accused in the criminal case filed
his Answer with Counterclaim for malicious prosecution. At that time the Court noted the
"absence of clear-cut rules governing the prosecution on impliedly instituted civil actions and
the necessary consequences and implications thereof." Thus, the Court ruled that the trial
court should confine itself to the criminal aspect of the case and disregard any counterclaim for
civil liability. The Court further ruled that the accused may file a separate civil case against the
offended party "after the criminal case is terminated and/or in accordance with the new Rules
which may be promulgated." The Court explained that a cross-claim, counterclaim or third-party
complaint on the civil aspect will only unnecessarily complicate the proceedings and delay the
resolution of the criminal case.
Paragraph 6, Section 1 of the present Rule 111 was incorporated in the 2000 Rules precisely to
address the lacuna mentioned in Cabaero. Under this provision, the accused is barred from
filing a counterclaim, cross-claim or third-party complaint in the criminal case. However, the
same provision states that "any cause of action which could have been the subject (of the
counterclaim, cross-claim or third-party complaint) may be litigated in a separate civil action."
The present Rule 111 mandates the accused to file his counterclaim in a separate civil actiosn
which shall proceed independently of the criminal action, even as the civil action of the offended
party is litigated in the criminal action.
Conclusion
45
Under Section 1 of the present Rule 111, the independent civil action in Articles 32, 33, 34 and
2176 of the Civil Code is not deemed instituted with the criminal action but may be filed
separately by the offended party even without reservation. The commencement of the criminal
action does not suspend the prosecution of the independent civil action under these articles of
the Civil Code. The suspension in Section 2 of the present Rule 111 refers only to the civil action
arising from the crime, if such civil action is reserved or filed before the commencement of the
criminal action.
event, there are sufficient remedies under the Rules of Court to deal with such remote
possibilities.
One final point. The Revised Rules on Criminal Procedure took effect on December 1, 2000 while
the MCTC issued the order of dismissal on December 28, 1999 or before the amendment of the
rules. The Revised Rules on Criminal Procedure must be given retroactive effect considering the
well-settled rule that -

Thus, the offended party can file two separate suits for the same act or omission. The first a
criminal case where the civil action to recover civil liability ex-delicto is deemed instituted, and "x x x statutes regulating the procedure of the court will be construed as applicable to
the other a civil case for quasi-delict - without violating the rule on non-forum shopping. The two actions pending and undetermined at the time of their passage. Procedural laws are
cases can proceed simultaneously and independently of each other. The commencement or retroactive in that sense and to that extent."14
prosecution of the criminal action will not suspend the civil action for quasi-delict. The only
limitation is that the offended party cannot recover damages twice for the same act or omission WHEREFORE, the petition for review on certiorari is hereby GRANTED. The Resolutions dated
of the defendant. In most cases, the offended party will have no reason to file a second civil action December 28, 1999 and August 24, 2000 in Special Civil Action No. 17-C (99)
since he cannot recover damages twice for the same act or omission of the accused. In some are ANNULLED and Civil Case No. 2089 is REINSTATED.
instances, the accused may be insolvent, necessitating the filing of another case against his
employer or guardians.
SO ORDERED.
Similarly, the accused can file a civil action for quasi-delict for the same act or omission he is
accused of in the criminal case. This is expressly allowed in paragraph 6, Section 1 of the present Puno, Panganiban, and Sandoval-Gutierrez*, JJ., concur.
Rule 111 which states that the counterclaim of the accused "may be litigated in a separate
civil action." This is only fair for two reasons. First, the accused is prohibited from setting up
any counterclaim in the civil aspect that is deemed instituted in the criminal case. The accused
is therefore forced to litigate separately his counterclaim against the offended party. If the
accused does not file a separate civil action for quasi-delict, the prescriptive period may set in
since the period continues to run until the civil action for quasi-delict is filed.

Second, the accused, who is presumed innocent, has a right to invoke Article 2177 of the Civil
Code, in the same way that the offended party can avail of this remedy which is independent of
the criminal action. To disallow the accused from filing a separate civil action for quasi-delict,
while refusing to recognize his counterclaim in the criminal case, is to deny him due process of
law, access to the courts, and equal protection of the law.

Thus, the civil action based on quasi-delict filed separately by Casupanan and Capitulo is proper.
The order of dismissal by the MCTC of Civil Case No. 2089 on the ground of forum-shopping is
erroneous.

We make this ruling aware of the possibility that the decision of the trial court in the criminal
case may vary with the decision of the trial court in the independent civil action. This possibility
has always been recognized ever since the Civil Code introduced in 1950 the concept of an
independent civil action under Articles 32, 33, 34 and 2176 of the Code. But the law itself, in
Article 31 of the Code, expressly provides that the independent civil action "may proceed
independently of the criminal proceedings and regardless of the result of the latter." In Azucena
vs. Potenciano,13 the Court declared:

"x x x. There can indeed be no other logical conclusion than this, for to subordinate
the civil action contemplated in the said articles to the result of the criminal
prosecution whether it be conviction or acquittal would render meaningless the
independent character of the civil action and the clear injunction in Article 31 that
this action 'may proceed independently of the criminal proceedings and regardless of
the result of the latter."

More than half a century has passed since the Civil Code introduced the concept of a civil action
separate and independent from the criminal action although arising from the same act or
omission. The Court, however, has yet to encounter a case of conflicting and irreconcilable
decisions of trial courts, one hearing the criminal case and the other the civil action for quasi-
delict. The fear of conflicting and irreconcilable decisions may be more apparent than real. In any

46
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32599 June 29, 1979
EDGARDO E. MENDOZA, petitioner
vs.
HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First Instance of
Manila, FELINO TIMBOL, and RODOLFO SALAZAR, respondents.
David G. Nitafan for petitioner.
Arsenio R. Reyes for respondent Timbol.
Armando M. Pulgado for respondent Salazar.
MELENCIO-HERRERA, J:
Petitioner, Edgardo Mendoza, seeks a review on certiorari of the Orders of respondent Judge in
Civil Case No. 80803 dismissing his Complaint for Damages based on quasi-delict against
respondents Felino Timbol and Rodolfo Salazar.
The facts which spawned the present controversy may be summarized as follows:
On October 22, 1969, at about 4:00 o'clock in the afternoon, a three- way vehicular accident
occurred along Mac-Arthur Highway, Marilao, Bulacan, involving a Mercedes Benz owned and
driven by petitioner; a private jeep owned and driven by respondent Rodolfo Salazar; and a gravel
and sand truck owned by respondent Felipino Timbol and driven by Freddie Montoya. As a
consequence of said mishap, two separate Informations for Reckless Imprudence Causing
Damage to Property were filed against Rodolfo Salazar and Freddie Montoya with the Court of
First Instance of Bulacan. The race against truck-driver Montoya, docketed as Criminal Case No.
SM-227, was for causing damage to the jeep owned by Salazar, in the amount of Pl,604.00, by
hitting it at the right rear portion thereby causing said jeep to hit and bump an oncoming car,
which happened to be petitioner's Mercedes Benz. The case against jeep-owner-driver Salazar,
docketed as Criminal Case No. SM 228, was for causing damage to the Mercedes Benz of
petitioner in the amount of P8,890.00
At the joint trial of the above cases, petitioner testified that jeep-owner- driver Salazar overtook
the truck driven by Montoya, swerved to the left going towards the poblacion of Marilao, and hit
his car which was bound for Manila. Petitioner further testified that before the impact, Salazar
had jumped from the jeep and that he was not aware that Salazar's jeep was bumped from behind
by the truck driven by Montoya. Petitioner's version of the accident was adopted by truck driver
Montoya. Jeep-owner-driver Salazar, on the other hand, tried to show that, after overtaking the
truck driven by Montoya, he flashed a signal indicating his intention to turn left towards the
poblacion of Marilao but was stopped at the intersection by a policeman who was directing traffic;
that while he was at a stop position, his jeep was bumped at the rear by the truck driven by
Montova causing him to be thrown out of the jeep, which then swerved to the left and hit
petitioner's car, which was coming from the opposite direction.
On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered
judgment, stating in its decretal portion:
IN VIEW OF THE FOREGOING, this Court finds the accused Freddie
Montoya GUILTY beyond reasonable doubt of the crime of damage to
property thru reckless imprudence in Crime. Case No. SM-227, and hereby
sentences him to pay a fine of P972.50 and to indemnify Rodolfo Salazar in
the same amount of P972.50 as actual damages, with subsidiary
imprisonment in case of insolvency, both as to fine and indemnity, with
costs.
Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in
Crime. Case No. SM-228, with costs de oficio, and his bond is ordered
canceled
SO ORDERED. 1
Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in
view of its findings that the collision between Salazar's jeep and petitioner's car was the result of
the former having been bumped from behind by the truck driven by Montoya. Neither was
petitioner awarded damages as he was not a complainant against truck-driver Montoya but only
against jeep-owner-driver Salazar.
On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No.
80803 with the Court of First Instance of Manila against respondents jeep-owner-driver Salazar
and Felino Timbol, the latter being the owner of the gravel and sand truck driven by Montoya,
for indentification for the damages sustained by his car as a result of the collision involving their
vehicles. Jeep-owner-driver Salazar and truck-owner Timbol were joined as defendants, either in
the alternative or in solidum allegedly for the reason that petitioner was uncertain as to whether
he was entitled to relief against both on only one of them.
On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on
the grounds that the Complaint is barred by a prior judgment in the criminal cases and that it
fails to state a cause of action. An Opposition thereto was filed by petitioner.
In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against
truck-owner Timbol for reasons stated in the afore- mentioned Motion to Dismiss On September
30, 1970, petitioner sought before this Court the review of that dismissal, to which petition we
gave due course.
On January 30, 1971, upon motion of jeep-owner-driver Salazar, respondent Judge also
dismissed the case as against the former. Respondent Judge reasoned out that "while it is true
that an independent civil action for liability under Article 2177 of the Civil Code could be
prosecuted independently of the criminal action for the offense from which it arose, the New
Rules of Court, which took effect on January 1, 1964, requires an express reservation of the civil
action to be made in the criminal action; otherwise, the same would be barred pursuant to
Section 2, Rule 111 ... 2 Petitioner's Motion for Reconsideration thereof was denied in the order
dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher
Court "for a more decisive interpretation of the rule. 3
On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the
last two mentioned Orders, to which we required jeep-owner-driver Salazar to file an Answer.
The Complaint against
47
truck-owner Timbol
We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioner's
Complaint against truck-owner Timbol.
In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbol's
allegations that the civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-
227 and SM-228, wherein no reservation to file a separate civil case was made by petitioner and
where the latter actively participated in the trial and tried to prove damages against jeep-driver-
Salazar only; and that the Complaint does not state a cause of action against truck-owner Timbol
inasmuch as petitioner prosecuted jeep-owner-driver Salazar as the one solely responsible for
the damage suffered by his car.
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the
following requisites must concur: (1) it must be a final judgment; (2) it must have been rendered
by a Court having jurisdiction over the subject matter and over the parties; (3) it must be a
judgment on the merits; and (4) there must be, between the first and second actions, Identity of
parties, Identity of subject matter and Identity of cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with
petitioner that there is no Identity of cause of action between Criminal Case No. SM-227 and
Civil Case No. 80803. Obvious is the fact that in said criminal case truck-driver Montoya was
not prosecuted for damage to petitioner's car but for damage to the jeep. Neither was truck-owner
Timbol a party in said case. In fact as the trial Court had put it "the owner of the Mercedes Benz
cannot recover any damages from the accused Freddie Montoya, he (Mendoza) being a
complainant only against Rodolfo Salazar in Criminal Case No. SM-228. 4 And more importantly,
in the criminal cases, the cause of action was the enforcement of the civil liability arising from
criminal negligence under Article l of the Revised Penal Code, whereas Civil Case No. 80803 is
based on quasi-delict under Article 2180, in relation to Article 2176 of the Civil Code As held
in Barredo vs. Garcia, et al. 5
The foregoing authorities clearly demonstrate the separate in. individuality
of cuasi-delitos or culpa aquiliana under the Civil Code. Specifically they
show that there is a distinction between civil liability arising from criminal
negligence (governed by the Penal Code) and responsibility for fault or
negligence under articles 1902 to 1910 of the Civil Code, and that the same
negligent act may produce either a civil liability arising from a crime under
the Penal Code, or a separate responsibility for fault or negligence under
articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities
above cited render it inescapable to conclude that the employer in this case
the defendant- petitioner is primarily and directly liable under article 1903
of the Civil Code.
That petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident
from the recitals in the complaint to wit: that while petitioner was driving his car along MacArthur
Highway at Marilao, Bulacan, a jeep owned and driven by Salazar suddenly swerved to his
(petitioner's) lane and collided with his car That the sudden swerving of Salazar's jeep was caused
either by the negligence and lack of skill of Freddie Montoya, Timbol's employee, who was then
driving a gravel and sand truck iii the same direction as Salazar's jeep; and that as a consequence
of the collision, petitioner's car suffered extensive damage amounting to P12,248.20 and that he
likewise incurred actual and moral damages, litigation expenses and attorney's fees. Clearly,
therefore, the two factors that a cause of action must consist of, namely: (1) plaintiff's primary
right, i.e., that he is the owner of a Mercedes Benz, and (2) defendant's delict or wrongful act or
omission which violated plaintiff's primary right, i.e., the negligence or lack of skill either of jeep-
owner Salazar or of Timbol's employee, Montoya, in driving the truck, causing Salazar's jeep to
swerve and collide with petitioner's car, were alleged in the Complaint. 6
Consequently, petitioner's cause of action being based on quasi-delict, respondent Judge
committed reversible error when he dismissed the civil suit against the truck-owner, as said case
may proceed independently of the criminal proceedings and regardless of the result of the latter.
Art. 31. When the civil action is based on an obligation not arising from the
act or omission complained of as a felony, such civil action may proceed
independently of the criminal proceedings and regardless of the result of
the latter.
But it is truck-owner Timbol's submission (as well as that of jeep-owner-driver Salazar) that
petitioner's failure to make a reservation in the criminal action of his right to file an independent
civil action bars the institution of such separate civil action, invoking section 2, Rule 111, Rules
of Court, which says:
Section 2. Independent civil action. In the cases provided for in Articles
31, 32, 33, 34 and 2177 of the Civil Code of the Philippines, an independent
civil action entirely separate and distinct from the criminal action may be
brought by the injured party during the pendency of the criminal case,
provided the right is reserved as required in the preceding section. Such
civil action shau proceed independently of the criminal prosecution, and
shall require only a preponderance of evidence.
Interpreting the above provision, this Court, in Garcia vs. Florida 7 said:
As we have stated at the outset, the same negligent act causing damages
may produce a civil liability arising from crime or create an action for quasi-
delict or culpa extra-contractual. The former is a violation of the criminal
law, while the latter is a distinct and independent negligence, having always
had its own foundation and individuality. Some legal writers are of the view
that in accordance with Article 31, the civil action based upon quasi-delict
may proceed independently of the criminal proceeding for criminal
negligence and regardless of the result of the latter. Hence, 'the proviso in
Section 2 of Rule 111 with reference to ... Articles 32, 33 and 34 of the Civil
Code is contrary to the letter and spirit of the said articles, for these articles
were drafted ... and are intended to constitute as exceptions to the general
rule stated in what is now Section 1 of Rule 111. The proviso, which is
procedural, may also be regarded as an unauthorized amendment of
substantive law, Articles 32, 33 and 34 of the Civil Code, which do not
provide for the reservation required in the proviso ... .
In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that
inasmuch as Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different
from the civil action arising from the offense of negligence under the Revised Penal Code, no
reservation, therefore, need be made in the criminal case; that Section 2 of Rule 111 is
inoperative, "it being substantive in character and is not within the power of the Supreme Court
to promulgate; and even if it were not substantive but adjective, it cannot stand because of its
inconsistency with Article 2177, an enactment of the legislature superseding the Rules of 1940."
We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is
not barred by the fact that petitioner failed to reserve, in the criminal action, his right to file an
independent civil action based on quasi-delict.
The suit against
jeep-owner-driver Salazar
48
The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228,
presents a different picture altogether.
At the outset it should be clarified that inasmuch as civil liability co-exists with criminal
responsibility in negligence cases, the offended party has the option between an action for
enforcement of civil liability based on culpacriminal under Article 100 of the Revised Penal Code,
and an action for recovery of damages based on culpa aquiliana under Article 2177 of the Civil
Code. The action for enforcement of civil liability based on culpa criminal under section 1 of Rule
111 of the Rules of Court is deemed simultaneously instituted with the criminal action, unless
expressly waived or reserved for separate application by the offended party. 8
The circumstances attendant to the criminal case yields the conclusion that petitioner had opted
to base his cause of action against jeep-owner-driver Salazar on culpa criminal and not on culpa
aquiliana as evidenced by his active participation and intervention in the prosecution of the
criminal suit against said Salazar. The latter's civil liability continued to be involved in the
criminal action until its termination. Such being the case, there was no need for petitioner to
have reserved his right to file a separate civil action as his action for civil liability was deemed
impliedly instituted in Criminal Case No. SM-228.
Neither would an independent civil action he. Noteworthy is the basis of the acquittal of jeep-
owner-driver Salazar in the criminal case, expounded by the trial Court in this wise:
Art. 29. When the accused in a criminal prosecution is acquitted on the
ground that his guilt has not been proved beyond reasonable doubt, a civil
action for damages for the same act or omission may be instituted. Such
action requires only a preponderance of evidence ...
If in a criminal case the judgment of acquittal is based upon reasonable
doubt, the court shall so declare. In the absence of any declaration to that
effect, it may be inferred from the text of the decision whether or not the
acquittal is due to that ground.
In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain
respondent Judge's Order dated January 30, 1971 dismissing the complaint, albeit on different
grounds.
WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against
private respondent Felino Timbol is set aside, and respondent Judge, or his successor, hereby
ordered to proceed with the hearing on the merits; 2) but the Orders dated January 30, 1971
and February 23, 1971 dismissing the Complaint in Civil Case No. 80803 against respondent
Rodolfo Salazar are hereby upheld.
No costs.

In view of what has been proven and established during the trial, accused
Freddie Montoya would be held able for having bumped and hit the rear SO ORDERED.
portion of the jeep driven by the accused Rodolfo Salazar,
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
Considering that the collision between the jeep driven by Rodolfo Salazar
and the car owned and driven by Edgardo Mendoza was the result of the
hitting on the rear of the jeep by the truck driven by Freddie Montoya, this
Court behaves that accused Rodolfo Salazar cannot be held able for the
damages sustained by Edgardo Mendoza's car. 9

Crystal clear is the trial Court's pronouncement that under the facts of the case, jeep-owner-
driver Salazar cannot be held liable for the damages sustained by petitioner's car. In other words,
"the fact from which the civil might arise did not exist. " Accordingly, inasmuch as petitioner's
cause of action as against jeep-owner-driver Salazar is ex- delictu, founded on Article 100 of the
Revised Penal Code, the civil action must be held to have been extinguished in consonance with
Section 3(c), Rule 111 of the Rules of Court 10 which provides:

Sec. 3. Other civil actions arising from offenses. In all cases not included
in the preceding section the following rules shall be observed:

xxx xxx xxx

c) Extinction of the penal action does not carry with it extinction of the civil,
unless the extinction proceeds from a declaration in a final judgment that
the fact from which the civil night arise did not exist. ...

And even if petitioner's cause of action as against jeep-owner-driver Salazar were not ex-delictu,
the end result would be the same, it being clear from the judgment in the criminal case that
Salazar's acquittal was not based upon reasonable doubt, consequently, a civil action for
damages can no longer be instituted. This is explicitly provided for in Article 29 of the Civil Code
quoted here under:

49
 Republic of the Philippines
SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 119771 April 24, 1998
SAN ILDEFONSO LINES, INC., and EDUARDO JAVIER, petitioners,
vs.
COURT OF APPEALS (Thirteenth Division) and PIONEER INSURANCE and SURETY
CORPORATION, respondents.
MARTINEZ, J.:
At around 3:30 in the afternoon of June 24, 1991, a Toyota Lite Ace Van being driven by its
owner Annie U. Jao and a passenger bus of herein petitioner San Ildefonso Lines, Inc. (hereafter,
SILI) figured in a vehicular mishap at the intersection of Julia Vargas Avenue and Rodriguez
Lanuza Avenue in Pasig, Metro Manila, totally wrecking the Toyota van and injuring Ms. Jao and
her two (2) passengers in the process.
A criminal case was thereafter filed with the Regional Trial Court of Pasig on September 18, 1991
charging the driver of the bus, herein petitioner Eduardo Javier, with reckless imprudence
resulting in damage to property with multiple physical injuries.
About four (4) months later, or on January 13, 1992, herein private respondent Pioneer
Insurance and Surety Corporation (PISC), as insurer of the van and subrogee, filed a case for
damages against petitioner SILI with the Regional Trial Court of Manila, seeking to recover the
sums it paid the assured under a motor vehicle insurance policy as well as other damages,
totaling P564,500.00 (P454,000.00 as actual/compensatory damages; P50,000.00 as exemplary
damages; P50,000.00 as attorney's fees; P10,000.00 as litigation expenses; and P500.00 as
appearance fees.) 1
With the issues having been joined upon the filing of the petitioners' answer to the
complaint for damages and after submission by the parties of their respective pre-trial
briefs, petitioners filed on September 18, 1992 a Manifestation and Motion to Suspend
Civil Proceedings grounded on the pendency of the criminal case against petitioner Javier
in the Pasig RTC and the failure of respondent PISC to make a reservation to file a separate
damage suit in said criminal action. This was denied by the Manila Regional Trial Court in
its Order dated July 21, 1993, 2 ruling thus:
Answering the first question thus posed, the court holds that plaintiff may
legally institute the present civil action even in the absence of a reservation
in the criminal action. This is so because it falls among the very exceptions
to the rule cited by the movant.
It is true that the general rule is that once a criminal action has been
instituted, then civil action based thereon is deemed instituted together
with the criminal action, such that if the offended party did not reserve the
filing of the civil action when the criminal action was filed, then such filing
of the civil action is therefore barred; on the other hand, if there was such
reservation, still the civil action cannot be instituted until final judgment
has been rendered in the criminal action;
But, this rule (Section 2, Rule 111, Revised Rules of Court) is subject to
exemptions, the same being those provided for in Section 3 of the same rule
which states:
Sec. 3. When civil action may proceed independently.
In the cases provided for in Articles 32, 33, 34 and
2176 of the Civil Code of the Philippines, the
independent civil action which was been reserved may
be brought by the offended party, shall proceed
independently of the criminal action, and shall require
only a preponderance of evidence.
Besides, the requirement in Section 2 of Rule 111 of the former Rules on
Criminal Procedure that there be a reservation in the criminal case of the
right to institute an independent civil action has been declared as not in
accordance with law. It is regarded as an unauthorized amendment to our
substantive law, i.e., the Civil Code which does not require such
reservation. In fact, the reservation of the right to file an independent civil
action has been deleted from Section 2, Rule 111 of the 1985 Rules on
Criminal Procedure, in consonance with the decisions of this Court
declaring such requirement of a reservation as ineffective. (Bonite vs. Zosa,
162 SCRA 180).
Further, the Court rules that a subrogee-plaintiff may institute and
prosecute the civil action, it being allowed by Article 2207 of the Civil Code.
After their motion for reconsideration of said July 21, 1993 Order was denied, petitioners elevated
the matter to this Court via petition for certiorari which was, however, referred to public
respondent Court of Appeals for disposition. On February 24, 1995, a decision adverse to
petitioners once again was rendered by respondent court, upholding the assailed Manila Regional
Trial Court Order in this wise:
A separate civil action lies against the offender in a criminal act, whether
or not he is criminally prosecuted and found guilty or acquitted, provided
that the offended party is not allowed (if the tortfeasor is actually charged
also criminally), to recover damages on both scores, and would be entitled
in such eventuality only to the bigger award of the two, assuming the
awards made in the two cases vary.
To subordinate the civil action contemplated in the said articles to the result
of the criminal prosecution whether it be conviction or acquittal would
render meaningless the independent character of the civil action and the
clear injunction in Art. 31, that this action may proceed independently of
the criminal proceedings and regardless of the result of the latter.
In Yakult Phil. vs. CA, the Supreme Court said:
Even if there was no reservation in the criminal case
and that the civil action was not filed before the filing
of the criminal action but before the prosecution
presented evidence in the criminal action, and the
judge handling the criminal case was informed
50
 thereof, then the actual filing of the civil action is even
far better than a compliance with the requirement of
an express reservation that should be made by the
offended party before the prosecution presented its
evidence.
The purpose of this rule requiring reservation is to prevent the offended
party from recovering damages twice for the same act or omission.
Substantial compliance with the reservation requirement may, therefore, be
made by making a manifestation in the criminal case that the private
respondent has instituted a separate and independent civil action for
damages.
Oft-repeated is the dictum that courts should not place undue importance
on technicalities when by so doing substantial justice is sacrificed. While
the rules of procedure require adherence, it must be remembered that said
rules of procedure are intended to promote, not defeat, substantial justice,
and therefore, they should not be applied in a very rigid and technical
sense.
Hence, this petition for review after a motion for reconsideration of said respondent
court judgment was denied.
The two (2) crucial issues to be resolved, as posited by petitioners, are:
1) If a criminal case was filed, can an independent civil action based on quasi-delict under Article
2176 of the Civil Code be filed if no reservation was made in the said criminal case?
2) Can a subrogee of an offended party maintain an independent civil action during the pendency
of a criminal action when no reservation of the right to file an independent civil action was made
in the criminal action and despite the fact that the private complainant is actively participating
through a private prosecutor in the aforementioned criminal case?
We rule for petitioners.
On the chief issue of "reservation", at the fore is Section 3, Rule 111 of the Rules of Court which
reads:
Sec. 3. When civil action may proceed independently. In the cases
provided for in Articles 32, 33, 34 and 2176 of the Civil Code of the
Philippines, the independent civil action which has been reserved may be
brought by the offended party, shall proceed independently of the criminal
action, and shall require only a preponderance of evidence.
There is no dispute that these so-called "independent civil actions" based on the
aforementioned Civil Code articles are the exceptions to the primacy of the criminal
action over the civil action as set forth in Section 2 of Rule 111. 3 However, it is easily
deducible from the present wording of Section 3 as brought about by the 1988
amendments to the Rules on Criminal Procedure particularly the phrase ". .
. which has been reserved" that the "independent" character of these civil
actions does not do away with the reservation requirement. In other words, prior
reservation is a condition sine qua non before any of these independent civil
actions can be instituted and thereafter have a continuous determination apart
from or simultaneous with the criminal action. That this should now be the
controlling procedural rule is confirmed by no less than retired Justice Jose Y.
Feria, remedial law expert and a member of the committee which drafted the
1988 amendments, whose learned explanation on the matter was aptly pointed
out by petitioners, to wit:
The 1988 amendment expands the scope of the civil action which his
deemed impliedly instituted with the criminal action unless waived,
reserved or previously instituted. . . .
Under the present Rule as amended, such a civil action includes not only
recovery of indemnity under the Revised Penal Code and damages under
Articles 32, 33, 34 of the Civil Code of the Philippines, but also damages
under Article 2176 of the said code. . . .
Objections were raised to the inclusion in this Rule of quasi-delicts under
Article 2176 of the Civil Code of the Philippines. However, in view of Article
2177 of the said code which provides that the offended party may not
recover twice for the same act or omission of the accused, and in line with
the policy of avoiding multiplicity of suits, these objections were overruled.
In any event, the offended party is not precluded from filing a civil action to
recover damages arising from quasi-delict before the institution of the
criminal action, or from reserving his right to file such a separate civil
action, just as he is not precluded from filing a civil action for damages
under Articles 32, 33 and 34 before the institution of the criminal action,
or from reserving his right to file such a separate civil action. It is only in
those cases where the offended party has not previously filed a civil action
or has not reserved his right to file a separate civil action that his civil action
is deemed impliedly instituted with the criminal action.
It should be noted that while it was ruled in Abella vs. Marave (57 SCRA
106) that a reservation of the right to file an independent civil action is not
necessary, such a reservation is necessary under the amended rule. Without
such reservation, the civil action is deemed impliedly instituted with the
criminal action, unless previously waived or instituted. (Emphasis ours,
Justice Jose Y. Feria [Ret.], 1988 Amendments to the 1985 Rules on
Criminal Procedure, a pamphlet, published by Central Lawbook Publishing
Co., Inc., Philippine Legal Studies, Series No. 3, 5-6). 4
Sharing the same view on the indispensability of a prior reservation is Mr. Justice Florenz
D. Regalado, whose analysis of the historical changes in Rule 111 since the 1964 Rules of
Court is equally illuminating. Thus,
1. Under Rule 111 of the 1964 Rules of Court, the civil liability arising from
the offense charged was impliedly instituted with the criminal action,
unless such civil action was expressly waived or reserved. The offended
party was authorized to bring an independent civil action in the cases
provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code provided
such right was reserved.
In the 1985 Rules on Criminal Procedure, the same Rule 111 thereof
reiterated said provision on the civil liability arising from the offense
charged. The independent civil actions, however, were limited to the cases
provided for in Articles 32, 33 and 34 of the Civil Code, obviously because
the actions contemplated in Articles 31 and 2177 of said Code are not
liabilities ex-delicto. Furthermore, no reservation was required in order the
civil actions in said Articles 32, 33 and 34 may be pursued separately.
51
 2. The present amendments introduced by the Supreme Court have the
following notable features on this particular procedural aspect, viz:
a. The civil action which is impliedly instituted with the criminal action,
barring a waiver, reservation or prior institution thereof, need not arise from
the offense charged, as the phrase "arising from the offense charged" which
creates that nexus has been specifically eliminated.
b. The independent civil actions contemplated in the present Rule 111
include the quasi-delicts provided for in Art. 2176 of the Civil Code, in
addition to the cases provided in Arts. 32, 33 and 34 thereof. It is necessary,
however, that the civil liability under all the said articles arise "from the
same act or omission of the accused." Furthermore, a reservation of the right
to institute these separate civil actions is again required otherwise, said civil
actions are impliedly instituted with the criminal action, unless the former are
waived or filed ahead of the criminal action. (Emphasis supplied.) 5
In fact, a deeper reading of the "Yakult Phils. vs. CA" case 6 relied upon by respondent
court reveals an acknowledgment of the reservation requirement. After recognizing that
the civil case instituted by private respondent therein Roy Camaso (represented by his
father David Camaso) against petitioner Yakult Phils. (the owner of the motorcycle that
sideswiped Roy Camaso, only five years old at the time of the accident) and Larry Salvado
(the driver of the motorcycle) during the pendency of the criminal case against Salvado
for reckless imprudence resulting to slight physical injuries, as one based on tort, this
Court said:
pronouncements that view the reservation requirement as an "unauthorized amendment" to
substantive law i.e., the Civil Code, should no longer be controlling. There must be a renewed
adherence to the time-honored dictum that procedural rules are designed, not to defeat, but to
safeguard the ends of substantial justice. And for this noble reason, no less than the Constitution
itself has mandated this Court to promulgate rules concerning the enforcement of rights with
the end in view of providing a simplified and inexpensive procedure for the speedy disposition of
cases which should not diminish, increase or modify substantive rights. 7 Far from altering
substantive rights, the primary purpose of the reservation is, to borrow the words of the
Court in "Caos v. Peralta": 8
. . . to avoid multiplicity of suits, to guard against oppression and abuse, to
prevent delays, to clear congested dockets, to simplify the work of the trial
court; in short, the attainment of justice with the least expense and vexation
to the parties-litigants.
Clearly then, private respondent PISC, as subrogee under Article 2207 of the Civil Code, 9 is not
exempt from the reservation requirement with respect to its damages suit based on quasi-
delict arising from the same act or ommission of petitioner Javier complained of in the
criminal case. As private respondent PISC merely stepped into the shoes of Ms. Jao (as
owner of the insured Toyota van), then it is bound to observe the procedural requirements
which Ms. Jao ought to follow had she herself instituted the civil case.
WHEREFORE, premises considered, the assailed decision of the Court of Appeals dated February
24, 1995 and the Resolution dated April 3, 1995 denying the motion for reconsideration thereof
are hereby REVERSED and SET ASIDE. The "MANIFESTATION AND MOTION TO SUSPEND
CIVIL PROCEEDINGS" filed by petitioners is GRANTED.

The civil liability sought arising from the act or omission of the accused in
this case is a quasi-delict as defined under Article 2176 of the Civil Code as SO ORDERED.
follows:

Regalado, Melo, Puno and Mendoza, JJ., concur.

xxx xxx xxx

The aforecited rule [referring to the amended Section l, Rule 111] requiring,
such previous reservation also covers quasi-delict as defined under Article
2176 of the Civil Code arising from the same act or omission of the accused
(emphasis supplied).

But what prompted the Court to validate the institution and non-suspension of the
civil case involved in "Yakult" was the peculiar facts attendant therein. Thus,

Although the separate civil action filed in this case was without previous
reservation in the criminal case, nevertheless since it was instituted before
the prosecution presented evidence in the criminal action, and the judge
handling the criminal case was informed thereof, then the actual filing of the
civil action is even far better than a compliance with the requirement of an
express reservation that should be made by the offended party before the
prosecution presents its evidence.

The distinct factual scenario in "Yakult" simply does not obtain in this case. No satisfactory proof
exists to show that private respondent PISC's damage suit was instituted before the prosecution
presented its evidence in the criminal case pending in the Pasig Regional Trial Court. Neither is
there any indication that the judge presiding over the criminal action has been made aware of
the civil case. It is in this light that reliance on the "Yakult" case is indeed misplaced.

Now that the necessity of a prior reservation is the standing rule that shall govern the institution
of the independent civil actions referred to in Rule 111 of the Rules of Court, past

52
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157547 February 23, 2011
HEIRS OF EDUARDO SIMON, Petitioners,
vs.
ELVIN* CHAN AND THE COURT OF APPEALS, Respondent.
DECISION
BERSAMIN, J.:
There is no independent civil action to recover the civil liability arising from the issuance of an
unfunded check prohibited and punished under Batas Pambansa Bilang 22 (BP 22).
Antecedents
On July 11, 1997, the Office of the City Prosecutor of Manila filed in the Metropolitan Trial Court
of Manila (MeTC) an information charging the late Eduardo Simon (Simon) with a violation of BP
22, docketed as Criminal Case No. 275381 entitled People v. Eduardo Simon. The accusatory
portion reads:
That sometime in December 1996 in the City of Manila, Philippines, the said accused, did then
and there willfully, unlawfully and feloniously make or draw and issue to Elvin Chan to apply on
account or for value Landbank Check No. 0007280 dated December 26, 1996 payable to cash in
the amount of P336,000.00 said accused well knowing that at the time of issue she/he/they did
not have sufficient funds in or credit with the drawee bank for payment of such check in full
upon its presentment, which check when presented for payment within ninety (90) days from
the date thereof was subsequently dishonored by the drawee bank for Account Closed and
despite receipt of notice of such dishonor, said accused failed to pay said Elvin Chan the amount
of the check or to make arrangement for full payment of the same within five (5) banking days
after receiving said notice.
CONTRARY TO LAW. 1 plaintiffs attachment bond for damages,5 pertinently averring:
More than three years later, or on August 3, 2000, respondent Elvin Chan commenced in the
MeTC in Pasay City a civil action for the collection of the principal amount of P336,000.00,
coupled with an application for a writ of preliminary attachment (docketed as Civil Case No. 915-
00).2 He alleged in his complaint the following:
xxx
2. Sometime in December 1996 defendant employing fraud, deceit, and
misrepresentation encashed a check dated December 26, 1996 in the amount
of P336,000.00 to the plaintiff assuring the latter that the check is duly funded and
that he had an existing account with the Land Bank of the Philippines, xerox copy of
the said check is hereto attached as Annex "A";
3. However, when said check was presented for payment the same was dishonored on
the ground that the account of the defendant with the Land Bank of the Philippines
has been closed contrary to his representation that he has an existing account with
the said bank and that the said check was duly funded and will be honored when
presented for payment;
4. Demands had been made to the defendant for him to make good the payment of the
value of the check, xerox copy of the letter of demand is hereto attached as Annex "B",
but despite such demand defendant refused and continues to refuse to comply with
plaintiffs valid demand;
5. Due to the unlawful failure of the defendant to comply with the plaintiffs valid
demands, plaintiff has been compelled to retain the services of counsel for which he
agreed to pay as reasonable attorneys fees the amount of P50,000.00 plus additional
amount of P2,000.00 per appearance.
ALLEGATION IN SUPPORT OF PRAYER
FOR PRELIMINARY ATTACHMENT
6. The defendant as previously alleged has been guilty of fraud in contracting the
obligation upon which this action is brought and that there is no sufficient security
for the claims sought in this action which fraud consist in the misrepresentation by
the defendant that he has an existing account and sufficient funds to cover the check
when in fact his account was already closed at the time he issued a check;
7. That the plaintiff has a sufficient cause of action and this action is one which falls
under Section 1, sub-paragraph (d), Rule 57 of the Revised Rules of Court of the
Philippines and the amount due the plaintiff is as much as the sum for which the
plaintiff seeks the writ of preliminary attachment;
8. That the plaintiff is willing and able to post a bond conditioned upon the payment
of damages should it be finally found out that the plaintiff is not entitled to the
issuance of a writ of preliminary attachment. 3
On August 9, 2000, the MeTC in Pasay City issued a writ of preliminary attachment, which was
implemented on August 17, 2000 through the sheriff attaching a Nissan vehicle of Simon. 4
On August 17, 2000, Simon filed an urgent motion to dismiss with application to charge
xxx
On the ground of litis pendentia, that is, as a consequence of the pendency of another action
between the instant parties for the same cause before the Metropolitan Trial Court of Manila,
Branch X (10) entitled "People of the Philippines vs. Eduardo Simon", docketed thereat as
Criminal Case No. 275381-CR, the instant action is dismissable under Section 1, (e), Rule 16,
1997 Rules of Civil Procedure, xxx
xxx
While the instant case is civil in nature and character as contradistinguished from the said
Criminal Case No. 915-00 in the Metropolitan Trial Court of Manila, Branch X (10), the basis of
the instant civil action is the herein plaintiffs criminal complaint against defendant arising from
a charge of violation of Batas Pambansa Blg. 22 as a consequence of the alleged dishonor in
53
plaintiffs hands upon presentment for payment with drawee bank a Land Bank Check No.
0007280 dated December 26, 1996 in the amount of P336,000- drawn allegedly issued to
plaintiff by defendant who is the accused in said case, a photocopy of the Criminal information
filed by the Assistant City Prosecutor of Manila on June 11, 1997 hereto attached and made
integral part hereof as Annex "1".
It is our understanding of the law and the rules, that, "when a criminal action is instituted, the
civil action for recovery of civil liability arising from the offense charged is impliedly instituted
with the criminal action, unless the offended party expressly waives the civil action or reserves
his right to institute it separately xxx.
On August 29, 2000, Chan opposed Simons urgent motion to dismiss with application to charge
plaintiffs attachment bond for damages, stating:
1. The sole ground upon which defendant seeks to dismiss plaintiffs complaint is the
alleged pendency of another action between the same parties for the same cause,
contending among others that the pendency of Criminal Case No. 275381-CR entitled
"People of the Philippines vs. Eduardo Simon" renders this case dismissable;
2. The defendant further contends that under Section 1, Rule 111 of the Revised Rules
of Court, the filing of the criminal action, the civil action for recovery of civil liability
arising from the offense charged is impliedly instituted with the criminal action which
the plaintiff does not contest; however, it is the submission of the plaintiff that an
implied reservation of the right to file a civil action has already been made, first, by
the fact that the information for violation of B.P. 22 in Criminal Case No. 2753841
does not at all make any allegation of damages suffered by the plaintiff nor is there
any claim for recovery of damages; on top of this the plaintiff as private complainant
in the criminal case, during the presentation of the prosecution evidence was not
represented at all by a private prosecutor such that no evidence has been adduced by
the prosecution on the criminal case to prove damages; all of these we respectfully
submit demonstrate an effective implied reservation of the right of the plaintiff to file
a separate civil action for damages;
3. The defendant relies on Section 3 sub-paragraph (a) Rule 111 of the Revised Rules
of Court which mandates that after a criminal action has been commenced the civil
action cannot be instituted until final judgment has been rendered in the criminal
action; however, the defendant overlooks and conveniently failed to consider that
under Section 2, Rule 111 which provides as follows:
In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the
Philippines, an independent civil action entirely separate and distinct from the
criminal action, may be brought by the injured party during the pendency of criminal
case provided the right is reserved as required in the preceding section. Such civil
action shall proceed independently of the criminal prosecution, and shall require only
a preponderance of evidence.
In as much as the case is one that falls under Art. 33 of the Civil Code of the
Philippines as it is based on fraud, this action therefore may be prosecuted
independently of the criminal action;
4. In fact we would even venture to state that even without any reservation at all of
the right to file a separate civil action still the plaintiff is authorized to file this instant
case because the plaintiff seeks to enforce an obligation which the defendant owes to
the plaintiff by virtue of the negotiable instruments law. The plaintiff in this case sued
the defendant to enforce his liability as drawer in favor of the plaintiff as payee of the
check. Assuming the allegation of the defendant of the alleged circumstances relative
to the issuance of the check, still when he delivered the check payable to bearer to
that certain Pedro Domingo, as it was payable to cash, the same may be negotiated by
delivery by who ever was the bearer of the check and such negotiation was valid and
effective against the drawer;
5. Indeed, assuming as true the allegations of the defendant regarding the
circumstances relative to the issuance of the check it would be entirely impossible for
the plaintiff to have been aware that such check was intended only for a definite
person and was not negotiable considering that the said check was payable to bearer
and was not even crossed;
6. We contend that what cannot be prosecuted separate and apart from the criminal
case without a reservation is a civil action arising from the criminal offense charged.
However, in this instant case since the liability of the defendant are imposed and the
rights of the plaintiff are created by the negotiable instruments law, even without any
reservation at all this instant action may still be prosecuted;
7. Having this shown, the merits of plaintiffs complaint the application for damages
against the bond is totally without any legal support and perforce should be dismissed
outright.6
On October 23, 2000, the MeTC in Pasay City granted Simons urgent motion to dismiss with
application to charge plaintiffs attachment bond for damages, 7 dismissing the complaint of Chan
because:
xxx
After study of the arguments of the parties, the court resolves to GRANT the Motion to Dismiss
and the application to charge plaintiffs bond for damages.
For "litis pendentia" to be a ground for the dismissal of an action, the following requisites must
concur: (a) identity of parties or at least such as to represent the same interest in both actions;
(b) identity of rights asserted and relief prayed for, the relief being founded on the same acts; and
(c) the identity in the two (2) cases should be such that the judgment, which may be rendered in
one would, regardless of which party is successful, amount to res judicata in the other. xxx
A close perusal of the herein complaint denominated as "Sum of Money" and the criminal case
for violation of BP Blg. 22 would readily show that the parties are not only identical but also the
cause of action being asserted, which is the recovery of the value of Landbank Check No.
0007280 in the amount of P336,000.00. In both civil and criminal cases, the rights asserted and
relief prayed for, the reliefs being founded on the same facts, are identical.
Plaintiffs claim that there is an effective implied waiver of his right to pursue this civil case owing
to the fact that there was no allegation of damages in BP Blg. 22 case and that there was no
private prosecutor during the presentation of prosecution evidence is unmeritorious. It is basic
that when a complaint or criminal Information is filed, even without any allegation of damages
and the intention to prove and claim them, the offended party has the right to prove and claim
for them, unless a waiver or reservation is made or unless in the meantime, the offended party
has instituted a separate civil action. xxx The over-all import of the said provision conveys that
the waiver which includes indemnity under the Revised Penal Code, and damages arising under
Articles 32, 33, and 34 of the Civil Code must be both clear and express. And this must be
logically so as the primordial objective of the Rule is to prevent the offended party from recovering
damages twice for the same act or omission of the accused.
Indeed, the evidence discloses that the plaintiff did not waive or made a reservation as to his
right to pursue the civil branch of the criminal case for violation of BP Blg. 22 against the
defendant herein. To the considered view of this court, the filing of the instant complaint for sum
54
of money is indeed legally barred. The right to institute a separate civil action shall be made
before the prosecution starts to present its evidence and under circumstances affording the
offended party a reasonable opportunity to make such reservation. xxx
Even assuming the correctness of the plaintiffs submission that the herein case for sum of
money is one based on fraud and hence falling under Article 33 of the Civil Code, still prior
reservation is required by the Rules, to wit:
"In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the Philippines,
an independent civil action entirely separate and distinct from the criminal action, may be
brought by the injured party during the pendency of criminal case provided the right is reserved
as required in the preceding section. Such civil action shall proceed independently of the criminal
prosecution, and shall require only a preponderance of evidence."
xxx
WHEREFORE, premises considered, the court resolves to:
1. Dismiss the instant complaint on the ground of "litis pendentia";
2. Dissolve/Lift the Writ of Attachment issued by this court on August 14, 2000;
3. Charge the plaintiffs bond the amount of P336,000.00 in favor of the defendant for
the damages sustained by the latter by virtue of the implementation of the writ of
attachment;
4. Direct the Branch Sheriff of this Court to RESTORE with utmost dispatch to the
defendants physical possession the vehicle seized from him on August 16, 2000; and
5. Direct the plaintiff to pay the defendant the sum of P5,000.00 by way of attorneys
fees.
SO ORDERED.
Chans motion for reconsideration was denied on December 20, 2000, 8 viz:
Considering that the plaintiffs arguments appear to be a mere repetition of his previous
submissions, and which submissions this court have already passed upon; and taking into
account the inapplicability of the ratio decidendi in the Tactaquin vs. Palileo case which the
plaintiff cited as clearly in that case, the plaintiff therein expressly made a reservation to file a
separate civil action, the Motion for Reconsideration is DENIED for lack of merit.
SO ORDERED.
On July 31, 2001, the Regional Trial Court (RTC) in Pasay City upheld the dismissal of Chans
complaint, disposing:9
WHEREFORE, finding no error in the appealed decision, the same is hereby AFFIRMED in toto.
SO ORDERED.
On September 26, 2001, Chan appealed to the Court of Appeals (CA) by petition for
review,10 challenging the propriety of the dismissal of his complaint on the ground of litis
pendentia.
In his comment, 11 Simon countered that Chan was guilty of bad faith and malice in prosecuting
his alleged civil claim twice in a manner that caused him (Simon) utter embarrassment and
emotional sufferings; and that the dismissal of the civil case because of the valid ground of litis
pendentia based on Section 1 (e), Rule 16 of the 1997 Rules of Civil Procedure was warranted.
On June 25, 2002, the CA promulgated its assailed decision, 12 overturning the RTC, viz:
xxx
As a general rule, an offense causes two (2) classes of injuries. The first is the social injury
produced by the criminal act which is sought to be repaired through the imposition of the
corresponding penalty, and the second is the personal injury caused to the victim of the crime
which injury is sought to be compensated through indemnity which is also civil in nature. Thus,
"every person criminally liable for a felony is also civilly liable."
The offended party may prove the civil liability of an accused arising from the commission of the
offense in the criminal case since the civil action is either deemed instituted with the criminal
action or is separately instituted.
Rule 111, Section 1 of the Revised Rules of Criminal Procedure, which became effective on
December 1, 2000, provides that:
(a) When a criminal action is instituted, the civil action for the recovery of civil liability arising
from the offense charged shall be deemed instituted with the criminal action unless the offended
party waives the civil action, reserves the right to institute it separately or institute the civil action
prior to the criminal action.
Rule 111, Section 2 further states:
After the criminal action has been commenced, the separate civil action arising therefrom cannot
be instituted until final judgment has been entered in the criminal action.
However, with respect to civil actions for recovery of civil liability under Articles 32, 33, 34 and
2176 of the Civil Code arising from the same act or omission, the rule has been changed.
In DMPI Employees Credit Association vs. Velez, the Supreme Court pronounced that only the
civil liability arising from the offense charged is deemed instituted with the criminal action unless
the offended party waives the civil action, reserves his right to institute it separately, or institutes
the civil action prior to the criminal action. Speaking through Justice Pardo, the Supreme Court
held:
"There is no more need for a reservation of the right to file the independent civil action under
Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines. The reservation and waiver
referred to refers only to the civil action for the recovery of the civil liability arising from the
offense charged. This does not include recovery of civil liability under Articles 32, 33, 34, and
2176 of the Civil Code of the Philippines arising from the same act or omission which may be
prosecuted separately without a reservation".
Rule 111, Section 3 reads:
55
Sec. 3. When civil action may proceed independently. In the cases provided in Articles 32, 33,
34, and 2176 of the Civil Code of the Philippines, the independent civil action may be brought
by the offended party. It shall proceed independently of the criminal action and shall require only
a preponderance of evidence. In no case, however, may the offended party recover damages twice
for the same act or omission charged in the criminal action.
The changes in the Revised Rules on Criminal Procedure pertaining to independent civil actions
which became effective on December 1, 2000 are applicable to this case.
Procedural laws may be given retroactive effect to actions pending and undetermined at the time
of their passage. There are no vested rights in the rules of procedure. xxx
Thus, Civil Case No. CV-94-124, an independent civil action for damages on account of the fraud
committed against respondent Villegas under Article 33 of the Civil Code, may proceed
independently even if there was no reservation as to its filing."
It must be pointed that the abovecited case is similar with the instant suit. The complaint was
also brought on allegation of fraud under Article 33 of the Civil Code and committed by the
respondent in the issuance of the check which later bounced. It was filed before the trial court,
despite the pendency of the criminal case for violation of BP 22 against the respondent. While it
may be true that the changes in the Revised Rules on Criminal Procedure pertaining to
independent civil action became effective on December 1, 2000, the same may be given
retroactive application and may be made to apply to the case at bench, since procedural rules
may be given retroactive application. There are no vested rights in the rules of procedure.
In view of the ruling on the first assigned error, it is therefore an error to adjudge damages in
favor of the petitioner.
WHEREFORE, the petition is hereby GRANTED. The Decision dated July 13, 2001 rendered by
the Regional Trial Court of Pasay City, Branch 108 affirming the dismissal of the complaint filed
by petitioner is hereby REVERSED and SET ASIDE. The case is hereby REMANDED to the trial
court for further proceedings.
SO ORDERED.
On March 14, 2003, the CA denied Simons motion for reconsideration. 13
Hence, this appeal, in which the petitioners submit that the CA erroneously premised its decision
on the assessment that the civil case was an independent civil action under Articles 32, 33, 34,
and 2176 of the Civil Code; that the CAs reliance on the ruling in DMPI Employees Credit
Cooperative Inc. v. Velez14 stretched the meaning and intent of the ruling, and was contrary to
Sections 1 and 2 of Rule 111 of the Rules of Criminal Procedure; that this case was a simple
collection suit for a sum of money, precluding the application of Section 3 of Rule 111 of the
Rules of Criminal Procedure.15
In his comment,16 Chan counters that the petition for review should be denied because the
petitioners used the wrong mode of appeal; that his cause of action, being based on fraud, was
an independent civil action; and that the appearance of a private prosecutor in the criminal case
did not preclude the filing of his separate civil action.
Issue
The lone issue is whether or not Chans civil action to recover the amount of the unfunded check
(Civil Case No. 915-00) was an independent civil action.
Ruling
The petition is meritorious.
A
Applicable Law and Jurisprudence on the
Propriety of filing a separate civil action based on BP 22
The Supreme Court has settled the issue of whether or not a violation of BP 22 can give rise to
civil liability in Banal v. Judge Tadeo, Jr.,17 holding:
xxx
Article 20 of the New Civil Code provides:
Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.
Regardless, therefore, of whether or not a special law so provides, indemnification of the offended
party may be had on account of the damage, loss or injury directly suffered as a consequence of
the wrongful act of another. The indemnity which a person is sentenced to pay forms an integral
part of the penalty imposed by law for the commission of a crime (Quemel v. Court of Appeals,
22 SCRA 44, citing Bagtas v. Director of Prisons, 84 Phil 692). Every crime gives rise to a penal
or criminal action for the punishment of the guilty party, and also to civil action for the restitution
of the thing, repair of the damage, and indemnification for the losses (United States v. Bernardo,
19 Phil 265).
xxx
Civil liability to the offended party cannot thus be denied. The payee of the check is entitled to
receive the payment of money for which the worthless check was issued. Having been caused the
damage, she is entitled to recompense.
Surely, it could not have been the intendment of the framers of Batas Pambansa Blg. 22 to leave
the offended private party defrauded and empty-handed by excluding the civil liability of the
offender, giving her only the remedy, which in many cases results in a Pyrrhic victory, of having
to file a separate civil suit. To do so may leave the offended party unable to recover even the face
value of the check due her, thereby unjustly enriching the errant drawer at the expense of the
payee. The protection which the law seeks to provide would, therefore, be brought to naught.
xxx
However, there is no independent civil action to recover the value of a bouncing check issued in
contravention of BP 22. This is clear from Rule 111 of the Rules of Court, effective December 1,
2000, which relevantly provides:
Section 1. Institution of criminal and civil actions. - (a) When a criminal action is instituted, the
civil action for the recovery of civil liability arising from the offense charged shall be deemed
instituted with the criminal action unless the offended party waives the civil action, reserves the
right to institute it separately or institutes the civil action prior to the criminal action.
56
The reservation of the right to institute separately the civil action shall be made before the
prosecution starts presenting its evidence and under circumstances affording the offended party
a reasonable opportunity to make such reservation.
When the offended party seeks to enforce civil liability against the accused by way of moral,
nominal, temperate, or exemplary damages without specifying the amount thereof in the
complaint or information, the filing fees therefor shall constitute a first lien on the judgment
awarding such damages.
Where the amount of damages, other than actual, is specified in the complaint or information,
the corresponding filing fees shall be paid by the offended party upon the filing thereof in court.
Except as otherwise provided in these Rules, no filing fees shall be required for actual damages.
No counterclaim, cross-claim or third-party complaint may be filed by the accused in the criminal
case, but any cause of action which could have been the subject thereof may be litigated in a
separate civil action. (1a)
(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the
corresponding civil action. No reservation to file such civil action separately shall be allowed. 18
Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full
the filing fees based on the amount of the check involved, which shall be considered as the actual
damages claimed. Where the complaint or information also seeks to recover liquidated, moral,
nominal, temperate or exemplary damages, the offended party shall pay the filing fees based on
the amounts alleged therein. If the amounts are not so alleged but any of these damages are
subsequently awarded by the court, the filing fees based on the amount awarded shall constitute
a first lien on the judgment.
Where the civil action has been filed separately and trial thereof has not yet commenced, it may
be consolidated with the criminal action upon application with the court trying the latter case. If
the application is granted, the trial of both actions shall proceed in accordance with section 2 of
the Rule governing consolidation of the civil and criminal actions.
Section 3. When civil action may proceed independently. In the cases provided in Articles 32,
33, 34 and 2176 of the Civil Code of the Philippines, the independent civil action may be brought
by the offended party. It shall proceed independently of the criminal action and shall require only
a preponderance of evidence. In no case, however, may the offended party recover damages twice
for the same act or omission charged in the criminal action.
The aforequoted provisions of the Rules of Court, even if not yet in effect when Chan commenced
Civil Case No. 915-00 on August 3, 2000, are nonetheless applicable. It is axiomatic that the
retroactive application of procedural laws does not violate any right of a person who may feel
adversely affected, nor is it constitutionally objectionable. The reason is simply that, as a general
rule, no vested right may attach to, or arise from, procedural laws. 19 Any new rules may validly
be made to apply to cases pending at the time of their promulgation, considering that no party
to an action has a vested right in the rules of procedure, 20 except that in criminal cases, the
changes do not retroactively apply if they permit or require a lesser quantum of evidence to
convict than what is required at the time of the commission of the offenses, because such
retroactivity would be unconstitutional for being ex post facto under the Constitution.21
Moreover, the application of the rule would not be precluded by the violation of any assumed
vested right, because the new rule was adopted from Supreme Court Circular 57-97 that took
effect on November 1, 1997.
Supreme Court Circular 57-97 states:
Any provision of law or Rules of Court to the contrary notwithstanding, the following rules and
guidelines shall henceforth be observed in the filing and prosecution of all criminal cases under
Batas Pambansa Blg. 22 which penalizes the making or drawing and issuance of a check without
funds or credit:
1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to
necessarily include the corresponding civil action, and no reservation to file such civil
action separately shall be allowed or recognized. 22
2. Upon the filing of the aforesaid joint criminal and civil actions, the offended party
shall pay in full the filing fees based upon the amount of the check involved which
shall be considered as the actual damages claimed, in accordance with the schedule
of fees in Section 7 (a) and Section 8 (a), Rule 141 of the Rules of Court as last amended
by Administrative Circular No. 11-94 effective August 1, 1994. Where the offended
party further seeks to enforce against the accused civil liability by way of liquidated,
moral, nominal, temperate or exemplary damages, he shall pay the corresponding
filing fees therefor based on the amounts thereof as alleged either in the complaint or
information. If not so alleged but any of these damages are subsequently awarded by
the court, the amount of such fees shall constitute a first lien on the judgment.
3. Where the civil action has heretofore been filed separately and trial thereof has not
yet commenced, it may be consolidated with the criminal action upon application with
the court trying the latter case. If the application is granted, the trial of both actions
shall proceed in accordance with the pertinent procedure outlined in Section 2 (a) of
Rule 111 governing the proceedings in the actions as thus consolidated.
4. This Circular shall be published in two (2) newspapers of general circulation and
shall take effect on November 1, 1997.
The reasons for issuing Circular 57-97 were amply explained in Hyatt Industrial Manufacturing
Corporation v. Asia Dynamic Electrix Corporation,23 thus:
xxx
We agree with the ruling of the Court of Appeals that upon filing of the criminal cases for violation
of B.P. 22, the civil action for the recovery of the amount of the checks was also impliedly
instituted under Section 1(b) of Rule 111 of the 2000 Rules on Criminal Procedure. Under the
present revised Rules, the criminal action for violation of B.P. 22 shall be deemed to include the
corresponding civil action. The reservation to file a separate civil action is no longer needed. The
Rules provide:
Section 1. Institution of criminal and civil actions.
(a) x x x
(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to
include the corresponding civil action. No reservation to file such civil action
separately shall be allowed.
Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full
the filing fees based on the amount of the check involved, which shall be considered as the actual
damages claimed. Where the complaint or information also seeks to recover liquidated, moral,
57
nominal, temperate or exemplary damages, the offended party shall pay additional filing fees
based on the amounts alleged therein. If the amounts are not so alleged but any of these damages
are subsequently awarded by the court, the filing fees based on the amount awarded shall
constitute a first lien on the judgment.
Where the civil action has been filed separately and trial thereof has not yet commenced, it may
be consolidated with the criminal action upon application with the court trying the latter case. If
the application is granted, the trial of both actions shall proceed in accordance with section 2 of
this Rule governing consolidation of the civil and criminal actions.1avvphi1
The foregoing rule was adopted from Circular No. 57-97 of this Court. It specifically states that
the criminal action for violation of B.P. 22 shall be deemed to include the corresponding civil
action. It also requires the complainant to pay in full the filing fees based on the amount of the
check involved. Generally, no filing fees are required for criminal cases, but because of the
inclusion of the civil action in complaints for violation of B.P. 22, the Rules require the payment
of docket fees upon the filing of the complaint. This rule was enacted to help declog court dockets
which are filled with B.P. 22 cases as creditors actually use the courts as collectors. Because
ordinarily no filing fee is charged in criminal cases for actual damages, the payee uses the
intimidating effect of a criminal charge to collect his credit gratis and sometimes, upon being
paid, the trial court is not even informed thereof. The inclusion of the civil action in the criminal
case is expected to significantly lower the number of cases filed before the courts for collection
based on dishonored checks. It is also expected to expedite the disposition of these cases. Instead
of instituting two separate cases, one for criminal and another for civil, only a single suit shall
be filed and tried. It should be stressed that the policy laid down by the Rules is to discourage
the separate filing of the civil action. The Rules even prohibit the reservation of a separate civil
action, which means that one can no longer file a separate civil case after the criminal complaint
is filed in court. The only instance when separate proceedings are allowed is when the civil action
is filed ahead of the criminal case. Even then, the Rules encourage the consolidation of the civil
and criminal cases. We have previously observed that a separate civil action for the purpose of
recovering the amount of the dishonored checks would only prove to be costly, burdensome and
time-consuming for both parties and would further delay the final disposition of the case. This
multiplicity of suits must be avoided. Where petitioners rights may be fully adjudicated in the
proceedings before the trial court, resort to a separate action to recover civil liability is clearly
unwarranted. In view of this special rule governing actions for violation of B.P. 22, Article 31 of
the Civil Code cited by the trial court will not apply to the case at bar. 24
on the ground of litis pendentia
Did the pendency of the civil action in the MeTC in Manila (as the civil aspect in Criminal Case
No. 275381) bar the filing of Civil Case No. 915-00 in the MeTC in Pasay City on the ground of
litis pendentia?
For litis pendentia to be successfully invoked as a bar to an action, the concurrence of the
following requisites is necessary, namely: (a) there must be identity of parties or at least such as
represent the same interest in both actions; (b) there must be identity of rights asserted and
reliefs prayed for, the reliefs being founded on the same facts; and, (c) the identity in the two
cases should be such that the judgment that may be rendered in one would, regardless of which
party is successful, amount to res judicata in respect of the other. Absent the first two requisites,
the possibility of the existence of the third becomes nil. 28
A perusal of Civil Case No. 01-0033 and Criminal Case No. 275381 ineluctably shows that all
the elements of litis pendentia are attendant. First of all, the parties in the civil action involved
in Criminal Case No. 275381 and in Civil Case No. 915-00, that is, Chan and Simon, are the
same. Secondly, the information in Criminal Case No. 275381 and the complaint in Civil Case
No. 915-00 both alleged that Simon had issued Landbank Check No. 0007280
worth P336,000.00 payable to "cash," thereby indicating that the rights asserted and the reliefs
prayed for, as well as the facts upon which the reliefs sought were founded, were identical in all
respects. And, thirdly, any judgment rendered in one case would necessarily bar the other by res
judicata; otherwise, Chan would be recovering twice upon the same claim.
It is clear, therefore, that the MeTC in Pasay City properly dismissed Civil Case No. 915-00 on
the ground of litis pendentia through its decision dated October 23, 2000; and that the RTC in
Pasay City did not err in affirming the MeTC.
Wherefore, we grant the petition for review on certiorari, and, accordingly, we reverse and set
aside the decision promulgated by the Court of Appeals on June 25, 2002. We reinstate the
decision rendered on October 23, 2000 by the Metropolitan Trial Court, Branch 45, in Pasay
City.

Costs of suit to be paid by the respondent.

The CAs reliance on DMPI Employees Credit Association v. Velez25 to give due course to the civil
action of Chan independently and separately of Criminal Case No. 275381 was unwarranted.
DMPI Employees, which involved a prosecution for estafa, is not on all fours with this case, which SO ORDERED.
is a prosecution for a violation of BP 22. Although the Court has ruled that the issuance of a
bouncing check may result in two separate and distinct crimes of estafa and violation of BP
LUCAS P. BERSAMIN
22,26 the procedures for the recovery of the civil liabilities arising from these two distinct crimes
Associate Justice
are different and non-interchangeable. In prosecutions of estafa, the offended party may opt to
reserve his right to file a separate civil action, or may institute an independent action based on
fraud pursuant to Article 33 of the Civil Code,27 as DMPI Employees has allowed. In prosecutions
of violations of BP 22, however, the Court has adopted a policy to prohibit the reservation or
institution of a separate civil action to claim the civil liability arising from the issuance of the
bouncing check upon the reasons delineated in Hyatt Industrial Manufacturing Corporation,
supra.

To repeat, Chans separate civil action to recover the amount of the check involved in the
prosecution for the violation of BP 22 could not be independently maintained under both
Supreme Court Circular 57-97 and the aforequoted provisions of Rule 111 of the Rules of Court,
notwithstanding the allegations of fraud and deceit.

Aptness of the dismissal of the civil action

58
 Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. Nos. 155531-34 July 29, 2005
MARY ANN RODRIGUEZ, Petitioners,
vs.
Hon. THELMA A. PONFERRADA, in Her Official Capacity as Presiding Judge of the
Regional Trial Court of Quezon City, Branch 104; PEOPLE OF THE PHILIPPINES; and
GLADYS NOCOM, Respondents.
DECISION
PANGANIBAN, J.:
Settled is the rule that the single act of issuing a bouncing check may give rise to two distinct
criminal offenses: estafa and violation of Batas Pambansa Bilang 22 (BP 22). The Rules of Court
allow the offended party to intervene via a private prosecutor in each of these two penal
proceedings. However, the recovery of the single civil liability arising from the single act of issuing
a bouncing check in
__________________
* On official leave.
either criminal case bars the recovery of the same civil liability in the other criminal action. While
the law allows two simultaneous civil remedies for the offended party, it authorizes recovery in
only one. In short, while two crimes arise from a single set of facts, only one civil liability attaches
to it.
The Case
Before us is a Petition for Certiorari1 under Rule 65 of the Rules of Court, seeking to reverse the
July 27, 2002 Order2 of the Regional Court (RTC) of Quezon City (Branch 104) in Criminal Case
Nos. Q-01-106256 to Q-01-106259. Also assailed is the August 16, 2002 Order 3 of the RTC
denying petitioners Motion for Reconsideration. The first assailed Order is quoted in full as
follows:
"For consideration is the opposition of the accused, through counsel, to the formal entry of
appearance of private prosecutor.
"Accused, through counsel, contends that the private prosecutor is barred from appearing before
this Court as his appearance is limited to the civil aspect which must be presented and asserted
in B.P. 22 cases pending before the Metropolitan Trial Court of Quezon City.
"The private prosecutor submitted comment stating that the offended party did not manifest
within fifteen (15) days following the filing of the information that the civil liability arising from
the crime has been or would be separately prosecuted and that she should therefore be required
to pay the legal fees pursuant to Section 20 of Rule 141 of the Rules of Court, as amended.
"Considering that the prosecution under B.P. 22 is without prejudice to any liability for violation
of any provision of the Revised Penal Code (BP 22, Sec. 5), the civil action for the recovery of the
civil liability arising from the estafa cases pending before this Court is deemed instituted with
the criminal action (Rule 111, Sec. 1 [a]). The offended party may thus intervene by counsel in
the prosecution of the offense (Rule 110. Sec. 16).
"WHEREFORE, the appearance of a private prosecutor shall be allowed upon payment of the
legal fees for these estafa cases pending before this Court pursuant to Section 1 of Rule 141 of
the Rules of Court, as amended."4
The Facts
The undisputed facts are narrated by petitioner as follows:
"On 10 December 2001, the Honorable Assistant City Prosecutor Rossana S. Morales-Montojo of
Quezon City Prosecutors Office issued her Resolution in I.S. No. 01-15902, the dispositive
portion of which reads as follows:
Premises considered, there being PROBABLE CAUSE to charge respondent for ESTAFA under
Article 315 paragraph 2(d) as amended by PD 818 and for Violation of Batas Pambansa Blg. 22,
it is respectfully recommended that the attached Information be approved and filed in Court.
"As a consequence thereof, separate informations were separately filed against herein [p]etitioner
before proper [c]ourts, for Estafa and [v]iolation of Batas Pambansa Blg. 22.
"Upon payment of the assessed and required docket fees by the [p]rivate [c]omplainant, the
informations for [v]iolation of Batas Pambansa Blg. 22 against herein [p]etitioner were filed and
raffled to the Metropolitan Trial Court of Quezon City, Branch 42, docketed as Criminal Cases
Nos. 0108033 to 36.
"On the other hand, the informations for [e]stafa cases against herein [p]etitioner were likewise
filed and raffled to the Regional Trial Court of Quezon City, Branch 104, docketed as Criminal
Cases Nos. 01-106256 to 59.
"On 17 June 2002, petitioner through counsel filed in open court before the [p]ublic [r]espondent
an Opposition to the Formal Entry of Appearance of the Private Prosecutor dated 14 June 2002.
"The [p]ublic [r]espondent court during the said hearing noted the Formal Entry of Appearance
of Atty. Felix R. Solomon as [p]rivate [p]rosecutor as well as the Opposition filed thereto by herein
[p]etitioner. x x x.
"As ordered by the Court, [p]rivate [c]omplainant through counsel filed her Comment to the
Opposition of herein [p]etitioner.
"On 27 June 2002, the [p]ublic [r]espondent court issued the first assailed Order allowing the
appearance of the [p]rivate [p]rosecutor in the above-entitled criminal cases upon payment of the
legal fees pursuant to Section 1 of Rule 141 of the Rules of Court, as amended.
"On 31 July 2002, [a]ccused through counsel filed a Motion for Reconsideration dated 26 July
2002.
"On 16 August 2002, the [p]ublic [r]espondent court issued the second assailed Order denying
the Motion for Reconsideration of herein [p]etitioner."5
59
Ruling of the Trial Court
Noting petitioners opposition to the private prosecutors entry of appearance, the RTC held that
the civil action for the recovery of civil liability arising from the offense charged is deemed
instituted, unless the offended party (1) waives the civil action, (2) reserves the right to institute
it separately, or (3) institutes the civil action prior to the criminal action. Considering that the
offended party had paid the corresponding filing fee for the estafa cases prior to the filing of the
BP 22 cases with the Metropolitan Trial Court (MeTC), the RTC allowed the private prosecutor to
appear and intervene in the proceedings.
Hence, this Petition.6
Issues
Petitioner raises this sole issue for the Courts consideration:
"Whether or not a [p]rivate [p]rosecutor can be allowed to intervene and participate in the
proceedings of the above-entitled [e]stafa cases for the purpose of prosecuting the attached civil
liability arising from the issuance of the checks involved which is also subject mater of the
pending B.P. 22 cases."7
The Courts Ruling
The Petition has no merit.
Sole Issue:
Civil Action in BP 22 Case Not a Bar
to Civil Action in Estafa Case
Petitioner theorizes that the civil action necessarily arising from the criminal case pending before
the MTC for violation of BP 22 precludes the institution of the corresponding civil action in the
criminal case for estafa now pending before the RTC. She hinges her theory on the following
provisions of Rules 110 and 111 of the Rules of Court:
"SECTION 16. Intervention of the offended party in criminal action. -- Where the civil action for
recovery of civil liability is instituted in the criminal action pursuant to Rule 111, the offended
party may intervene by counsel in the prosecution of the offense."
"SECTION 1. Institution of criminal and civil actions. -- (a) When a criminal action is instituted,
the civil action for the recovery of civil liability arising from the offense charged shall be deemed
instituted with the criminal action unless the offended party waives the civil action, reserves the
right to institute it separately or institutes the civil action prior to the criminal action.
"The reservation of the right to institute separately the civil action shall be made before the
prosecution starts presenting its evidence and under circumstances affording the offended party
a reasonable opportunity to make such reservation.
"When the offended party seeks to enforce civil liability against the accused by way of moral,
nominal, temperate, or exemplary damages without specifying the amount thereof in the
complaint or information, the filing fees therefor shall constitute a first lien on the judgment
awarding such damages.
xxxxxxxxx
"(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the
corresponding civil action. No reservation to file such civil action separately shall be allowed.
"Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full
the filing fees based on the amount of the check involved, which shall be considered as the actual
damages claimed. Where the complaint or information also seeks to recover liquidated, moral,
nominal, temperate or exemplary damages, the offended party shall pay the filing fees based on
the amounts alleged therein. If the amounts are not so alleged but any of these damages are
subsequently awarded by the court, the filing fees based on the amount awarded shall constitute
a first lien on the judgment.
"Where the civil action has been filed separately and trial thereof has not yet commenced, it may
be consolidated with the criminal action upon application with the court trying the latter case. If
the application is granted, the trial of both actions shall proceed in accordance with section 2 of
this Rule governing consolidation of the civil and criminal actions."
Based on the foregoing rules, an offended party may intervene in the prosecution of a crime,
except in the following instances: (1) when, from the nature of the crime and the law defining
and punishing it, no civil liability arises in favor of a private offended party; and (2) when, from
the nature of the offense, the offended parties are entitled to civil indemnity, but (a) they waive
the right to institute a civil action, (b) expressly reserve the right to do so or (c) the suit has
already been instituted. In any of these instances, the private complainants interest in the case
disappears and criminal prosecution becomes the sole function of the public prosecutor.8 None
of these exceptions apply to the instant case. Hence, the private prosecutor cannot be barred
from intervening in the estafa suit.
True, each of the overt acts in these instances may give rise to two criminal liabilities -- one for
estafa and another for violation of BP 22. But every such act of issuing a bouncing check involves
only one civil liability for the offended party, who has sustained only a single injury.9 This is the
import of Banal v. Tadeo,10 which we quote in part as follows:
"Generally, the basis of civil liability arising from crime is the fundamental postulate of our law
that Every man criminally liable is also civilly liable (Art. 100, The Revised Penal Code).
Underlying this legal principle is the traditional theory that when a person commits a crime he
offends two entities namely (1) the society in which he lives in or the political entity called the
State whose law he had violated; and (2) the individual member of that society whose person,
right, honor, chastity or property was actually or directly injured or damaged by the same
punishable act or omission. However, this rather broad and general provision is among the most
complex and controversial topics in criminal procedure. It can be misleading in its implications
especially where the same act or omission may be treated as a crime in one instance and as a
tort in another or where the law allows a separate civil action to proceed independently of the
course of the criminal prosecution with which it is intimately intertwined. Many legal scholars
treat as a misconception or fallacy the generally accepted notion that the civil liability actually
arises from the crime when, in the ultimate analysis, it does not. While an act or omission is
felonious because it is punishable by law, it gives rise to civil liability not so much because it is
a crime but because it caused damage to another. Viewing things pragmatically, we can readily
see that what gives rise to the civil liability is really the obligation and the moral duty of everyone
to repair or make whole the damage caused to another by reason of his own act or omission,
done intentionally or negligently, whether or not the same be punishable by law. In other words,
criminal liability will give rise to civil liability only if the same felonious act or omission results
in damage or injury to another and is the direct and proximate cause thereof. Damage or injury
to another is evidently the foundation of the civil action. Such is not the case in criminal actions
for, to be criminally liable, it is enough that the act or omission complained of is punishable,
60
regardless of whether or not it also causes material damage to another. (See Sangco, Philippine
Law on Torts and Damages, 1978, Revised Edition, pp. 246-247)."
Thus, the possible single civil liability arising from the act of issuing a bouncing check can be
the subject of both civil actions deemed instituted with the estafa case and the BP 22 violation
prosecution. In the crimes of both estafa and violation of BP 22, Rule 111 of the Rules of Court
expressly allows, even automatically in the present case, the institution of a civil action without
need of election by the offended party. As both remedies are simultaneously available to this
party, there can be no forum shopping.11
Hence, this Court cannot agree with what petitioner ultimately espouses. At the present stage,
no judgment on the civil liability has been rendered in either criminal case. There is as yet no
call for the offended party to elect remedies and, after choosing one of them, be considered barred
from others available to her.
Election of Remedies
Petitioner is actually raising the doctrine of election of remedies. "In its broad sense, election of
remedies refers to the choice by a party to an action of one of two or more coexisting remedial
rights, where several such rights arise out of the same facts, but the term has been generally
limited to a choice by a party between inconsistent remedial rights, the assertion of one being
necessarily repugnant to, or a repudiation of, the other." 12 In its more restricted and technical
sense, the election of remedies is the adoption of one of two or more coexisting ones, with the
effect of precluding a resort to the others.13
The Court further elucidates in Mellon Bank v. Magsino14 as follows:
"As a technical rule of procedure, the purpose of the doctrine of election of remedies is not to
prevent recourse to any remedy, but to prevent double redress for a single wrong. 15 It is regarded
as an application of the law of estoppel, upon the theory that a party cannot, in the assertion of
his right occupy inconsistent positions which form the basis of his respective remedies. However,
when a certain state of facts under the law entitles a party to alternative remedies, both founded
upon the identical state of facts, these remedies are not considered inconsistent remedies. In
such case, the invocation of one remedy is not an election which will bar the other, unless the
suit upon the remedy first invoked shall reach the stage of final adjudication or unless by the
invocation of the remedy first sought to be enforced, the plaintiff shall have gained an advantage
thereby or caused detriment or change of situation to the other. 16 It must be pointed out that
ordinarily, election of remedies is not made until the judicial proceedings has gone to judgment
on the merits.17
"Consonant with these rulings, this Court, through Justice J.B.L. Reyes, opined that while some
American authorities hold that the mere initiation of proceedings constitutes a binding choice of
remedies that precludes pursuit of alternative courses, the better rule is that no binding election
occurs before a decision on the merits is had or a detriment to the other party supervenes. 18 This
is because the principle of election of remedies is discordant with the modern procedural
concepts embodied in the Code of Civil Procedure which permits a party to seek inconsistent
remedies in his claim for relief without being required to elect between them at the pleading stage
of the litigation."19
In the present cases before us, the institution of the civil actions with the estafa cases and the
inclusion of another set of civil actions with the BP 22 cases are not exactly repugnant or
inconsistent with each other. Nothing in the Rules signifies that the necessary inclusion of a civil
action in a criminal case for violation of the Bouncing Checks Law 20 precludes the institution in
an estafa case of the corresponding civil action, even if both offenses relate to the issuance of the
same check.
The purpose of Section 1(b) of Rule 111 is explained by Justice Florenz D. Regalado (ret.), former
chairman of the committee tasked with the revision of the Rules of Criminal Procedure. He
clarified that the special rule on BP 22 cases was added, because the dockets of the courts were
clogged with such litigations; creditors were using the courts as collectors. While ordinarily no
filing fees were charged for actual damages in criminal cases, the rule on the necessary inclusion
of a civil action with the payment of filing fees based on the face value of the check involved was
laid down to prevent the practice of creditors of using the threat of a criminal prosecution to
collect on their credit free of charge.21
Clearly, it was not the intent of the special rule to preclude the prosecution of the civil action
that corresponds to the estafa case, should the latter also be filed. The crimes of estafa and
violation of BP 22 are different and distinct from each other. There is no identity of offenses
involved, for which legal jeopardy in one case may be invoked in the other. The offenses charged
in the informations are perfectly distinct from each other in point of law, however nearly they
may be connected in point of fact.22
What Section 1(b) of the Rules of Court prohibits is the reservation to file the corresponding civil
action.1wphi1 The criminal action shall be deemed to include the corresponding civil action.
"[U]nless a separate civil action has been filed before the institution of the criminal action, no such
civil action can be instituted after the criminal action has been filed as the same has been
included therein."23 In the instant case, the criminal action for estafa was admittedly filed prior
to the criminal case for violation of BP 22, with the corresponding filing fees for the inclusion of
the corresponding civil action paid accordingly. 24
Furthermore, the fact that the Rules do not allow the reservation of civil actions in BP 22 cases
cannot deprive private complainant of the right to protect her interests in the criminal action for
estafa. Nothing in the current law or rules on BP 22 vests the jurisdiction of the corresponding
civil case exclusively in the court trying the BP 22 criminal case.25
In promulgating the Rules, this Court did not intend to leave the offended parties without any
remedy to protect their interests in estafa cases. Its power to promulgate the Rules of Court is
limited in the sense that rules "shall not diminish, increase or modify substantive
rights."26 Private complainants intervention in the prosecution of estafa is justified not only for
the prosecution of her interests, but also for the speedy and inexpensive administration of justice
as mandated by the Constitution.27
The trial court was, therefore, correct in holding that the private prosecutor may intervene before
the RTC in the proceedings for estafa, despite the necessary inclusion of the corresponding civil
action in the proceedings for violation of BP 22 pending before the MTC. A recovery by the
offended party under one remedy, however, necessarily bars that under the other. Obviously
stemming from the fundamental rule against unjust enrichment, 28 this is in essence the rationale
for the proscription in our law against double recovery for the same act or omission.
WHEREFORE, the Petition is DISMISSED and the assailed Order AFFIRMED. Costs against
petitioner.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
61
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 210148 December 8, 2014
ANTONIO L. DALURAYA, Petitioner,
vs.
MARLA OLIVA, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated June 28, 2013 and the
Resolution3 dated November 22, 2013 rendered by the Court of Appeals (CA) in CA-G.R. SP No.
125113 finding petitioner Antonio L. Daluraya (Daluraya) civilly liable for the death of Marina
Arabit Oliva (Marina Oliva) despite having been acquitted for Reckless Imprudence Resulting in
Homicide on the ground of insufficiency of evidence.
The Facts
On January 4, 2006, Daluraya was charged in an Information 4 for Reckless Imprudence
Resulting in Homicide in connection with the death5 of Marina Oliva. Records reveal that
sometime in the afternoon of January 3, 2006, Marina Oliva was crossing the street when a
Nissan Vanette, bearing plate number UPN-172 and traversing EDSA near the Quezon Avenue
flyover in Quezon City, ran her over. 6 While Marina Oliva was rushed to the hospital to receive
medical attention,she eventually died, prompting her daughter, herein respondent Marla Oliva
(Marla), to file a criminal case for Reckless Imprudence Resulting in Homicide against Daluraya,
the purported driver of the vehicle.7
During the proceedings, the prosecution presented as witness Shem Serrano (Serrano), an eye-
witness to the incident, who testified that on said date, he saw a woman crossing EDSA heading
towards the island near the flyover and that the latter was bumped by a Nissan Vanette bearing
plate number UPN-172. The prosecution also offered the testimonies of (a) Marla, who testified
as to the civil damages sustained by her family as a result of her mothers death; (b) Dr. Paul
Ortiz (Dr. Ortiz), who presented his findings on the autopsy conducted upon the body of Marina
Oliva; and (c) Police Senior Inspector Lauro Gomez (PSI Gomez), who conducted the investigation
following the incident and claimed that Marina Oliva was hit by the vehicle being driven by
Daluraya, albeit he did not witness the incident. 8
After the prosecution rested its case, Daluraya filed an Urgent Motion to Dismiss
(demurrer)9 asserting, inter alia, that he was not positively identified by any of the prosecution
witnesses as the driver of the vehicle that hit the victim, and that there was no clear and
competent evidence of how the incident transpired. 10
The MeTC Ruling
In an Order11 dated May 24, 2010, the Metropolitan Trial Court of Quezon City, Branch 38
(MeTC) granted Dalurayas demurrer and dismissed the case for insufficiency of evidence. It
found that the testimonies of the prosecution witnesses were wanting in material details and
that they failed to sufficiently establish that Daluraya committed the crime imputed upon
him.12 Deconstructing the testimonies of the prosecution witnesses individually, the MeTC found
that: (a) Marla merely testified on the damages sustained by her family but she failed to identify
Daluraya as the driver of the vehicle that hit her mother; (b) Serrano also did not identify
Daluraya as the driver of the said vehicle; (c) Dr. Ortiz merely testified on the autopsy results;
and (d) PSI Gomez, while he did investigate the incident, likewise declared thathe did not witness
the same.13
Marla moved for reconsideration,14 which the MeTC denied in an Order15 dated November 4,
2010, clarifying that the grant of Dalurayas demurrer had the effect of an acquittal and that
reconsideration of its Order granting Dalurayas demurrer would violate the latters right against
double jeopardy.16 With respect to the civil aspect of the case, the MeTC likewise denied the same,
holding that no civil liability can be awarded absent any evidence proving that Daluraya was the
person responsible for Marina Olivas demise. 17
Aggrieved, Marla appealed18 to the Regional Trial Court of Quezon City, Branch 76 (RTC),
insisting that the MeTC failed to make any finding as to the civil liability of Daluraya,19 which
finding was not precluded by the dismissal of the criminal aspect of the case.
The RTC Ruling
In a Decision20 dated September 8, 2011, the RTC dismissed the appeal and affirmed the MeTCs
ruling,declaring that "the act from which the criminal responsibility may spring did not at all
exist."21
Marla filed a motion for reconsideration22 which, although filed beyond the reglementary period,
was nonetheless accepted. However, the RTC found the same without merit and thus, sustained
the factual findings and rulings of the MeTC in its Order 23 dated May 10, 2012. Dissatisfied,
Marla elevated the case to the CA via petition for review, maintaining that Daluraya must be held
civilly liable.
The CA Ruling
In a Decision24 dated June 28, 2013, the CA granted the petition and reversed the RTC Decision,
ordering Daluraya to pay Marla the amounts of P152,547.00 as actual damages, P50,000.00 as
civil indemnity, and P50,000.00 as moral damages.25 In so ruling, the CA held that the MeTCs
Order showed that Dalurayas acquittal was based on the fact that the prosecution failed to prove
his guilt beyond reasonable doubt. As such, Daluraya was not exonerated from civil liability. 26
Moreover, the CA considered the following pieces of evidence to support its finding that Daluraya
must be held civilly liable: (a) the inadmissible sworn statement executed by Daluraya where he
admitted that he drove the subject vehicle which hit Marina Oliva; (b) the conclusion derived
from Serranos testimony that the woman he saw crossing the street who was hit by a Nissan
Vanette with plate number UPN-172, and the victim who eventually died, are one and the same;
(c) the Philippine National Police Referral Letter of one Police Chief Inspector Virgilio Pereda
identifying Daluraya as the suspectin the case of Reckless Imprudence Resulting in Homicide
involving the death of Marina Oliva, and stating that he brought the victim to the Quezon City
General Hospital for treatment but was declared dead on arrival; and (d) the subject vehicle was
registered in the name of Dalurayas aunt, Gloria Zilmar, 27 who authorized him to claim the
vehicle from the MeTC.28
Daluraya filed a motion for reconsideration, 29 which the CA denied in a Resolution30 dated
November 22, 2013,hence, this petition.
The Issue Before the Court
62
The sole issue advanced for the Courts resolution is whether or not the CA was correct in finding
Daluraya civilly liable for Marina Olivas death despite his acquittal in the criminal case for
Reckless Imprudence Resulting in Homicide on the ground of insufficiency of evidence.
The Courts Ruling
The petition is meritorious.
the author of the crime imputed against him. Such conclusion is clear and categorical when the
MeTC declared that "the testimonies of the prosecution witnesses are wanting in material details
and they did not sufficiently establish that the accused precisely committed the crime charged
against him."37 Furthermore, when Marla sought reconsideration of the MeTCs Order acquitting
Daluraya, said court reiterated and firmly clarified that "the prosecution was not able to establish
that the accused was the driver of the Nissan Vanette which bumped Marina Oliva" 38 and that
"there is no competent evidence on hand which proves that the accused was the person
responsible for the death of Marina Oliva."39

Every person criminally liable for a felony is also civilly liable. The acquittal of an accused of the
crime charged, however, does not necessarily extinguish his civil liability. 31 In Manantan v.
CA,32 the Court expounded on the two kinds of acquittal recognized by our law and their
concomitant effects on the civil liability of the accused, as follows:
Our law recognizes two kinds of acquittal, with different effects on the civil liability of the accused.
First is an acquittal on the ground that the accused is not the author of the actor omission
complained of. This instance closes the door to civil liability, for a person who has been found to
be not the perpetrator of any act or omission cannot and can never be held liable for such act or
omission. There being no delict, civil liability ex delictois out of the question, and the civil action,
if any, which may be instituted must be based on grounds other than the delict complained of.
This is the situation contemplated inRule 111 of the Rules of Court. The second instance is an
acquittal based on reasonable doubt on the guilt of the accused. In this case, even if the guilt of
the accused has not been satisfactorily established, he is not exempt from civil liability which
may be proved by preponderance of evidence only. 33
Clearly, therefore, the CA erred in construing the findings of the MeTC, as affirmed by the RTC,
that Dalurayas acquittal was anchored on reasonable doubt, which would necessarily call for a
remand of the case to the court a quo for the reception of Dalurayas evidence on the civil
aspect.1wphi1 Records disclose that Dalurayas acquittal was based on the fact that "the act or
omission from which the civil liability may arise did not exist" in view of the failure of the
prosecution to sufficiently establish that he was the author of the crime ascribed against him.
Consequently, his civil liability should be deemed as non-existent by the nature of such acquittal.
WHEREFORE, the petition is GRANTED. The Decision dated June 28, 2013 and the Resolution
dated November 22, 2013 of the Court of Appeals in CA-G.R. SP No. 125113 are hereby
REVERSED and SET ASIDE. The Decision dated September 8,2011 and the Order dated May
10, 2012 of the Regional Trial Court of Quezon City, Branch 76 are REINSTATED.
SO ORDERED.

ESTELA M. PERLAS-BERNABE
In Dayap v. Sendiong,34 the Court explained further: Associate Justice

The acquittal of the accused does not automatically preclude a judgment against him on the civil
aspect of the case.1wphi1 The extinction of the penal action does not carry with it the extinction
of the civil liability where: (a) the acquittal is based on reasonable doubt as only preponderance
of evidence is required; (b) the court declares that the liability of the accused is only civil; and (c)
the civil liability of the accused does not arise from or is not based upon the crime of which the
accused is acquitted. However, the civil action based on delictmay be deemed extinguished if
there is a finding on the final judgment in the criminal action that the act or omission from which
the civil liability may arise did not exist or where the accused did not commit the acts or omission
imputed to him.

Thus, if demurrer is granted and the accused is acquitted by the court, the accused has the right
to adduce evidence on the civil aspect of the case unless the court also declares that the act or
omission from which the civil liability may arise did not exist. This is because when the accused
files a demurrer to evidence, he has not yet adduced evidence both on the criminal and civil
aspects of the case. The only evidence on record is the evidence for the prosecution. What the
trial court should do is issue an order or partial judgment granting the demurrer to evidence and
acquitting the accused, and set the case for continuation of trial for the accused to adduce
evidence on the civil aspect of the case and for the private complainant to adduce evidence by
way of rebuttal. Thereafter, the court shall render judgment on the civil aspect of the case. 35

(Emphases supplied)

In case of an acquittal, the Rules of Court requires that the judgment state "whether the evidence
of the prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his
guilt beyond reasonable doubt. In either case, the judgment shall determine if the act or omission
from which the civil liability might arise did not exist."36

A punctilious examination of the MeTCs Order, which the RTC sustained, will show that
Dalurayas acquittal was based on the conclusion that the act or omission from which the civil
liability may arise did not exist, given that the prosecution was not able to establish that he was

63
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 163753 January 15, 2014
DR. ENCARNACION C. LUMANTAS, M.D., Petitioner,
vs.
HANZ CALAPIZ, REPRESENTED BY HIS PARENTS, HILARIO CALAPIZ, JR. and HERLITA
CALAPIZ, Respondent.
DECISION
BERSAMIN, J.:
The acquittal of the accused does not necessarily mean his absolution from civil liability.
The Case
In this appeal, an accused desires the reversal of the decision promulgated on February 20,
2003,1 whereby the Court of Appeals (CA) affirmed the judgment rendered on August 6, 1999 by
the Regional Trial Court (RTC), Branch 13, in Oroquieta City ordering him to pay moral damages
despite his acquittal of the crime of reckless imprudence resulting in serious physical injuries
charged against him.2
Antecedents
On January 16, 1995, Spouses Hilario Calapiz, Jr. and Herlita Calapiz brought their 8-year-old
son, Hanz Calapiz (Hanz), to the Misamis Occidental Provincial Hospital, Oroquieta City, for an
emergency appendectomy. Hanz was attended to by the petitioner, who suggested to the parents
that Hanz also undergo circumcision at no added cost to spare him the pain. With the parents
consent, the petitioner performed the coronal type of circumcision on Hanz after his
appendectomy. On the following day, Hanz complained of pain in his penis, which exhibited
blisters. His testicles were swollen. The parents noticed that the child urinated abnormally after
the petitioner forcibly removed the catheter, but the petitioner dismissed the abnormality as
normal. On January 30, 1995, Hanz was discharged from the hospital over his parents
protestations, and was directed to continue taking antibiotics.
On February 8, 1995, Hanz was confined in a hospital because of the abscess formation between
the base and the shaft of his penis. Presuming that the ulceration was brought about by Hanzs
appendicitis, the petitioner referred him to Dr. Henry Go, an urologist, who diagnosed the boy to
have a damaged urethra. Thus, Hanz underwent cystostomy, and thereafter was operated on
three times to repair his damaged urethra.
When his damaged urethra could not be fully repaired and reconstructed, Hanzs parents
brought a criminal charge against the petitioner for reckless imprudence resulting to serious
physical injuries. On April 17, 1997, the information 3 was filed in the Municipal Trial Court in
Cities of Oroquieta City (MTCC), to which the latter pleaded not guilty on May 22, 1998. 4 Under
the order of April 30, 1999, the case was transferred to the RTC pursuant to Supreme Court
Circular No. 11-99.5
At the trial, the Prosecution presented several witnesses, including Dr. Rufino Agudera as an
expert witness and as the physician who had operated on Hanz twice to repair the damaged
urethra. Dr. Agudera testified that Hanz had been diagnosed to have urethral stricture and
cavernosal injury left secondary to trauma that had necessitated the conduct of two operations
to strengthen and to lengthen the urethra. Although satisfactorily explaining that the injury to
the urethra had been caused by trauma, Dr. Agudera could not determine the kind of trauma
that had caused the injury.
In his defense, the petitioner denied the charge. He contended that at the time of his examination
of Hanz on January 16, 1995, he had found an accumulation of pus at the vicinity of the
appendix two to three inches from the penis that had required immediate surgical operation;
that after performing the appendectomy, he had circumcised Hanz with his parents consent by
using a congo instrument, thereby debunking the parents claim that their child had been
cauterized; that he had then cleared Hanz on January 27, 1995 once his fever had subsided;
that he had found no complications when Hanz returned for his follow up check-up on February
2, 1995; and that the abscess formation between the base and the shaft of the penis had been
brought about by Hanzs burst appendicitis.
Ruling of the RTC
In its decision rendered on August 6, 1999,6 the RTC acquitted the petitioner of the crime charged
for insufficiency of the evidence. It held that the Prosecutions evidence did not show the required
standard of care to be observed by other members of the medical profession under similar
circumstances. Nonetheless, the RTC ruled that the petitioner was liable for moral damages
because there was a preponderance of evidence showing that Hanz had received the injurious
trauma from his circumcision by the petitioner. The decision disposed as follows:
WHEREFORE, for insufficiency of evidence, this court renders judgment acquitting the accused,
Dr. Encarnacion Lumantas, of reckless imprudence resulting in serious physical injuries, but
ordering him to pay Hanz Calapiz P50,000.00 as moral damages. No costs.
SO ORDERED.
Ruling of the CA
On appeal, the CA affirmed the RTC,7 sustaining the award of moral damages. It opined that
even if the petitioner had been acquitted of the crime charged, the acquittal did not necessarily
mean that he had not incurred civil liability considering that the Prosecution had preponderantly
established the sufferings of Hanz as the result of the circumcision.
The petitioner moved for reconsideration, but the CA denied the motion on April 28, 2004. 8
Hence, this appeal.
Issue
Whether the CA erred in affirming the petitioners civil liability despite his acquittal of the crime
of reckless imprudence resulting in serious physical injuries.
Ruling
The petition for review lacks merit.
64
It is axiomatic that every person criminally liable for a felony is also civilly liable. 9 Nevertheless, compounded. For that purpose, the reckoning of interest should be from the filing of the criminal
the acquittal of an accused of the crime charged does not necessarily extinguish his civil liability. information on April 17, 1997, the making of the judicial demand for the liability of the petitioner.
In Manantan v. Court of Appeals,10the Court elucidates on the two kinds of acquittal recognized
by our law as well as on the different effects of acquittal on the civil liability of the accused, viz:
WHEREFORE, the Court AFFIRMS the decision promulgated on February 20, 2003, with the
modification that legal interest of 6% per annum to start from April 17, 1997 is imposed on the
Our law recognizes two kinds of acquittal, with different effects on the civil liability of the award of:P50,000.00 as moral damages; and ORDERS the petitioner to pay the costs of suit.
accused.1wphi1 First is an acquittal on the ground that the accused is not the author of the
act or omission complained of. This instance closes the door to civil liability, for a person who
has been found to be not the perpetrator of any act or omission cannot and can never be held SO ORDERED.
liable for such act or omission. There being no delict, civil liability ex delicto is out of the question,
and the civil action, if any, which may be instituted must be based on grounds other than the LUCAS P. BERSAMIN
delict complained of. This is the situation contemplated in Rule 111 of the Rules of Court. The Associate Justice
second instance is an acquittal based on reasonable doubt on the guilt of the accused. In this
case, even if the guilt of the accused has not been satisfactorily established, he is not exempt
from civil liability which may be proved by preponderance of evidence only.

The Rules of Court requires that in case of an acquittal, the judgment shall state "whether the
evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to
prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act
or omission from which the civil liability might arise did not exist." 11

Conformably with the foregoing, therefore, the acquittal of an accused does not prevent a
judgment from still being rendered against him on the civil aspect of the criminal case unless
the court finds and declares that the fact from which the civil liability might arise did not exist.

Although it found the Prosecutions evidence insufficient to sustain a judgment of conviction

against the petitioner for the crime charged, the RTC did not err in determining and adjudging
his civil liability for the same act complained of based on mere preponderance of evidence. 12 In
this connection, the Court reminds that the acquittal for insufficiency of the evidence did not
require that the complainants recovery of civil liability should be through the institution of a
separate civil action for that purpose.13

The petitioners contention that he could not be held civilly liable because there was no proof of
his negligence deserves scant consideration. The failure of the Prosecution to prove his criminal
negligence with moral certainty did not forbid a finding against him that there was preponderant
evidence of his negligence to hold him civilly liable. 14 With the RTC and the CA both finding that
Hanz had sustained the injurious trauma from the hands of the petitioner on the occasion of or
incidental to the circumcision, and that the trauma could have been avoided, the Court must
concur with their uniform findings. In that regard, the Court need not analyze and weigh again
the evidence considered in the proceedings a quo. The Court, by virtue of its not being a trier of
facts, should now accord the highest respect to the factual findings of the trial court as affirmed
by the CA in the absence of a clear showing by the petitioner that such findings were tainted
with arbitrariness, capriciousness or palpable error.

Every person is entitled to the physical integrity of his body.1wphi1 Although we have long
advocated the view that any physical injury, like the loss or diminution of the use of any part of
ones body, is not equatable to a pecuniary loss, and is not susceptible of exact monetary
estimation, civil damages should be assessed once that integrity has been violated. The
assessment is but an imperfect estimation of the true value of ones body. The usual practice is
to award moral damages for the physical injuries sustained. 15 In Hanzs case, the undesirable
outcome of the circumcision performed by the petitioner forced the young child to endure several
other procedures on his penis in order to repair his damaged urethra. Surely, his physical and
moral sufferings properly warranted the amount of P50,000.00 awarded as moral damages.

Many years have gone by since Hanz suffered the injury. Interest of 6% per annum should then
be imposed on the award as a sincere means of adjusting the value of the award to a level that
is not only reasonable but just and commensurate. Unless we make the adjustment in the
permissible manner by prescribing legal interest on the award, his sufferings would be unduly

65
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 159017-18 March 9, 2011
PAULINO S. ASILO, JR., Petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES and Spouses VISITACION AND CESAR C.
BOMBASI, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 159059
VICTORIA BUETA VDA. DE COMENDADOR, IN REPRESENTATION OF DEMETRIO T.
COMENDADOR,Petitioner,
vs.
VISITACION C. BOMBASI AND CESAR C. BOMBASI, Respondents.
DECISION
PEREZ, J.:
At bench are appeals by certiorari1 from the Decision2 of the Fourth Division of the
Sandiganbayan; (1) finding Demetrio T. Comendador 3 (Mayor Comendador) and Paulino S. Asilo,
Jr.4 guilty beyond reasonable doubt of violation of Sec. 3(e) of Republic Act No. 3019; (2)
dismissing the cases against accused Alberto S. Angeles; 5 (3) ordering the defendants
Municipality of Nagcarlan, Laguna, Demetrio T. Comendador and Paulino S. Asilo, Jr. to pay the
plaintiffs now respondents Visitacion C. Bombasi (Visitacion) and Cesar C. Bombasi damages;
and (4) dismissing the cases against the spouses Alida and Teddy Coroza 6 and Benita and Isagani
Coronado.7
The factual antecedents of the case are:
On 15 March 1978, Private Respondent Visitacions late mother Marciana Vda. De Coronado
(Vda. De Coronado) and the Municipality of Nagcarlan, Laguna (represented by the then
Municipal Mayor Crisostomo P. Manalang) entered into a lease contract whereby the Municipality
allowed the use and enjoyment of property comprising of a lot and a store located at the corner
of Coronado and E. Fernandez Sts. at Poblacion, Nagcarlan, Laguna, in favor of the respondents
mother for a period of twenty (20) years beginning on 15 March 1978 until 15 March 1998,
extendible for another 20 years.8
The lease contract provided that the late Vda. De Coronado could build a firewall on her rented
property which must be at least as high as the store; and in case of modification of the public
market, she or her heir/s would be given preferential rights.
Visitacion took over the store when her mother died sometime in 1984. 9 From then on up to
January 1993, Visitacion secured the yearly Mayors permits. 10
Sometime in 1986, a fire razed the public market of Nagcarlan. Upon Visitacions request for
inspection on 15 May 1986, District Engineer Marcelino B. Gorospe (Engineer Gorospe) of the
then Ministry of Public Works and Highways, 11 Regional Office No. IV-A, found that the store of
Visitacion remained intact and stood strong. This finding of Engineer Gorospe was contested by
the Municipality of Nagcarlan.
The store of Visitacion continued to operate after the fire until 15 October 1993.
On 1 September 1993, Visitacion received a letter 12 from Mayor Comendador directing her to
demolish her store within five (5) days from notice. Attached to the letter were copies of
Sangguniang Bayan Resolution No. 15613dated 30 August 1993 and a Memorandum issued by
Asst. Provincial Prosecutor Marianito Sasondoncillo of Laguna.
The relevant provisos of the Resolution No. 156 states that:
NOW THEREFORE, be it RESOLVED, as it hereby resolved to authorize Hon. Demetrio T.
Comendador to enforce and order the Coronados to demolish the building constructed on the
space previously rented to them in order to give way for the construction of a new municipal
market building.
RESOLVED FURTHER, to authorize Demetrio T. Comendador, Honorable Mayor of Nagcarlan to
file an Unlawful Detainer Case with damages for the expenses incurred due to the delay in the
completion of the project if the Coronados continuously resists the order.
On 3 September 1993, Visitacion wrote a reply letter to Mayor Comendador saying that: (1) the
lease contract was still existing and legally binding; (2) she was willing to vacate the store as long
as same place and area would be given to her in the new public market; and (3) in case her
proposals are not acceptable to Mayor Comendador, for the latter to just file an unlawful detainer
case against her pursuant to Sangguniang Bayan Resolution No. 156. Pertinent portions of the
letter read:
x x x With all due respect to the resolution of the Municipal Council and the opinion rendered
by the Laguna Asst. Provincial Prosecutor, it is my considered view, however, arrived at after
consultation with my legal counsel, that our existing lease contract is still legally binding and in
full force and effect. Lest I appear to be defiant, let me reiterate to you and the council that we
are willing to vacate the said building provided that a new contract is executed granting to us
the same space or lot and the same area. I believe that our proposal is most reasonable and fair
under the circumstance. If you are not amenable to the said proposal, I concur with the position
taken by the Council for you to file the appropriate action in court for unlawful detainer to enable
our court to finally thresh out our differences. 141avvphi1
On 15 September 1993, Asst. Provincial Prosecutor Florencio Buyser sent a letter to Visitacion
ordering her to vacate the portion of the public market she was occupying within 15 days from
her receipt of the letter; else, a court action will be filed against her.
On 11 October 1993, the Sangguniang Bayan of Nagcarlan, Laguna issued Resolution No. 183
authorizing Mayor Comendador to demolish the store being occupied by Visitacion using legal
means. The significant portion of the Resolution reads:
Kung kaya ang Sangguniang Bayan ay buong pagkakaisang IPINASIYA: Ang pagbibigay
kapangyarihan kay Kgg. Demetrio T. Comendador na ipagiba ang anumang istrakturang
nagiging sagabal sa mabilis at maayos na pagbabangon ng pamilihang bayan. 15
On 14 October 1993, Municipal Administrator Paulino S. Asilo, Jr. (Asilo) also sent a letter 16 to
Visitacion informing her of the impending demolition of her store the next day. Within the same
66
day, Visitacion wrote a reply letter17 to Asilo, alleging that there is no legal right to demolish the
store in the absence of a court order and that the Resolutions did not sanction the demolition of
her store but only the filing of an appropriate unlawful detainer case against her. She further
replied that if the demolition will take place, appropriate administrative, criminal and civil actions
will be filed against Mayor Comendador, Asilo and all persons who will take part in the
demolition.
On 15 October 1993, Mayor Comendador relying on the strength of Sangguniang Bayan
Resolution Nos. 183 and 156 authorized the demolition of the store with Asilo and Angeles
supervising the work.
Engineer Winston Cabrega (Engineer Cabrega), a licensed civil engineer, estimated the cost of
the demolished property as amounting to P437,900.0018
On 19 August 1994, Visitacion, together with her husband Cesar Bombasi (Spouses Bombasi)
filed with the Regional Trial Court of San Pablo City, Laguna a Civil Case19 for damages with
preliminary injunction against the Municipality of Nagcarlan, Laguna, Mayor Demetrio T.
Comendador, Paulino S. Asilo, Jr., and Alberto S. Angeles. The complaint was soon after
amended to include the Spouses Benita and Isagani Coronado and Spouses Alida and Teddy
Coroza as formal defendants because they were then the occupants of the contested area.
The spouses prayed for the following disposition:
1. RESTRAINING or ENJOINING defendant Municipality and defendant Municipal
Mayor from leasing the premises subject of lease Annex "A" hereof, part of which is
now occupied by PNP Outpost and by the Municipal Collectors Office, and the
equivalent adjacent area thereof, and to cause the removal of said stalls;
2. UPHOLDING the right of plaintiffs to occupy the equivalent corner area of the leased
areas being now assigned to other persons by defendants Municipality and/or by
defendant Municipal Mayor, and to allow plaintiffs to construct their stalls thereon;
3. MAKING the injunction permanent, after trial;
4. ORDERING defendants to pay plaintiffs, jointly and severally, the following
(a) P437,900.00 for loss of building/store and other items therein;
(b) P200,000.00 for exemplary damages;
(c) P200,000.00 for moral damages;
(d) P30,.00 for attorneys fees and P700.00 for every attendance of counsel
in court.
5. GRANTING further reliefs upon plaintiffs as justice and equity may warrant in the
premises.20
Spouses Bombasi, thereafter, filed a criminal complaint21 against Mayor Comendador, Asilo and
Angeles for violation of Sec. 3(e) of Republic Act No. 3019 otherwise known as the "Anti-Graft
and Corrupt Practices Act" before the Office of the Ombudsman. On 22 February 1996, an
Information22 against Mayor Comendador, Asilo and Angeles was filed, which reads:
That on or about October 15, 1993, at Nagcarlan, Laguna, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused, all public officers, accused
Demetrio T. Comendador, being then the Municipal Mayor, accused Paulino S. Asilo, Jr. being
then the Municipal Administrator and accused Alberto S. Angeles being then the Municipal
Planning and Development Coordinator, all of the Municipality of Nagcarlan, Laguna, committing
the crime herein charged in relation to, while in the performance and taking advantage of their
official functions, conspiring and confederating with each other, and with evident bad faith,
manifest partiality or through gross inexcusable negligence, did then and there willfully,
unlawfully, criminally cause the demolition of a public market stall leased by the municipal
government in favor of one Visitacion Coronado-Bombasi without legal or justifiable ground
therefor, thus, causing undue injury to the latter in the amount of PESOS: FOUR HUNDRED
THIRTY SEVEN THOUSAND AND NINE HUNDRED ONLY (P437,900.00).
Upon their arraignments, all the accused entered their separate pleas of "Not Guilty."
On 4 March 1997, the Sandiganbayan promulgated a Resolution ordering the consolidation of
Civil Case No. SP-4064 (94)23 with Criminal Case No. 23267 pending before the Third Division
pursuant to Section 4, Presidential Decree No. 1606, which pertinently reads:
Any provision of law or Rules of Court to the contrary notwithstanding, the criminal action and
the corresponding civil action for the recovery of civil liability arising from the offense charged
shall at all times be simultaneously instituted with, and jointly determined in the same
proceeding by the Sandiganbayan or the appropriate courts, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing
of such civil action separately from the criminal action shall be recognized; Provided, however,
that where the civil action had heretofore been filed separately but judgment therein has not yet
been rendered, and the criminal case is hereafter filed with the Sandiganbayan or the appropriate
court, said civil action shall be transferred to the Sandiganbayan or the appropriate court as the
case may be, for consolidation and joint determination with the criminal action, otherwise the
separate civil action shall be deemed abandoned. 24
During the pendency of the case, Alberto S. Angeles died on 16 November 1997. Accordingly, the
counsel of Angeles filed a motion to drop accused Angeles. On 22 September 1999, the Third
Division of Sandiganbayan issued an Order 25 DISMISSING the case against Angeles. The
germane portion of the Order reads:
In view of the submission of the death certificate of accused/defendant Alberto S. Angeles, and
there being no objection on the part of the Public Prosecutor, cases against deceased
accused/defendant Angeles only, are hereby DISMISSED.
The death of Mayor Comendador followed on 17 September 2002. As a result, the counsel of the
late Mayor filed on 3 March 2003 a Manifestation before the Sandiganbayan informing the court
of the fact of Mayor Comendadors death.
On 28 April 2003, the Sandiganbayan rendered a decision, the dispositive portion of which reads
as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
In Criminal Case No. 23267, the court finds accused Demetrio T. Comendador and Paulino S.
Asilo, Jr. guilty beyond reasonable doubt of violation of Sec. 3(e) of Republic Act. No. 3019 as
amended, and in the absence of aggravating and mitigating circumstances, applying the
Indeterminate Sentence Law, said accused are sentenced to suffer the indeterminate penalty of
6 years and 2 months imprisonment as minimum to 10 years and 1 day as maximum.
67
The order of the court dated September 22, 1999 dismissing the cases against the accused
Alberto S. Angeles, who died on November 16, 1997 is hereby reiterated.
In Civil Case No. 4064, defendants Municipality of Nagcarlan, Laguna, Demetrio T. Comendador
and Paulino S. Asilo, Jr. are hereby ordered jointly and severally to pay plaintiff P437,900.00 as
actual damages for the destruction of the store; P100,000.00 as moral damages; P30,000.00 as
attorneys fees, and to pay the cost of the suit. The prayer for exemplary damages is denied as
the court found no aggravating circumstances in the commission of the crime.
In view of this courts finding that the defendant spouses Alida and Teddy Coroza are lawful
occupants of the subject market stalls from which they cannot be validly ejected without just
cause, the complaint against them is dismissed. The complaint against defendant spouses Benita
and Isagani Coronado is likewise dismissed, it appearing that they are similarly situated as the
spouses Coroza. Meanwhile, plaintiff Visitacion Bombasi is given the option to accept market
space being given to her by the municipality, subject to her payment of the appropriate rental
and permit fees.
The prayer for injunctive relief is denied, the same having become moot and academic.
The compulsory counterclaim of defendant Comendador is likewise denied for lack of merit.26
Within the same day, Asilo, through his counsel, filed a Motion for Reconsideration 27 of the
Decision alleging that there was only an error of judgment when he complied with and
implemented the order of his superior, Mayor Comendador. He likewise alleged that there is no
liability when a public officer commits in good faith an error of judgment. The Sandiganbayan,
on its Resolution28 dated 21 July 2003 denied the Motion for Reconsideration on the ground that
good faith cannot be argued to support his cause in the face of the courts finding that bad faith
attended the commission of the offense charged. The Court further explained that the invocation
of compliance with an order of a superior is of no moment for the "demolition [order] cannot be
described as having the semblance of legality inasmuch as it was issued without the authority
and therefore the same was patently illegal."29
The counsel for the late Mayor also filed its Motion for Reconsideration30 on 12 May 2003 alleging
that the death of the late Mayor had totally extinguished both his criminal and civil liability. The
Sandiganbayan on its Resolution31 granted the Motion insofar as the extinction of the criminal
liability is concerned and denied the extinction of the civil liability holding that the civil action is
an independent civil action.
Hence, these Petitions for Review on Certiorari. 32
Petitioner Asilo argues that in order to sustain conviction under Sec. 3(e) of Republic Act No.
3019 or "The Anti-Graft and Corrupt Practices Act," the public officer must have acted with
manifest partiality, evident bad faith or gross negligence. He also contended that he and his co-
accused acted in good faith in the demolition of the market and, thereby, no liability was
incurred.
On the other hand, Petitioner Victoria argues that the death of Mayor Comendador prior to the
promulgation of the decision extinguished NOT ONLY Mayor Comendadors criminal liability but
also his civil liability. She also asserted good faith on the part of the accused public officials when
they performed the demolition of the market stall. Lastly, she contended that assuming arguendo
that there was indeed liability on the part of the accused public officials, the actual amount of
damages being claimed by the Spouses Bombasi has no basis and was not duly substantiated.
Liability of the accused public officials
under Republic Act No. 3019
Section 3(e) of Republic Act No. 3019 provides:
In addition to acts or omissions of public officers already penalized by existing law, the following
shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the Government, or giving any private party
any unwarranted benefits, advantage or preference in the discharge of his official, administrative
or judicial functions through manifest partiality, evident bad faith or gross inexcusable
negligence. This provision shall apply to officers and employees of offices or government
corporations charged with the grant of licenses or permits or other concessions.
The elements of the offense are as follows: (1) that the accused are public officers or private
persons charged in conspiracy with them; (2) that said public officers commit the prohibited acts
during the performance of their official duties or in relation to their public positions; (3) that they
caused undue injury to any party, whether the Government or a private party; (4) OR that such
injury is caused by giving unwarranted benefits, advantage or preference to the other party; and
(5) that the public officers have acted with manifest partiality, evident bad faith or gross
inexcusable negligence.33
We sustain the Sandiganbayan in its finding of criminal and civil liabilities against petitioner
Asilo and petitioner Mayor Comendador as here represented by his widow Victoria Bueta.
We agree with the Sandiganbayan that it is undisputable that the first two requisites of the
criminal offense were present at the time of the commission of the complained acts and that, as
to the remaining elements, there is sufficient amount of evidence to establish that there was an
undue injury suffered on the part of the Spouses Bombasi and that the public officials concerned
acted with evident bad faith when they performed the demolition of the market stall.
Causing undue injury to any party, including the government, could only mean actual injury or
damage which must be established by evidence. 34
In jurisprudence, "undue injury" is consistently interpreted as "actual." Undue has been defined
as "more than necessary, not proper, [or] illegal;" and injury as "any wrong or damage done to
another, either in his person, rights, reputation or property [that is, the] invasion of any legally
protected interest of another." Actual damage, in the context of these definitions, is akin to that
in civil law.35
It is evident from the records, as correctly observed by the Sandiganbayan, that Asilo and Mayor
Comendador as accused below did not deny that there was indeed damage caused the Spouses
Bombasi on account of the demolition. We affirm the finding that:
xxx. Clearly, the demolition of plaintiffs store was carried out without a court order, and
notwithstanding a restraining order which the plaintiff was able to obtain. The demolition was
done in the exercise of official duties which apparently was attended by evident bad faith,
manifest partiality or gross inexcusable negligence as there is nothing in the two (2) resolutions
which gave the herein accused the authority to demolish plaintiffs store.
"Evident bad faith" connotes not only bad judgment but also palpably and patently fraudulent
and dishonest purpose to do moral obliquity or conscious wrongdoing for some perverse motive
or ill will.36 [It] contemplates a state of mind affirmatively operating with furtive design or with
some motive or self-interest or ill will or for ulterior purposes. 37
68
It is quite evident in the case at bar that the accused public officials committed bad faith in
performing the demolition.
First, there can be no merit in the contention that respondents structure is a public nuisance.
The abatement of a nuisance without judicial proceedings is possible if it is nuisance per
se.38 Nuisance per se is that which is nuisance at all times and under any circumstance,
regardless of location and surroundings.39 In this case, the market stall cannot be considered as
a nuisance per se because as found out by the Court, the buildings had not been affected by the
1986 fire. This finding was certified to by Supervising Civil Engineer Wilfredo A. Sambrano of the
Laguna District Engineer Office.40 To quote:
An inspection has been made on the building (a commercial establishment) cited above and
found out the following:
1. It is a two-storey building, sketch of which is attached.
2. It is located within the market site.
3. The building has not been affected by the recent fire.
4. The concrete wall[s] does not even show signs of being exposed to fire. 41
Second, the Sangguniang Bayan resolutions are not enough to justify demolition. Unlike its
predecessor law,42the present Local Government Code43 does not expressly provide for the
abatement of nuisance.44 And even assuming that the power to abate nuisance is provided for
by the present code, the accused public officials were under the facts of this case, still devoid of
any power to demolish the store. A closer look at the contested resolutions reveals that Mayor
Comendador was only authorized to file an unlawful detainer case in case of resistance to obey
the order or to demolish the building using legal means. Clearly, the act of demolition without
legal order in this case was not among those provided by the resolutions, as indeed, it is a legally
impossible provision.
Furthermore, the Municipality of Nagcarlan, Laguna, as represented by the then Mayor
Comendador, was placed in estoppel after it granted yearly business permits 45 in favor of the
Spouses Bombasi. Art. 1431 of the New Civil Code provides that, through estoppel, an admission
or representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. The representation made by the municipality
that the Spouses Bombasi had the right to continuously operate its store binds the municipality.
It is utterly unjust for the Municipality to receive the benefits of the store operation and later on
claim the illegality of the business.
The bad faith of the petitioners completes the elements of the criminal offense of violation of Sec.
3(e) of Republic Act No. 3019. The same bad faith serves as the source of the civil liability of
Asilo, Angeles, and Mayor Comendador.
It must be noted that when Angeles died on 16 November 1997, a motion to drop him as an
accused was filed by his counsel with no objection on the part of the prosecution. The
Sandiganbayan acted favorably on the motion and issued an Order dismissing all the cases filed
against Angeles. On the other hand, when Mayor Comendador died and an adverse decision was
rendered against him which resulted in the filing of a motion for reconsideration by Mayor
Comendadors counsel, the prosecution opposed the Motion specifying the ground that the civil
liability did not arise from delict, hence, survived the death of the accused. The Sandiganbayan
upheld the opposition of the prosecution which disposition was not appealed.
We note, first off, that the death of Angeles and of Mayor Comendador during the pendency of
the case extinguished their criminal liabilities.
We now hold, as did the Sandiganbayan that the civil liability of Mayor Comendador survived his
death; and that of Angeles could have likewise survived had it not been for the fact that the
resolution of the Sandiganbayan that his death extinguished the civil liability was not questioned
and lapsed into finality.
We laid down the following guidelines in People v. Bayotas: 46
Death of the accused pending appeal of his conviction extinguishes his criminal liability as well
as the civil liability based solely thereon. As opined by Justice Regalado, in this regard, "the
death of the accused prior to final judgment terminates his criminal liability and only the civil
liability directly arising from and based solely on the offense committed, i.e., civil liability ex
delicto in senso strictiore."
Corollarily, the claim for civil liability survives notwithstanding the death of (the) accused, if the
same may also be predicated on a source of obligation other than delict. Article 1157 of the Civil
Code enumerates these other sources of obligation from which the civil liability may arise as a
result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) Acts or omissions punished by law; and
e) Quasi-delicts. (Emphasis ours)
Where the civil liability survives, as explained [above], an action for recovery therefore may be
pursued but only by way of filing a separate civil action 47 and subject to Section 1, Rule 111 of
the 1985 Rules on Criminal Procedure as amended. This separate civil action may be enforced
either against the executor/administrator or the estate of the accused, depending on the source
of obligation upon which the same is based as explained above.
Finally, the private offended party need not fear a forfeiture of his right to file this separate civil
action by prescription, in cases where during the prosecution of the criminal action and prior to
its extinction, the private-offended party instituted together therewith the civil action. In such
case, the statute of limitations on the civil liability is deemed interrupted during the pendency of
the criminal case, conformably with provisions of Article 1155 of the New Civil Code, which
should thereby avoid any apprehension on a possible privation of right by prescription.
Upon death of the accused pending appeal of his conviction, the criminal action is extinguished
inasmuch as there is no longer a defendant to stand as the accused; the civil action instituted
therein for recovery of civil liability ex delicto is ipso facto extinguished, grounded as it is on the
criminal.48
The New Civil Code provisions under the Chapter, Human Relations, were cited by the
prosecution to substantiate its argument that the civil action based therein is an independent
one, thus, will stand despite the death of the accused during the pendency of the case.
69
On the other hand, the defense invoked Section 4 of Presidential Decree No. 1606, as amended
by Republic Act No. 8249, in support of its argument that the civil action was dependent upon
the criminal action, thus, was extinguished upon the death of the accused. The law provides
that:
Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action
and the corresponding civil action for the recovery of civil liability arising from the offense charged
shall at all times be simultaneously instituted with, and jointly determined in the same
proceeding by, the Sandiganbayan, the filing of the criminal action being deemed to necessarily
carry with it the filing of the civil action, and no right to reserve the filing of such action shall be
recognized. (Emphasis ours)
We agree with the prosecution.
Death of Mayor Comendador during the pendency of the case could have extinguished the civil
liability if the same arose directly from the crime committed. However, in this case, the civil
liability is based on another source of obligation, the law on human relations.49 The pertinent
articles follow:
Art. 31 of the Civil Code states:
When the civil action is based on an obligation not arising from the act or omission complained
of as a felony, such civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.
And, Art. 32(6) states:
Any public officer or employee, or any private individual, who directly or indirectly obstructs,
defeats, violates or in any manner impedes or impairs any of the following rights and liberties of
another person shall be liable to the latter for damages:
(6) The right against deprivation of property without due process of law;
xxxx
In any of the cases referred to in this article, whether or not the defendant's act or omission
constitutes a criminal offense, the aggrieved party has a right to commence an entirely separate
and distinct civil action for damages, and for other relief. Such civil action shall proceed
independently of any criminal prosecution (if the latter be instituted), and may be proved by a
preponderance of evidence.
As held in Aberca v. Ver:
It is obvious that the purpose of the above codal provision [Art. 32 of the New Civil Code] is to
provide a sanction to the deeply cherished rights and freedoms enshrined in the Constitution.
Its message is clear; no man may seek to violate those sacred rights with impunity. x x x. 50
Indeed, the basic facts of this case point squarely to the applicability of the law on human
relations. First, the complaint for civil liability was filed way AHEAD of the information on the
Anti-Graft Law. And, the complaint for damages specifically invoked defendant Mayor
Comendadors violation of plaintiffs right to due process. Thus:
xxxx
In causing or doing the forcible demolition of the store in question, the individual natural
defendants did not only act with grave abuse of authority but usurped a power which belongs to
our courts of justice; such actuations were done with malice or in bad faith and constitute an
invasion of the property rights of plaintiff(s) without due process of law.
xxxx
The Court is in one with the prosecution that there was a violation of the right to private property
of the Spouses Bombasi. The accused public officials should have accorded the spouses the due
process of law guaranteed by the Constitution and New Civil Code. The Sangguniang Bayan
Resolutions as asserted by the defense will not, as already shown, justify demolition of the store
without court order. This Court in a number of decisions 51 held that even if there is already a
writ of execution, there must still be a need for a special order for the purpose of demolition
issued by the court before the officer in charge can destroy, demolish or remove improvements
over the contested property.52 The pertinent provisions are the following:
Before the removal of an improvement must take place, there must be a special order, hearing
and reasonable notice to remove. Section 10(d), Rule 39 of the Rules of Court provides:
(d) Removal of improvements on property subject of execution. When the property subject of
execution contains improvements constructed or planted by the judgment obligor or his
agent, the officer shall not destroy, demolish or remove said improvements except upon special
order of the court, issued upon motion of the judgment obligee after due hearing and after the
former has failed to remove the same within a reasonable time fixed by the court.
The above-stated rule is clear and needs no interpretation. If demolition is necessary, there must
be a hearing on the motion filed and with due notices to the parties for the issuance of a special
order of demolition.53
This special need for a court order even if an ejectment case has successfully been litigated,
underscores the independent basis for civil liability, in this case, where no case was even filed
by the municipality.
The requirement of a special order of demolition is based on the rudiments of justice and fair
play. It frowns upon arbitrariness and oppressive conduct in the execution of an otherwise
legitimate act. It is an amplification of the provision of the Civil Code that 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.54
Notably, the fact that a separate civil action precisely based on due process violations was filed
even ahead of the criminal case, is complemented by the fact that the deceased plaintiff
Comendador was substituted by his widow, herein petitioner Victoria who specified in her
petition that she has "substituted him as petitioner in the above captioned case." Section 1, Rule
III of the 1985 Rules in Criminal Procedure mentioned in Bayotas is, therefore, not applicable.
Truly, the Sandiganbayan was correct when it maintained the separate docketing of the civil and
criminal cases before it although their consolidation was erroneously based on Section 4 of
Presidential Decree No. 1606 which deals with civil liability "arising from the offense charged."
We must, however, correct the amount of damages awarded to the Spouses Bombasi.
To seek recovery of actual damages, it is necessary to prove the actual amount of loss with a
reasonable degree of certainty, premised upon competent proof and on the best evidence
obtainable.55 In this case, the Court finds that the only evidence presented to prove the actual
damages incurred was the itemized list of damaged and lost items 56 prepared by Engineer
Cabrega, an engineer commissioned by the Spouses Bombasi to estimate the costs.
70
As held by this Court in Marikina Auto Line Transport Corporation v. People of the Philippines, 57 substituted by Victoria Bueta Vda. De Comendador, are hereby declared solidarily liable to the
Spouses Bombasi for temperate damages in the amount of P200,000.00 and moral damages in
the amount of P100,000.00.
x x x [W]e agree with the contention of petitioners that respondents failed to prove that the
damages to the terrace caused by the incident amounted to P100,000.00. The only evidence
adduced by respondents to prove actual damages claimed by private respondent were the Costs against the petitioners-appellants.
summary computation of damage made by Engr. Jesus R. Regal, Jr. amounting to P171,088.46
and the receipt issued by the BB Construction and Steel Fabricator to private respondent
for P35,000.00 representing cost for carpentry works, masonry, welding, and electrical works. SO ORDERED.
Respondents failed to present Regal to testify on his estimation. In its five-page decision, the trial
court awarded P150,000.00 as actual damages to private respondent but failed to state the JOSE PORTUGAL PEREZ
factual basis for such award. Indeed, the trial court merely declared in the decretal portion of its Associate Justice
decision that the "sum of P150,000.00 as reasonable compensation sustained by plaintiff for her
damaged apartment." The appellate court, for its part, failed to explain how it arrived at the
amount of P100,000.00 in its three-page decision. Thus, the appellate court merely declared:

With respect to the civil liability of the appellants, they contend that there was no urgent
necessity to completely demolish the apartment in question considering the nature of the
damages sustained as a result of the accident. Consequently, appellants continue, the award
of P150,000.00 as compensation sustained by the plaintiff-appellee for her damaged apartment
is an unconscionable amount.

Further, in one case,58 this Court held that the amount claimed by the respondent-claimants
witness as to the actual amount of damages "should be admitted with extreme caution
considering that, because it was a bare assertion, it should be supported by independent
evidence." The Court further said that whatever claim the respondent witness would allege must
be appreciated in consideration of his particular self-interest.59 There must still be a need for the
examination of the documentary evidence presented by the claimants to support its claim with
regard to the actual amount of damages.

The price quotation made by Engineer Cabrega presented as an exhibit60 partakes of the nature
of hearsay evidence considering that the person who issued them was not presented as a
witness.61 Any evidence, whether oral or documentary, is hearsay if its probative value is not
based on the personal knowledge of the witness but on the knowledge of another person who is
not on the witness stand. Hearsay evidence, whether objected to or not, has no probative value
unless the proponent can show that the evidence falls within the exceptions to the hearsay
evidence rule.62 Further, exhibits do not fall under any of the exceptions provided under Sections
37 to 47 of Rule 130 of the Rules of Court.

Though there is no sufficient evidence to award the actual damages claimed, this Court grants
temperate damages for P200,000.00 in view of the loss suffered by the Spouses Bombasi.
Temperate damages are awarded in accordance with Art. 2224 of the New Civil Code when the
court finds that some pecuniary loss has been suffered but its amount cannot, from the nature
of the case, be proven with certainty. The amount of temperate or moderated damages is usually
left to the discretion of the courts but the same should be reasonable, bearing in mind that the
temperate damages should be more than nominal but less than compensatory.63 Without a
doubt, the Spouses Bombasi suffered some form of pecuniary loss in the impairment of their
store. Based on the record of the case,64 the demolished store was housed on a two-story building
located at the markets commercial area and its concrete walls remained strong and not affected
by the fire. However, due to the failure of the Spouses Bombasi to prove the exact amount of
damage in accordance with the Rules of Evidence, 65 this court finds that P200,000.00 is the
amount just and reasonable under the circumstances.

WHEREFORE, the instant appeal is DENIED. Accordingly, the Decision of the Sandiganbayan
dated 28 April 2003 is hereby AFFIRMED WITH MODIFICATION. The Court affirms the decision
finding the accused Paulino S. Asilo, Jr. and Demetrio T. Comendador guilty of violating Section
3(e) of Republic Act No. 3019. We declare the finality of the dismissal of both the criminal and
civil cases against Alberto S. Angeles as the same was not appealed. In view of the death of
Demetrio T. Comendador pending trial, his criminal liability is extinguished; but his civil liability
survives. The Municipality of Nagcarlan, Paulino Asilo and Demetrio T. Comendador, as
71
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 201447 August 28, 2013
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE,
vs.
ANASTACIO AMISTOSO Y BROCA, ACCUSED-APPELLANT.
RESOLUTION
LEONARDO-DE CASTRO, J.:
Accused-appellant Anastacio Amistoso y Broca (Amistoso) was charged before the Regional Trial
Court (RTC) of Masbate City, Branch 48, in Criminal Case No. 10106, with the rape of his
daughter, AAA,1 alleged to be 12 years old at the time of the incident. The
Information2 specifically charged Amistoso with statutory rape under Article 266-A, paragraph
(1)(d) of the Revised Penal Code, as amended.
After trial, on March 23, 2006, the RTC promulgated its Decision3 finding Amistoso guilty, not of
statutory rape, but of qualified rape under Article 266-A, paragraph (1)(a), in relation to Article
266-B, paragraph (1), of the Revised Penal Code, as amended. The dispositive portion of the RTC
judgment reads:
WHEREFORE, accused ANASTACIO AMISTOSO, having been convicted of Qualified Rape, he is
hereby sentenced to the capital penalty of DEATH; to pay the victim the sum of Seventy[-]Five
Thousand Pesos (PhP75,000.00) as indemnity; to pay the said victim the sum of Fifty Thousand
Pesos (PhP50,000.00) as for moral damages, and to pay the costs. 4
The Court of Appeals, in its Decision5 dated August 25, 2011, in CA-G.R. CR.-H.C. No. 04012,
affirmed Amistosos conviction for qualified rape but modified the penalties imposed in
accordance with Republic Act No. 93466 and the latest jurisprudence on awards of damages. The
appellate court decreed:
WHEREFORE, the appeal is DISMISSED and the assailed Decision dated March 23, 2006 of the
Regional Trial Court of Masbate City, Branch 48, in Criminal Case No. 10106 is AFFIRMED WITH
MODIFICATION.
Accused-appellant Anastacio Amistoso is sentenced to suffer the penalty of reclusion perpetua
without eligibility for parole. In addition to civil indemnity in the amount of P75,000.00, he is
ordered to pay the victim P75,000.00 as moral damages and P30,000.00 as exemplary damages.7
Insisting upon his innocence, Amistoso appealed to this Court. In its Decision 8 dated January 9,
2013, the Court affirmed with modification the judgment of conviction against Amistoso,
expressly making him liable for interest on the amounts of damages awarded, to wit:
WHEREFORE, in view of the foregoing, the instant appeal of Anastacio Amistoso y Broca is
DENIED. The Decision dated August 25, 2011 of the Court of Appeals in CA-G.R. CR.-H.C. No.
04012 is AFFIRMED with the MODIFICATION that Amistoso is further ORDERED to pay interest
on all damages awarded at the legal rate of 6% per annum from the date of finality of this
Decision.9
However, in a letter10 dated February 7, 2013, Ramoncito D. Roque (Roque), Officer-in-Charge,
Inmate Documents and Processing Division of the Bureau of Corrections, informed the Court
that Amistoso had died on December 11, 2012 at the New Bilibid Prison (NBP), Muntinlupa City.
Roque attached to his letter a photocopy of the Death Report 11 signed by Marylou V. Arbatin,
MD, Medical Officer III, NBP, stating that Amistoso, 62 years old, died at about 5:00 p.m. on
December 11, 2012 of Cardio Respiratory Arrest. Roques letter was received by the Court on
February 12, 2013.
Penal Institution Supervisor (PIS) Fajardo R. Lansangan, Sr. (Lansangan), Officer-in-Charge,
Maximum Security Compound, NBP, wrote another letter 12 dated February 12, 2013, likewise
informing the Court of Amistosos death on December 11, 2012. PIS Lansangan appended to his
letter a mere photocopy of Amistosos Death Certificate. 13 The Court received PIS Lansangans
letter on February 18, 2013.
Yet, on February 22, 2013, the Public Attorneys Office (PAO), which represented Amistoso and
which was apparently also unaware of its clients demise, still filed a Motion for
Reconsideration14 of the Courts Decision dated January 9, 2013.
In a Resolution15 dated March 20, 2013, the Court required Roque to submit a certified true copy
of Amistosos Death Certificate within 10 days from notice and deferred action on the Motion for
Reconsideration filed by the PAO pending compliance with the Courts former directive.
In a letter16 dated June 20, 2013, and received by the Court on June 25, 2013, PIS Lansangan
finally provided the Court with a certified true copy of Amistosos Death Certificate.17
Article 89 of the Revised Penal Code provides:
ART. 89. How criminal liability is totally extinguished. Criminal liability is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability
therefore is extinguished only when the death of the offender occurs before final judgment[.]
In People v. Bayotas,18 the Court laid down the rules in case the accused dies prior to final
judgment:
1. Death of the accused pending appeal of his conviction extinguishes his criminal
liability as well as the civil liability based solely thereon. As opined by Justice
Regalado, in this regard, "the death of the accused prior to final judgment terminates
his criminal liability and only the civil liability directly arising from and based solely
on the offense committed, i.e., civil liability ex delicto in senso strictiore."
2. Corollarily, the claim for civil liability survives notwithstanding the death of
accused, if the same may also be predicated on a source of obligation other than delict.
Article 1157 of the Civil Code enumerates these other sources of obligation from which
the civil liability may arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) x x x
72
 e) Quasi-delicts

3. Where the civil liability survives, as explained in Number 2 above, an action for
recovery therefor may be pursued but only by way of filing a separate civil action and
subject to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure as amended.
This separate civil action may be enforced either against the executor/administrator
or the estate of the accused, depending on the source of obligation upon which the
same is based as explained above.

4. Finally, the private offended party need not fear a forfeiture of his right to file this
separate civil action by prescription, in cases where during the prosecution of the
criminal action and prior to its extinction, the private-offended party instituted
together therewith the civil action. In such case, the statute of limitations on the civil
liability is deemed interrupted during the pendency of the criminal case, conformably
with provisions of Article 1155 of the Civil Code, that should thereby avoid any
apprehension on a possible privation of right by prescription. (Citations omitted.)

Given the foregoing, it is clear that the death of the accused pending appeal of his conviction
extinguishes his criminal liability, as well as his civil liability ex delicto. Since the criminal action
is extinguished inasmuch as there is no longer a defendant to stand as the accused, the civil
action instituted therein for recovery of civil liability ex delicto is ipso facto extinguished,
grounded as it is on the criminal case.19

Undeniably, Amistosos death on December 11, 2012 preceded the promulgation by the Court of
its Decision on January 9, 2013. When Amistoso died, his appeal before the Court was still
pending and unresolved. The Court ruled upon Amistosos appeal only because it was not
immediately informed of his death.1wphi1

Amistosos death on December 11, 2012 renders the Courts Decision dated January 9, 2013,
even though affirming Amistosos conviction, irrelevant and ineffectual. Moreover, said Decision
has not yet become final, and the Court still has the jurisdiction to set it aside.

WHEREFORE, the Court RESOLVES to:

(1) NOTE PIS Lansangans letter dated June 20, 2013 providing the Court with a
certified true copy of Amistosos Death Certificate;

(2) SET ASIDE its Decision dated January 9, 2013 and DISMISS Criminal Case No.
10106 before the RTC of Masbate City, Branch 48 by reason of Amistosos death on
December 11, 2012; and

(3) NOTE WITHOUT ACTION the Motion for Reconsideration of the Courts Decision
dated January 9, 2013 filed by the PAO given the Courts actions in the preceding
paragraphs.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

73
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 160110 June 18, 2014
MARIANO C. MENDOZA and ELVIRA LIM, Petitioners,
vs.
SPOUSES LEONORA J. GOMEZ and GABRIEL V. GOMEZ, Respondents.
DECISION
PEREZ, J.:
Assailed in the present appeal by certiorari is the Decision1 dated 29 September 2003 of the
Special Fourth Division of the Court of Appeals (CA) in CA-G.R. CV No. 71877, which affirmed
with modification the Decision2dated 31 January 2001 of the Regional Trial Court (RTC), Branch
172, Valenzuela City in Civil Case No. 5352-V-97, and which effectively allowed the award of
actual, moral, and exemplary damages, as well as attorney's fees and costs of the suit in favor of
respondent Spouses Leonora and Gabriel Gomez (respondents).
Antecedent Facts
On 7 March 1997, an Isuzu Elf truck (Isuzu truck) with plate number UAW 582, 3 owned by
respondent Leonora J. Gomez (Leonora)4 and driven by Antenojenes Perez (Perez),5 was hit by a
Mayamy Transportation bus (Mayamy bus) with temporary plate number 1376-1280,6 registered
under the name of petitioner Elvira Lim (Lim)7 and driven by petitioner Mariano C. Mendoza
(Mendoza).8
Owing to the incident, an Information for reckless imprudence resulting in damage to property
and multiple physical injuries was filed against Mendoza. 9 Mendoza, however, eluded arrest,
thus, respondents filed a separate complaint for damages against Mendoza and Lim, seeking
actual damages, compensation for lost income, moral damages, exemplary damages, attorneys
fees and costs of the suit.10 This was docketed as Civil Case No. 5352-V-97.
According to PO1 Melchor F. Rosales (PO1 Rosales), investigating officer of the case, at around
5:30 a.m., the Isuzu truck, coming from Katipunan Road and heading towards E. Rodriguez, Sr.
Avenue, was travelling along the downward portion of Boni Serrano Avenue when, upon reaching
the corner of Riviera Street, fronting St. Ignatius Village, its left front portion was hit by the
Mayamy bus.11 According to PO1 Rosales, the Mayamy bus, while traversing the opposite lane,
intruded on the lane occupied by the Isuzu truck.12
PO1 Rosales also reported that Mendoza tried to escape by speeding away, but he was
apprehended in Katipunan Road corner C. P. Garcia Avenue by one Traffic Enforcer Galante and
a security guard of St. Ignatius Village.13
As a result of the incident, Perez,as well as the helpers on board the Isuzu truck, namely Melchor
V. Anla (Anla), Romeo J. Banca (Banca), and Jimmy Repisada (Repisada), sustained injuries
necessitating medical treatment amounting to P11,267.35,which amount was shouldered by
respondents. Moreover, the Isuzu truck sustained extensive damages on its cowl, chassis, lights
and steering wheel, amounting to P142,757.40.14
Additionally, respondents averred that the mishap deprived them of a daily income of P1,000.00.
Engaged in the business of buying plastic scraps and delivering them to recycling plants,
respondents claimed that the Isuzu truck was vital in the furtherance of their business.
For their part, petitioners capitalized on the issue of ownership of the bus in question.
Respondents argued that although the registered owner was Lim, the actual owner of the bus
was SPO1 Cirilo Enriquez (Enriquez), who had the bus attached with Mayamy Transportation
Company (Mayamy Transport) under the so-called "kabit system." Respondents then impleaded
both Lim and Enriquez.
Petitioners, on the other hand, presented Teresita Gutierrez (Gutierrez), whose testimony was
offered to prove that Mayamy Bus or Mayamy Transport is a business name registered under her
name, and that such business is a sole proprietorship. Such was presented by petitioners to
rebut the allegation of respondents that Mayamy Transport is a corporation; 15 and to show,
moreover, that although Gutierrez is the sole proprietor of Mayamy Transport, she was not
impleaded by respondents in the case at bar. 16
After weighing the evidence, the RTC found Mendoza liable for direct personal negligence under
Article 2176 of the Civil Code, and it also found Lim vicariously liable under Article 2180 of the
same Code.
As regards Lim, the RTC relied on the Certificate of Registration issued by the Land
Transportation Office on 9 December 199617 in concluding that she is the registered owner of
the bus in question. Although actually owned by Enriquez, following the established principle in
transportation law, Lim, as the registered owner, is the one who can be held liable.
Thus, the RTC disposed of the case as follows:
WHEREFORE, judgment is hereby rendered in favor of the [respondents] and against the
[petitioners]:
1. Ordering the [petitioners] except Enriquez to pay [respondents], jointly and
severally, the costs of repair of the damaged vehicle in the amount of P142,757.40;
2. Ordering the defendants except Enriquez to pay [respondents], jointly and severally,
the amount of P1,000.00 per day from March 7, 1997 up to November 1997
representing the unrealized income of the [respondents] when the incident transpired
up to the time the damaged Isuzu truck was repaired;
3. Ordering the [petitioners] except Enriquez to pay [respondents], jointly and
severally, the amount of P100,000.00 as moral damages, plus a separate amount
of P50,000.00 as exemplary damages;
4. Ordering the [petitioners] except Enriquez to pay [respondents], jointly and
severally, the amount of P50,000.00 as attorneys fees; 5. Ordering the [petitioners]
except Enriquez to pay [respondents] the costs of suit. 18
Displeased, petitioners appealed to the CA, which appeal was docketed as CA-G.R. CV No. 71877.
After evaluating the damages awarded by the RTC, such were affirmed by the CA with the
exception of the award of unrealized income which the CA ordered deleted, viz:
WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The judgment of the
Regional Trial Court of Valenzuela City, Branch 172 dated January 31, 2001, is MODIFIED, in
that the award of P1,000.00 per day from March 1997 up to November 1997 representing
74
unrealized income is DELETED. The award of P142,757.40 for the cost of repair of the damaged
vehicle, the award of P100,000.00 as moral damages, the award of P50,000.00 as exemplary
damages, the award of P50,000.00 as attorneys fees and the costs of the suit are hereby
MAINTAINED.19
The Present Petition
Unsatisfied with the CA ruling, petitioners filed an appeal by certiorari before the Court, raising
the following issues:20
1. The court a quo has decided questions of substance in a way not in accord with law
or with the applicable decisions of the Supreme Court when it awarded:
a. Moral damages in spite of the fact that the [respondents] cause of action
is clearly based on quasi-delict and [respondents] did not sustain physical
injuries to be entitled thereto pursuant to Article 2219 (2) of the New Civil
Code and pertinent decisions of the Supreme Court to that effect. The court
a quo erroneously concluded that the driver acted in bad faith and
erroneously applied the provision of Article 21 of the same code to justify
the award for bad faith is not consistent with quasi-delict which is founded
on fault or negligence.
b. Exemplary damages in spite of the fact that there is no finding that the
vehicular accident was due to petitioner-drivers gross negligence to be
entitled thereto pursuant to Article 2231 of the New Civil Code and
pertinent decisions of the Supreme Court to that effect. The factual basis of
the court a quo that "the act of the driver of the bus in attempting to escape
after causing the accident in wanton disregard of the consequences of his
negligent act is such gross negligence that justifies an award of exemplary
damages" is an act after the fact which is not within the contemplation of
Article 2231 of the New Civil Code.
c. Attorneys fees in spite of the fact that the assailed decisions of the trial
court and the court a quo are bereft with jurisdictions for the award of
attorneys fees pursuant to the pertinent decisions of the Supreme Court
on the matter and provision Article 2208 of the New Civil Code. The court a
quo erroneously applied the decision of the Supreme Court in Baas, Jr.
vs. Court of Appeals, 325 SCRA 259.
The Courts Ruling
The petition is partially meritorious.
Respondents anchor their claim for damages on Mendozas negligence, banking on Article 2176
of the Civil Code, to wit:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
In impleading Lim, on the other hand, respondents invoke the latters vicarious liability as
espoused in Article 2180 of the same Code:
The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions,
but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business of industry.
The first question to address, then, is whether or not Mendozas negligence was duly proven.
Negligence is defined as the failure to observe for the protection of the interests of another person,
that degree of care, precaution and vigilance which the circumstances justly demand, whereby
such other person suffers injury.21
As found by the RTC, and affirmed by the CA, Mendoza was negligent in driving the subject
Mayamy bus, as demonstrated by the fact that, at the time of the collision, the bus intruded on
the lane intended for the Isuzu truck. Having encroached on the opposite lane, Mendoza was
clearly in violation of traffic laws. Article2185 of the Civil Code provides that unless there is proof
to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the
time of the mishap, he was violating any traffic regulation. In the case at bar, Mendozas violation
of traffic laws was the proximate cause of the harm.
Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury, and without which the result would not
have occurred. And more comprehensively, the proximate legal cause is that acting first and
producing the injury, either immediately or by setting other events in motion, all constituting a
natural and continuous chain of events, each having a close causal connection with its
immediate predecessor, the final event in the chain immediately effecting the injury as a natural
and probable result of the cause which first acted, under such circumstances that the person
responsible for the first event should, as an ordinary prudent and intelligent person, have
reasonable ground to expect at the moment of his act or default that an injury to some person
might probably result therefrom.22
The evidence on record shows that before the collision, the Isuzu truck was in its rightful lane,
and was even at a stop, having been flagged down by a security guard of St. Ignatius
Village.23 The mishap occurred when the Mayamy bus, travelling at a fast speed as shown by the
impact of the collision, and going in the opposite direction as that of the Isuzu truck, encroached
on the lane rightfully occupied by said Isuzu truck, and caused the latter to spin, injuring Perez,
Anla, Banca, and Repisada, and considerably damaging the Isuzu truck.
Having settled the fact of Mendozas negligence, then, the next question that confronts us is who
may beheld liable. According to Manresa, liability for personal acts and omissions is founded on
that indisputable principle of justice recognized by all legislations that when a person by his act
or omission causes damage or prejudice to another, a juridical relation is created by virtue of
which the injured person acquires a right to be indemnified and the person causing the damage
is charged with the corresponding duty of repairing the damage. The reason for this is found in
the obvious truth that man should subordinate his acts to the precepts of prudence and if he
fails to observe them and causes damage to another, he must repair the damage. 24 His negligence
having caused the damage, Mendoza is certainly liable to repair said damage.
Additionally, Mendozas employer may also be held liable under the doctrine of vicarious liability
or imputed negligence. Under such doctrine, a person who has not committed the act or omission
which caused damage or injury to another may nevertheless be held civilly liable to the latter
either directly or subsidiarily under certain circumstances. 25 In our jurisdiction, vicarious
liability or imputed negligence is embodied in Article 2180 of the Civil Code and the basis for
damages in the action under said article is the direct and primary negligence of the employer in
the selection or supervision, or both, of his employee. 26
75
In the case at bar, who is deemed as Mendozas employer? Is it Enriquez, the actual owner of the
bus or Lim, the registered owner of the bus?
In Filcar Transport Services v. Espinas, 27 we held that the registered owner is deemed the
employer of the negligent driver, and is thus vicariously liable under Article 2176, in relation to
Article 2180, of the Civil Code. Citing Equitable Leasing Corporation v. Suyom, 28 the Court ruled
that in so far as third persons are concerned, the registered owner of the motor vehicle is the
employer of the negligent driver, and the actual employer is considered merely as an agent of
such owner. Thus, whether there is an employer-employee relationship between the registered
owner and the driver is irrelevant in determining the liability of the registered owner who the law
holds primarily and directly responsible for any accident, injury or death caused by the operation
of the vehicle in the streets and highways.29
As early as Erezo v. Jepte,30 the Court, speaking through Justice Alejo Labrador summarized the
justification for holding the registered owner directly liable, to wit:
x x x The main aim of motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicles on the public highways,
responsibility therefore can be fixed on a definite individual, the registered owner. Instances are
numerous where vehicle running on public highways caused accidents or injuries to pedestrians
or other vehicles without positive identification of the owner or drivers, or with very scant means
of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public,
that the motor vehicle registration is primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on public highways.
"One of the principal purposes of motor vehicles legislation is identification of the vehicle and of
the operator, in case of accident; and another is that the knowledge that means of detection are
always available may act as a deterrent from lax observance of the law and of the rules of
conservative and safe operation. Whatever purpose there may be in these statutes, it is
subordinate at the last to the primary purpose of rendering it certain that the violator of the law
or of the rules of safety shall not escape because of lack of means to discover him." The purpose
of the statute is thwarted, and the displayed number becomes a "snare and delusion," if courts
will entertain such defenses as that put forward by appellee in this case. No responsible person
or corporation could be held liable for the most outrageous acts of negligence, if they should be
allowed to place a "middleman" between them and the public, and escape liability by the manner
in which they recompense their servants.31
Generally, 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 the selection of the servant or employee (culpa in eligiendo) or in the supervision over
him after the selection (culpa vigilando), or both. The presumption is juris tantum and not juris
et de jure; consequently, it may be rebutted. Accordingly, the general rule is that if the employer
shows to the satisfaction of the court that in the selection and supervision of his employee he
has exercised the care and diligence of a good father of a family, the presumption is overcome
and he is relieved of liability.32 However, with the enactment of the motor vehicle registration law,
the defenses available under Article 2180 of the Civil Code - that the employee acts beyond the
scope of his assigned task or that it exercised the due diligence of a good father of a family to
prevent damage are no longer available to the registered owner of the motor vehicle, because
the motor vehicle registration law, to a certain extent, modified Article 2180. 33
As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza.
This does not mean, however, that Lim is left without any recourse against Enriquez and
Mendoza. Under the civil law principle of unjust enrichment, the registered owner of the motor
vehicle has a right to be indemnified by the actual employer of the driver; and under Article 2181
of the Civil Code, whoever pays for the damage caused by his dependents or employees may
recover from the latter what he has paid or delivered in satisfaction of the claim.
Having identified the persons liable, our next question is what may be awarded.
Actual or Compensatory Damages. Actual or compensatory damages are those awarded in
satisfaction of, or in recompense for, loss or injury sustained. They simply make good or replace
the loss caused by the wrong.34
Article 2202 of the Civil Code provides that in crimes and quasi delicts, the defendant shall be
liable for all damages which are the natural and probable consequences of the act or omission
complained of. It is not necessary that such damages have been foreseen or could have
reasonably been foreseen by the defendant. Article 2199 of the same Code, however, sets the
limitation that, except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved. As such, to
warrant an award of actual or compensatory damages, the claimant must prove that the damage
sustained is the natural and probable consequences of the negligent act and, moreover, the
claimant must adequately prove the amount of such damage.
In the case at bar, the RTC, basing on the receipts submitted by respondents and which receipts
petitioners had the opportunity to examine, found that the total repairs on the Isuzu truck
amounted to P142,757.40, and that the full hospitalization and medical expenses of Perez, Anla,
Banca, and Repisada amounted to P11,267.35. As such, these are the amounts that respondents
are entitled to as actual and compensatory damages.
Although respondents alleged in their complaint that the damage to their Isuzu truck caused
them the loss of a daily income of P1,000.00, such claim was not duly substantiated by any
evidence on record, and thus cannot be awarded in their favor.
Moral Damages. Moral damages are awarded to enable the injured party to obtain means,
diversions or amusements that will serve to alleviate the moral suffering he has undergone, by
reason of the defendant's culpable action.35
In prayers for moral damages, however, recovery is more an exception rather than the rule. Moral
damages are not meant to be punitive but are designed to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar harm unjustly caused to a person. To be entitled to
such an award, the claimant must satisfactorily prove that he has suffered damages and that
the injury causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the
Civil Code. Moreover, the damages must be shown to be the proximate result of a wrongful act
or omission. The claimant must thus establish the factual basis of the damages and its causal
tie with the acts of the defendant.36
In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched
reputation or physical, mental or psychological suffering sustained by the claimant; 2)a culpable
act or omission factually established; 3) proof that the wrongful act or omission of the defendant
is the proximate cause of the damages sustained by the claimant; and 4) the proof that the act
is predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220
of the Civil Code.37
A review of the complaint and the transcript of stenographic notes yields the pronouncement
that respondents neither alleged nor offered any evidence of besmirched reputation or physical,
mental or psychological suffering incurred by them. All that Leonora and her counsel had to say
on the matter of damages other than actual or compensatory damages is this: 38
Q: Did you ever spend covering attorneys fees?
A: Yes, sir. P50,000.00.
76
Q: Aside from the actual damage that you have mentioned x x x, how much more would you like
this Court to award you by way of moral damages?
A: P100,000.00, sir.
Q: How about exemplary damages?
A: P50,000.00, sir.
Q: What happened to you, what did you feel when the defendants failed to immediately repair
your vehicle that was damaged Madam Witness?
A: I have incurred expenses and I was forced to apply for a loan, sir.
In Kierulf v. CA,39 we observed that this Court cannot remind the bench and the bar often enough
that in order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. Citing Francisco v. GSIS, 40 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 social humiliation, wounded feelings
and anxiety, moral damages cannot be awarded.
Moreover, respondents were not able to show that their claim properly falls under Articles 2219
and 2220 of the Civil Code. Respondents cannot rely on Article 2219 (2) of the Civil Code which
allows moral damages in quasi-delicts causing physical injuries because in physical injuries,
moral damages are recoverable only by the injured party, 41 and in the case at bar, herein
respondents were not the ones who were actually injured.
In B.F. Metal (Corp.) v. Sps. Lomotan, et al.,42 the Court, in a claim for damages based on quasi-
delict causing physical injuries, similarly disallowed an award of moral damages to the owners
of the damaged vehicle, when neither of them figured in the accident and sustained injuries.
Neither can respondents rely on Article 21 of the Civil Code as the RTC erroneously did. Article
21 deals with acts contra bonus mores, and has the following elements: (1) There is an act which
is legal; (2) but which is contrary to morals, good custom, public order, or public policy; (3) and
it is done with intent to injure.43 In the present case, it can hardly be said that Mendozas
negligent driving and violation of traffic laws are legal acts. Moreover, it was not proven that
Mendoza intended to injure Perez, et al. Thus, Article 21 finds no application to the case at bar.
All in all, we find that the RTC and the CA erred in granting moral damages to respondents.
Exemplary Damages. Article 2229 of the Civil Code provides that exemplary or corrective
damages are imposed, by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. Article 2231 of the same Code further states
that in quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence.
Our jurisprudence sets certain conditions when exemplary damages may be awarded: First, they
may be imposed by way of example or correction only in addition, among others, to compensatory
damages, and cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant. Second, the claimant
must first establish his right to moral, temperate, liquidated or compensatory damages. Third,
the wrongful act must be accompanied by bad faith, and the award would be allowed only if the
guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 44
In motor vehicle accident cases, exemplary damages may be awarded where the defendants
misconduct is so flagrant as to transcend simple negligence and be tantamount to positive or
affirmative misconduct rather than passive or negative misconduct. In characterizing the
requisite positive misconduct which will support a claim for punitive damages, the courts have
used such descriptive terms as willful, wanton, grossly negligent, reckless, or malicious, either
alone or in combination.45
Gross negligence is the absence of care or diligence as to amount to a reckless disregard of the
safety of persons or property. It evinces a thoughtless disregard of consequences without exerting
any effort to avoid them.46
In the case at bar, having established respondents right to compensatory damages, exemplary
damages are also in order, given the fact that Mendoza was grossly negligent in driving the
Mayamy bus. His act of intruding or encroaching on the lane rightfully occupied by the Isuzu
truck shows his reckless disregard for safety.
In Bao v. Bachelor Express, Inc., et al.,47 where an erring bus, in the process of overtaking a
jeepney, also encroached on the opposite lane, and consequently collided with a dump truck, the
Court held the driver of the bus grossly negligent and affirmed the award of exemplary damages.
Attorneys Fees. Article 2208 of the Civil Code enumerates the instances when attorneys fees
may be recovered:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants 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
plaintiffs valid 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 workmens compensation and employers 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 attorneys fees
and expenses of litigation should be recovered;
In all cases, the attorneys fees and expenses of litigation must be reasonable.
77
From the very opening sentence of Article 2208 of the Civil Code, it is clearly intended to retain 2) MAINTAIN the award of actual or compensatory damages in the amount
the award of attorneys fees as the exception in our law, as the general rule remains that of P142,757.40 for the repair of the Isuzu Elf truck, with legal interest beginning 31
attorneys fees are not recoverable in the absence of a stipulation thereto, the reason being that January 2001 until fully paid;
it is not sound policy to set a premium on the right to litigate. 48

3) GRANT additional actual or compensatory damages in the amount of P11,267.35

As such, in Spouses Agustin v. CA,49 we held that, the award of attorneys fees being an exception
rather than the general rule, it is necessary for the court to make findings of facts and law that
would bring the case within the exception and justify the grant of such award. Thus, the reason
for the award of attorneys fees must be stated in the text of the courts decision; otherwise, if it
is stated only in the dispositive portion of the decision, the same must be disallowed on appeal.
for the medical expenses shouldered by respondent Spouses Leonora and Gabriel
Gomez, with legal interest beginning 31 January 2001 until fully paid;
4) DELETE the award of moral damages;

In the case at bar, the RTC Decision had nil discussion on the propriety of attorneys fees, and it 5) MAINTAIN the award of exemplary damages at P50,000.00;
merely awarded such in the dispositive. The CA Decision, on the other hand, merely stated that
the award of attorneys fees is merited as such is allowed when exemplary damages are 6) DELETE the award of attorney's fees; and
awarded.50 Following established jurisprudence,51however, the CA should have disallowed on
appeal said award of attorneys fees as the RTC failed to substantiate said award. Costs of suit.
The Rules of Court provide that, generally, costs shall be allowed to the prevailing party as a 7) MAINTAIN the award of costs of suit.
matter of course, thus:52

SO ORDERED.
Section 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for
special reasons, to adjudge that either party shall pay the costs of an action, or that the same be JOSE PORTUGAL PEREZ
divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines, Associate Justice
unless otherwise provided by law.

In the present case, the award of costs of suit to respondents, as the prevailing party, is in order.
Interests.1wphi1 Interest by way of damages has been defined as interest allowed in actions for
breach of contractor tort for the unlawful detention of money already due. This type of interest
is frequently called "moratory interest." Interest as a part of damage, is allowed, not by
application of arbitrary rules, but as a result of the justice of the individual case and as
compensation to the injured party.53

The legal provision on interests in quasi-delicts is Article 2211 of the Civil Code which provides
that in crimes and quasi-delicts, interest as part of the damage, may, in a proper case, be
adjudicated in the discretion of the court.

Generally, interest is allowed as a matter of right for failure to pay liquidated claims when
due.54 For unliquidated claims, however, Article 2213 of the Civil Code provides that interest
cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.

In the case at bar, although the award of exemplary damages is unliquidated in the sense that
petitioners cannot know for sure, before judgment, the exact amount that they are required to
pay to respondents, the award of actual or compensatory damages, however, such as the truck
repairs and medical expenses, is arguably liquidated in that they can be measured against a
reasonably certain standard.55 Moreover, justice would seem to require that the delay in paying
for past losses which can be made reasonably certain should be compensated through an award
of interest.56

WHEREFORE, premises considered, the Court Resolves to PARTIALLY GRANT the appeal by
certiorari, as follows:

1) DECLARE Mariano Mendoza and Elvira Lim solidarily liable to respondent Spouses
Leonora and Gabriel Gomez;

78
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 84698 February 4, 1992
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P.
PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO and LT. M.
SORIANO, petitioners,
vs.
COURT OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, in her capacity as Presiding
Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA and ARSENIA
D. BAUTISTA, respondents.
Balgos and Perez for petitioners.
Collantes, Ramirez & Associates for private respondents.
PADILLA, J.:
A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the
second-floor premises of the Philippine School of Business Administration (PSBA) prompted the
parents of the deceased to file suit in the Regional Trial Court of Manila (Branch 47) presided
over by Judge (now Court of Appeals justice) Regina Ordoez-Benitez, for damages against the
said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third
year commerce course at the PSBA. It was established that his assailants were not members of
the school's academic community but were elements from outside the school.
Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim
(President), Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col.
Pedro Sacro (Chief of Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially,
the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely
demise due to their alleged negligence, recklessness and lack of security precautions, means and
methods before, during and after the attack on the victim. During the proceedings a quo, Lt. M.
Soriano terminated his relationship with the other petitioners by resigning from his position in
the school.
Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they
are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action
against them, as jurisprudence on the subject is to the effect that academic institutions, such as
the PSBA, are beyond the ambit of the rule in the afore-stated article.
The respondent trial court, however, overruled petitioners' contention and thru an order dated 8
December 1987, denied their motion to dismiss. A subsequent motion for reconsideration was
similarly dealt with by an order dated 25 January 1988. Petitioners then assailed the trial court's
disposition before the respondent appellate court which, in a decision * promulgated on 10 June
1988, affirmed the trial court's orders. On 22 August 1988, the respondent appellate court
resolved to deny the petitioners' motion for reconsideration. Hence, this petition.
At the outset, it is to be observed that the respondent appellate court primarily anchored its
decision on the law of quasi-delicts, as enunciated in Articles 2176 and 2180 of the Civil
Code. 1 Pertinent portions of the appellate court's now assailed ruling state:
Article 2180 (formerly Article 1903) of the Civil Code is an adoption from
the old Spanish Civil Code. The comments of Manresa and learned
authorities on its meaning should give way to present day changes. The law
is not fixed and flexible (sic); it must be dynamic. In fact, the greatest value
and significance of law as a rule of conduct in (sic) its flexibility to adopt to
changing social conditions and its capacity to meet the new challenges of
progress.
Construed in the light of modern day educational system, Article 2180
cannot be construed in its narrow concept as held in the old case of Exconde
vs. Capuno 2 and Mercado vs. Court of Appeals; 3hence, the ruling in
the Palisoc 4 case that it should apply to all kinds of educational
institutions, academic or vocational.
At any rate, the law holds the teachers and heads of the school staff liable
unless they relieve themselves of such liability pursuant to the last
paragraph of Article 2180 by "proving that they observed all the diligence to
prevent damage." This can only be done at a trial on the merits of the case. 5
While we agree with the respondent appellate court that the motion to dismiss the complaint was
correctly denied and the complaint should be tried on the merits, we do not however agree with
the premises of the appellate court's ruling.
Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco
parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza,
Palisoc and, more recently, in Amadora vs. Court of Appeals. 6 In all such cases, it had been
stressed that the law (Article 2180) plainly provides that the damage should have been caused
or inflicted by pupils or students of he educational institution sought to be held liable for the acts
of its pupils or students while in its custody. However, this material situation does not exist in
the present case for, as earlier indicated, the assailants of Carlitos were not students of the
PSBA, for whose acts the school could be made liable.
However, does the appellate court's failure to consider such material facts mean the exculpation
of the petitioners from liability? It does not necessarily follow.
When an academic institution accepts students for enrollment, there is established
a contract between them, resulting in bilateral obligations which both parties are bound to
comply with. 7 For its part, the school undertakes to provide the student with an education that
would presumably suffice to equip him with the necessary tools and skills to pursue higher
education or a profession. On the other hand, the student covenants to abide by the school's
academic requirements and observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-in" obligation of providing their
students with an atmosphere that promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the school premises a constant threat
to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain
peace and order within the campus premises and to prevent the breakdown thereof.
Because the circumstances of the present case evince a contractual relation between the PSBA
and Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176
79
shows that obligations arising from quasi-delicts or tort, also known as extra-contractual
obligations, arise only between parties not otherwise bound by contract, whether express or
implied. However, this impression has not prevented this Court from determining the existence
of a tort even when there obtains a contract. In Air France vs. Carrascoso (124 Phil. 722), the
private respondent was awarded damages for his unwarranted expulsion from a first-class seat
aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-
airline's liability as one arising from tort, not one arising from a contract of carriage. In effect, Air
France is authority for the view that liability from tort may exist even if there is a contract, for
the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248
Fed. 231).
This view was not all that revolutionary, for even as early as 1918, this Court was already of a
similar mind. In Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:
may still avoid liability by proving that the breach of its contractual obligation to the students
was not due to its negligence, here statutorily defined to be the omission of that degree of
diligence which is required by the nature of the obligation and corresponding to the
circumstances of persons, time and place. 9
As the proceedings a quo have yet to commence on the substance of the private respondents'
complaint, the record is bereft of all the material facts. Obviously, at this stage, only the trial
court can make such a determination from the evidence still to unfold.
WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin
(RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the
Court. Costs against the petitioners.

The field of non-contractual obligation is much broader than that of SO ORDERED.

contractual obligation, comprising, as it does, the whole extent of juridical
human relations. These two fields, figuratively speaking, concentric; that is Melencio-Herrera, Paras, Regalado and Nocon, JJ., concur.
to say, the mere fact that a person is bound to another by contract does not
relieve him from extra-contractual liability to such person. When such a
contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes a breach of the contract would
have constituted the source of an extra-contractual obligation had no contract
existed between the parties.

Immediately what comes to mind is the chapter of the Civil Code on Human Relations,
particularly Article 21, which provides:

Any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good custom or public policy shall compensate the
latter for the damage. (emphasis supplied).

Air France penalized the racist policy of the airline which emboldened the petitioner's employee
to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had
a better right to the seat." In Austro-American, supra, the public embarrassment caused to the
passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award
damages to the latter. From the foregoing, it can be concluded that should the act which breaches
a contract be done in bad faith and be violative of Article 21, then there is a cause to view the
act as constituting a quasi-delict.

In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the
contract between the school and Bautista had been breached thru the former's negligence in
providing proper security measures. This would be for the trial court to determine. And, even if
there be a finding of negligence, the same could give rise generally to a breach of contractual
obligation only. Using the test of Cangco, supra, the negligence of the school would not be
relevant absent a contract. In fact, that negligence becomes material only because of the
contractual relation between PSBA and Bautista. In other words, a contractual relation is a
condition sine qua non to the school's liability. The negligence of the school cannot exist
independently of the contract, unless the negligence occurs under the circumstances set out in
Article 21 of the Civil Code.

This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-
mentioned, for conceptually a school, like a common carrier, cannot be an insurer of its students
against all risks. This is specially true in the populous student communities of the so-called
"university belt" in Manila where there have been reported several incidents ranging from gang
wars to other forms of hooliganism. It would not be equitable to expect of schools to
anticipate all types of violent trespass upon their premises, for notwithstanding the security
measures installed, the same may still fail against an individual or group determined to carry
out a nefarious deed inside school premises and environs. Should this be the case, the school

80
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47745 April 15, 1988
JOSE S. AMADORA, LORETA A. AMADORA, JOSE A. AMADORA JR., NORMA A. YLAYA
PANTALEON A. AMADORA, JOSE A. AMADORA III, LUCY A. AMADORA, ROSALINDA A.
AMADORA, PERFECTO A. AMADORA, SERREC A. AMADORA, VICENTE A. AMADORA and
MARIA TISCALINA A. AMADORA, petitioners
vs.
HONORABLE COURT OF APPEALS, COLEGIO DE SAN JOSE-RECOLETOS, VICTOR LLUCH
SERGIO P. DLMASO JR., CELESTINO DICON, ANIANO ABELLANA, PABLITO DAFFON thru
his parents and natural guardians, MR. and MRS. NICANOR GUMBAN, and ROLANDO
VALENCIA, thru his guardian, A. FRANCISCO ALONSO, respondents.
Jose S. Amadora & Associates for petitioners.
Padilla Law Office for respondents.
CRUZ, J.:
Like any prospective graduate, Alfredo Amadora was looking forward to the commencement
exercises where he would ascend the stage and in the presence of his relatives and friends receive
his high school diploma. These ceremonies were scheduled on April 16, 1972. As it turned out,
though, fate would intervene and deny him that awaited experience. On April 13, 1972, while
they were in the auditorium of their school, the Colegio de San Jose-Recoletos, a classmate,
Pablito Damon, fired a gun that mortally hit Alfredo, ending all his expectations and his life as
well. The victim was only seventeen years old. 1
Daffon was convicted of homicide thru reckless imprudence . 2 Additionally, the herein
petitioners, as the victim's parents, filed a civil action for damages under Article 2180 of the Civil
Code against the Colegio de San Jose-Recoletos, its rector the high school principal, the dean of
boys, and the physics teacher, together with Daffon and two other students, through their
respective parents. The complaint against the students was later dropped. After trial, the Court
of First Instance of Cebu held the remaining defendants liable to the plaintiffs in the sum of
P294,984.00, representing death compensation, loss of earning capacity, costs of litigation,
funeral expenses, moral damages, exemplary damages, and attorney's fees . 3 On appeal to the
respondent court, however, the decision was reversed and all the defendants were completely
absolved . 4
In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules
of Court, the respondent court found that Article 2180 was not applicable as the Colegio de San
Jose-Recoletos was not a school of arts and trades but an academic institution of learning. It
also held that the students were not in the custody of the school at the time of the incident as
the semester had already ended, that there was no clear identification of the fatal gun and that
in any event the defendant, had exercised the necessary diligence in preventing the injury. 5
The basic undisputed facts are that Alfredo Amadora went to the San Jose-Recoletos on April
13, 1972, and while in its auditorium was shot to death by Pablito Daffon, a classmate. On the
implications and consequences of these facts, the parties sharply disagree.
The petitioners contend that their son was in the school to show his physics experiment as a
prerequisite to his graduation; hence, he was then under the custody of the private respondents.
The private respondents submit that Alfredo Amadora had gone to the school only for the purpose
of submitting his physics report and that he was no longer in their custody because the semester
had already ended.
There is also the question of the identity of the gun used which the petitioners consider important
because of an earlier incident which they claim underscores the negligence of the school and at
least one of the private respondents. It is not denied by the respondents that on April 7, 1972,
Sergio Damaso, Jr., the dean of boys, confiscated from Jose Gumban an unlicensed pistol but
later returned it to him without making a report to the principal or taking any further action
. 6 As Gumban was one of the companions of Daffon when the latter fired the gun that killed
Alfredo, the petitioners contend that this was the same pistol that had been confiscated from
Gumban and that their son would not have been killed if it had not been returned by Damaso.
The respondents say, however, that there is no proof that the gun was the same firearm that
killed Alfredo.
Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as
it happens, is invoked by both parties in support of their conflicting positions. The pertinent part
of this article reads as follows:
Lastly, teachers or heads of establishments of arts and trades shall be liable
for damages caused by their pupils and students or apprentices so long as
they remain in their custody.
Three cases have so far been decided by the Court in connection with the above-quoted provision,
to wit: Exconde v. Capuno 7 Mercado v. Court of Appeals, 8 and Palisoc v. Brillantes. 9 These will
be briefly reviewed in this opinion for a better resolution of the case at bar.
In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy
Scout, attended a Rizal Day parade on instructions of the city school supervisor. After the parade,
the boy boarded a jeep, took over its wheel and drove it so recklessly that it turned turtle,
resulting in the death of two of its passengers. Dante was found guilty of double homicide with
reckless imprudence. In the separate civil action flied against them, his father was held solidarily
liable with him in damages under Article 1903 (now Article 2180) of the Civil Code for the tort
committed by the 15-year old boy.
This decision, which was penned by Justice Bautista Angelo on June 29,1957, exculpated the
school in an obiter dictum (as it was not a party to the case) on the ground that it was riot a
school of arts and trades. Justice J.B.L. Reyes, with whom Justices Sabino Padilla and Alex
Reyes concurred, dissented, arguing that it was the school authorities who should be held liable
Liability under this rule, he said, was imposed on (1) teachers in general; and (2) heads of schools
of arts and trades in particular. The modifying clause "of establishments of arts and trades"
should apply only to "heads" and not "teachers."
Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate
with a razor blade during recess time at the Lourdes Catholic School in Quezon City, and the
parents of the victim sued the culprits parents for damages. Through Justice Labrador, the Court
declared in another obiter (as the school itself had also not been sued that the school was not
liable because it was not an establishment of arts and trades. Moreover, the custody requirement
had not been proved as this "contemplates a situation where the student lives and boards with
the teacher, such that the control, direction and influences on the pupil supersede those of the
parents." Justice J.B.L. Reyes did not take part but the other members of the court concurred
in this decision promulgated on May 30, 1960.
In Palisoc vs. Brillantes, decided on October 4, 1971, a 16-year old student was killed by a
classmate with fist blows in the laboratory of the Manila Technical Institute. Although the
81
wrongdoer who was already of age was not boarding in the school, the head thereof and the
teacher in charge were held solidarily liable with him. The Court declared through Justice
Teehankee:
The phrase used in the cited article "so long as (the students) remain in
their custody" means the protective and supervisory custody that the
school and its heads and teachers exercise over the pupils and students for
as long as they are at attendance in the school, including recess time. There
is nothing in the law that requires that for such liability to attach, the pupil
or student who commits the tortious act must live and board in the school,
as erroneously held by the lower court, and the dicta in Mercado (as well as
in Exconde) on which it relied, must now be deemed to have been set aside
by the present decision.
This decision was concurred in by five other members, 10 including Justice J.B.L. Reyes, who
stressed, in answer to the dissenting opinion, that even students already of age were covered by
the provision since they were equally in the custody of the school and subject to its discipline.
Dissenting with three others, 11 Justice Makalintal was for retaining the custody interpretation
in Mercado and submitted that the rule should apply only to torts committed by students not
yet of age as the school would be acting only in loco parentis.
In a footnote, Justice Teehankee said he agreed with Justice Reyes' dissent in the Exconde Case
but added that "since the school involved at bar is a non-academic school, the question as to the
applicability of the cited codal provision to academic institutions will have to await another case
wherein it may properly be raised."
This is the case.
Unlike in Exconde and Mercado, the Colegio de San Jose-Recoletos has been directly impleaded
and is sought to be held liable under Article 2180; and unlike in Palisoc, it is not a school of arts
and trades but an academic institution of learning. The parties herein have also directly raised
the question of whether or not Article 2180 covers even establishments which are technically not
schools of arts and trades, and, if so, when the offending student is supposed to be "in its
custody."
After an exhaustive examination of the problem, the Court has come to the conclusion that the
provision in question should apply to all schools, academic as well as non-academic. Where the
school is academic rather than technical or vocational in nature, responsibility for the tort
committed by the student will attach to the teacher in charge of such student, following the first
part of the provision. This is the general rule. In the case of establishments of arts and trades, it
is the head thereof, and only he, who shall be held liable as an exception to the general rule. In
other words, teachers in general shall be liable for the acts of their students except where the
school is technical in nature, in which case it is the head thereof who shall be answerable.
Following the canon of reddendo singula singulis "teachers" should apply to the words "pupils
and students" and "heads of establishments of arts and trades" to the word "apprentices."
The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde
where he said in part:
I can see no sound reason for limiting Art. 1903 of the Old Civil Code to
teachers of arts and trades and not to academic ones. What substantial
difference is there between them insofar as concerns the proper supervision
and vice over their pupils? It cannot be seriously contended that an
academic teacher is exempt from the duty of watching that his pupils do
not commit a tort to the detriment of third Persons, so long as they are in a
position to exercise authority and Supervision over the pupil. In my opinion,
in the phrase "teachers or heads of establishments of arts and trades" used
in Art. 1903 of the old Civil Code, the words "arts and trades" does not
qualify "teachers" but only "heads of establishments." The phrase is only an
updated version of the equivalent terms "preceptores y artesanos" used in
the Italian and French Civil Codes.
If, as conceded by all commentators, the basis of the presumption of
negligence of Art. 1903 in some culpa in vigilando that the parents,
teachers, etc. are supposed to have incurred in the exercise of their
authority, it would seem clear that where the parent places the child under
the effective authority of the teacher, the latter, and not the parent, should
be the one answerable for the torts committed while under his custody, for
the very reason/that the parent is not supposed to interfere with the
discipline of the school nor with the authority and supervision of the
teacher while the child is under instruction. And if there is no authority,
there can be no responsibility.
There is really no substantial distinction between the academic and the non-academic schools
insofar as torts committed by their students are concerned. The same vigilance is expected from
the teacher over the students under his control and supervision, whatever the nature of the
school where he is teaching. The suggestion in the Exconde and Mercado Cases is that the
provision would make the teacher or even the head of the school of arts and trades liable for an
injury caused by any student in its custody but if that same tort were committed in an academic
school, no liability would attach to the teacher or the school head. All other circumstances being
the same, the teacher or the head of the academic school would be absolved whereas the teacher
and the head of the non-academic school would be held liable, and simply because the latter is
a school of arts and trades.
The Court cannot see why different degrees of vigilance should be exercised by the school
authorities on the basis only of the nature of their respective schools. There does not seem to be
any plausible reason for relaxing that vigilance simply because the school is academic in nature
and for increasing such vigilance where the school is non-academic. Notably, the injury subject
of liability is caused by the student and not by the school itself nor is it a result of the operations
of the school or its equipment. The injury contemplated may be caused by any student regardless
of the school where he is registered. The teacher certainly should not be able to excuse himself
by simply showing that he is teaching in an academic school where, on the other hand, the head
would be held liable if the school were non-academic.
These questions, though, may be asked: If the teacher of the academic school is to be held
answerable for the torts committed by his students, why is it the head of the school only who is
held liable where the injury is caused in a school of arts and trades? And in the case of the
academic or non- technical school, why not apply the rule also to the head thereof instead of
imposing the liability only on the teacher?
The reason for the disparity can be traced to the fact that historically the head of the school of
arts and trades exercised a closer tutelage over his pupils than the head of the academic school.
The old schools of arts and trades were engaged in the training of artisans apprenticed to their
master who personally and directly instructed them on the technique and secrets of their craft.
The head of the school of arts and trades was such a master and so was personally involved in
the task of teaching his students, who usually even boarded with him and so came under his
constant control, supervision and influence. By contrast, the head of the academic school was
not as involved with his students and exercised only administrative duties over the teachers who
were the persons directly dealing with the students. The head of the academic school had then
(as now) only a vicarious relationship with the students. Consequently, while he could not be
directly faulted for the acts of the students, the head of the school of arts and trades, because of
his closer ties with them, could be so blamed.
It is conceded that the distinction no longer obtains at present in view of the expansion of the
schools of arts and trades, the consequent increase in their enrollment, and the corresponding
diminution of the direct and personal contract of their heads with the students. Article 2180,
82
however, remains unchanged. In its present state, the provision must be interpreted by the Court
according to its clear and original mandate until the legislature, taking into account the charges
in the situation subject to be regulated, sees fit to enact the necessary amendment.
The other matter to be resolved is the duration of the responsibility of the teacher or the head of
the school of arts and trades over the students. Is such responsibility co-extensive with the period
when the student is actually undergoing studies during the school term, as contended by the
respondents and impliedly admitted by the petitioners themselves?
From a reading of the provision under examination, it is clear that while the custody requirement,
to repeat Palisoc v. Brillantes, does not mean that the student must be boarding with the school
authorities, it does signify that the student should be within the control and under the influence
of the school authorities at the time of the occurrence of the injury. This does not necessarily
mean that such, custody be co-terminous with the semester, beginning with the start of classes
and ending upon the close thereof, and excluding the time before or after such period, such as
the period of registration, and in the case of graduating students, the period before the
commencement exercises. In the view of the Court, the student is in the custody of the school
authorities as long as he is under the control and influence of the school and within its premises,
whether the semester has not yet begun or has already ended.
It is too tenuous to argue that the student comes under the discipline of the school only upon
the start of classes notwithstanding that before that day he has already registered and thus
placed himself under its rules. Neither should such discipline be deemed ended upon the last
day of classes notwithstanding that there may still be certain requisites to be satisfied for
completion of the course, such as submission of reports, term papers, clearances and the like.
During such periods, the student is still subject to the disciplinary authority of the school and
cannot consider himself released altogether from observance of its rules.
As long as it can be shown that the student is in the school premises in pursuance of a legitimate
student objective, in the exercise of a legitimate student right, and even in the enjoyment of a
legitimate student right, and even in the enjoyment of a legitimate student privilege, the
responsibility of the school authorities over the student continues. Indeed, even if the student
should be doing nothing more than relaxing in the campus in the company of his classmates
and friends and enjoying the ambience and atmosphere of the school, he is still within the
custody and subject to the discipline of the school authorities under the provisions of Article
2180.
During all these occasions, it is obviously the teacher-in-charge who must answer for his
students' torts, in practically the same way that the parents are responsible for the child when
he is in their custody. The teacher-in-charge is the one designated by the dean, principal, or
other administrative superior to exercise supervision over the pupils in the specific classes or
sections to which they are assigned. It is not necessary that at the time of the injury, the teacher
be physically present and in a position to prevent it. Custody does not connote immediate and
actual physical control but refers more to the influence exerted on the child and the discipline
instilled in him as a result of such influence. Thus, for the injuries caused by the student, the
teacher and not the parent shag be held responsible if the tort was committed within the premises
of the school at any time when its authority could be validly exercised over him.
In any event, it should be noted that the liability imposed by this article is supposed to fall
directly on the teacher or the head of the school of arts and trades and not on the school itself.
If at all, the school, whatever its nature, may be held to answer for the acts of its teachers or
even of the head thereof under the general principle of respondeat superior, but then it may
exculpate itself from liability by proof that it had exercised the diligence of a bonus paterfamilias.
Such defense is, of course, also available to the teacher or the head of the school of arts and
trades directly held to answer for the tort committed by the student. As long as the defendant
can show that he had taken the necessary precautions to prevent the injury complained of, he
can exonerate himself from the liability imposed by Article 2180, which also states that:
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 damages.
In this connection, it should be observed that the teacher will be held liable not only when he is
acting in loco parentis for the law does not require that the offending student be of minority age.
Unlike the parent, who wig be liable only if his child is still a minor, the teacher is held answerable
by the law for the act of the student under him regardless of the student's age. Thus, in the
Palisoc Case, liability attached to the teacher and the head of the technical school although the
wrongdoer was already of age. In this sense, Article 2180 treats the parent more favorably than
the teacher.
The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his
dissenting opinion in Palisoc that the school may be unduly exposed to liability under this article
in view of the increasing activism among the students that is likely to cause violence and
resulting injuries in the school premises. That is a valid fear, to be sure. Nevertheless, it should
be repeated that, under the present ruling, it is not the school that will be held directly liable.
Moreover, the defense of due diligence is available to it in case it is sought to be held answerable
as principal for the acts or omission of its head or the teacher in its employ.
The school can show that it exercised proper measures in selecting the head or its teachers and
the appropriate supervision over them in the custody and instruction of the pupils pursuant to
its rules and regulations for the maintenance of discipline among them. In almost all cases now,
in fact, these measures are effected through the assistance of an adequate security force to help
the teacher physically enforce those rules upon the students. Ms should bolster the claim of the
school that it has taken adequate steps to prevent any injury that may be committed by its
students.
A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold
him directly answerable for the damage caused by his students as long as they are in the school
premises and presumably under his influence. In this respect, the Court is disposed not to expect
from the teacher the same measure of responsibility imposed on the parent for their influence
over the child is not equal in degree. Obviously, the parent can expect more obedience from the
child because the latter's dependence on him is greater than on the teacher. It need not be
stressed that such dependence includes the child's support and sustenance whereas submission
to the teacher's influence, besides being coterminous with the period of custody is usually
enforced only because of the students' desire to pass the course. The parent can instill more las
discipline on the child than the teacher and so should be held to a greater accountability than
the teacher for the tort committed by the child.
And if it is also considered that under the article in question, the teacher or the head of the
school of arts and trades is responsible for the damage caused by the student or apprentice even
if he is already of age and therefore less tractable than the minor then there should all the
more be justification to require from the school authorities less accountability as long as they
can prove reasonable diligence in preventing the injury. After all, if the parent himself is no longer
liable for the student's acts because he has reached majority age and so is no longer under the
former's control, there is then all the more reason for leniency in assessing the teacher's
responsibility for the acts of the student.
Applying the foregoing considerations, the Court has arrived at the following conclusions:
1. At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of
Colegio de San Jose-Recoletos notwithstanding that the fourth year classes had formally ended.
It was immaterial if he was in the school auditorium to finish his physics experiment or merely
to submit his physics report for what is important is that he was there for a legitimate purpose.
As previously observed, even the mere savoring of the company of his friends in the premises of
the school is a legitimate purpose that would have also brought him in the custody of the school
authorities.
83
2. The rector, the high school principal and the dean of boys cannot be held liable because none
of them was the teacher-in-charge as previously defined. Each of them was exercising only a
general authority over the student body and not the direct control and influence exerted by the
teacher placed in charge of particular classes or sections and thus immediately involved in its
discipline. The evidence of the parties does not disclose who the teacher-in-charge of the
offending student was. The mere fact that Alfredo Amadora had gone to school that day in
connection with his physics report did not necessarily make the physics teacher, respondent
Celestino Dicon, the teacher-in-charge of Alfredo's killer.

3. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was
negligent in enforcing discipline upon Daffon or that he had waived observance of the rules and
regulations of the school or condoned their non-observance. His absence when the tragedy
happened cannot be considered against him because he was not supposed or required to report
to school on that day. And while it is true that the offending student was still in the custody of
the teacher-in-charge even if the latter was physically absent when the tort was committed, it
has not been established that it was caused by his laxness in enforcing discipline upon the
student. On the contrary, the private respondents have proved that they had exercised due
diligence, through the enforcement of the school regulations, in maintaining that discipline.

4. In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable
especially in view of the unrefuted evidence that he had earlier confiscated an unlicensed gun
from one of the students and returned the same later to him without taking disciplinary action
or reporting the matter to higher authorities. While this was clearly negligence on his part, for
which he deserves sanctions from the school, it does not necessarily link him to the shooting of
Amador as it has not been shown that he confiscated and returned pistol was the gun that killed
the petitioners' son.

5. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly
liable under the article because only the teacher or the head of the school of arts and trades is
made responsible for the damage caused by the student or apprentice. Neither can it be held to
answer for the tort committed by any of the other private respondents for none of them has been
found to have been charged with the custody of the offending student or has been remiss in the
discharge of his duties in connection with such custody.

In sum, the Court finds under the facts as disclosed by the record and in the light of the principles
herein announced that none of the respondents is liable for the injury inflicted by Pablito Damon
on Alfredo Amadora that resulted in the latter's death at the auditorium of the Colegio de San
Jose-Recoletos on April 13, 1972. While we deeply sympathize with the petitioners over the loss
of their son under the tragic circumstances here related, we nevertheless are unable to extend
them the material relief they seek, as a balm to their grief, under the law they have invoked.

WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It is so ordered.

Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur.

Fernan, Padilla and Teehankee, C.J., JJ, took no part.

84
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 190601 February 7, 2011
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, Petitioners,
vs.
MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing business under the name of
SHANGRI-LA HOTEL MANILA, Respondent.
DECISION
CARPIO MORALES, J.:
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-
Guanio (petitioners) booked at the Shangri-la Hotel Makati (the hotel).
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food
tasting. Petitioners claim that they requested the hotel to prepare for seven persons the two of
them, their respective parents, and the wedding coordinator. At the scheduled food tasting,
however, respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns and angel hair
pasta with wild mushroom sauce for the main course which cost P1,000.00 per person. They
were, however, given an option in which salmon, instead of king prawns, would be in the menu
at P950.00 per person. They in fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver that the salmon
served was half the size of what they were served during the initial food tasting; and when queried
about it, the hotel quoted a much higher price (P1,200.00) for the size that was initially served
to them. The parties eventually agreed on a final price P1,150 per person.
A day before the event or on July 27, 2001, the parties finalized and forged their contract. 1
Petitioners claim that during the reception, respondents representatives, Catering Director Bea
Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they
would; their guests complained of the delay in the service of the dinner; certain items listed in
the published menu were unavailable; the hotels waiters were rude and unapologetic when
confronted about the delay; and despite Alvarezs promise that there would be no charge for the
extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for
the three-hour extension of the event up to 4:00 A.M. the next day.
Petitioners further claim that they brought wine and liquor in accordance with their open bar
arrangement, but these were not served to the guests who were forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc.
(respondent) and received an apologetic reply from Krister Svensson, the hotels Executive
Assistant Manager in charge of Food and Beverage. They nevertheless filed a complaint for
breach of contract and damages before the Regional Trial Court (RTC) of Makati City.
In its Answer, respondent claimed that petitioners requested a combination of king prawns and
salmon, hence, the price was increased to P1,200.00 per person, but discounted at P1,150.00;
that contrary to petitioners claim, Marquez and Alvarez were present during the event, albeit
they were not permanently stationed thereat as there were three other hotel functions; that while
there was a delay in the service of the meals, the same was occasioned by the sudden increase
of guests to 470 from the guaranteed expected minimum number of guests of 350 to a maximum
of 380, as stated in the Banquet Event Order (BEO);2 and that Isaac Albacea, Banquet Service
Director, in fact relayed the delay in the service of the meals to petitioner Luigis father, Gil
Guanio.
Respecting the belated service of meals to some guests, respondent attributed it to the insistence
of petitioners wedding coordinator that certain guests be served first.
On Svenssons letter, respondent, denying it as an admission of liability, claimed that it was
meant to maintain goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of
petitioners, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendant ordering the defendants to pay the plaintiff the following:
1) The amount of P350,000.00 by way of actual damages;
2) The amount of P250,000.00 for and as moral damages;
3) The amount of P100,000.00 as exemplary damages;
4) The amount of P100,000.00 for and as attorneys fees.
With costs against the defendant.
SO ORDERED.3
In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly
quoted below:
Upon receiving your comments on our service rendered during your reception here with us, we
are in fact, very distressed. Right from minor issues pappadums served in the soup instead of
the creutons, lack of valet parkers, hard rolls being too hard till a major one slow service, rude
and arrogant waiters, we have disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received were unacceptable and
definitely not up to our standards. We understand that it is our job to provide excellent service
and in this instance, we have fallen short of your expectations. We ask you please to accept our
profound apologies for causing such discomfort and annoyance. 4 (underscoring supplied)
The trial court observed that from "the tenor of the letter . . . the defendant[-herein respondent]
admits that the services the plaintiff[-herein petitioners] received were unacceptable and
definitely not up to their standards."5
85
On appeal, the Court of Appeals, by Decision of July 27, 2009,6 reversed the trial courts decision,
it holding that the proximate cause of petitioners injury was an unexpected increase in their
guests:
x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and
disarray during the wedding reception may not be attributed to defendant-appellant Shangri-la.
We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set
the chain of events which resulted in the alleged inconveniences, to the plaintiffs-appellants.
Given the circumstances that obtained, only the Sps. Guanio may bear whatever consequential
damages that they may have allegedly suffered.7(underscoring supplied)
Petitioners motion for reconsideration having been denied by Resolution of November 19, 2009,
the present petition for review was filed.
The Court finds that since petitioners complaint arose from a contract, the doctrine of proximate
cause finds no application to it:
The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions
involving breach of contract. x x x The doctrine is a device for imputing liability to a person where
there is no relation between him and another party. In such a case, the obligation is created by
law itself. But, where there is a pre-existing contractual relation between the parties, it is the
parties themselves who create the obligation, and the function of the law is merely to regulate
the relation thus created.8 (emphasis and underscoring supplied)
What applies in the present case is Article 1170 of the Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
RCPI v. Verchez, et al. 9 enlightens:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering that which may
have been lost or suffered. The remedy serves to preserve the interests of the promissee that may
include his "expectation interest," which is his interest in having the benefit of his bargain by
being put in as good a position as he would have been in had the contract been performed, or
his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract not
been made; or his "restitution interest," which is his interest in having restored to him any
benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been
injured by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of
the attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and
underscoring in the original; capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum
guaranteed number of persons contracted for, regardless of under attendance or non-appearance
of the expected number of guests, except where the ENGAGER cancels the Function in
accordance with its Letter of Confirmation with the HOTEL. Should the attendance exceed the
minimum guaranteed attendance, the ENGAGER shall also be billed at the actual rate per cover
in excess of the minimum guaranteed attendance.
xxxx
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled
date and time of the Function of any change in the minimum guaranteed covers. In the absence
of such notice, paragraph 4.3 shall apply in the event of under attendance. In case the actual
number of attendees exceed the minimum guaranteed number
by ten percent (10%), the HOTEL shall not in any way be held liable for any damage or
inconvenience which may be caused thereby. The ENGAGER shall also undertake to advise
the guests of the situation and take positive steps to remedy the same. 10 (emphasis, italics
and underscoring supplied)
Breach of contract is defined as the failure without legal reason to comply with the terms of a
contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise which
forms the whole or part of the contract.11
The appellate court, and even the trial court, observed that petitioners were remiss in their
obligation to inform respondent of the change in the expected number of guests. The observation
is reflected in the records of the case. Petitioners failure to discharge such obligation thus
excused, as the above-quoted paragraph 4.5 of the parties contract provide, respondent from
liability for "any damage or inconvenience" occasioned thereby.
As for petitioners claim that respondent departed from its verbal agreement with petitioners, the
same fails, given that the written contract which the parties entered into the day before the event,
being the law between them.
Respecting the letter of Svensson on which the trial court heavily relied as admission of
respondents liability but which the appellate court brushed aside, the Court finds the appellate
courts stance in order. It is not uncommon in the hotel industry to receive comments, criticisms
or feedback on the service it delivers. It is also customary for hotel management to try to smooth
ruffled feathers to preserve goodwill among its clientele.
Kalalo v. Luz holds:12
Statements which are not estoppels nor judicial admissions have no quality of conclusiveness,
and an opponent whose admissions have been offered against him may offer any evidence which
serves as an explanation for his former assertion of what he now denies as a fact.
Respondents Catering Director, Bea Marquez, explained the hotels procedure on receiving and
processing complaints, viz:
ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of the concern and
that there was-the first letter there was an acknowledgment of the concern and an
apology, not necessarily indicating that such or admitting fault?
A Yes.
86
 Q Is this the letter that you are referring to?
If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as
plaintiffs exhibits, Your Honor. What is the procedure of the hotel with respect to
customer concern?
In the present petition, under considerations of equity, the Court deems it just to award the
amount of P50,000.00 by way of nominal damages to petitioners, for the discomfiture that they
were subjected to during to the event.15The Court recognizes that every person is entitled to
respect of his dignity, personality, privacy and peace of mind. 16 Respondents lack of prudence
is an affront to this right.

A Upon receipt of the concern from the guest or client, we acknowledge receipt of such
concern, and as part of procedure in service industry particularly Makati Shangri-la
we apologize for whatever inconvenience but at the same time saying, that of course,
we would go through certain investigation and get back to them for the feedback with
whatever concern they may have.
WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is PARTIALLY REVERSED.
Respondent is, in light of the foregoing discussion, ORDERED to pay the amount of P50,000.00
to petitioners by way of nominal damages.
SO ORDERED.

Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated CONCHITA CARPIO MORALES
August 4, 2001 identified by the witness, Your Honor, to be marked as Exhibit 14 and Associate Justice
the signature of Mr. Krister Svensson be marked as Exhibit 14-A.13

xxxx

Q In your opinion, you just mentioned that there is a procedure that the hotel follows
with respect to the complaint, in your opinion was this procedure followed in this
particular concern?

A Yes, maam.

Q What makes you say that this procedure was followed?

A As I mentioned earlier, we proved that we did acknowledge the concern of the client
in this case and we did emphatize from the client and apologized, and at the same
time got back to them in whatever investigation we have.

Q You said that you apologized, what did you apologize for?

A Well, first of all it is a standard that we apologize, right? Being in the service industry, it is a
practice that we apologize if there is any inconvenience, so the purpose for apologizing is mainly
to show empathy and to ensure the client that we are hearing them out and that we will do a
better investigation and it is not in any way that we are admitting any fault.14 (underscoring
supplied)

To the Court, the foregoing explanation of the hotels Banquet Director overcomes any
presumption of admission of breach which Svenssons letter might have conveyed.

The exculpatory clause notwithstanding, the Court notes that respondent could have managed
the "situation" better, it being held in high esteem in the hotel and service industry. Given
respondents vast experience, it is safe to presume that this is not its first encounter with booked
events exceeding the guaranteed cover. It is not audacious to expect that certain measures have
been placed in case this predicament crops up. That regardless of these measures, respondent
still received complaints as in the present case, does not amuse.1avvphil

Respondent admitted that three hotel functions coincided with petitioners reception. To the
Court, the delay in service might have been avoided or minimized if respondent exercised
prescience in scheduling events. No less than quality service should be delivered especially in
events which possibility of repetition is close to nil. Petitioners are not expected to get married
twice in their lifetimes.

87
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 73345. April 7, 1993.
SOCIAL SECURITY SYSTEM, petitioner,
vs.
MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U.
ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of
Deeds for the Province of Cavite, ARTURO SOLITO, in his capacity as Register of Deeds for
Metro Manila District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE COURT,
respondents.
The Solicitor General for petitioner.
K.V. Faylona & Associates for private respondents.
DECISION
CAMPOS, JR., J p:
Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate
Court affirming in toto the decision of the former Court of First Instance of Rizal, Seventh Judicial
District, Branch XXIX, Pasay City.
The facts as found by the Appellate Court are as follows:
"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the
Court of First Instance of Rizal against Moonwalk Development & Housing Corporation,
Moonwalk for short, alleging that the former had committed an error in failing to compute the
12% interest due on delayed payments on the loan of Moonwalk resulting in a chain of errors
in the application of payments made by Moonwalk and, in an unpaid balance on the principal
loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or account
an unpaid balance on the said penalties for delayed payments in the amount of P7,517,178.21
as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to
ascertain the truth but failed to do so.
The trial court set the case for pre-trial at which pre-trial conference, the court issued an order
giving both parties thirty (30) days within which to submit a stipulation of facts.
The Order of October 6, 1980 dismissing the complaint followed the submission by the parties
on September 19, 1980 of the following stipulation of Facts:
"1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim
loan in the amount of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of developing
and constructing a housing project in the provinces of Rizal and Cavite;
"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of
P9,595,000.00 was released to defendant Moonwalk as of November 28, 1973;
"3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D'
providing for restructuring of the payment of the released amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively, under
paragraph 5 of the aforesaid Third Amended Deed of First Mortgage substituted Associated
Construction and Surveys Corporation, Philippine Model Homes Development Corporation,
Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors;
"5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00, made
to defendant Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note for
TWELVE MILLION TWO HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS
(P12,254,700.00) Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and
Rosita U. Alberto;
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of
P12,254,700.00 released to it. The last payment made by Moonwalk in the amount of
P15,004,905.74 were based on the Statement of Account, Annex "F" prepared by plaintiff SSS
for defendant;
"7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the
Release of Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and
'H' on October 9, 1979 and October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another letter
dated December 17, 1979, plaintiff alleged that it committed an honest mistake in releasing
defendant.
"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely
paid its obligations to SSS;
"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O'
inclusive, of the Complaint and the letter dated December 21, 1979 of the defendant's counsel
to the plaintiff are admitted.
"Manila for Pasay City, September 2, 1980." 2
On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that
the obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS
and by the latter's act of cancelling the real estate mortgages executed in its favor by defendant
Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was likewise
dismissed by the latter.
These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced the
errors assigned by the SSS into this issue: ". . . are defendants-appellees, namely, Moonwalk
Development and Housing Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA House, Inc.
still liable for the unpaid penalties as claimed by plaintiff-appellant or is their obligation
extinguished?" 3 As We have stated earlier, the respondent Court held that Moonwalk's obligation
was extinguished and affirmed the trial court.
Hence, this Petition wherein SSS raises the following grounds for review:
88
"First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred,"
the appellate court disregarded the basic tenet that waiver of a right must be express, made in a
clear and unequivocal manner. There is no evidence in the case at bar to show that SSS made a
clear, positive waiver of the penalties, made with full knowledge of the circumstances.
Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere
trustee, cannot perform acts affecting the same, including condonation of penalties, that would
diminish property rights of the owners and beneficiaries thereof. (United Christian Missionary
Society v. Social Security Commission, 30 SCRA 982, 988 [1969]).
Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.
Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact."
4 demand for payment of the penal clause made by plaintiff-appellant in its demand letter dated
The same problem which confronted the respondent court is presented before Us: Is the penalty
demandable even after the extinguishment of the principal obligation?
The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the
negative. It reasoned, thus:
"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief,
what is sought to be recovered in this case is not the 12% interest on the loan but the 12%
penalty for failure to pay on time the amortization. What is sought to be enforced therefore is the
penal clause of the contract entered into between the parties.
Now, what is a penal clause. A penal clause has been defined as
"an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special presentation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly
or inadequately fulfilled" (3 Castan 8th Ed. p. 118).
Now an accessory obligation has been defined as that attached to a principal obligation in order
to complete the same or take its place in the case of breach (4 Puig Pea Part 1 p. 76). Note
therefore that an accessory obligation is dependent for its existence on the existence of a principal
obligation. A principal obligation may exist without an accessory obligation but an accessory
obligation cannot exist without a principal obligation. For example, the contract of mortgage is
an accessory obligation to enforce the performance of the main obligation of indebtedness. An
indebtedness can exist without the mortgage but a mortgage cannot exist without the
indebtedness, which is the principal obligation. In the present case, the principal obligation is
the loan between the parties. The accessory obligation of a penal clause is to enforce the main
obligation of payment of the loan. If therefore the principal obligation does not exist the penalty
being accessory cannot exist.
Now then when is the penalty demandable? A penalty is demandable in case of non performance
or late performance of the main obligation. In other words in order that the penalty may arise
there must be a breach of the obligation either by total or partial non fulfillment or there is non
fulfillment in point of time which is called mora or delay. The debtor therefore violates the
obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there
is a demand. It is noteworthy that in the present case during all the period when the principal
obligation was still subsisting, although there were late amortizations there was no demand made
by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the
letter of plaintiff-appellant there was no demand for the payment of the penalty, hence the debtor
was no in mora in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F)
showing the total obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment
from defendant-appellee. Because of the demand for payment, Moonwalk made several payments
on September 29, October 9 and 19, 1979 respectively, all in all totalling P15,004,905.74 which
was a complete payment of its obligation as stated in Exhibit F. Because of this payment the
obligation of Moonwalk was considered extinguished, and pursuant to said extinguishment, the
real estate mortgages given by Moonwalk were released on October 9, 1979 and October 10, 1979
(Exhibits G and H). For all purposes therefore the principal obligation of defendant-appellee was
deemed extinguished as well as the accessory obligation of real estate mortgage; and that is the
reason for the release of all the Real Estate Mortgages on October 9 and 10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal clause which is also an accessory obligation
must also be deemed extinguished considering that the principal obligation was considered
extinguished, and the penal clause being an accessory obligation. That being the case, the
November 28, 1979 and its follow up letter dated December 17, 1979 (which parenthetically are
the only demands for payment of the penalties) are therefore ineffective as there was nothing to
demand. It would be otherwise, if the demand for the payment of the penalty was made prior to
the extinguishment of the obligation because then the obligation of Moonwalk would consist of:
1) the principal obligation 2) the interest of 12% on the principal obligation and 3) the penalty of
12% for late payment for after demand, Moonwalk would be in mora and therefore liable for the
penalty.
Let it be emphasized that at the time of the demand made in the letters of November 28, 1979
and December 17, 1979 as far as the penalty is concerned, the defendant-appellee was not in
default since there was no mora prior to the demand. That being the case, therefore, the demand
made after the extinguishment of the principal obligation which carried with it the
extinguishment of the penal clause being merely an accessory obligation, was an exercise in
futility.
3. At the time of the payment made of the full obligation on October 10, 1979 together with the
12% interest by defendant-appellee Moonwalk, its obligation was extinguished. It being
extinguished, there was no more need for the penal clause. Now, it is to be noted that penalty at
anytime can be modified by the Court. Even substantial performance under Art. 1234 authorizes
the Court to consider it as complete performance minus damages. Now, Art, 1229 Civil Code of
the Philippines provides:
"ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable."
If the penalty can be reduced after the principal obligation has been partly or irregularly complied
with by the debtor, which is nonetheless a breach of the obligation, with more reason the penal
clause is not demandable when full obligation has been complied with since in that case there is
no breach of the obligation. In the present case, there has been as yet no demand for payment
of the penalty at the time of the extinguishment of the obligation, hence there was likewise an
extinguishment of the penalty.
Let Us emphasize that the obligation of defendant-appellee was fully complied with by the debtor,
that is, the amount loaned together with the 12% interest has been fully paid by the appellee.
That being so, there is no basis for demanding the penal clause since the obligation has been
extinguished. Here there has been a waiver of the penal clause as it was not demanded before
the full obligation was fully paid and extinguished. Again, emphasis must be made on the fact
that plaintiff-appellant has not lost anything under the contract since in got back in full the
amount loan (sic) as well as the interest thereof. The same thing would have happened if the
obligation was paid on time, for then the penal clause, under the terms of the contract would not
apply. Payment of the penalty does not mean gain or loss of plaintiff-appellant since it is merely
for the purpose of enforcing the performance of the main obligation has been fully complied with
and extinguished, the penal clause has lost its raison d' entre." 5
89
We find no reason to depart from the appellate court's decision. We, however, advance the
following reasons for the denial of this petition.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal clause, he 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." (Emphasis Ours.)
A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has
a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force
of the obligation by the threat of greater responsibility in the event of breach. 7 From the
foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the
performance of his obligation. Thus, if there should be default, the penalty may be enforced. One
commentator of the Civil Code wrote:
"Now when is the penalty deemed demandable in accordance with the provisions of the Civil
Code? We must make a distinction between a positive and a negative obligation. With regard to
obligations which are positive (to give and to do), the penalty is demandable when the debtor is
in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 8
When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially or
extrajudicially demands from the obligor the performance of the obligation.
"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."
There are only three instances when demand is not necessary to render the obligor in default.
These are the following:
"(1) When the obligation or the law expressly so declares;
(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 the demand would be useless, as when the obligor has rendered it beyond his power to
perform." 9
This case does not fall within any of the established exceptions. Hence, despite the provision in
the promissory note that "(a)ll amortization payments shall be made every first five (5) days of
the calendar month until the principal and interest on the loan or any portion thereof actually
released has been fully paid," 10 petitioner is not excused from making a demand. It has been
established that at the time of payment of the full obligation, private respondent Moonwalk has
long been delinquent in meeting its monthly arrears and in paying the full amount of the loan
itself as the obligation matured sometime in January, 1977. But mere delinquency in payment
does not necessarily mean delay in the legal concept. To be in default ". . . is different from mere
delay in the grammatical sense, because it involves the beginning of a special condition or status
which has its own peculiar effects or results." 11 In order that the debtor may be in default it is
necessary that the following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially. 12 Default generally begins from the moment the
creditor demands the performance of the obligation. 13
Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its
monthly amortizations. Neither did it show that petitioner demanded the payment of the
stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the
complaint itself showed was that SSS tried to enforce the obligation sometime in September,
1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this
foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The
next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account
to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full. What is
clear, therefore, is that Moonwalk was never in default because SSS never compelled
performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon
the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand
for payment, the demand was complied with on time. Hence, no delay occurred and there was,
therefore, no occasion when the penalty became demandable and enforceable. Since there was
no default in the performance of the main obligation payment of the loan SSS was never
entitled to recover any penalty, not at the time it made the Statement of Account and certainly,
not after the extinguishment of the principal obligation because then, all the more that SSS had
no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even
mistake in the application for payment because there was nothing for SSS to waive as its right
to enforce the penalty did not arise.
SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds
it held were trust funds and as trustee, the petitioner could not perform acts affecting the funds
that would diminish property rights of the owners and beneficiaries thereof. To support its claim,
SSS cited the case of United Christian Missionary Society v. Social Security Commission. 14
We looked into the case and found out that it is not applicable to the present case as it dealt not
with the right of the SSS to collect penalties which were provided for in contracts which it entered
into but with its right to collect premiums and its duty to collect the penalty for delayed payment
or non-payment of premiums. The Supreme Court, in that case, stated:
"No discretion or alternative is granted respondent Commission in the enforcement of the law's
mandate that the employer who fails to comply with his legal obligation to remit the premiums
to the System within the prescribed period shall pay a penalty of three (3%) per month. The
prescribed penalty is evidently of a punitive character, provided by the legislature to assure that
employers do not take lightly the State's exercise of the police power in the implementation of
the Republic's declared policy "to develop, establish gradually and perfect a social security system
which shall be suitable to the needs of the people throughout the Philippines and (to) provide
protection to employers against the hazards of disability, sickness, old age and death . . ."
Thus, We agree with the decision of the respondent court on the matter which We quote, to wit:
"Note that the above case refers to the condonation of the penalty for the non remittance of the
premium which is provided for by Section 22(a) of the Social Security Act . . . In other words,
what was sought to be condoned was the penalty provided for by law for non remittance of
premium for coverage under the Social Security Act.
The case at bar does not refer to any penalty provided for by law nor does it refer to the non
remittance of premium. The case at bar refers to a contract of loan entered into between plaintiff
and defendant Moonwalk Development and Housing Corporation. Note, therefore, that no
provision of law is involved in this case, nor is there any penalty imposed by law nor a case about
non-remittance of premium required by law. The present case refers to a contract of loan payable
in installments not provided for by law but by agreement of the parties. Therefore, the ratio
decidendi of the case of United Christian Missionary Society vs. Social Security Commission
which plaintiff-appellant relies is not applicable in this case; clearly, the Social Security
90
Commission, which is a creature of the Social Security Act cannot condone a mandatory
provision of law providing for the payment of premiums and for penalties for non remittance. The
life of the Social Security Act is in the premiums because these are the funds from which the
Social Security Act gets the money for its purposes and the non-remittance of the premiums is
penalized not by the Social Security Commission but by law.

xxx xxx xxx

It is admitted that when a government created corporation enters into a contract with private
party concerning a loan, it descends to the level of a private person. Hence, the rules on contract
applicable to private parties are applicable to it. The argument therefore that the Social Security
Commission cannot waive or condone the penalties which was applied in the United Christian
Missionary Society cannot apply in this case. First, because what was not paid were installments
on a loan but premiums required by law to be paid by the parties covered by the Social Security
Act. Secondly, what is sought to be condoned or waived are penalties not imposed by law for
failure to remit premiums required by law, but a penalty for non payment provided for by the
agreement of the parties in the contract between them . . ." 15

WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the
respondent court is AFFIRMED. LLpr

SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

91
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 153004 November 5, 2004
SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner,
vs.
ERNESTO V. SANTOS and RIVERLAND, INC., respondents.
DECISION
QUISUMBING, J.:
Subject of the present petition for review on certiorari is the
Decision, 1
dated January 30, 2002,
as well as the April 12, 2002, Resolution2 of the Court of Appeals in CA-G.R. CV No. 55122. The
appellate court reversed the Decision, dated October 4, 1996, of the Regional Trial Court of
3
Makati City, Branch 148, in Civil Case No. 95-811, and likewise denied petitioner's Motion for
Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and
defendant, respectively, in several civil cases filed in different courts in the Philippines. On
October 26, 1990, the parties executed a Compromise Agreement4 which amicably ended all their
pending litigations. The pertinent portions of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following
manner:
a. P1.5 Million immediately upon the execution of this agreement;
b. The balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not
more than two (2) years from the execution of this agreement; provided,
however, that in the event that the Foundation does not pay the whole or
any part of such balance, the same shall be paid with the corresponding
portion of the land or real properties subject of the aforesaid cases and
previously covered by the notices of lis pendens, under such terms and
conditions as to area, valuation, and location mutually acceptable to both
parties; but in no case shall the payment of such balance be later than two
(2) years from the date of this agreement; otherwise, payment of any unpaid
portion shall only be in the form of land aforesaid;
2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5
Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos.
88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily withdraw the appeals
in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No. 24304)
respectively and for the immediate lifting of the aforesaid various notices of lis pendens
on the real properties aforementioned (by signing herein attached corresponding
documents, for such lifting); provided, however, that in the event that defendant
Foundation shall sell or dispose of any of the lands previously subject of lis pendens,
the proceeds of any such sale, or any part thereof as may be required, shall be partially
devoted to the payment of the Foundation's obligations under this agreement as may
still be subsisting and payable at the time of any such sale or sales;
...
5. Failure of compliance of any of the foregoing terms and conditions by either or both
parties to this agreement shall ipso facto and ipso jure automatically entitle the
aggrieved party to a writ of execution for the enforcement of this agreement. [Emphasis
supplied]5
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of
the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real
properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos,
leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real
properties, which were previously subjects of lis pendens. Discovering the disposition made by
the petitioner, respondent Santos sent a letter to the petitioner demanding the payment of the
remaining P13 million, which was ignored by the latter. Meanwhile, on September 30, 1991, the
Regional Trial Court of Makati City, Branch 62, issued a Decision6approving the compromise
agreement.
On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would
pay the balance of P13 million. There was no response from petitioner. Consequently, respondent
Santos applied with the Regional Trial Court of Makati City, Branch 62, for the issuance of a writ
of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ.
Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner, which were
formerly subjects of the lis pendens. Petitioner, however, filed numerous motions to block the
enforcement of the said writ. The challenge of the execution of the aforesaid compromise
judgment even reached the Supreme Court. All these efforts, however, were futile.
On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were
auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was
issued a Certificate of Sale covering the real properties subject of the auction sale. Subsequently,
another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in
Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for
both properties provided for the right of redemption within one year from the date of registration
of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and
Damages7 alleging that there was delay on the part of petitioner in paying the balance of P13
million. They further alleged that under the Compromise Agreement, the obligation became due
on October 26, 1992, but payment of the remaining P12 million was effected only on November
22, 1994. Thus, respondents prayed that petitioner be ordered to pay legal interest on the
obligation, penalty, attorney's fees and costs of litigation. Furthermore, they prayed that the
aforesaid sales be declared final and not subject to legal redemption.
In its Answer,8 petitioner countered that respondents have no cause of action against it since it
had fully paid its obligation to the latter. It further claimed that the alleged delay in the payment
of the balance was due to its valid exercise of its rights to protect its interests as provided under
the Rules. Petitioner counterclaimed for attorney's fees and exemplary damages.
On October 4, 1996, the trial court rendered a Decision9 dismissing herein respondents'
complaint and ordering them to pay attorney's fees and exemplary damages to petitioner.
92
Respondents then appealed to the Court of Appeals. The appellate court reversed the ruling of
the trial court:
WHEREFORE, finding merit in the appeal, the appealed Decision is hereby
REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay
appellants Santos and Riverland, Inc.: (1) legal interest on the principal amount of
P13 million at the rate of 12% per annum from the date of demand on October 28,
1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as
attorney's fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where petitioner assigns the following issues:
I persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT AWARDED LEGAL INTEREST IN FAVOR OF THE RESPONDENTS, MR.
SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT NEITHER IN
THE COMPROMISE AGREEMENT NOR IN THE COMPROMISE JUDGEMENT OF
HON. JUDGE DIOKNO PROVIDES FOR PAYMENT OF INTEREST TO THE
RESPONDENT
II
WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAL
IN[T]EREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC.,
NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE PETITIONER TO
RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD BEEN CONVERTED TO AN
OBLIGATION TO PAY IN KIND DELIVERY OF REAL PROPERTIES OWNED BY THE
PETITIONER WHICH HAD BEEN FULLY PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING PAYMENT OF
INTEREST BY REASON OF THE WAIVER PROVISION IN THE COMPROMISE
AGREEMENT, WHICH BECAME THE LAW AMONG THE PARTIES10
The only issue to be resolved is whether the respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not
provide for the payment of interest, the legal interest by way of penalty on account of fault or
delay shall not be due and payable, considering that the obligation or loan, on which the payment
of legal interest could be based, has been superseded by the compromise
agreement.11 Furthermore, the petitioner argues that the respondents are barred by res judicata
from seeking legal interest on account of the waiver clause in the duly approved compromise
agreement.12 Article 4 of the compromise agreement provides:
Plaintiff Santos waives and renounces any and all other claims that he and his family
may have on the defendant Foundation arising from and in connection with the
aforesaid civil cases, and defendant Foundation, on the other hand, also waives and
renounces any and all claims that it may have against plaintiff Santos in connection
with such cases.13 [Emphasis supplied.]
Lastly, petitioner alleges that since the compromise agreement did not provide for a period within
which the obligation will become due and demandable, it is incumbent upon respondent Santos
to ask for judicial intervention for purposes of fixing the period. It is only when a fixed period
exists that the legal interests can be computed.
Respondents profer that their right to damages is based on delay in the payment of the obligation
provided in the Compromise Agreement. The Compromise Agreement provides that payment
must be made within the two-year period from its execution. This was approved by the trial court
and became the law governing their contract. Respondents posit that petitioner's failure to
comply entitles them to damages, by way of interest. 14
The petition lacks merit.
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced. 15 It is an agreement between two or more
consent in the manner which they agree on, and which everyone of them prefers in the hope of
gaining, balanced by the danger of losing.16
The general rule is that a compromise has upon the parties the effect and authority of res
judicata, with respect to the matter definitely stated therein, or which by implication from its
terms should be deemed to have been included therein. 17 This holds true even if the agreement
has not been judicially approved.18
In the case at bar, the Compromise Agreement was entered into by the parties on October 26,
1990.19 It was judicially approved on September 30, 1991.20 Applying existing jurisprudence, the
compromise agreement as a consensual contract became binding between the parties upon its
execution and not upon its court approval. From the time a compromise is validly entered into,
it becomes the source of the rights and obligations of the parties thereto. The purpose of the
compromise is precisely to replace and terminate controverted claims. 21
In accordance with the compromise agreement, the respondents asked for the dismissal of the
pending civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the
execution of the agreement. This act of the petitioner showed that it acknowledges that the
agreement was immediately executory and enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the compromise agreement are clear
and unambiguous. It provides:
...
b. The balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not more than two
(2) years from the execution of this agreement22[Emphasis supplied.]
...
The two-year period must be counted from October 26, 1990, the date of execution of the
compromise agreement, and not on the judicial approval of the compromise agreement on
September 30, 1991. When respondents wrote a demand letter to petitioner on October 28, 1992,
the obligation was already due and demandable. When the petitioner failed to pay its due
obligation after the demand was made, it incurred delay.
Article 1169 of the New Civil Code provides:
93
 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.
[Emphasis supplied]

Delay as used in this article is synonymous to default or mora which means delay in the
fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. 23

In order for the debtor to be in default, it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially. 24

In the case at bar, the obligation was already due and demandable after the lapse of the two-
year period from the execution of the contract. The two-year period ended on October 26, 1992.
When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation
was already due and demandable. Furthermore, the obligation is liquidated because the debtor
knows precisely how much he is to pay and when he is to pay it.

The second requisite is also present. Petitioner delayed in the performance. It was able to fully
settle its outstanding balance only on February 8, 1995, which is more than two years after the
extra-judicial demand. Moreover, it filed several motions and elevated adverse resolutions to the
appellate court to hinder the execution of a final and executory judgment, and further delay the
fulfillment of its obligation.

Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an
extra-judicial demand contemplated by law.

Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This
is provided for in Article 117025 of the New Civil Code.

When the debtor knows the amount and period when he is to pay, interest as damages is
generally allowed as a matter of right. 26 The complaining party has been deprived of funds to
which he is entitled by virtue of their compromise agreement. The goal of compensation requires
that the complainant be compensated for the loss of use of those funds. This compensation is in
the form of interest.27 In the absence of agreement, the legal rate of interest shall prevail. 28 The
legal interest for loan as forbearance of money is 12% per annum 29 to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.30

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of
the Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED.
Costs against petitioner.

SO ORDERED.

Davide, Jr. C.J. (Chairman), Ynares-Santiago and Carpio, JJ., concur.

Azcuna, J., on leave.

94
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174269 May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd.,
in October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991,
the second to the last day of the tour. As the group had arrived late in the city, they failed to
engage in any sight-seeing. Instead, it was agreed upon that they would start early the next day
to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The
group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of
diamond polishing that lasted for around ten minutes. 1 Afterwards, the group was led to the
stores showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned
to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a
diamond close enough in approximation that she decided to buy.2 Mrs. Pantaleon also selected
for purchase a pendant and a chain, 3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with
his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before
the tour group was slated to depart from the store. The sales clerk took the cards imprint, and
asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and informed
the other members of the Pantaleon family that the entire tour group was waiting for them. As it
was already 9:40 a.m., and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to
wait a few more minutes. After 15 minutes, the store manager informed Pantaleon that
respondent had demanded bank references. Pantaleon supplied the names of his depositary
banks, then instructed his daughter to return to the bus and apologize to the tour group for the
delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and
30 minutes after the tour group was supposed to have left the store, Coster decided to release
the items even without respondents approval of the purchase. The spouses Pantaleon returned
to the bus. It is alleged that their offers of apology were met by their tourmates with stony
silence.4 The tour groups visible irritation was aggravated when the tour guide announced that
the city tour of Amsterdam was to be canceled due to lack of remaining time, as they had to
catch a 3:00 p.m. ferry at Calais, Belgium to London. 5 Mrs. Pantaleon ended up weeping, while
her husband had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleons purchase was first transmitted for approval to respondents
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at
9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time. 6 The Approval Code was
transmitted to respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had
already left Coster, and 78 minutes from the time the purchases were electronically transmitted
by the jewelry store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to
use his AmEx card, several times without hassle or delay, but with two other incidents similar
to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment
amounting to US $1,475.00 using his AmEx card, but he cancelled his credit card purchase and
borrowed money instead from a friend, after more than 30 minutes had transpired without the
purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase
childrens shoes worth $87.00 at a store in Boston, and it took 20 minutes before this transaction
was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he
and his family thereby suffered" for respondents refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992, 9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleons demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of
Makati City, Branch 145.11 Pantaleon prayed that he be awarded P2,000,000.00, as moral
damages; P500,000.00, as exemplary damages; P100,000.00, as attorneys fees; and P50,000.00
as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding
him P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as
attorneys fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal,
while Pantaleon moved for partial reconsideration, praying that the trial court award the
increased amount of moral and exemplary damages he had prayed for. 14The RTC denied
Pantaleons motion for partial reconsideration, and thereafter gave due course to respondents
Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages
in favor of Pantaleon, holding that respondent had not breached its obligations to petitioner.
Hence, this petition.
The key question is whether respondent, in connection with the aforementioned transactions,
had committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondents
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter
of seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on
the part of respondent in approving the purchases. However, it made two critical conclusions in
favor of respondent. First, the appellate court ruled that the delay was not attended by bad faith,
malice, or gross negligence. Second, it ruled that respondent "had exercised diligent efforts to
effect the approval" of the purchases, which were "not in accordance with the charge pattern"
petitioner had established for himself, as exemplified by the fact that at Coster, he was "making
95
his very first single charge purchase of US$13,826," and "the record of [petitioner]s past
spending with [respondent] at the time does not favorably support his ability to pay for such
purchase."17
On the premise that there was an obligation on the part of respondent "to approve or disapprove
with dispatch the charge purchase," petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of respondent in the performance
of its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation
to him as "to approve purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default
are that the obligation is demandable and liquidated; the debtor delays performance; and the
creditor judicially or extrajudicially requires the debtors performance. 18 Petitioner asserts that
the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates to delay
on the part of the obligee in accepting the performance of the obligation by the obligor. The
requisites of mora accipiendi are: an offer of performance by the debtor who has the required
capacity; the offer must be to comply with the prestation as it should be performed; and the
creditor refuses the performance without just cause.19 The error of the appellate court, argues
petitioner, is in relying on the invocation by respondent of "just cause" for the delay, since while
just cause is determinative of mora accipiendi, it is not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally,
the relationship between a credit card provider and its card holders is that of creditor-
debtor,20 with the card company as the creditor extending loans and credit to the card holder,
who as debtor is obliged to repay the creditor. This relationship already takes exception to the
general rule that as between a bank and its depositors, the bank is deemed as the debtor while
the depositor is considered as the creditor.21 Petitioner is asking us, not baselessly, to again shift
perspectives and again see the credit card company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to still regard
respondent as the creditor in the context of this cause of action. If there was delay on the part of
respondent in its normal role as creditor to the cardholder, such delay would not have been in
the acceptance of the performance of the debtors obligation (i.e., the repayment of the debt), but
it would be delay in the extension of the credit in the first place. Such delay would not fall under
mora accipiendi, which contemplates that the obligation of the debtor, such as the actual
purchases on credit, has already been constituted. Herein, the establishment of the debt itself
(purchases on credit of the jewelry) had not yet been perfected, as it remained pending the
approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioners
purchases with "timely dispatch," or for the purposes of this case, within a period significantly
less than the one hour it apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioners purchase at Coster did constitute culpable delay on its part
in complying with its obligation to act promptly on its customers purchase request, whether
such action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was a
matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the
three charge purchases subject of this case, approvals of his charge purchases were always
obtained in a matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval time for charges
would be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter
of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and
by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact,
the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that
defendants Amsterdam office received the request to approve plaintiffs charge purchase at 9:20
a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour
and [18] minutes. And even then, the approval was conditional as it directed in computerese [sic]
"Positive Identification of Card holder necessary further charges require bank information due to
high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive queries
of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise
how long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times
Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows
how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in
Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants
own record shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification of the cardmember has
been presented and he is buying jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to
act on his use of the card abroad "with special handling." 22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds,"
there really is no strict, legally determinative point of demarcation on how long must it take for
a credit card company to approve or disapprove a customers purchase, much less one
specifically contracted upon by the parties. Yet this is one of those instances when "youd know
it when youd see it," and one hour appears to be an awfully long, patently unreasonable length
96
of time to approve or disapprove a credit card purchase. It is long enough time for the customer A. Yes, sir.
to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the
purchase "in timely dispatch," and not "to approve the purchase instantaneously or within
seconds." Certainly, had respondent disapproved petitioners purchase "within seconds" or
within a timely manner, this particular action would have never seen the light of day. Petitioner
and his family would have returned to the bus without delay internally humiliated perhaps
over the rejection of his card yet spared the shame of being held accountable by newly-made
friends for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether
the credit it is extending upon on a particular purchase was indeed contracted by the cardholder,
and that the cardholder is within his means to make such transaction. The culpable failure of
respondent herein is not the failure to timely approve petitioners purchase, but the more
elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming
that respondents credit authorizers did not have sufficient basis on hand to make a judgment,
we see no reason why respondent could not have promptly informed petitioner the reason for the
delay, and duly advised him that resolving the same could take some time. In that way, petitioner
would have had informed basis on whether or not to pursue the transaction at Coster, given the
attending circumstances. Instead, petitioner was left uncomfortably dangling in the chilly
autumn winds in a foreign land and soon forced to confront the wrath of foreign folk.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account. 25
It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent incurred delay, but because the delay, for which culpability lies under Article
1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages
are remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so
this decision should not be cause for relief for those who time the length of their credit card
transactions with a stopwatch. The somewhat unusual attending circumstances to the purchase
at Coster that there was a deadline for the completion of that purchase by petitioner before any
delay would redound to the injury of his several traveling companions gave rise to the moral
shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by
the petitioner, as concluded by the RTC.27Those circumstances are fairly unusual, and should
not give rise to a general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-
and-fast rule in determining what would be a fair and reasonable amount of moral damages,
since each case must be governed by its own peculiar facts, however, it must be commensurate
to the loss or injury suffered.28 Petitioners original prayer for P5,000,000.00 for moral damages
is excessive under the circumstances, and the amount awarded by the trial court of P500,000.00
in moral damages more seemly.1avvphi1

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in
bad faith, and the court should find that under the circumstances, such damages are due. The Likewise, we deem exemplary damages available under the circumstances, and the amount
findings of the trial court are ample in establishing the bad faith and unjustified neglect of of P300,000.00 appropriate. There is similarly no cause though to disturb the determined award
respondent, attributable in particular to the "dilly-dallying" of respondents Manila credit of P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
authorizer, Edgardo Jaurique.23 Wrote the trial court:
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in
the amount of time it should take defendant to grant authorization for a charge purchase, Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
defendant acknowledged that the normal time for approval should only be three to four seconds.
Specially so with cards used abroad which requires "special handling", meaning with priority. SO ORDERED.
Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use
that buyers and consumers would be better off carrying bundles of currency or travellers checks,
which can be delivered and accepted quickly. Such right was not accorded to plaintiff in the DANTE O. TINGA
instances complained off for reasons known only to defendant at that time. This, to the Courts Associate Justice
mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations, or
at least abuse of its rights, under the contract. 24

xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith,
since it alleges to have consumed more than one hour to simply go over plaintiffs past credit
history with defendant, his payment record and his credit and bank references, when all such
data are already stored and readily available from its computer. This Court also takes note of the
fact that there is nothing in plaintiffs billing history that would warrant the imprudent
suspension of action by defendant in processing the purchase. Defendants witness Jaurique
admits:

Q. But did you discover that he did not have any outstanding account?

A. Nothing in arrears at that time.

Q. You were well aware of this fact on this very date?

97
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 176868 July 26, 2010
SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision1 dated September 21, 2006 and
Resolution2dated February 23, 2007, which denied petitioners motion for reconsideration. The
assailed Decision denied petitioners claim for reimbursement for the amount it paid to
respondent for the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes,
specifically designed for petitioners business of exporting fresh bananas, at US$1.10 each. The
agreement was not reduced into writing. To get the production underway, petitioner deposited,
on March 31, 1998, US$40,150.00 in respondents US Dollar Savings Account with Westmont
Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3,
2001, petitioner wrote a demand letter for reimbursement of the amount paid.3 On February 19,
2001, respondent replied that the boxes had been completed as early as April 3, 1998 and that
petitioner failed to pick them up from the formers warehouse 30 days from completion, as agreed
upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes,
out of which, 14,000 had been manufactured without any advanced payment from petitioner.
Respondent then demanded petitioner to remove the boxes from the factory and to pay the
balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages against
respondent. 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. It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of the ordered
boxes, but every time, defendant [would] only show samples of boxes and ma[k]e repeated
promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, 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$40,150.00 payment made by the former for the ordered
boxes.41avvphi1
In its Answer with Counterclaim,5 respondent insisted that, as early as April 3, 1998, it had
already completed production of the 36,500 boxes, contrary to petitioners allegation. According
to respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000
had been completed without waiting for petitioners payment. Respondent stated that petitioner
was to pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent
averred that, on October 8, 1998, petitioners representative, Bobby Que (Que), went to the
factory and saw that the boxes were ready for pick up. On February 20, 1999, Que visited the
factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost
of the unpaid 14,000 boxes, because petitioners transaction to ship bananas to China did not
materialize. Respondent claimed that the boxes were occupying warehouse space and that
petitioner should be made to pay storage fee at P60.00 per square meter for every month from
April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner
to pay $15,400.00, plus interest, moral and exemplary damages, attorneys fees, and costs of the
suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent
already completed the initial order of 36,500 boxes and 14,000 boxes out of the second order. It
maintained that
respondent only manufactured a sample of the ordered boxes and that respondent could not
have produced 14,000 boxes without the required pre-payments.6
During trial, petitioner presented Que as its sole witness. Que testified that he ordered the boxes
from respondent and deposited the money in respondents account. 7 He specifically stated that,
when he visited respondents factory, he saw that the boxes had no print of petitioners logo. 8 A
few months later, he followed-up the order and was told that the company had full production,
and thus, was promised that production of the order would be rushed. He told respondent that
it should indeed rush production because the need for the boxes was urgent. Thereafter, he
asked his partner, Alfred Ong, to cancel the order because it was already late for them to meet
their commitment to ship the bananas to China.9 On cross-examination, Que further testified
that China Zero Food, the Chinese company that ordered the bananas, was sending a ship to
Davao to get the bananas, but since there were no cartons, the ship could not proceed. He said
that, at that time, bananas from Tagum Agricultural Development Corporation (TADECO) were
already there. He denied that petitioner made an additional order of 24,000 boxes. He explained
that it took three years to refer the matter to counsel because respondent promised to pay. 10
For respondent, 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, they
inspected the boxes again and Que got more samples. Estanislao said that petitioner did not pick
up the boxes because the ship did not arrive.11 Jaime Tan (Tan), president of respondent, also
testified that his company finished production of the 36,500 boxes on April 3, 1998 and that
petitioner made a second order of 24,000 boxes. He said that the agreement was for respondent
to produce the boxes and for petitioner to pick them up from the warehouse. 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.13According to him, during the last visit of Que and Estanislao, he asked
them to withdraw the boxes immediately because they were occupying a big space in his plant,
but they, instead, told him to sell the cartons as rejects. He was able to sell 5,000 boxes at P20.00
each for a total of P100,000.00. They then told him to apply the said amount to the unpaid
balance.
In its March 2, 2004 Decision, 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. 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. It thus dismissed the complaint and respondents counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and
against the plaintiff and, accordingly, plaintiffs complaint is hereby ordered DISMISSED without
pronouncement as to cost. Defendants counterclaims are similarly dismissed for lack of merit.
98
SO ORDERED.14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of merit. 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. According to the CA, it was unthinkable that,
over a period of more than two years, petitioner did not even demand for the delivery of the boxes.
The CA added that even assuming that the agreement was for respondent to deliver the boxes,
respondent would not be liable for breach of contract as petitioner had not yet demanded from
it the delivery of the boxes.16
Petitioner moved for reconsideration,17 but the motion was denied by the CA in its Resolution of
February 23, 2007.18
In this petition, petitioner insists that respondent did not completely manufacture the boxes and
that it was respondent which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant of this petition.
Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract
under Article 1191 of the Civil Code, which reads:
Art. 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
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with
Art. 1169 of the same law, which provides:
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 declares; 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.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the
parties respective obligations should be simultaneous. Hence, no demand is generally necessary
because, once a party fulfills his obligation and the other party does not fulfill his, the latter
automatically incurs in delay. But when different dates for performance of the obligations are
fixed, the default for each obligation must be determined by the rules given in the first paragraph
of the present article,19 that is, the other party would incur in delay only from the moment the
other party demands fulfillment of the formers obligation. Thus, even in reciprocal obligations,
if the period for the fulfillment of the obligation is fixed, 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.
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. The
Complaint only alleged that petitioner made a "follow-up" upon respondent, which, however,
would not qualify as a demand for the fulfillment of the obligation. Petitioners witness also
testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact
that, with respect to their claim for reimbursement, the Complaint alleged and the witness
testified that a demand letter was sent to respondent. Without a previous demand for the
fulfillment of the obligation, 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.
Even assuming that a demand had been previously made before filing the present case,
petitioners claim for reimbursement would still fail, as the circumstances would show that
respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not usually reviewed in a petition for
review under Rule 45.20 The Court, in petitions for review, limits its inquiry only to questions of
law. After all, it is not a trier of facts, and findings of fact made by the trial court, especially when
reiterated by the CA, must be given great respect if not considered as final.21 In dealing with this
petition, we will not 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.
As correctly observed by the CA, aside from the pictures of the finished boxes and the production
report thereof, there is ample showing that the boxes had already been manufactured by
respondent. There is the testimony of Estanislao who accompanied Que to the factory, attesting
that, during their first visit to the company, they saw the pile of petitioners boxes and Que took
samples thereof. Que, petitioners witness, himself confirmed this incident. He testified that Tan
pointed the boxes to him and that he got a sample and saw that it was blank. Ques absolute
assertion that the boxes were not manufactured is, therefore, implausible and suspicious.
In fact, we note that respondents counsel manifested in court, during trial, that his client was
willing to shoulder expenses for a representative of the court to visit the plant and see the
boxes.22 Had it been true that the boxes were not yet completed, respondent would not have been
so bold as to challenge the court to conduct an ocular inspection of their warehouse. Even in its
Comment to this petition, respondent prays that petitioner be ordered to remove the boxes from
its factory site,23 which could only mean that the boxes are, up to the present, still in
respondents premises.
99
We also believe that the agreement between the parties was for petitioner to pick up the boxes A. Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan
from respondents warehouse, contrary to petitioners allegation. Thus, it was due to petitioners to rush the carton but not26
fault that the boxes were not delivered to TADECO.

Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the
boxes within 30 days from payment, as alleged in the Complaint. Its sole witness, Que, was not
even competent to testify on the terms of the agreement and, therefore, we cannot give much A. Because I have not seen any of my carton.
credence to his testimony. It appeared from the testimony of Que that he did not personally place
the order with Tan, thus: Q. You dont have any authority yet given to Mr. Tan?

Q. No, my question is, you went to Davao City and placed your order there? A. None, your Honor.27

A. I made a phone call. Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes
within its premises.
Q. You made a phone call to Mr. Tan?
In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr. evidence having shown that respondent did not commit any breach of its contractual obligation.
Tan. As previously stated, the subject boxes are still within respondents premises. To put a rest to
this dispute, we therefore relieve respondent from the burden of having to keep the boxes within
its premises and, consequently, give it the right to dispose of them, after petitioner is given a
Q. So, your first statement that you were the one who placed the order is not true? period of time within which to remove them from the premises.

A. Thats true. The Solar Harvest made a contact with Mr. Tan and I deposited the WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
money in the bank. September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In addition,
petitioner is given a period of 30 days from notice within which to cause the removal of the 36,500

Q. You said a while ago [t]hat you were the one who called Mr. Tan and placed the
order for 36,500 boxes, isnt it? boxes from respondents warehouse. After the lapse of said period and petitioner fails to effect
such removal, respondent shall have the right to dispose of the boxes in any manner it may deem
fit.
A. First time it was Mr. Alfred Ong.

SO ORDERED.
Q. It was Mr. Ong who placed the order[,] not you?

ANTONIO EDUARDO B. NACHURA

A. Yes, sir.24 Associate Justice

Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?

A. Yes, sir.25

Moreover, assuming that respondent was obliged to deliver the boxes, it could not
have complied with such obligation. Que, insisting that the boxes had not been
manufactured, admitted that he did not give respondent the authority to deliver the
boxes to TADECO:

Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?

A. No, sir. As I have said, before the delivery, we must have to check the carton, the
quantity and quality. But I have not seen a single carton.

Q. Are you trying to impress upon the [c]ourt that it is only after the boxes are
completed, will you give authority to Mr. Tan to deliver the boxes to TADECO[?]

100
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171428 November 11, 2013
ALEJANDRO V. TANKEH, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING LINES, INC., RUPERTO
V. TANKEH, VICENTE ARENAS, and ASSET PRIVATIZATION TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the assailed October 25, 2005 Decision
and the February 9, 2006 Resolution of the Court of Appeals1 be reversed, and that the January
4, 1996 Decision of the Regional Trial Court of Manila Branch 32 be affirmed. Petitioner prays
that this Court grant his claims for moral damages and attorneys fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc. It was
incorporated on April 23, 1979 to operate ocean-going vessels engaged primarily in foreign
trade.2 Ruperto V. Tankeh applied for a $3.5 million loan from public respondent Development
Bank of the Philippines for the partial financing of an ocean-going vessel named the M/V Golden
Lilac. To authorize the loan, Development Bank of the Philippines required that the following
conditions be met:
1) A first mortgage must be obtained over the vessel, which by then had been renamed the M/V
Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as well as
respondents Sterling Shipping Lines, Inc. and Vicente Arenas should become liable jointly and
severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds of Charter and Shipping
Contracts, should be assigned to Development Bank of the Philippines; and
4) Development Bank of the Philippines should be assigned no less than 67% of the total
subscribed and outstanding voting shares of the company. The percentage of shares assigned
should be maintained at all times, and the assignment was to subsist as long as the assignee,
Development Bank of the Philippines, deemed it necessary during the existence of the loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh approached him sometime
in 1980.4 Ruperto informed petitioner that he was operating a new shipping line business.
Petitioner claimed that respondent, who is also petitioners younger brother, had told him that
petitioner would be given one thousand (1,000) shares to be a director of the business. The shares
were worth P1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares of Stock with Voting
Rights.6 Petitioner then signed the May 12, 1981 promissory note in December 1981. He was the
last to sign this note as far as the other signatories were concerned.7 The loan was approved by
respondent Development Bank of the Philippines on March 18, 1981. The vessel was acquired
on September 29, 1981 for $5.3 million.8 On December 3, 1981, respondent corporation Sterling
Shipping Lines, Inc. through respondent Ruperto V. Tankeh executed a Deed of Assignment in
favor of Development Bank of the Philippines. The deed stated that the assignor, Sterling
Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE (DBP), its successors and assigns,
future earnings of the mortgaged M/V "Sterling Ace," including proceeds of charter and shipping
contracts, it being understood that this assignment shall continue to subsist for as long as the
ASSIGNORS obligation with the herein ASSIGNEE remains unpaid. 9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh saying that he was
severing all ties and terminating his involvement with Sterling Shipping Lines, Inc. 10 He required
that its board of directors pass a resolution releasing him from all liabilities, particularly the loan
contract with Development Bank of the Philippines. In addition, petitioner asked that the private
respondents notify Development Bank of the Philippines that he had severed his ties with Sterling
Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the Development Bank of the
Philippines were transferred to public respondent Asset Privatization Trust on June 30, 1986. 12
Presently, respondent Asset Privatization Trust is known as the Privatization and Management
Office. Asset Privatization Trust was a government agency created through Presidential
Proclamation No. 50, issued in 1986. Through Administrative Order No. 14, issued by former
President Corazon Aquino dated February 3, 1987, assets including loans in favor of
Development Bank of the Philippines were ordered to be transferred to the national government.
In turn, the management and facilitation of these assets were delegated to Asset Privatization
Trust, pursuant to Presidential Proclamation No. 50. In 1999, Republic Act No. 8758 was signed
into law, and it provided that the corporate term of Asset Privatization Trust would end on
December 31, 2000. The same law empowered the President of the Philippines to determine
which office would facilitate the management of assets held by Asset Privatization Trust. Thus,
on December 6, 2000, former President Joseph E. Estrada signed Executive Order No. 323,
creating the Privatization Management Office. Its present function is to identify disposable assets,
monitor the progress of privatization activities, and approve the sale or divestment of assets with
respect to price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00 by
Development Bank of the Philippines legal counsel Atty. Prospero N. Nograles. When petitioner
came to know of the sale, he wrote respondent Development Bank of the Philippines to express
that the final price was inadequate, and therefore, the transaction was irregular. At this time,
petitioner was still bound as a debtor because of the promissory note dated May 12, 1981, which
petitioner signed in December of 1981. The promissory note subsisted despite Sterling Shipping
Lines, Inc.s assignment of all future earnings of the mortgaged M/V Sterling Ace to Development
Bank of the Philippines. The loan also continued to bind petitioner despite Sterling Shipping
Lines, Inc.s cash equity contribution of P13,663,200.00 which was used to cover part of the
acquisition cost of the vessel, pre-operating expenses, and initial working capital. 14
Petitioner filed several Complaints15 against respondents, praying that the promissory note be
declared null and void and that he be absolved from any liability from the mortgage of the vessel
and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together with Vicente
L. Arenas, Jr. and Jose Maria Vargas, had exercised deceit and fraud in causing petitioner to
bind himself jointly and severally to pay respondent Development Bank of the Philippines the
amount of the mortgage loan.16 Although he had been made a stockholder and director of the
respondent corporation Sterling Shipping Lines, Inc., petitioner alleged that he had never
invested any amount in the corporation and that he had never been an actual member of the
board of directors.17 He alleged that all the money he had supposedly invested was provided by
respondent Ruperto V. Tankeh.18 He claimed that he only attended one meeting of the board. In
101
that meeting, he was introduced to two directors representing Development Bank of the
Philippines, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Other than that, he had never
been notified of another meeting of the board of directors.
Petitioner further claimed that he had been excluded deliberately from participating in the affairs
of the corporation and had never been compensated by Sterling Shipping Lines, Inc. as a director
and stockholder.19According to petitioner, when Sterling Shipping Lines, Inc. was organized,
respondent Ruperto V. Tankeh had promised him that he would become part of the
administration staff and oversee company operations. Respondent Ruperto V. Tankeh had also
promised petitioner that the latters son would be given a position in the company. 20 However,
after being designated as vice president, petitioner had not been made an officer and had been
alienated from taking part in the respondent corporation. 21
Petitioner also alleged that respondent Development Bank of the Philippines had been
inexcusably negligent in the performance of its duties. 22 He alleged that Development Bank of
the Philippines must have been fully aware of Sterling Shipping Lines, Inc.s financial situation.
Petitioner claimed that Sterling Shipping Lines, Inc. was controlled by the Development Bank of
the Philippines because 67% of voting shares had been assigned to the latter. 23 Furthermore, the
mortgage contracts had mandated that Sterling Shipping Lines, Inc. "shall furnish the DBP with
copies of the minutes of each meeting of the Board of Directors within one week after the meeting.
Sterling Shipping Lines Inc. shall likewise furnish DBP its annual audited financial statements
and other information or data that may be needed by DBP as its accommodations [sic] with DBP
are outstanding."24Petitioner further alleged that the Development Bank of the Philippines had
allowed "highly questionable acts"25 to take place, including the gross undervaluing of the M/V
Sterling Aces.26 Petitioner alleged that one day after Development Bank of the Philippines Atty.
Nograles sold the vessel, the ship was re-sold by its buyer for double the amount that the ship
had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that since Arenas had been the
treasurer of Sterling Shipping Lines, Inc. and later on had served as its vice president, he was
also responsible for the financial situation of Sterling Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner impleaded respondent Asset
Privatization Trust for being the agent and assignee of the M/V Sterling Ace.
In their Answers28 to the Complaints, respondents raised the following defenses against
petitioner: Respondent Development Bank of the Philippines categorically denied receiving any
amount from Sterling Shipping Lines, Inc.s future earnings and from the proceeds of the
shipping contracts. It maintained that equity contributions could not be deducted from the
outstanding loan obligation that stood at P245.86 million as of December 31, 1986. Development
Bank of the Philippines also maintained that it is immaterial to the case whether the petitioner
is a "real stockholder" or merely a "pseudo-stockholder" of the corporation.29 By affixing his
signature to the loan agreement, he was liable for the obligation. According to Development Bank
of the Philippines, he was in pari delicto and could not be discharged from his obligation.
Furthermore, petitioner had no cause of action against Development Bank of the Philippines
since this was a case between family members, and earnest efforts toward compromise should
have been complied with in accordance with Article 222 of the Civil Code of the Philippines. 30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily signed the promissory note
in favor of Development Bank of the Philippines and with full knowledge of the consequences.
Respondent Tankeh also alleged that he did not employ any fraud or deceit to secure petitioners
involvement in the company, and petitioner had been fully aware of company operations. Also,
all that petitioner had to do to avoid liability had been to sell his shareholdings in the company. 31
Respondent Asset Privatization Trust raised that petitioner had no cause of action against them
since Asset Privatization Trust had been mandated under Proclamation No. 50 to take title to
and provisionally manage and dispose the assets identified for privatization or deposition within
the shortest possible period. Development Bank of the Philippines had transferred and conveyed
all its rights, titles, and interests in favor of the national government in accordance with
Administrative Order No. 14. In line with that, Asset Privatization Trust was constituted as
trustee of the assets transferred to the national government to effect privatization of these assets,
including respondent Sterling Shipping Lines, Inc. 32 Respondent Asset Privatization Trust also
filed a compulsory counterclaim against petitioner and its co-respondents Sterling Shipping
Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr. for the amount of P264,386,713.84.
Respondent Arenas did not file an Answer to any of the Complaints of petitioner but filed a Motion
to Dismiss that the Regional Trial Court denied. Respondent Asset Privatization Trust filed a
Cross Claim against Arenas. In his Answer33 to Asset Privatization Trusts Cross Claim, Arenas
claimed that he had been released from any further obligation to Development Bank of the
Philippines and its successor Asset Privatization Trust because an extension had been granted
by the Development Bank of the Philippines to the debtors of Sterling Shipping Lines, Inc. and/or
Ruperto V. Tankeh, which had been secured without Arenas consent.
The trial proceeded with the petitioner serving as a sole witness for his case. In a January 4,
1996 Decision,34 the Regional Trial Court ruled:
Here, we find
1. Plaintiff being promised by his younger brother, Ruperto V. Tankeh, 1,000 shares
with par value of P1 Million with all the perks and privileges of being stockholder and
director of SSLI, a new international shipping line;
2. That plaintiff will be part of the administration and operation of the business, so
with his son who is with the law firm Romulo Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real McCoy or the primordial
end of congregating the incorporators proposed - - that he sign the promissory note
(Exhibit "C"), the mortgage contract (Exhibit "A"), and deed of assignment so SSLI
could get the US $3.5 M loan from DBP to partially finance the importation of vessel
M.V. "Golden Lilac" renamed M.V. "Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and Vice-President in 1979
but he was never notified of any meeting of the Board except only once, and only to be
introduced to the two (2) directors representing no less than 67% of the total
subscribed and outstanding voting shares of the company. Thereafter, he was
excluded from any board meeting, shorn of his powers and duties as director or Vice-
President, and was altogether deliberately demeaned as an outsider.
5. What kind of a company is SSLI who treated one of their incorporators, one of their
Directors and their paper Vice-President in 1979 by preventing him access to
corporate books, to corporate earnings, or losses, and to any compensation or
remuneration whatsoever? Whose President and Treasurer did not submit the
required SEC yearly report? Who did not remit to DBP the proceeds on charter
mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was then diverted to
Singapore to be disposed on negotiated sale, and not by public bidding contrary to
COA Circular No. 86-264 and without COAs approval. Sterling Ace was seaworthy but
was sold as scrap in Singapore. No foreclosure with public bidding was made in
contravention of the Promissory Note to recover any deficiency should DBP seeks [sic]
to recover it on the outstanding mortgage loan. Moreover the sale was done after the
account and asset (nay, now only a liability) were transferred to APT. No approval of
SSLI Board of Directors to the negotiated sale was given.
102
 7. Plaintiffs letter to his brother President, Ruperto V. Tankeh, dated June 15, 1983
(Exhibit "D") his letter thru his lawyer to DBP (Exhibit "J") and another letter to it
(Exhibit "K") show no estoppel on his part as he consistently and continuously assailed
the several injurious acts of defendants while assailing the Promissory Note itself x x
x (Citations omitted) applying the maxim: Rencintiatio non praesumitur. By this Dr.
Tankeh never waived the right to question the Promissory Note contract terms. He did
not ratify, by concurring acts, express or tacit, after the reasons had surfaced entitling
him to render the contract voidable, defendants acts in implementing or not the
conditions of the mortgage, the promissory note, the deed of assignment, the lack of
audit and accounting, and the negotiated sale of MV Sterling Ace. He did not ratify
defendants [sic] defective acts (Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the fraud committed by plaintiffs
brother before the several documents were signed (SEC documents, Promissory Note, Mortgage
(MC) Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the latter of his new
shipping business. The project was good business proposal [sic].
2. Ruperto tells Alejandro hes giving him shares worth P1 Million and hes going to be
a Director.
3. He tells his brother that he will be part of the companys Administration and
Operations and his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one for the business,
and they therefore need a loan, and they could secure a loan from DBP with the vessel
brought to have a first mortgage with DBP but anyway the other two directors and
comptroller will be from DBP with a 67% SSLI shares voting rights.
Without these insidious, devastating and alluring words, without the machinations used by
defendant Ruperto V. Tankeh upon the doctor, without the inducement and promise of
ownership of shares and the exercise of administrative and operating functions, and the partial
financing by one of the best financial institutions, the DBP, plaintiff would not have agreed to
join his brother; and the safeguarding of the Banks interest by its nominated two (2) directors
in the Board added to his agreeing to the new shipping business. His consent was vitiated by the
fraud before the several contracts were consummated.
This alone convenes [sic] this Court to annul the Promissory Note as it relates to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19, NCC, provides him the way as it
requires every person, in the exercise of his rights and performance of his duties, to act with
justice, give everyone his due, and observe honesty and good faith (Velayo vs. Shell Co. of the
Phils., G.R. L-7817, October 31, 1956). Not to release him from the clutch of the Promissory Note
when he was never made a part of the operation of the SSLI, when he was not notified of the
Board Meetings, when the corporation nary remitted earnings of M/V Sterling Ace from charter
or shipping contracts to DBP, when the SSLI did not comply with the deed of assignment and
mortgage contract, and when the vessel was sold in Singapore (he, learning of the sale only from
the newspapers) in contravention of the Promissory Note, and which he questioned, will be an
injustice, inequitable, and even iniquitous to plaintiff. SSLI and the private defendants did not
observe honesty and good faith to one of their incorporators and directors. As to DBP, the Court
cannot put demerits on what plaintiffs memorandum has pointed out:
While defendant DBP did not exercise the caution and prudence in the discharge of their
functions to protect its interest as expected of them and worst, allowed the perpetuation of the
illegal acts committed in contrast to the virtues they publicly profess, namely: "palabra de honor,
delicadeza, katapatan, kaayusan, pagkamasinop at kagalingan" Where is the vision banking they
have for our country?
Had DBP listened to a cry in the wilderness that of the voice of the doctor the doctor would
not have allowed the officers and board members to defraud DBP and he would demand of them
to hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiffs consent to be with SSLI was vitiated by fraud. The fact
that defendant Ruperto Tankeh has not questioned his liability to DBP or that Jose Maria Vargas
has been declared in default do not detract from the fact that there was attendant fraud and that
there was continuing fraud insofar as plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang sense of righteous indignation
and fairness, tatahimik na lang siya, sira naman ang pinangangalagaan niyang pangalan, honor
and family prestige [sic] (Emphasis provided). 35
xxxx
All of the defendants counterclaims and cross-claims x x x including plaintiffs and the other
defendants prayer for damages are not, for the moment, sourced and proven by substantial
evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the Promissory Note (Exhibit "C") and the
Mortgage Contract (Exhibit "A") null and void insofar as plaintiff DR. ALEJANDRO V. TANKEH is
concerned, hereby ANNULS and VOIDS those documents as to plaintiff, and it is hereby further
ordered that he be released from any obligation or liability arising therefrom.
All the defendants counterclaims and cross-claims and plaintiffs and defendants prayer for
damages are hereby denied and dismissed, without prejudice.
SO ORDERED.36
Respondents Ruperto V. Tankeh, Asset Privatization Trust, and Arenas immediately filed their
respective Notices of Appeal with the Regional Trial Court. The petitioner filed a Motion for
Reconsideration with regard to the denial of his prayer for damages. After this Motion had been
denied, he then filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third Division of the Court of Appeals
reversed the trial courts findings. The Court of Appeals held that petitioner had no cause of
action against public respondent Asset Privatization Trust. This was based on the Court of
Appeals assessment of the case records and its findings that Asset Privatization Trust did not
commit any act violative of the right of petitioner or constituting a breach of Asset Privatization
Trusts obligations to petitioner. The Court of Appeals found that petitioners claim for damages
against Asset Privatization Trust was based merely on his own self-serving allegations.38
As to the finding of fraud, the Court of Appeals held that:
xxxx
In all the complaints from the original through the first, second and third amendments, the
plaintiff imputes fraud only to defendant Ruperto, to wit:
103
4. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V. Tankeh, plaintiff,
together with Vicente L. Arenas, Jr. and Jose Maria Vargas signed a promissory note in favor of
the defendant, DBP, wherein plaintiff bound himself to jointly and severally pay the DBP the
amount of the mortgage loan. This document insofar as plaintiff is concerned is a simulated
document considering that plaintiff was never a real stockholder of Sterling Shipping Lines, Inc.
(Emphasis provided)
More allegations of deceit were added in the Second Amended Complaint, but they are also
attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE FACT THAT
when the Sterling Shipping Lines, Inc. was organized in 1980, Ruperto V. Tankeh promised
plaintiff that he would be a part of the administration staff so that he could oversee the operation
of the company. He was also promised that his son, a lawyer, would be given a position in the
company. None of these promsies [sic] was complied with. In fact he was not even allowed to find
out the data about the income and expenses of the company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT
PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE STERLING SHIPPING
LINES INC. ONLY ONCE, WHICH WAS FOR THE SOLE PURPOSE OF INTRODUCING HIM TO
THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE STERLING SHIPPING LINES, INC.,
NAMELY, MR. JESUS MACALINAG AND MR. GIL CORPUS. THEREAFTER HE WAS NEVER
INVITED AGAIN. PLAINTIFF WAS NEVER COMPENSATED BY THE STERLING SHIPPING LINES,
INC. FOR HIS BEING A SO-CALLED DIRECTOR AND STOCKHOLDER.
xxxx
8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER PLAINTIFF MADE EARNEST
EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS BROTHER RUPERTO V.
TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO AFTER THE
NEWS OF THE SALE OF THE STERLING ACE WAS PUBLISHED AT THE NEWSPAPER,
PLAINTIFF TRIED ALL EFFORTS TO CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH AVOIDED ALL
CONTACTS WITH THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK LEGAL ASSISTANCE
FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the other defendants, namely,
the DBP, Vicente Arenas, Sterling Shipping Lines, Inc., and the Asset Privatization Trust, the
plaintiffs evidence thereon should only be against Ruperto, since a plaintiff is bound to prove
only the allegations of his complaint. In any case, no evidence of fraud or deceit was ever
presented against defendants DBP, Arenas, SSLI and APT.
As to the evidence against Ruperto, the same consists only of the testimony of the plaintiff. None
of his documentary evidence would prove that Ruperto was guilty of fraud or deceit in causing
him to sign the subject promissory note.39
xxxx
Analyzing closely the foregoing statements, we find no evidence of fraud or deceit. The mention
of a new shipping lines business and the promise of a free 1,000-share and directorship in the
corporation do not amount to insidious words or machinations. In any case, the shipping
business was indeed established, with the plaintiff himself as one of the incorporators and
stockholders with a share of 4,000, worth P4,000,000.00 of which P1,000,000.00 was reportedly
paid up. As such, he signed the Articles of Incorporation and the corporations By-Laws which
were registered with the Securities and Exchange Commission in April 1979. It was not until
May 12, 1981 that he signed the questioned promissory note. From his own declaration at the
witness stand, the plaintiff signed the promissory note voluntarily. No pressure, force or
intimidation was made to bear upon him. In fact, according to him, only a messenger brought
the paper to him for signature. The promised shares of stock were given and recorded in the
plaintiffs name. He was made a director and Vice-President of SSLI. Apparently, only the promise
that his son would be given a position in the company remained unfulfilled. However, the same
should have been threshed out between the plaintiff and his brother, defendant Ruperto, and its
non-fulfillment did not amount to fraud or deceit, but was only an unfulfilled promise.
It should be pointed out that the plaintiff is a doctor of medicine and a seasoned businessman.
It cannot be said that he did not understand the import of the documents he signed. Certainly
he knew what he was signing. He should have known that being an officer of SSLI, his signing
of the promissory note together with the other officers of the corporation was expected, as the
other officers also did. It cannot therefore be said that the promissory note was simulated. The
same is a contract validly entered into, which the parties are obliged to comply with. 40(Citations
omitted)
The Court of Appeals ruled that in the absence of any competent proof, Ruperto V. Tankeh did
not commit any fraud. Petitioner Alejandro V. Tankeh was unable to prove by a preponderance
of evidence that fraud or deceit had been employed by Ruperto to make him sign the promissory
note. The Court of Appeals reasoned that:
Fraud is never presumed but must be proved by clear and convincing evidence, mere
preponderance of evidence not even being adequate. Contentions must be proved by competent
evidence and reliance must be had on the strength of the partys evidence and not upon the
weakness of the opponents defense. The plaintiff clearly failed to discharge such
burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment and ordered that plaintiffs
Complaint be dismissed. Petitioner filed a Motion for Reconsideration dated October 25, 2005
that was denied in a Resolution42promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of Appeals seriously erred and gravely
abused its discretion in acting and deciding as if the evidence stated in the Decision of the
Regional Trial Court did not exist. He averred that the ruling of lack of cause of action had no
leg to stand on, and the Court of Appeals had unreasonably, whimsically, and capriciously
ignored the ample evidence on record proving the fraud and deceit perpetrated on the petitioner
by the respondent. He stated that the appellate court failed to appreciate the findings of fact of
the lower court, which are generally binding on appellate courts. He also maintained that he is
entitled to damages and attorney's fees due to the deceit and machinations committed by the
respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that petitioner had chosen the
wrong remedy. He ought to have filed a special civil action of certiorari and not a Petition for
Review. Petitioner raised questions of fact, and not questions of law, and this required the review
or evaluation of evidence. However, this is not the function of this Court, as it is not a trier of
facts. He also contended that petitioner had voluntarily entered into the loan agreement and the
position with Sterling Shipping Lines, Inc. and that he did not fraudulently induce the petitioner
to enter into the contract.
Respondents Development Bank of the Philippines and Asset Privatization Trust also contended
that petitioner's mode of appeal had been wrong, and he had actually sought a special civil action
of certiorari. This alone merited its dismissal.
104
The main issue in this case is whether the Court of Appeals erred in finding that respondent Types of Fraud in Contracts
Rupert V. Tankeh did not commit fraud against the petitioner.

Fraud is defined in Article 1338 of the Civil Code as:

The Petition is partly granted.
x x x fraud when, through insidious words or machinations of one of the contracting parties, the
Before disposing of the main issue in this case, this Court needs to address a procedural issue other is induced to enter into a contract which, without them, he would not have agreed to.
raised by respondents. Collectively, respondents argue that the Petition is actually one of
certiorari under Rule 65 of the Rules of Court43 and not a Petition for Review on Certiorari under
Rule 45.44 Thus, petitioners failure to show that there was neither appeal nor any other plain, This is followed by the articles which provide legal examples and illustrations of fraud.
speedy or adequate remedy merited the dismissal of the Complaint.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
Contrary to respondents imputation, the remedy contemplated by petitioner is clearly that of a bound by confidential relations, constitutes fraud. (n)
Rule 45 Petition for Review. In Tagle v. Equitable PCI Bank, 45 this Court made the distinction
between a Rule 45 Petition for Review on Certiorari and a Rule 65 Petition for Certiorari: Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent. (n)
Certiorari is a remedy designed for the correction of errors of jurisdiction, not errors of
judgment.1wphi1 In Pure Foods Corporation v. NLRC, we explained the simple reason for the Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and
rule in this light: When a court exercises its jurisdiction, an error committed while so engaged the other party has relied on the former's special knowledge. (n)
does not deprive it of the jurisdiction being exercised when the error is committed x x x.
Consequently, an error of judgment that the court may commit in the exercise of its jurisdiction
is not correctable through the original civil action of certiorari. Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)
xxxx
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
Even if the findings of the court are incorrect, as long as it has jurisdiction over the case, such
correction is normally beyond the province of certiorari. Where the error is not one of jurisdiction, The distinction between fraud as a ground for rendering a contract voidable or as basis for an
but of an error of law or fact a mistake of judgment, appeal is the remedy. award of damages is provided in Article 1344:

In this case, what petitioner seeks to rectify may be construed as errors of judgment of the Court In order that fraud may make a contract voidable, it should be serious and should not have been
of Appeals. These errors pertain to the petitioners allegation that the appellate court failed to employed by both contracting parties.
uphold the findings of facts of the lower court. He does not impute any error with respect to the
Court of Appeals exercise of jurisdiction. As such, this Petition is simply a continuation of the
appellate process where a case is elevated from the trial court of origin, to the Court of Appeals, Incidental fraud only obliges the person employing it to pay damages. (1270)
and to this Court via Rule 45.
There are two types of fraud contemplated in the performance of contracts: dolo incidente or
Contrary to respondents arguments, the allegations of petitioner that the Court of Appeals incidental fraud and dolo causante or fraud serious enough to render a contract voidable.
"committed grave abuse of discretion"46 did not ipso facto render the intended remedy that of
certiorari under Rule 65 of the Rules of Court. 47
In Geraldez v. Court of Appeals,50 this Court held that:

In any case, even if the Petition is one for the special civil action of certiorari, this Court has the
This fraud or dolo which is present or employed at the time of birth or perfection of a contract
discretion to treat a Rule 65 Petition for Certiorari as a Rule 45 Petition for Review on Certiorari.
may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article
This is allowed if (1) the Petition is filed within the reglementary period for filing a Petition for
1338, are those deceptions or misrepresentations of a serious character employed by one party
review; (2) when errors of judgment are averred; and (3) when there is sufficient reason to justify
and without which the other party would not have entered into the contract. Dolo incidente, or
the relaxation of the rules.48 When this Court exercises this discretion, there is no need to comply
incidental fraud which is referred to in Article 1344, are those which are not serious in character
with the requirements provided for in Rule 65.
and without which the other party would still have entered into the contract. Dolo causante
determines or is the essential cause of the consent, while dolo incidente refers only to some
In this case, petitioner filed his Petition within the reglementary period of filing a Petition for particular or accident of the obligation. The effects of dolo causante are the nullity of the contract
Review.49 His Petition assigns errors of judgment and appreciation of facts and law on the part and the indemnification of damages, and dolo incidente also obliges the person employing it to
of the Court of Appeals. Thus, even if the Petition was designated as one that sought the remedy pay damages.51
of certiorari, this Court may exercise its discretion to treat it as a Petition for Review in the
interest of substantial justice.
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al., 52 this Court elaborated on
the distinction between dolo causante and dolo incidente:
We now proceed to the substantive issue, that of petitioners imputation of fraud on the part of
respondents. We are required by the circumstances of this case to review our doctrines of fraud
Fraud refers to all kinds of deception -- whether through insidious machination, manipulation,
that are alleged to be present in contractual relations.
concealment or misrepresentation -- that would lead an ordinarily prudent person into error after
105
taking the circumstances into account. In contracts, a fraud known as dolo causante or causal
fraud is basically a deception used by one party prior to or simultaneous with the contract, in
order to secure the consent of the other. Needless to say, the deceit employed must be serious.
In contradistinction, only some particular or accident of the obligation is referred to by incidental
fraud or dolo incidente, or that which is not serious in character and without which the other
party would have entered into the contract anyway. 53
Under Article 1344, the fraud must be serious to annul or avoid a contract and render it voidable.
This fraud or deception must be so material that had it not been present, the defrauded party
would not have entered into the contract. In the recent case of Spouses Carmen S. Tongson and
Jose C. Tongson, et al., v. Emergency Pawnshop Bula, Inc., 54 this Court provided some examples
of what constituted dolo causante or causal fraud:
Some of the instances where this Court found the existence of causal fraud include: (1) when the
seller, who had no intention to part with her property, was "tricked into believing" that what she
signed were papers pertinent to her application for the reconstitution of her burned certificate of
title, not a deed of sale; (2) when the signature of the authorized corporate officer was forged; or
(3) when the seller was seriously ill, and died a week after signing the deed of sale raising doubts
on whether the seller could have read, or fully understood, the contents of the documents he
signed or of the consequences of his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it follows that this type of fraud is
not serious enough so as to render the original contract voidable.
A classic example of dolo incidente is Woodhouse v. Halili. 56 In this case, the plaintiff Charles
Woodhouse entered into a written agreement with the defendant Fortunato Halili to organize a
partnership for the bottling and distribution of soft drinks. However, the partnership did not
come into fruition, and the plaintiff filed a Complaint in order to execute the partnership. The
defendant filed a Counterclaim, alleging that the plaintiff had defrauded him because the latter
was not actually the owner of the franchise of a soft drink bottling operation. Thus, defendant
sought the nullification of the contract to enter into the partnership. This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to defendant that he was the
holder of the exclusive franchise. The defendant was made to believe, and he actually believed,
that plaintiff had the exclusive franchise. x x x The record abounds with circumstances indicative
that the fact that the principal consideration, the main cause that induced defendant to enter
into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive
franchise to bottle and distribute for the defendant or for the partnership. x x x The defendant
was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was
to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive
franchise, or the option thereto, at the time the contract was perfected. But while he had already
lost his option thereto (when the contract was entered into), the principal obligation that he
assumed or undertook was to secure said franchise for the partnership, as the bottler and
distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 percent granted him in the
net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in
the net profits because he was transferring his exclusive franchise to the partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had experience in the production or
distribution of beverages. As a matter of fact, when the bottling plant being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the
exclusive franchise and promising to transfer it to defendant, he obtained the consent of the
latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in
article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a
big share in the profits, an incidental matter in the agreement. 57
Thus, this Court held that the original agreement may not be declared null and void. This Court
also said that the plaintiff had been entitled to damages because of the refusal of the defendant
to enter into the partnership. However, the plaintiff was also held liable for damages to the
defendant for the misrepresentation that the former had the exclusive franchise to soft drink
bottling operations.
To summarize, if there is fraud in the performance of the contract, then this fraud will give rise
to damages. If the fraud did not compel the imputing party to give his or her consent, it may not
serve as the basis to annul the contract, which exhibits dolo causante. However, the party
alleging the existence of fraud may prove the existence of dolo incidente.
This may make the party against whom fraud is alleged liable for damages.
Quantum of Evidence to Prove the Existence of Fraud and the Liability of the Parties
The Civil Code, however, does not mandate the quantum of evidence required to prove actionable
fraud, either for purposes of annulling a contract (dolo causante) or rendering a party liable for
damages (dolo incidente). The definition of fraud is different from the quantum of evidence needed
to prove the existence of fraud. Article 1338 provides the legal definition of fraud. Articles 1339
to 1343 constitute the behavior and actions that, when in conformity with the legal provision,
may constitute fraud.
Jurisprudence has shown that in order to constitute fraud that provides basis to annul contracts,
it must fulfill two conditions. First, the fraud must be dolo causante or it must be fraud in
obtaining the consent of the party. Second, this fraud must be proven by clear and convincing
evidence. In Viloria v. Continental Airlines, 58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the
making of the contract. In Samson v. Court of Appeals, causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract in order to secure the consent of
the other." Also, fraud must be serious and its existence must be established by clear and
convincing evidence. (Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals60 stating that mere preponderance of
evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he would
not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.
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To quote Tolentino again, the "misrepresentation constituting the fraud must be established by
full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must
be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person cannot be a ground for nullity.
The circumstances of each case should be considered, taking into account the personal
conditions of the victim."61
Thus, to annul a contract on the basis of dolo causante, the following must happen: First, the
deceit must be serious or sufficient to impress and lead an ordinarily prudent person to error. If
the allegedly fraudulent actions do not deceive a prudent person, given the circumstances, the
deceit here cannot be considered sufficient basis to nullify the contract. In order for the deceit to
be considered serious, it is necessary and essential to obtain the consent of the party imputing
fraud. To determine whether a person may be sufficiently deceived, the personal conditions and
other factual circumstances need to be considered.
Second, the standard of proof required is clear and convincing evidence. This standard of proof
is derived from American common law. It is less than proof beyond reasonable doubt (for criminal
cases) but greater than preponderance of evidence (for civil cases). The degree of believability is
higher than that of an ordinary civil case. Civil cases only require a preponderance of evidence
to meet the required burden of proof. However, when fraud is alleged in an ordinary civil case
involving contractual relations, an entirely different standard of proof needs to be satisfied. The
imputation of fraud in a civil case requires the presentation of clear and convincing evidence.
Mere allegations will not suffice to sustain the existence of fraud. The burden of evidence rests
on the part of the plaintiff or the party alleging fraud. The quantum of evidence is such that fraud
must be clearly and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding fraud to ascertain the liability, if
any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante that
must be proven by clear and convincing evidence. It stands to reason that both dolo incidente
and dolo causante must be proven by clear and convincing evidence. The only question is
whether this fraud, when proven, may be the basis for making a contract voidable (dolo
causante), or for awarding damages (dolo incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly and to assess the personal
circumstances of the party alleging fraud. This may require a review of the case facts and the
evidence on record.
In general, this Court is not a trier of facts. It makes its rulings based on applicable law and on
standing jurisprudence. The findings of the Court of Appeals are generally binding on this Court
provided that these are supported by the evidence on record. In the recent case of Medina v.
Court of Appeals,62 this Court held that:
It is axiomatic that a question of fact is not appropriate for a petition for review on certiorari
under Rule 45. This rule provides that the parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by the tribunals below. When supported by
substantial evidence, the findings of fact of the Court of Appeals are conclusive and binding on
the parties and are not reviewable by this Court, unless the case falls under any of the following
recognized exceptions: (1) When the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) When the inference made is manifestly mistaken, absurd or
impossible; (3) Where there is a grave abuse of discretion; (4) When the judgment is based on a
misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee; (7) When the findings are contrary to those of the
trial court; (8) When the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) When the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondents; and (10) When the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and contradicted by the
evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of this case differently.
The Court of Appeals was not correct in saying that petitioner could only raise fraud as a ground
to annul his participation in the contract as against respondent Rupert V. Tankeh, since the
petitioner did not make any categorical allegation that respondents Development Bank of the
Philippines, Sterling Shipping Lines, Inc., and Asset Privatization Trust had acted fraudulently.
Admittedly, it was only in the Petition before this Court that the petitioner had made the
allegation of a "well-orchestrated fraud"64 by the respondents. However, Rule 10, Section 5 of the
Rules of Civil Procedure provides that:
Amendment to conform to or authorize presentation of evidence. When issues not raised by
the pleadings are tried with the express or implied consent of the parties they shall be treated in
all respects as if they had been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after judgment; but failure to amend does not
effect the result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is not within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action and the
ends of substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made. (5a)
In this case, the commission of fraud was an issue that had been tried with the implied consent
of the respondents, particularly Sterling Shipping Lines, Inc., Asset Privatization Trust,
Development Bank of the Philippines, and Arenas. Hence, although there is a lack of a categorical
allegation in the pleading, the courts may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter into the contract with
respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the Sterling Shipping Lines,
Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached by Ruperto Tankeh mentioning to
me that he is operating a new shipping lines business and he is giving me free one thousand
shares (1,000) to be a director of this new business which is worth one million pesos
(P1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that I will be made a part of the
administration staff so that I can oversee the operation of the business plus my son, the eldest
one who is already a graduate lawyer with a couple of years of experience in the law firm of
Romulo Ozaeta Law Offices (TSN, April 28, 1988, pp. 10-11.).65
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The Second Amended Complaint of petitioner is substantially reproduced below to ascertain the
claim:
xxxx
2. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V. Tankeh,
plaintiff, together with Vicente L. Arenas, Jr. and Jose Maria Vargas, signed a
promissory note in favor of the defendant DBP, wherein plaintiff bound himself to
jointly and severally pay the DBP the amount of the mortgage loan. This document
insofar as plaintiff is concerned is a simulated document considering that plaintiff was
never a real stockholder of the Sterling Shipping Lines, Inc.
3. That although plaintiffs name appears in the records of Sterling Shipping Lines,
Inc. as one of its incorporators, the truth is that he had never invested any amount in
said corporation and that he had never been an actual member of said corporation.
All the money supposedly invested by him were put by defendant Ruperto V. Tankeh.
Thus, all the shares of stock under his name in fact belongs to Ruperto V. Tankeh.
Plaintiff was invited to attend the board meeting of the Sterling Shipping Lines, Inc.
only once, which was for the sole purpose of introducing him to the two directors of
the DBP, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Thereafter he was never
invited again. Plaintiff was never compensated by the Sterling Shipping Lines, Inc. for
his being a so-called director and stockholder. It is clear therefore that the DBP knew
all along that plaintiff was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE
FACT THAT when the Sterling Shipping Lines, Inc. was organized in 1980, Ruperto V.
Tankeh promised plaintiff that he would be a part of the administration staff so that
he could oversee the operation of the company. He was also promised that his son, a
lawyer, would be given a position in the company. None of these promises was
complied with. In fact, he was not even allowed to find out the data about the income
and expenses of the company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT
PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE STERLING
SHIPPING LINES, INC. ONLY ONCE, WHICH WAS FOR THE SOLE PUPOSE OF
INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR. GIL
CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES, INC. FOR HIS BEING A SO-
CALLED DIRECTOR AND STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a tool to realize the
purposes of Ruperto V. Tankeh, plaintiff officially informed the company by means of
a letter dated June 15, 1983 addressed to the company that he has severed his
connection with the company, and demanded among others, that the company board
of directors pass a resolution releasing him from any liabilities especially with
reference to the loan mortgage contract with the DBP and to notify the DBP of his
severance from the Sterling Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER, PLAINTIFF MADE
EARNEST EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS BROTHER
RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO V. TANKEH,
AND ALSO AFTER THE NEWS OF THE SALE OF THE "STERLING ACE" WAS
PUBLISHED AT THE NEWSPAPER [sic], PLAINTIFF TRIED ALL EFFORTS TO
CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF ARRIVING AT SOME
COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH AVOIDED ALL CONTACTS
[sic] WITH THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK LEGAL ASSISTANCE
FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the undersigned counsel, and to the
Honorable Court, most respectfully alleges:
xxxx
3. That paragraph 4 is admitted that herein answering defendant together with the
plaintiff signed the promissory note in favor of DBP but specifically denied that the
same was done through deceit and fraud of herein answering defendant the truth
being that plaintiff signed said promissory note voluntarily and with full knowledge of
the consequences thereof; it is further denied that said document is a simulated
document as plaintiff was never a real stockholder of the company, the truth being
those alleged in the special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially the imputation of
deceit and fraud against herein answering defendant, the truth being those alleged in
the special and affirmative defenses;
xxxx
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company organized in accordance
with the laws of the Republic of the Philippines with the plaintiff as one of the
incorporators;
10. Plaintiff as one of the incorporators and directors of the board was fully aware of
the by-laws of the company and if he attended the board meeting only once as alleged,
the reason thereof was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting through its board of
directors, herein answering defendant could not have promised plaintiff that he would
be a part of the administration staff;
12. As member of the board, plaintiff had all the access to the data and records of the
company; further, as alleged in the complaint, plaintiff has a son who is a lawyer who
could have advised him;
13. Assuming plaintiff wrote a letter to the company to sever his connection with the
company, he should have been aware that all he had to do was sell all his holdings in
the company;
14. Herein answering defendant came to know only of plaintiffs alleged predicament
when he received the summons and copy of the complaint; x x x. 67
An assessment of the allegations in the pleadings and the findings of fact of both the trial court
and appellate court based on the evidence on record led to the conclusion that there had been
no dolo causante committed against the petitioner by Ruperto V. Tankeh.
108
The petitioner had given his consent to become a shareholder of the company without
contributing a single peso to pay for the shares of stock given to him by Ruperto V. Tankeh. This
fact was admitted by both petitioner and respondent in their respective pleadings submitted to
the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had never invested any amount in
said corporation and that he had never been an actual member of said corporation. All the money
supposedly invested by him were put up by defendant Ruperto V. Tankeh." 69 This fact alone
should have already alerted petitioner to the gravity of the obligation that he would be
undertaking as a member of the board of directors and the attendant circumstances that this
undertaking would entail. It also does not add any evidentiary weight to strengthen petitioners
claim of fraud. If anything, it only strengthens the position that petitioners consent was not
obtained through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade which negates
fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent.
Given the standing and stature of the petitioner, he was in a position to ascertain more
information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in ascertaining whether a party is guilty
of fraud in obtaining the consent of the party claiming that fraud existed. The plaintiff Lamberto
Songco sought to recover earnings from a promissory note that defendant George Sellner had
made out to him for payment of Songcos sugar cane production. Sellner claimed that he had
refused to pay because Songco had promised that the crop would yield 3,000 piculs of sugar,
when in fact, only 2,017 piculs of sugar had been produced. This Court held that Sellner would
still be liable to pay the promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the probable output of his crop was
disingenuous and uncandid, we nevertheless think that Sellner was bound and that he must
pay the price stipulated. The representation in question can only be considered matter of opinion
as the cane was still standing in the field, and the quantity of the sugar it would produce could
not be known with certainty until it should be harvested and milled. Undoubtedly Songco had
better experience and better information on which to form an opinion on this question than
Sellner. Nevertheless the latter could judge with his own eyes as to the character of the cane,
and it is shown that he measured the fields and ascertained that they contained 96 1/2 hectares.
xxxx
The law allows considerable latitude to seller's statements, or dealer's talk; and experience
teaches that it is exceedingly risky to accept it at its face value. The refusal of the seller to warrant
his estimate should have admonished the purchaser that that estimate was put forth as a mere
opinion; and we will not now hold the seller to a liability equal to that which would have been
created by a warranty, if one had been given.
xxxx
It is not every false representation relating to the subject matter of a contract which will render
it void. It must be as to matters of fact substantially affecting the buyer's interest, not as to
matters of opinion, judgment, probability, or expectation. (Long vs. Woodman, 58 Me., 52; Hazard
vs. Irwin, 18 Pick. [Mass.], 95; Gordon vs. Parmelee, 2 Allen [Mass.], 212; Williamson vs.
McFadden, 23 Fla., 143, 11 Am. St. Rep., 345.) When the purchaser undertakes to make an
investigation of his own, and the seller does nothing to prevent this investigation from being as
full as he chooses to make it, the purchaser cannot afterwards allege that the seller made
misrepresentations. (National Cash Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349;
Williamson vs. Holt, 147 N. C., 515.)
We are aware that where one party to a contract, having special or expert knowledge, takes
advantage of the ignorance of another to impose upon him, the false representation may afford
ground for relief, though otherwise the injured party would be bound. But we do not think that
the fact that Songco was an experienced farmer, while Sellner was, as he claims, a mere novice
in the business, brings this case within that exception. 71
The following facts show that petitioner was fully aware of the magnitude of his undertaking:
First, petitioner was fully aware of the financial reverses that Sterling Shipping Lines, Inc. had
been undergoing, and he took great pains to release himself from the obligation.
Second, his background as a doctor, as a bank organizer, and as a businessman with experience
in the textile business and real estate should have apprised him of the irregularity in the contract
that he would be undertaking. This meant that at the time petitioner gave his consent to become
a part of the corporation, he had been fully aware of the circumstances and the risks of his
participation. Intent is determined by the acts.
Finally, the records showed that petitioner had been fully aware of the effect of his signing the
promissory note. The bare assertion that he was not privy to the records cannot counteract the
fact that petitioner himself had admitted that after he had severed ties with his brother, he had
written a letter seeking to reach an amicable settlement with respondent Rupert V. Tankeh.
Petitioners actions defied his claim of a complete lack of awareness regarding the circumstances
and the contract he had been entering.
The required standard of proof clear and convincing evidence was not met. There was no dolo
causante or fraud used to obtain the petitioners consent to enter into the contract. Petitioner
had the opportunity to become aware of the facts that attended the signing of the promissory
note. He even admitted that he has a lawyer-son who the petitioner had hoped would assist him
in the administration of Sterling Shipping Lines, Inc. The totality of the facts on record belies
petitioners claim that fraud was used to obtain his consent to the contract given his personal
circumstances and the applicable law.
However, in refusing to allow petitioner to participate in the management of the business,
respondent Ruperto V. Tankeh was liable for the commission of incidental fraud. In Geraldez,
this Court defined incidental fraud as "those which are not serious in character and without
which the other party would still have entered into the contract." 72
Although there was no fraud that had been undertaken to obtain petitioners consent, there was
fraud in the performance of the contract. The records showed that petitioner had been unjustly
excluded from participating in the management of the affairs of the corporation. This exclusion
from the management in the affairs of Sterling Shipping Lines, Inc. constituted fraud incidental
to the performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could not have promised plaintiff that he
would be a part of the administration staff"73 since petitioner had been fully aware that, as a
corporation, Sterling Shipping Lines, Inc. acted through its board of directors. Respondent
admitted that petitioner had been "an incorporator and member of the board of directors" 74 and
that petitioner "was fully aware of the by-laws of the company."75 It was incumbent upon
respondent to act in good faith and to ensure that petitioner would not be excluded from the
109
affairs of Sterling Shipping Lines, Inc. After all, respondent asserted that petitioner had entered As such, respondent Ruperto V. Tankeh is liable to his older brother, petitioner Alejandro, for
into the contract voluntarily and with full consent. damages. The obligation to pay damages to petitioner is based on several provisions of the Civil
Code.

Second, respondent claimed that if petitioner was intent on severing his connection with the
company, all that petitioner had to do was to sell all his holdings in the company. Clearly, the Article 1157 enumerates the sources of obligations.
respondent did not consider the fact that the sale of the shares of stock alone did not free
petitioner from his liability to Development Bank of the Philippines or Asset Privatization Trust,
since the latter had signed the promissory and had still been liable for the loan. A sale of Article 1157. Obligations arise from:
petitioners shares of stock would not have negated the petitioners responsibility to pay for the
loan. (1) Law;

Third, respondent Ruperto V. Tankeh did not rebuff petitioners claim that the latter only received (2) Contracts;
news about the sale of the vessel M/V Sterling Ace through the media and not as one of the
board members or directors of Sterling Shipping Lines, Inc.
(3) Quasi-contracts;
All in all, respondent Ruperto V. Tankehs bare assertion that petitioner had access to the records
cannot discredit the fact that the petitioner had been effectively deprived of the opportunity to (4) Acts or omissions punished by law; and
actually engage in the operations of Sterling Shipping Lines, Inc. Petitioner had a reasonable
expectation that the same level of engagement would be present for the duration of their working
relationship. This would include an undertaking in good faith by respondent Ruperto V. Tankeh (5) Quasi-delicts. (1089a)
to be transparent with his brother that he would not automatically be made part of the companys
administration.
This enumeration does not preclude the possibility that a single action may serve as the source
of several obligations to pay damages in accordance with the Civil Code. Thus, the liability of
However, this Court finds there is nothing to support the assertion that Sterling Shipping Lines, respondent Ruperto V. Tankeh is based on the law, under Article 1344, which provides that the
Inc. and Arenas committed incidental fraud and must be held liable. Sterling Shipping Lines, commission of incidental fraud obliges the person employing it to pay damages.
Inc. acted through its board of directors, and the liability of respondent Tankeh cannot be
imposed on Sterling Shipping Lines, Inc. The shipping line has a separate and distinct
In addition to this obligation as the result of the contract between petitioner and respondents,
personality from its officers, and petitioners assertion that the corporation conspired with the
there was also a patent abuse of right on the part of respondent Tankeh. This abuse of right is
respondent Ruperto V. Tankeh to defraud him is not supported by the evidence and the records
included in Articles 19 and 21 of the Civil Code which provide that:
of the case.

Article 19. Every person must, in the exercise of his rights and in the performance of his duties,
As for Arenas, in Lim Tanhu v. Remolete, 76 this Court held that:
act with justice, give everyone his due, and observe honesty and good faith.

In all instances where a common cause of action is alleged against several defendants, some of
Article 21. Any person who willfully causes loss or injury to another in manner that is contrary
whom answer and the others do not, the latter or those in default acquire a vested right not only
to morals, good customs or public policy shall compensate the latter for the damage.
to own the defense interposed in the answer of their co-defendant or co-defendants not in default
but also to expect a result of the litigation totally common with them in kind and in amount
whether favorable or unfavorable. The substantive unity of the plaintiffs cause against all the Respondent Ruperto V. Tankeh abused his right to pursue undertakings in the interest of his
defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity business operations. This is because of his failure to at least act in good faith and be transparent
and indivisibility of justice itself.77 with petitioner regarding Sterling Shipping Lines, Inc.s daily operations.

As such, despite Arenas failure to submit his Answer to the Complaint or his declaration of
default, his liability or lack thereof is concomitant with the liability attributed to his co-
defendants or co-respondents. However, unlike respondent Ruperto V. Tankehs liability, there
is no action or series of actions that may be attributed to Arenas that may lead to an inference
that he was liable for incidental fraud. In so far as the required evidence for both Sterling
Shipping Lines, Inc. and Arenas is concerned, there is no basis to justify the claim of incidental
fraud.
In addition, respondents Development Bank of the Philippines and Asset Privatization Trust or
Privatization and Management Office cannot be held liable for fraud. Incidental fraud cannot be
attributed to the execution of their actions, which were undertaken pursuant to their mandated
functions under the law. "Absent convincing evidence to the contrary, the presumption of
regularity in the performance of official functions has to be upheld."78
The Obligation to Pay Damages
In National Power Corporation v. Heirs of Macabangkit Sangkay, 79 this Court held that:
When a right is exercised in a manner not conformable with the norms enshrined in Article 19
and like provisions on human relations in the Civil Code, and the exercise results to [sic] the
damage of [sic] another, a legal wrong is committed and the wrongdoer is held responsible. 80
The damage, loss, and injury done to petitioner are shown by the following circumstances.
First, petitioner was informed by Development Bank of the Philippines that it would still pursue
his liability for the payment of the promissory note. This would not have happened if petitioner
had allowed himself to be fully apprised of Sterling Shipping Lines, Inc.s financial straits and if
he felt that he could still participate in the companys operations. There is no evidence that
respondent Ruperto V. Tankeh showed an earnest effort to at least allow the possibility of making
petitioner part of the administration a reality. The respondent was the brother of the petitioner
and was also the primary party that compelled petitioner Alejandro Tankeh to be solidarily bound
110
to the promissory note. Ruperto V. Tankeh should have done his best to ensure that he had
exerted the diligence to comply with the obligations attendant to the participation of petitioner.
Second, respondent Ruperto V. Tankehs refusal to enter into an agreement or settlement with
petitioner after the latters discovery of the sale of the M/V Sterling Ace was an action that
constituted bad faith. Due to Rupertos refusal, his brother, petitioner Alejandro, became
solidarily liable for an obligation that the latter could have avoided if he had been given an
opportunity to participate in the operations of Sterling Shipping Lines, Inc. The simple sale of all
of petitioners shares would not have solved petitioners problems, as it would not have negated
his liability under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping Lines, Inc., namely, public
respondents Development Bank of the Philippines and Asset Privatization Trust. This is an
additional financial burden for petitioner. Nothing in the records suggested the possibility that
Development Bank of the Philippines or Asset Privatization Trust through the Privatization
Management Office will not pursue or is precluded from pursuing its claim against the petitioner.
Although petitioner Alejandro voluntarily signed the promissory note and became a stockholder
and board member, respondent should have treated him with fairness, transparency, and
consideration to minimize the risk of incurring grave financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may be awarded on the following
bases:
To recover moral damages in an action for breach of contract, the breach must be palpably
wanton, reckless, malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract, moral damages may
be recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting
to bad faith) or in wanton disregard of his contractual obligation and, exceptionally, when the
act of breach of contract itself is constitutive of tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant acted fraudulently
or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it imports a dishonest purpose
or some moral obliquity and conscious doing of a wrong, a breach of known duty through some
motive or interest or ill will that partakes of the nature of fraud.
xxxx
The person claiming moral damages must prove the existence of bad faith by clear and convincing
evidence for the law always presumes good faith. It is not enough that one merely suffered
sleepless nights, mental anguish, serious anxiety as the result of the actuations of the other
party. Invariably such action must be shown to have been willfully done in bad faith or will ill
motive. Mere allegations of besmirched reputation, embarrassment and sleepless nights are
insufficient to warrant an award for moral damages. It must be shown that the proximate cause
thereof was the unlawful act or omission of the [private respondent] petitioners.
An award of moral damages would require certain conditions to be met, to wit: (1) first, there
must be an injury, whether physical, mental or psychological, clearly sustained by the claimant;
(2) second, there must be culpable act or omission factually established; (3) third, the wrongful
act or omission of the defendant is the proximate cause of the injury sustained by the claimant;
and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219 of
the Civil Code. (Citations omitted)82
In this case, the four elements cited in Francisco are present. First, petitioner suffered an injury
due to the mental duress of being bound to such an onerous debt to Development Bank of the
Philippines and Asset Privatization Trust. Second, the wrongful acts of undue exclusion done by
respondent Ruperto V. Tankeh clearly fulfilled the same requirement. Third, the proximate cause
of his injury was the failure of respondent Ruperto V. Tankeh to comply with his obligation to
allow petitioner to either participate in the business or to fulfill his fiduciary responsibilities with
candor and good faith. Finally, Article 221983 of the Civil Code provides that moral damages may
be awarded in case of acts and actions referred to in Article 21, which, as stated, had been found
to be attributed to respondent Ruperto V. Tankeh.
In the Appellants Brief,84 petitioner asked the Court of Appeals to demand from respondents,
except from respondent Asset Privatization Trust, the amount of five million pesos
(P5,000,000.00). This Court finds that the amount of five hundred thousand pesos (P500,000.00)
is a sufficient amount of moral damages.
In addition to moral damages, this Court may also impose the payment of exemplary
damages.1wphi1 Exemplary damages are discussed in Article 2229 of the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example or correction of the
public good, in addition to moral, temperate, liquidated or compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234, particularly regarding the
pre-requisites of ascertaining moral damages and the fact that it is discretionary upon this Court
to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated.
ART. 2234. While the amount of the exemplary damages need not be proven, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded x x x
The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties
from the commission of a similar offense. The case of People v. Rante 85 citing People v.
Dalisay86 held that:
Also known as punitive or vindictive damages, exemplary or corrective damages are intended
to serve as a deterrent to serious wrong doings, and as a vindication of undue sufferings and
wanton invasion of the rights of an injured or a punishment for those guilty of outrageous
conduct. These terms are generally, but not always, used interchangeably. In common law, there
is preference in the use of exemplary damages when the award is to account for injury to feelings
and for the sense of indignity and humiliation suffered by a person as a result of an injury that
has been maliciously and wantonly inflicted, the theory being that there should be compensation
for the hurt caused by the highly reprehensible conduct of the defendantassociated with such
circumstances as willfulness, wantonness, malice, gross negligence or recklessness, oppression,
insult or fraud or gross fraudthat intensifies the injury. The terms punitive or vindictive
damages are often used to refer to those species of damages that may be awarded against a
person to punish him for his outrageous conduct. In either case, these damages are intended in
good measure to deter the wrongdoer and others like him from similar conduct in the future. 87
To justify an award for exemplary damages, the wrongful act must be accompanied by bad faith,
and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent,
reckless or malevolent manner.88In this case, this Court finds that respondent Ruperto V. Tankeh
acted in a fraudulent manner through the finding of dolo incidente due to his failure to act in a
manner consistent with propriety, good morals, and prudence.
111
Since exemplary damages ensure that future litigants or parties are enjoined from acting in a
similarly malevolent manner, it is incumbent upon this Court to impose the damages in such a
way that will serve as a categorical warning and will show that wanton actions will be dealt with
in a similar manner. This Court finds that the amount of two hundred thousand pesos
(P200,000.00) is sufficient for this purpose.

In sum, this Court must act in the best interests of all future litigants by establishing and
applying clearly defined standards and guidelines to ascertain the existence of fraud.

WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of Appeals as to
the assailed Decision in so far as the finding of fraud is SUSTAINED with the MODIFICATION
that respondent RUPERTO V. TANKEH be ordered to pay moral damages in the amount of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) and the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00) by way of exemplary damages.

SO ORDERED.

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

112
 Republic of the Philippines cognizance of the common law rule on the same subject. In the United States, it is uniformly
SUPREME COURT held that the head of a house, the owner of an automobile, who maintains it for the general use
Manila of his family is liable for its negligent operation by one of his children, whom he designates or
permits to run it, where the car is occupied and being used at the time of the injury for the
pleasure of other members of the owner's family than the child driving it. The theory of the law
EN BANC is that the running of the machine by a child to carry other members of the family is within the
scope of the owner's business, so that he is liable for the negligence of the child because of the
G.R. No. 34840 September 23, 1931 relationship of master and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes
[1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur
Abelardo Velasco rests on a different basis, namely, that of contract which, we think, has been
NARCISO GUTIERREZ, plaintiff-appellee, sufficiently demonstrated by the allegations of the complaint, not controverted, and the evidence.
vs. The reason for this conclusion reaches to the findings of the trial court concerning the position
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO of the truck on the bridge, the speed in operating the machine, and the lack of care employed by
VELASCO, and SATURNINO CORTEZ, defendants-appellants. the chauffeur. While these facts are not as clearly evidenced as are those which convict the other
defendant, we nevertheless hesitate to disregard the points emphasized by the trial judge. In its
broader aspects, the case is one of two drivers approaching a narrow bridge from opposite
L.D. Lockwood for appellants Velasco and Cortez. directions, with neither being willing to slow up and give the right of way to the other, with the
San Agustin and Roxas for other appellants. inevitable result of a collision and an accident.
Ramon Diokno for appellee.

The defendants Velasco and Cortez further contend that there existed contributory negligence
MALCOLM, J.: on the part of the plaintiff, consisting principally of his keeping his foot outside the truck, which
occasioned his injury. In this connection, it is sufficient to state that, aside from the fact that the
defense of contributory negligence was not pleaded, the evidence bearing out this theory of the
This is an action brought by the plaintiff in the Court of First Instance of Manila against the five
case is contradictory in the extreme and leads us far afield into speculative matters.
defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a
result of an automobile accident. On judgment being rendered as prayed for by the plaintiff, both
sets of defendants appealed. The last subject for consideration relates to the amount of the award. The appellee suggests that
the amount could justly be raised to P16,517, but naturally is not serious in asking for this sum,
since no appeal was taken by him from the judgment. The other parties unite in challenging the
On February 2, 1930, a passenger truck and an automobile of private ownership collided while
award of P10,000, as excessive. All facts considered, including actual expenditures and damages
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality
for the injury to the leg of the plaintiff, which may cause him permanent lameness, in connection
of Las Pias, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was
with other adjudications of this court, lead us to conclude that a total sum for the plaintiff of
owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18
P5,000 would be fair and reasonable. The difficulty in approximating the damages by monetary
years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez.
compensation is well elucidated by the divergence of opinion among the members of the court,
At the time of the collision, the father was not in the car, but the mother, together will several
three of whom have inclined to the view that P3,000 would be amply sufficient, while a fourth
other members of the Gutierrez family, seven in all, were accommodated therein. A passenger in
member has argued that P7,500 would be none too much.
the autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila.
The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a
fracture right leg which required medical attendance for a considerable period of time, and which In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
even at the date of the trial appears not to have healed properly. plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo
Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both
instances.
It is conceded that the collision was caused by negligence pure and simple. The difference
between the parties is that, while the plaintiff blames both sets of defendants, the owner of the
passenger truck blames the automobile, and the owner of the automobile, in turn, blames the Avancea, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.
truck. We have given close attention to these highly debatable points, and having done so, a
majority of the court are of the opinion that the findings of the trial judge on all controversial
questions of fact find sufficient support in the record, and so should be maintained. With this
general statement set down, we turn to consider the respective legal obligations of the
defendants.

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

We are dealing with the civil law liability of parties for obligations which arise from fault or
negligence. At the same time, we believe that, as has been done in other cases, we can take

113
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-48930 February 23, 1944
ANTONIO VAZQUEZ, petitioner,
vs.
FRANCISCO DE BORJA, respondent.
x---------------------------------------------------------x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of Manila by Francisco de Borja against
Antonio Vazquez and Fernando Busuego to recover from them jointly and severally the total sum
of P4,702.70 upon three alleged causes of action, to wit: First, that in or about the month of
January, 1932, the defendants jointly and severally obligated themselves to sell to the plaintiff
4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of February, 1932,
the said defendants having subsequently received from the plaintiff in virtue of said agreement
the sum of P8,400; that the defendants delivered to the plaintiff during the months of February,
March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to
deliver the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands.
Second, that because of defendants' refusal to deliver to the plaintiff the said 1,512 cavans of
palay within the period above mentioned, the plaintiff suffered damages in the sum of P1,000.
And, third, that on account of the agreement above mentioned the plaintiff delivered to the
defendants 4,000 empty sacks, of which they returned to the plaintiff only 2,490 and refused to
deliver to the plaintiff the balance of 1,510 sacks or to pay their value amounting to P377.50;
and that on account of such refusal the plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into the
contract mentioned in the first cause of action in his own individual and personal capacity, either
solely or together with his codefendant Fernando Busuego, and alleging that the agreement for
the purchase of 4,000 cavans of palay and the payment of the price of P8,400 were made by the
plaintiff with and to the Natividad-Vasquez Sabani Development Co., Inc., a corporation
organized and existing under the laws of the Philippines, of which the defendant Antonio Vazquez
was the acting manager at the time the transaction took place. By way of counterclaim, the said
defendant alleged that he suffered damages in the sum of P1,000 on account of the filing of this
action against him by the plaintiff with full knowledge that the said defendant had nothing to do
whatever with any and all of the transactions mentioned in the complaint in his own individual
and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff
the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving
the defendant Fernando Busuego (treasurer of the corporation) from the complaint and the
plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of Appeals,
the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest
thereon and the costs. But by a subsequent resolution upon the defendant's motion for
reconsideration, the Court of Appeals set aside its judgment and ordered that the case be
remanded to the court of origin for further proceedings. The defendant Vazquez, not being
agreeable to that result, filed the present petition for certiorari (G.R. No. 48930) to review and
reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to
the resolution of the Court of Appeals whereby its original judgment was set aside and the case
was ordered remanded to the court of origin for further proceedings, filed a cross-petition for
certiorari (G.R. No. 48931) to maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on reconsideration
read as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante
vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los
cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio
para su envase 4,000 sacos vacios. Esta provbado que de dichos 4,000 sacos vacios
solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo
valor es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio
Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70, con sus
intereses legales desde el 1.o de marzo de 1932 hasta su completo pago y las costas,
el Juzgado de Primera Instancia de Manila el asunto condenando a Antonio Vazquez
a pagar al demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con
sus intereses legales, absolviendo al demandado Fernando Busuego de la demanda y
al demandante de la reconvencion de los demandados, sin especial pronunciamiento
en cuanto a las costas. De dicha decision apelo el demandado Antonio Vazquez,
apuntado como principal error el de que el habia sido condenado personalmente, y no
la corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor
de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente
interino y Manager de la corporacion Natividad-Vazquez Sabani Development Co., Inc.
Asi resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el demandado
Vazquez, y cuyo original lo habia perdido el demandante, segun el. Asi tambien consta
en los libros de la corporacion arriba mencionada, puesto que en los mismos se ha
asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno
en pago de los alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco de
Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la corporacion
sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos
oficios para el cobro del precio del palay no entregado. Asi igualmente lo declaro el que
hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido
refutado. Y asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando
Busuego, tesorero de la Natividad-Vazquez Sabani Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani
Development Co., Inc., que quedo insolvente y dejo de existir. El Juez sentenciador
declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad
reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin
averiguar antes si o no dicha cantidad existia en las bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco
de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de
P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada
despues de la primera. Segun esto, el apelante no solamente obro con negligencia,
sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103
y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la
cantidad objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion
de que el apelante debe pagar al apelado la suma de P2,295.70 como valor de los 1,417
cavanes de palay que dejo de entregar al demandante, mas la suma de P339.08 como
114
 importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total
P3,314.78, con sus intereses legales desde la interposicion de la demanda y las costas
de ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de
1942, y alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de
palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no
estando dicho extremo suficientemente discutido y probado, y pudiendo variar el
resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la
devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente.
Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-
G.R. No. 8676, Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons
therein given, that the resolution of December 22, 1942, be reconsidered: Considering
that said resolution remanding the case to the lower court is for the benefit of the
plaintiff-appellee to afford him opportunity to refute the contention of the defendant-
appellant Antonio Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered
into the contract with the defendant Antonio Vazquez in his personal capacity or as manager of
the Natividad-Vazquez Sabani Development Co., Inc. The Court of Appeals found that according
to the preponderance of the evidence "the sale made by Antonio Vazquez in favor of Francisco de
Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the
corporation Natividad-Vazquez Sabani Development Co., Inc." That finding of fact is final and, it
resolving the only issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin
for further trial to determine whether the corporation had sufficient stock of palay at the time
appellant sold, 1500 cavans of palay to Kwong Ah Phoy. First, if that point was material to the
issue, it should have been proven during the trial; and the statement of the court that it had not
been sufficiently discussed and proven was no justification for ordering a new trial, which, by
the way, neither party had solicited but against which, on the contrary, both parties now
vehemently protest. Second, the point is, in any event, beside the issue, and this we shall now
discuss in connection with the original judgment of the Court of Appeals which the plaintiff
cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the evidence that the
party liable on the contract is the Natividad-Vazquez Sabani Development Co., Inc. which is not
a party herein, the complaint should have been dismissed. Counsel for the plaintiff, in his brief
as respondent, argues that altho by the preponderance of the evidence the trial court and the
Court of Appeals found that Vazquez celebrated the contract in his capacity as acting president
of the corporation and altho it was the latter, thru Vazquez, with which the plaintiff had
contracted and which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that
was true from the point of view of a legal fiction, "ello no impede que tambien sea verdad lo
alegado en la demanda de que la misma persona de Vasquez fue la que contrato con Borja y que
la misma persona de Vasquez fue quien recibio la suma de P8,400." But such argument is invalid
and insufficient to show that the president of the corporation is personally liable on the contract
duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a personality of its
own, separate and distinct from that of its stockholders and from that of its officers who manage
and run its affairs. The mere fact that its personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the latter personally liable on a contract
duly entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction
by which the personality of a corporation is created is a practical reality and necessity. Without
it no corporate entities may exists and no corporate business may be transacted. Such legal
fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful
or fraudulent purpose. No such thing has been alleged or proven in this case. It has not been
alleged nor even intimated that Vazquez personally benefited by the contract of sale in question
and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended
that he entered into said contract for the corporation in bad faith and with intent to defraud the
plaintiff. We find no legal and factual basis upon which to hold him liable on the contract either
principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and held him
personally liable on that account. On the other hand, the Court of Appeals found that he "no
solamente obro con negligencia, sino interveniendo culpa de su parte, por lo que de acuerdo con
los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago
de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals
erred in law in so holding. They have manifestly failed to distinguish a contractual from an
extracontractual obligation, or an obligation arising from contract from an obligation arising
from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code
are those incidental to the fulfillment or nonfullfillment of a contractual obligation; while the
fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous
but not identical to tort of the common law, which gives rise to an obligation independently of
any contract. (Cf. Manila R.R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890;
Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the corporation, acting thru Vazquez as
its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez
principally or even subsidiarily liable for such negligence. Since it was the corporation's contract,
its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation
and not its agent liable.
On the other hand if independently of the contract Vazquez by his fault or negligence cause
damaged to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But
then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract
alleged in his complaint herein; and Vazquez' liability would be principal and not merely
subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged
in the complaint or tried by express or implied consent of the parties by virtue of section 4 of
Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon
it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court of Appeals to remand
the case to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to the lower
courts' refusal to entertain his counterclaim for damages against the respondent Borja arising
from the bringing of this action. The lower courts having sustained plaintiff's action. The finding
of the Court of Appeals that according to the preponderance of the evidence the defendant
Vazquez celebrated the contract not in his personal capacity but as acting president and manager
of the corporation, does not warrant his contention that the suit against him is malicious and
tortious; and since we have to decide defendant's counterclaim upon the facts found by the Court
of Appeals, we find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel
that a a matter of moral justice we ought to state here that the indignant attitude adopted by the
defendant towards the plaintiff for having brought this action against him is in our estimation
not wholly right. Altho from the legal point of view he was not personally liable for the fulfillment
of the contract entered into by him on behalf of the corporation of which he was the acting
president and manager, we think it was his moral duty towards the party with whom he
contracted in said capacity to see to it that the corporation represented by him fulfilled the
contract by delivering the palay it had sold, the price of which it had already received. Recreant
to such duty as a moral person, he has no legitimate cause for indignation. We feel that under
the circumstances he not only has no cause of action against the plaintiff for damages but is not
even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without
any finding as to costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.
115
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 164349 January 31, 2006
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,
vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA
VERCHEZ-CATIBOG, AND FORTUNATO CATIBOG, Respondents.
DECISION
CARPIO MORALES, J.:
On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial
Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante (Grace)
immediately hied to the Sorsogon Branch of the Radio Communications of the Philippines, Inc.
(RCPI) whose services she engaged to send a telegram to her sister Zenaida Verchez-Catibog
(Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon City1 reading: "Send check
money Mommy hospital." For RCPIs services, Grace paid P10.502 for which she was issued a
receipt.3
As three days after RCPI was engaged to send the telegram to Zenaida no response was received
from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her
for not sending any financial aid.
Immediately after she received Graces letter, Zenaida, along with her husband Fortunato
Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed
having received any telegram.
In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City
on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon City
where she was confined from January 30, 1991 to March 21, 1991.
The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. 4 On inquiry
from RCPI why it took that long to deliver it, a messenger of RCPI replied that he had nothing to
do with the delivery thereof as it was another messenger who previously was assigned to deliver
the same but the address could not be located, hence, the telegram was resent on February 2,
1991, and the second messenger finally found the address on February 15, 1991.
Edithas husband Alfonso Verchez (Verchez), by letter of March 5, 1991,5 demanded an
explanation from the manager of the Service Quality Control Department of the RCPI, Mrs. Lorna
D. Fabian, who replied, by letter of March 13, 1991,6 as follows:
Our investigation on this matter disclosed that subject telegram was duly processed in
accordance with our standard operating procedure. However, delivery was not immediately
effected due to the occurrence of circumstances which were beyond the control and foresight of
RCPI. Among others, during the transmission process, the radio link connecting the points of
communication involved encountered radio noise and interferences such that subject telegram
did not initially registered (sic) in the receiving teleprinter machine.
Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission
was made and subsequent delivery was effected. (Underscoring supplied)
Verchezs lawyer thereupon wrote RCPIs manager Fabian, by letter of July 23, 1991, 7 requesting
for a conference on a specified date and time, but no representative of RCPI showed up at said
date and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective
spouses, filed a complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for
damages. In their complaint, the plaintiffs alleged that, inter alia, the delay in delivering the
telegram contributed to the early demise of the late Editha to their damage and prejudice, 8 for
which they prayed for the award of moral and exemplary damages 9and attorneys fees.10
After its motion to dismiss the complaint for improper venue 11 was denied12 by Branch 5 of the
RTC of Sorsogon, RCPI filed its answer, alleging that except with respect to Grace, 13 the other
plaintiffs had no privity of contract with it; any delay in the sending of the telegram was due
to force majeure, "specifically, but not limited to, radio noise and interferences which adversely
affected the transmission and/or reception of the telegraphic message"; 14 the clause in the
Telegram Transmission Form signed by Grace absolved it from liability for any damage arising
from the transmission other than the refund of telegram tolls; 15 it observed due diligence in the
selection and supervision of its employees; and at all events, any cause of action had been barred
by laches.16
The trial court, observing that "although the delayed delivery of the questioned telegram was not
apparently the proximate cause of the death of Editha," ruled out the presence of force majeure.
Respecting the clause in the telegram relied upon by RCPI, the trial court held that it partakes
of the nature of a contract of adhesion.
Finding that the nature of RCPIs business obligated it to dispatch the telegram to the addressee
at the earliest possible time but that it did not in view of the negligence of its employees to repair
its radio transmitter and the concomitant delay in delivering the telegram on time, the trial court,
upon the following provisions of the Civil Code, to wit:
Article 2176 Whoever by act or omission causes damage to another, there being at fault or
negligence, is obliged to pay for the damage done. Such fault or negligence if there is no pre-
existing contractual relation between the parties, is called quasi-delict and is governed by the
provisions of this Chapter.
Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence
which is required by the nature of the obligation and corresponds with the circumstances of the
person, of the time, or the place."
In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of
an urgent nature. Its essence is the early delivery of the telegram to the concerned person. Yet,
due to the negligence of its employees, the defendant failed to discharge of its obligation on time
making it liable for damages under Article 2176.
The negligence on the part of the employees gives rise to the presumption of negligence on the
part of the employer.17 (Underscoring supplied),
rendered judgment against RCPI. Accordingly, it disposed:
116
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the
plaintiffs and against the defendant, to wit:
Ordering the defendant to pay the plaintiffs the following amount:
1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorneys fees; and
3. To pay the costs.
SO ORDERED.18
On appeal, the Court of Appeals, by Decision of February 27, 2004,19 affirmed the trial courts
decision.
Hence, RCPIs present petition for review on certiorari, it raising the following questions: (1) "Is
the award of moral damages proper even if the trial court found that there was no direct
connection between the injury and the alleged negligent acts?" 20 and (2) "Are the stipulations in
the Telegram Transmission Form, in the nature "contracts of adhesion" (sic)?21
RCPI insists that respondents failed to prove any causal connection between its delay in
transmitting the telegram and Edithas death. 22
RCPIs stand fails. It bears noting that its liability is anchored on culpa contractual or breach of
contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages. (Underscoring
supplied)
Passing on this codal provision, this Court explained:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering that which may
have been lost or suffered. The remedy serves to preserve the interests of the promissee that may
include his "expectation interest," which is his interest in having the benefit of his bargain by
being put in as good a position as he would have been in had the contract been performed, or
his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the contract not
been made; or his "restitution interest," which is his interest in having restored to him any
benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make recompense to the one who has been injured
by the failure of another to observe his contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability.23(Emphasis and underscoring
supplied)
In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It
took 25 days, however, for RCPI to deliver it.
RCPI invokes force majeure, specifically, the alleged radio noise and interferences which
adversely affected the transmission and/or reception of the telegraphic message. Additionally,
its messenger claimed he could not locate the address of Zenaida and it was only on the third
attempt that he was able to deliver the telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has committed no negligence or misconduct that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take
steps to forestall the possible adverse consequences of such a loss. Ones negligence may have
concurred with an act of God in producing damage and injury to another; nonetheless, showing
that the immediate or proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a persons
participation whether by active intervention, neglect or failure to act the whole
occurrence is humanized and removed from the rules applicable to acts of God.
xxxx
Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event
that could not be foreseen or, though foreseen, was inevitable. In other words, there must be
an exclusion of human intervention from the cause of injury or loss.24 (Emphasis and
underscoring supplied)
Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram
at the soonest possible time, it should have at least informed Grace of the non-transmission and
the non-delivery so that she could have taken steps to remedy the situation. But it did not. There
lies the fault or negligence.
In an earlier case also involving RCPI, this Court held:
Considering the public utility of RCPIs business and its contractual obligation to transmit
messages, it should exercise due diligence to ascertain that messages are delivered to the persons
at the given address and should provide a system whereby in cases of undelivered messages the
sender is given notice of non-delivery. Messages sent by cable or wireless means are
usually more important and urgent than those which can wait for the mail.25
xxxx
People depend on telecommunications companies in times of deep emotional stress or
pressing financial needs. Knowing that messages about the illnesses or deaths of loved ones,
births or marriages in a family, important business transactions, and notices of conferences or
meetings as in this case, are coursed through the petitioner and similar corporations, it is
incumbent upon them to exercise a greater amount of care and concern than that shown in this
case. Every reasonable effort to inform senders of the non-delivery of messages should be
undertaken.26
(Emphasis and underscoring supplied)
RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as
the basis for the award of moral damages, thus: 27
117
The request to send check as written in the telegraphic text negates the existence of urgency that
private respondents allegations that time was of the essence imports. A check drawn against a
Manila Bank and transmitted to Sorsogon, Sorsogon will have to be deposited in a bank in
Sorsogon and pass thru a minimum clearing period of 5 days before it may be encashed or
withdrawn. If the transmittal of the requested check to Sorsogon took 1 day private respondents
could therefore still wait for 6 days before the same may be withdrawn. Requesting a check that
would take 6 days before it could be withdrawn therefore contradicts plaintiffs claim of urgency
or need.28
At any rate, any sense of urgency of the situation was met when Grace Verchez was able to
communicate to Manila via a letter that she sent to the same addressee in Manila thru JRS.29
xxxx
As far as the respondent courts award for moral damages is concerned, the same has no
basis whatsoever since private respondent Alfonso Verchez did not accompany his late wife when
the latter went to Manila by bus. He stayed behind in Sorsogon for almost 1 week before he
proceeded to Manila. 30
When pressed on cross-examination, private respondent Alfonso Verchez could not give any
plausible reason as to the reason why he did not accompany his ailing wife to Manila. 31
xxxx
It is also important to consider in resolving private respondents claim for moral damages that
private respondent Grace Verchez did not accompany her ailing mother to Manila.32
xxxx
It is the common reaction of a husband to be at his ailing wifes side as much as possible. The
fact that private respondent Alfonso Verchez stayed behind in Sorsogon for almost 1 week
convincingly demonstrates that he himself knew that his wife was not in critical condition.33
(Emphasis and underscoring supplied)
RCPIs arguments fail. For it is its breach of contract upon which its liability is, it bears repeating,
anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent.
It, however, failed to rebut this presumption.
For breach of contract then, RCPI is liable to Grace for damages.
And for quasi-delict, RCPI is liable to Graces co-respondents following Article 2176 of the Civil
Code which provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (Underscoring supplied)
RCPIs liability as an employer could of course be avoided if it could prove that it observed the
diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code so provides:
The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions,
but also for those of persons for whom one is responsible.
xxxx
The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on
the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove
that they observed all the diligence of a good father of a family to prevent damage. (Underscoring
supplied)
RCPI failed, however, to prove that it observed all the diligence of a good father of a family to
prevent damage.
Respecting the assailed award of moral damages, a determination of the presence of the following
requisites to justify the award is in order:
x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering
sustained by the claimant; secondly, a culpable act or omission factually established; thirdly,
proof that the wrongful act or omission of the defendant is the proximate cause of damages
sustained by the claimant; and fourthly, that the case is predicated on any of the instances
expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. 34
Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was
correctly appreciated by the CA in this wise:
The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed
their filial tranquillity. Family members blamed each other for failing to respond swiftly to an
emergency that involved the life of the late Mrs. Verchez, who suffered from diabetes. 35
As reflected in the foregoing discussions, the second and third requisites are present.
On the fourth requisite, Article 2220 of the Civil Code provides:
Willful injury to property may be a legal ground for awarding moral damages if the court should
find that, under the circumstances, such damages are justly due. The same rule applies
to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis
and underscoring supplied)
After RCPIs first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery
thereof and waited for 12 days before trying to deliver it again, knowing as it should know
that time is of the essence in the delivery of telegrams. When its second long-delayed attempt to
deliver the telegram again failed, it, again, waited for another 12 days before making a third
attempt. Such nonchalance in performing its urgent obligation indicates gross negligence
amounting to bad faith. The fourth requisite is thus also present.
118
In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the
breach of contract where the defendant was guilty of gross negligence amounting to bad faith, or opportunity to bargain on equal footing.38 (Emphasis and underscoring supplied)
in wanton disregard of his contractual obligation. 36

As for RCPIs tort-based liability, Article 2219 of the Civil Code provides:
Moral damages may be recovered in the following and analogous cases:
While a contract of adhesion is not necessarily void and unenforceable, since it is construed
strictly against the party who drafted it or gave rise to any ambiguity therein, it is stricken down
as void and unenforceable or subversive of public policy when the weaker party is imposed upon
in dealing with the dominant bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on equal footing. 39

xxxx
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis
supplied)
Article 26 of the Civil Code, in turn, provides:
Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors
and other persons. The following and similar acts, though they may not constitute a criminal
offense, shall produce a cause of action for damages, prevention, and other relief:
This Court holds that the Court of Appeals finding that the parties contract is one of adhesion
which is void is, given the facts and circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals
is AFFIRMED.
Costs against petitioner.
SO ORDERED.

CONCHITA CARPIO MORALES

xxxx Associate Justice

(2) Meddling with or disturbing the private life or family relations of another. (Emphasis
supplied)

RCPIs negligence in not promptly performing its obligation undoubtedly disturbed the peace of
mind not only of Grace but also her co-respondents. As observed by the appellate court, it
disrupted the "filial tranquillity" among them as they blamed each other "for failing to respond
swiftly to an emergency." The tortious acts and/or omissions complained of in this case are,
therefore, analogous to acts mentioned under Article 26 of the Civil Code, which are among the
instances of quasi-delict when courts may award moral damages under Article 2219 of the Civil
Code.

In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the
award of attorneys fees, respondents having been compelled to litigate to protect their rights.

Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission
Form" is not a contract of adhesion. Thus it argues:

Neither can the Telegram Transmission Form be considered a contract of adhesion as held by
the respondent court. The said stipulations were all written in bold letters right in front of the
Telegram Transmission Form. As a matter of fact they were beside the space where the telegram
senders write their telegraphic messages. It would have been different if the stipulations were
written at the back for surely there is no way the sender will easily notice them. The fact that the
stipulations were located in a particular space where they can easily be seen, is sufficient notice
to any sender (like Grace Verchez-Infante) where she could manifest her disapproval, leave the
RCPI station and avail of the services of the other telegram operators.37 (Underscoring supplied)

RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the
stipulations nor their physical location in the contract determines whether it is one of adhesion.

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form
of contract, which the other party may accept or reject, but which the latter cannot modify. One
party prepares the stipulation in the contract, while the other party merely affixes his signature

119
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 179446 January 10, 2011
LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,
vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing
the August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled
"R&B Insurance Corporation v. Glodel Brokerage Corporation and Loadmasters Customs Services,
Inc.," which held petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to
respondent Glodel Brokerage Corporation (Glodel) in the amount of P1,896,789.62 representing
the insurance indemnity which R&B Insurance Corporation (R&B Insurance) paid to the insured-
consignee, Columbia Wire and Cable Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks.
On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from Isabela,
Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the
pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services
of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbias
warehouses/plants in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed
drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes
were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads were destined for
Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly delivered
in Columbias warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan, however,
only five (5) reached the destination. One (1) truck, loaded with 11 bundles or 232 pieces of
copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper
cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance
indemnity in the amount of P1,903,335.39. After the requisite investigation and adjustment,
R&B Insurance paid Columbia the amount of P1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel
before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040.
It sought reimbursement of the amount it had paid to Columbia for the loss of the subject cargo.
It claimed that it had been subrogated "to the right of the consignee to recover from the
party/parties who may be held legally liable for the loss." 2
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for the
loss of the subject cargo and dismissing Loadmasters counterclaim for damages and attorneys
fees against R&B Insurance. The dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of
evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby
rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of P1,896,789.62 as actual
and compensatory damages, with interest from the date of complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the
principal amount recovered as and for attorneys fees plus P1,500.00 per appearance
in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of P22,427.18 as litigation
expenses.
WHEREAS, the defendant Loadmasters Customs Services, Inc.s counterclaim for damages and
attorneys fees against plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.
SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to
appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it
shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the appellee
Loadmasters is likewise held liable to appellant Glodel in the amount of P1,896,789.62
representing the insurance indemnity appellant Glodel has been held liable to appellant R&B
Insurance Corporation.
Appellant Glodels appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting
the following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the
fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?
120
 2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel? 6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot
be considered an agent of Glodel because it never represented the latter in its dealings with the
consignee. At any rate, it further contends that Glodel has no recourse against it for its (Glodels)
failure to file a cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure.
Glodel, in itsComment,7 counters that Loadmasters is liable to it under its cross-claim because
the latter was grossly negligent in the transportation of the subject cargo. With respect to
Loadmasters claim that it is already estopped from filing a cross-claim, Glodel insists that it can
still do so even for the first time on appeal because there is no rule that provides otherwise.
Finally, Glodel argues that its relationship with Loadmasters is that of Charter wherein the
transporter (Loadmasters) is only hired for the specific job of delivering the merchandise. Thus,
the diligence required in this case is merely ordinary diligence or that of a good father of the
family, not the extraordinary diligence required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim
against Loadmasters because it was not prevented from presenting evidence to prove its position
even without amending its Answer. As to the relationship between Loadmasters and Glodel, it
contends that a contract of agency existed between the two corporations. 8
Subrogation is the substitution of one person in the place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. 9 Doubtless, R&B Insurance is subrogated to
the rights of the insured to the extent of the amount it paid the consignee under the marine
insurance, as provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrong-doer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the
amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common
carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of the
Civil Code, common carriers are persons, corporations, firms, or associations engaged in the
business of carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the
business of transporting goods by land, through its trucking service. It is a common carrier as
distinguished from a private carrier wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. 10 The distinction
is significant in the sense that "the rights and obligations of the parties to a contract of private
carriage are governed principally by their stipulations, not by the law on common carriers." 11
In the present case, there is no indication that the undertaking in the contract between
Loadmasters and Glodel was private in character. There is no showing that Loadmasters solely
and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article 1732.
In its Memorandum,13 it states that it "is a corporation duly organized and existing under the
laws of the Republic of the Philippines and is engaged in the business of customs brokering." It
cannot be considered otherwise because as held by this Court in Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,14 a customs broker is also regarded as a common carrier,
the transportation of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the vigilance
over the goods transported by them according to all the circumstances of such case, as required
by Article 1733 of the Civil Code. When the Court speaks of extraordinary diligence, it is that
extreme measure of care and caution which persons of unusual prudence and circumspection
observe for securing and preserving their own property or rights. 15 This exacting standard
imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in
favor of the shipper who is at the mercy of the common carrier once the goods have been lodged
for shipment.16 Thus, in case of loss of the goods, the common carrier is presumed to have been
at fault or to have acted negligently. 17This presumption of fault or negligence, however, may be
rebutted by proof that the common carrier has observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that
the exercise of extraordinary diligence lasts from the time the goods are unconditionally placed
in the possession of, and received by, the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them.18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and
severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the
New Civil Code, "the responsibility of two or more persons who are liable for a quasi-delict is
solidary."
Loadmasters claim that it was never privy to the contract entered into by Glodel with the
consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
direct contractual relation with Columbia, but it is liable for tort under the provisions of Article
2176 of the Civil Code on quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc.
v. Phoenix Assurance Company of New York,/McGee & Co., Inc.19 where this Court held that a
tort may arise despite the absence of a contractual relationship, to wit:
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
121
of action in light of the Courts consistent ruling that the act that breaks the contract may be
also a tort. In fine, a liability for tort may arise even under a contract, where tort is that which
breaches the contract. 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. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or
omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose
employees (truck driver and helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made answerable for the damages caused by its
employees who acted within the scope of their assigned task of delivering the goods safely to the
warehouse.
Whenever an employees negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.20 To avoid
liability for a quasi-delict committed by its employee, an employer must overcome the
presumption by presenting convincing proof that he exercised the care and diligence of a good
father of a family in the selection and supervision of his employee. 21 In this regard, Loadmasters
failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure
that Loadmasters would fully comply with the undertaking to safely transport the subject cargo
to the designated destination. It should have been more prudent in entrusting the goods to
Loadmasters by taking precautionary measures, such as providing escorts to accompany the
trucks in delivering the cargoes. Glodel should, therefore, be held liable with Loadmasters. Its
defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship between
Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides:
"By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter." The elements
of a contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; (4) the agent acts within the scope of his
authority.22
Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a settled
rule that the basis for agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal effect as
if they were personally executed by the principal. On the part of the principal, there must be an
actual intention to appoint or an intention naturally inferable from his words or actions, while
on the part of the agent, there must be an intention to accept the appointment and act on
it.23 Such mutual intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer
is liable for the total damage suffered by R&B Insurance. Where there are several causes for the
resulting damages, a party is not relieved from liability, even partially. It is sufficient that the
negligence of a party is an efficient cause without which the damage would not have resulted. It
is no defense to one of the concurrent tortfeasors that the damage would not have resulted from
his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor.
As stated in the case of Far Eastern Shipping v. Court of Appeals,24
X x x. Where several causes producing an injury are concurrent and each is an efficient cause
without which the injury would not have happened, the injury may be attributed to all or any of
the causes and recovery may be had against any or all of the responsible persons although under
the circumstances of the case, it may appear that one of them was more culpable, and that the
duty owed by them to the injured person was not the same. No actor's negligence ceases to be a
proximate cause merely because it does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause
of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since both of them
are liable for the total damage. Where the concurrent or successive negligent acts or omissions
of two or more persons, although acting independently, are in combination the direct and
proximate cause of a single injury to a third person, it is impossible to determine in what
proportion each contributed to the injury and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or damage to a third party, they
become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194 of
the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having failed
to file a cross-claim against the latter.1avvphi1
Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of
service as the latter is primarily liable for the loss of the subject cargo. In this case, however, it
cannot succeed in seeking judicial sanction against Loadmasters because the records disclose
that it did not properly interpose a cross-claim against the latter. Glodel did not even pray that
Loadmasters be liable for any and all claims that it may be adjudged liable in favor of R&B
Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not set up shall be
barred.25 Thus, a cross-claim cannot be set up for the first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on
equitable grounds. "Equity, which has been aptly described as a justice outside legality, is
applied only in the absence of, and never against, statutory law or judicial rules of
procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been at
fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court
of Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc.
and respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B
Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire & Cable
Corporation and ordering both parties to pay, jointly and severally, R&B Insurance Corporation
a] the amount of P1,896,789.62 representing the insurance indemnity; b] the amount equivalent
to ten (10%) percent thereof for attorneys fees; and c] the amount of P22,427.18 for litigation
expenses.
122
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against
petitioner Loadmasters Customs Services, Inc. is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

123
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 138334 August 25, 2003
ESTELA L. CRISOSTOMO, Petitioner,
vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., Respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed "Jewels of Europe". The package tour included the countries
of England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioners niece, Meriam Menor, was respondent
companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday
to deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the
full payment for the package tour. Menor then told her to be at the Ninoy Aquino International
Airport (NAIA) on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to
take the flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay,
she discovered that the flight she was supposed to take had already departed the previous day.
She learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called
up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the "British Pageant"
which included England, Scotland and Wales in its itinerary. For this tour package, petitioner
was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of
P26.60). She gave respondent US$300 or P7,980.00 as partial payment and commenced the trip
in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for "Jewels of Europe" and
the amount she owed respondent for the "British Pageant" tour. Despite several demands,
respondent company refused to reimburse the amount, contending that the same was non-
refundable.1 Petitioner was thus constrained to file a complaint against respondent for breach of
contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to
Branch 59 of the Regional Trial Court of Makati City.
In her complaint,2 petitioner alleged that her failure to join "Jewels of Europe" was due to
respondents fault since it did not clearly indicate the departure date on the plane ticket.
Respondent was also negligent in informing her of the wrong flight schedule through its employee
Menor. She insisted that the "British Pageant" was merely a substitute for the "Jewels of Europe"
tour, such that the cost of the former should be properly set-off against the sum paid for the
latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was
informed of the correct departure date, which was clearly and legibly printed on the plane ticket.
The travel documents were given to petitioner two days ahead of the scheduled trip. Petitioner
had only herself to blame for missing the flight, as she did not bother to read or confirm her flight
schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe",
considering that the same had already been remitted to its principal in Singapore, Lotus Travel
Ltd., which had already billed the same even if petitioner did not join the tour. Lotus European
tour organizer, Insight International Tours Ltd., determines the cost of a package tour based on
a minimum number of projected participants. For this reason, it is accepted industry practice to
disallow refund for individuals who failed to take a booked tour. 3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package
tour that petitioner missed. This tour was independently procured by petitioner after realizing
that she made a mistake in missing her flight for "Jewels of Europe". Petitioner was allowed to
make a partial payment of only US$300.00 for the second tour because her niece was then an
employee of the travel agency. Consequently, respondent prayed that petitioner be ordered to
pay the balance of P12,901.00 for the "British Pageant" package tour.
After due proceedings, the trial court rendered a decision, 4 the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty
Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos
(P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per annum
starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00)
Pesos as and for reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.5
The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut
petitioners testimony. However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on Menors verbal
representation. The trial court thus declared that petitioner was guilty of contributory negligence
and accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault.
However, the appellate court held that petitioner is more negligent than respondent because as
a lawyer and well-traveled person, she should have known better than to simply rely on what
was told to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited
her right to the "Jewels of Europe" tour and must therefore pay respondent the balance of the
124
price for the "British Pageant" tour. The dispositive portion of the judgment appealed from reads
as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26,
1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the
plaintiff-appellee to pay to the defendant-appellant the amount of P12,901.00, representing the
balance of the price of the British Pageant Package Tour, the same to earn legal interest at the
rate of SIX PERCENT (6%) per annum, to be computed from the time the counterclaim was filed
until the finality of this decision. After this decision becomes final and executory, the rate of
TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total
obligation until payment thereof is satisfied. The award of attorneys fees is DELETED. Costs
against the plaintiff-appellee.
SO ORDERED.6
Upon denial of her motion for reconsideration, 7 petitioner filed the instant petition under Rule
45 on the following grounds:
I The object of petitioners contractual relation with respondent is the latters service of arranging
It is respectfully submitted that the Honorable Court of Appeals committed a reversible
error in reversing and setting aside the decision of the trial court by ruling that the
petitioner is not entitled to a refund of the cost of unavailed "Jewels of Europe" tour
she being equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost care and extra-
ordinary diligence which is higher in degree than the ordinary diligence required of
the passenger. Thus, even if the petitioner and private respondent were both negligent,
the petitioner cannot be considered to be equally, or worse, more guilty than the
private respondent. At best, petitioners negligence is only contributory while the
private respondent [is guilty] of gross negligence making the principle of pari delicto
inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe"
tour was not indivisible and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages
due her as a result of breach of contract of carriage. 8
Petitioner contends that respondent did not observe the standard of care required of a common
carrier when it informed her wrongly of the flight schedule. She could not be deemed more
negligent than respondent since the latter is required by law to exercise extraordinary diligence
in the fulfillment of its obligation. If she were negligent at all, the same is merely contributory
and not the proximate cause of the damage she suffered. Her loss could only be attributed to
respondent as it was the direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place
to another for a fixed price.9 Such person or association of persons are regarded as carriers and
are classified as private or special carriers and common or public carriers. 10 A common carrier
is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water
or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business
of transporting either passengers or goods and is therefore, neither a private nor a common
carrier. Respondent did not undertake to transport petitioner from one place to another since its
covenant with its customers is simply to make travel arrangements in their behalf. Respondents
services as a travel agency include procuring tickets and facilitating travel permits or visas as
well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company,
this does not mean that the latter ipso facto is a common carrier. At most, respondent acted
merely as an agent of the airline, with whom petitioner ultimately contracted for her carriage to
Europe. Respondents obligation to petitioner in this regard was simply to see to it that petitioner
was properly booked with the airline for the appointed date and time. Her transport to the place
of destination, meanwhile, pertained directly to the airline.
and facilitating petitioners booking, ticketing and accommodation in the package tour. In
contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in
this sense that the contract between the parties in this case was an ordinary one for services
and not one of carriage. Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the
degree of care required in the performance of the latters obligation under the contract. For
reasons of public policy, a common carrier in a contract of carriage is bound by law to carry
passengers as far as human care and foresight can provide using the utmost diligence of very
cautious persons and with due regard for all the circumstances. 11 As earlier stated, however,
respondent is not a common carrier but a travel agency. It is thus not bound under the law to
observe extraordinary diligence in the performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil
Code.12 This connotes reasonable care consistent with that which an ordinarily prudent person
would have observed when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. 13
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner
of the wrong day of departure. Petitioners testimony was accepted as indubitable evidence of
Menors alleged negligent act since respondent did not call Menor to the witness stand to refute
the allegation. The lower court applied the presumption under Rule 131, Section 3 (e) 14 of the
Rules of Court that evidence willfully suppressed would be adverse if produced and thus
considered petitioners uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains
that petitioners assertion is belied by the evidence on record. The date and time of departure
was legibly written on the plane ticket and the travel papers were delivered two days in advance
precisely so that petitioner could prepare for the trip. It performed all its obligations to enable
petitioner to join the tour and exercised due diligence in its dealings with the latter.
We agree with respondent.
125
Respondents failure to present Menor as witness to rebut petitioners testimony could not give
rise to an inference unfavorable to the former. Menor was already working in France at the time
of the filing of the complaint,15 thereby making it physically impossible for respondent to present
her as a witness. Then too, even if it were possible for respondent to secure Menors testimony,
the presumption under Rule 131, Section 3(e) would still not apply. The opportunity and
possibility for obtaining Menors testimony belonged to both parties, considering that Menor was
not just respondents employee, but also petitioners niece. It was thus error for the lower court
to invoke the presumption that respondent willfully suppressed evidence under Rule 131, Section
3(e). Said presumption would logically be inoperative if the evidence is not intentionally omitted
but is simply unavailable, or when the same could have been obtained by both parties. 16
respondent the amount of P12,901.00 representing the balance of the price of the British Pageant
Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed from the
time the counterclaim was filed until the finality of this Decision. After this Decision becomes
final and executory, the rate of 12% per annum shall be imposed until the obligation is fully
settled, this interim period being deemed to be by then an equivalent to a forbearance of credit. 23
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

In sum, we do not agree with the finding of the lower court that Menors negligence concurred
with the negligence of petitioner and resultantly caused damage to the latter. Menors negligence
was not sufficiently proved, considering that the only evidence presented on this score was
petitioners uncorroborated narration of the events. It is well-settled that the party alleging a fact
has the burden of proving it and a mere allegation cannot take the place of evidence. 17 If the
plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner facts upon which he bases his claim, the defendant is under no obligation to prove his
exception or defense.18

Contrary to petitioners claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket19 issued to petitioner clearly reflected the departure date and time, contrary to petitioners
contention. The travel documents, consisting of the tour itinerary, vouchers and instructions,
were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked
petitioner for the tour, prepared the necessary documents and procured the plane tickets. It
arranged petitioners hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.

Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due
diligence in the conduct of her affairs, there would have been no reason for her to miss the flight.
Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon
her to take ordinary care of her concerns. This undoubtedly would require that she at least read
the documents in order to assure herself of the important details regarding the trip.

The negligence of the obligor in the performance of the obligation renders him liable for damages
for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his
failure to exercise due care and prudence in the performance of the obligation as the nature of
the obligation so demands.20 There is no fixed standard of diligence applicable to each and every
contractual obligation and each case must be determined upon its particular facts. The degree
of diligence required depends on the circumstances of the specific obligation and whether one
has been negligent is a question of fact that is to be determined after taking into account the
particulars of each case.211wphi1

The lower court declared that respondents employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are generally
conclusive upon this court, the rule is subject to certain exceptions, as when the trial court
overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance
which will affect the result of the case.22

In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must
bear her own damage.

WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay

126
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 141258 April 9, 2003
TOMASA SARMIENTO, petitioner,
vs.
SPS. LUIS & ROSE SUN-CABRIDO and MARIA LOURDES SUN, respondents.
CORONA, J.:
This appeal by certiorari stems from the Decision1 of respondent Court of Appeals promulgated
on November 26, 1999 in CA-G.R. SP No. 47431 declaring the private respondents not liable for
damages.
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao,
requested her to find somebody to reset a pair of diamond earrings into two gold
rings.2 Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to Dingdings
Jewelry Shop, owned and managed by respondent spouses Luis and Rose Cabrido,3 which
accepted the job order for P400.4
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. 5 After 3 days,
Tita Payag delivered to the jewelry shop one of Dra. Laos diamond earrings which was earlier
appraised as worth .33 carat and almost perfect in cut and clarity. 6 Respondent Ma. Lourdes
(Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she
asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the
setting with a pair of pliers, breaking the gem in the process. 7
Petitioner required the respondents to replace the diamond with the same size and quality. When
they refused, the petitioner was forced to buy a replacement in the amount of P30,000.8
Respondent Rose Cabrido, manager of Dingdings Jewelry Shop, denied having entered into any
transaction with Tita Payag whom she met only after the latter came to the jewelry shop to seek
compensation from Santos for the broken piece of jewelry.9 However, it was possible that Payag
may have availed of their services as she could not have known every customer who came to
their shop. Rose disclosed that she usually arrived at 11:00 a.m. When she was not around, her
mother and sister tended the shop.10
Marilou admitted knowing Payag who came to Dingdings Jewelry Shop to avail of their services
regarding a certain piece of jewelry. After a short conversation, Payag went inside the shop to see
Santos. When the precious stone was broken by Santos, Payag demanded P15,000 from him. As
the latter had no money, she turned to Marilou for reimbursement apparently thinking that
Marilou was the owner of the shop. 11
For his part, Santos recalled that Payag requested him to dismount what appeared to him was a
sapphire. While clipping the setting with the use of a small pair of pliers, the stone accidentally
broke. Santos denied being an employee of Dingdings Jewelry Shop. 12
Attempts to settle the controversy before the barangay lupon proved futile.13 Consequently,
petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in
Cities (MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which rendered a decision 14 in
favor of the petitioner, the dispositive portion of which reads:
WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and
against defendants Spouses Luis and Rose Sun-Cabrido, ordering defendants to pay
jointly and severally the amount of Thirty Thousand Pesos (P30,000.00) as actual or
compensatory damages; Three Thousand Pesos (P3,000.00) as moral damages; Five
Thousand Pesos (P5,000.00) as attorneys fees; Two Thousand Pesos (P2,000.00) as
litigation expenses, with legal interest of 6% per annum from the date of this decision
and 12% per annum from the date when this decision becomes final until the amounts
shall have been fully paid and to pay the costs.
This case as against defendant Maria Lourdes Sun as well as defendants counterclaim
are dismissed for lack of merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of
the MTCC, thus absolving the respondents of any responsibility arising from breach of
contract.15 Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of the
RTC in its Decision promulgated on November 26, 1999. 16
Unable to accept the decision, the petitioner filed the instant petition for review with the following
assigned errors:
I
THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT ZENON
SANTOS IS NOT AN EMPLOYEE OF DEFENDANT (herein respondent) ROSE SUN-
CABRIDO, AND IS THEREFORE ANSWERABLE FOR HIS OWN ACTS OR OMISSIONS
II
THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE REGIONAL
TRIAL COURTS PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT
BETWEEN THE PETITIONER AND RESPONDENTS THAT THE LATTER WOULD
ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE DAMAGED IN THE
PROCESS OF DISMOUNTING THEM FROM THE EARRINGS.
Essentially, petitioner claims that the dismounting of the diamond from its original setting was
part of the obligation assumed by the private respondents under the contract of service. Thus,
they should be held liable for damages arising from its breakage. On the other hand, the version
of the private respondents, upheld by the RTC and the CA, is that their agreement with the
petitioner was for crafting two gold rings mounted with diamonds only and did not include the
dismounting of the said diamonds from their original setting. 17 Consequently, the crux of the
instant controversy is the scope of the obligation assumed by the private respondents under the
verbal contract of service with the petitioner.
The Court notes that, during the trial, private respondents vigorously denied any transaction
between Dingdings Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for
instance, denied having ever met Payag before the latter came to seek reimbursement for the
value of the broken diamond. Likewise, while Marilou acknowledged acquaintance with Payag,
she nevertheless denied accepting any job order from her. Debunking their protestations,
however, the MTCC of Tagbilaran City rendered its decision on November 26, 1999 in favor of
herein petitioner.
127
Apparently realizing the weakness and futility of their position, private respondents conceded,
on appeal, the existence of an agreement with the petitioner for crafting a pair of gold rings
mounted with diamonds. This apparent concession by the private respondents, however, was
really nothing but an ingenious maneuver, designed to preclude, just the same, any recovery for
damages by the petitioner. Thus, while ostensibly admitting the existence of the said agreement,
private respondents, nonetheless denied assuming any obligation to dismount the diamonds
from their original settings.18
The inconsistent position of the private respondents impugns their credibility. They cannot be
permitted to adopt a certain stance, only to vacillate later to suit their interest. We are therefore
inclined to agree with the MTCC in giving credence to the version of the petitioner. The MTCC
had the unique opportunity to actually observe the behavior and demeanor of the witnesses as
they testified during the trial.19
At any rate, the contemporaneous and subsequent acts of the parties 20 support the version of
the petitioner. Thus, when Tita Payag asked Marilou of Dingdings Jewelry Shop to reset a pair
of diamond earrings, she brought with her the said pieces of jewelry so that the diamonds which
were still mounted could be measured and the new ring settings crafted accordingly. On the said
occasion, Marilou expressed no reservation regarding the dismounting of the diamonds which,
after all, was an integral part of petitioners job order. She should have instructed Payag to have
them dismounted first if Marilou had actually intended to spare the jewelry shop of the task but
she did not. Instead, petitioner was charged P400 for the job order which was readily accepted.
Thus, a perfected contract to reset the pair of diamond earrings arose between the petitioner,
through Payag, and Dingdings Jewelry Shop, through Marilou.
Payag stated that she had transacted with Dingdings Jewelry Shop on at least 10 previews
occasions, always through Marilou.28 The preponderance of evidence supports the view that
Marilou and Zenon Santos were employed at Dingdings Jewelry Shop in order to perform
activities which were usually necessary or desirable in its business. 29
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against
the respondents spouses who admittedly owned and managed Dingdings Jewelry Shop. It was
proven that petitioner replaced the damaged jewelry in the amount of P30,000.30
The facts of the case also justify the award of moral damages. As a general rule, moral damages
are not recoverable in actions for damages predicated on a breach of contract for it is not one of
the items enumerated under Article 2219 of the Civil Code. 31 Moral damages may be awarded in
a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of
gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligation.32 Santos was a goldsmith for more than 40 years. 33 Given his long experience in the
trade, he should have known that using a pair of pliers instead of a miniature wire saw in
dismounting a precious stone like a diamond would have entailed an unnecessary risk of
breakage. He went on with it anyway. Hence, respondent spouses are liable for P10,000 as moral
damages due to the gross negligence of their employee.
However, private respondents refusal to pay the value of the damaged jewelry emanated from an
honest belief that they were not responsible therefor, hence, negating any basis for the award of
attorneys fees.34

Marilous subsequent actuations were even more revealing as regards the scope of obligation
assumed by the jewelry shop. After the new settings were completed in 3 days, she called up the
petitioner to bring the diamond earrings to be reset. 21 Having initially examined one of them,
Marilou went on to dismount the diamond from its original setting. Unsuccessful, she then
delegated the task to their goldsmith, Zenon Santos. Having acted the way she did, Marilou
cannot now deny the shops obligation to reset the pair of earrings.
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of
Appeals dated November 26, 1999 is hereby reversed and set aside. Private respondents Luis
Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount
of P30,000 as actual damages and P10,000 as moral damages in favor of the petitioner.
No costs.

Obligations arising from contracts have the force of law between the contracting SO ORDERED.
parties.22 Corollarily, those who in the performance of their obligations are guilty of fraud,
negligence or delay and those who in any manner contravene the tenor thereof, are liable for
damages.23 The fault or negligence of the obligor consists in the omission of that diligence which Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.
is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place.24

In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond
from its original setting. It appears to be the practice of the trade to use a miniature wire saw in
dismounting precious gems, such as diamonds, from their original settings. 25 However, Santos
employed a pair of pliers in clipping the original setting, thus resulting in breakage of the
diamond. The jewelry shop failed to perform its obligation with the ordinary diligence required
by the circumstances. It should be pointed out that Marilou examined the diamond before
dismounting it from the original setting and found the same to be in order. Its subsequent
breakage in the hands of Santos could only have been caused by his negligence in using the
wrong equipment. Res ipsa loquitur.

Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an
independent worker. They also claim, rather lamely, that Marilou simply happened to drop by at
Dingdings Jewelry Shop when Payag arrived to place her job order. 26

We do not think so.

The facts show that Santos had been working at Dingdings Jewelry Shop as goldsmith for about
6 months accepting job orders through referrals from private respondents.27 On the other hand,

128
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 104408 June 21, 1993
METRO MANILA TRANSIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS AND NENITA CUSTODIA, respondents.
Office of the Government Corporate Counsel for petitioner.
Renato P. Decena and Restituto Abjero for private respondent.
REGALADO, J.:
This appeal calls for a review of the legal validity and sufficiency of petitioner's invocation of due
diligence in the selection and supervision of employees as its defense against liability resulting
from a vehicular collision. With the facility by which such a defense can be contrived and our
country having reputedly the highest traffic accident rate in its geographical region, it is indeed
high time for us to once again address this matter which poses not only a litigation issue for the
courts but affects the very safety of our streets.
The facts of the case at bar are recounted for us by respondent court, thus
At about six o'clock in the morning of August 28, 1979, plaintiff-appellant
Nenita Custodio boarded as a paying passenger a public utility jeepney with
plate No. D7 305 PUJ Pilipinas 1979, then driven by defendant Agudo
Calebag and owned by his co-defendant Victorino Lamayo, bound for her
work at Dynetics Incorporated located in Bicutan, Taguig, Metro Manila,
where she then worked as a machine operator earning P16.25 a day. While
the passenger jeepney was travelling at (a) fast clip along DBP Avenue,
Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila
Transit Corp. (MMTC, for short) bus bearing plate no. 3Z 307 PUB
(Philippines) "79 driven by defendant Godofredo C. Leonardo was
negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its
terminal at Bicutan. As both vehicles approached the intersection of DBP
Avenue and Honeydew Road they failed to slow down and slacken their
speed; neither did they blow their horns to warn approaching vehicles. As
a consequence, a collision between them occurred, the passenger jeepney
ramming the left side portion of the MMTC bus. The collision impact caused
plaintiff-appellant Nenita Custodio to hit the front windshield of the
passenger jeepney and (she) was thrown out therefrom, falling onto the
pavement unconscious with serious physical injuries. She was brought to
the Medical City Hospital where she regained consciousness only after one
(1) week. Thereat, she was confined for twenty-four (24) days, and as a
consequence, she was unable to work for three and one half months
(31/2). 1
A complaint for damages 2 was filed by herein private respondent, who being then a minor was
assisted by her parents, against all of therein named defendants following their refusal to pay
the expenses incurred by the former as a result of the collision.
Said defendants denied all the material allegations in the complaint and pointed an accusing
finger at each other as being the party at fault. Further, herein petitioner Metro Manila Transit
Corporation (MMTC), a government-owned corporation and one of the defendants in the court a
quo, along with its driver, Godofredo Leonardo, contrarily averred in its answer with cross-claim
and counterclaim 3 that the MMTC bus was driven in a prudent and careful manner by driver
Leonardo and that it was the passenger jeepney which was driven recklessly considering that it
hit the left middle portion of the MMTC bus, and that it was defendant Lamayo, the owner of the
jeepney and employer of driver Calebag, who failed to exercise due diligence in the selection and
supervision of employees and should thus be held solidarily liable for damages caused to the
MMTC bus through the fault and negligence of its employees.
Defendant Victorino Lamayo, for his part, alleged in his answer with cross-claim and
counterclaim 4 that the damages suffered by therein plaintiff should be borne by defendants
MMTC and its driver, Godofredo Leonardo, because the latter's negligence was the sole and
proximate cause of the accident and that MMTC failed to exercise due diligence in the selection
and supervision of its employees.
By order of the trial court, defendant Calebag was declared in default for failure to file an
answer. 5 Thereafter, as no amicable settlement was reached during the pre-trial
conference, 6 trial on the merits ensued with the opposing parties presenting their respective
witnesses and documentary evidence.
Herein private respondent Nenita Custodia, along with her parents, were presented as witnesses
for the prosecution. In addition, Dr. Edgardo del Mundo, the attending physician, testified on
the cause, nature and extent of the injuries she sustained as a result of the vehicular
mishap. 7 On the other hand, defendant MMTC presented as witnesses Godofredo Leonardo,
Christian Bautista and Milagros Garbo. Defendant Lamayo, however, failed to present any
witness.
Milagros Garbo testified that, as a training officer of MMTC, she was in charge of the selection of
the company's bus drivers, conducting for this purpose a series of training programs and
examinations. According to her, new applicants for job openings at MMTC are preliminarily
required to submit certain documents such as National Bureau of Investigation (NBI) clearance,
birth or residence certificate, ID pictures, certificate or diploma of highest educational
attainment, professional driver's license, and work experience certification. Re-entry applicants,
aside from the foregoing requirements, are additionally supposed to submit company clearance
for shortages and damages and revenue performance for the preceding year. Upon satisfactory
compliance with said requisites, applicants are recommended for and subjected to a Preliminary
interview, followed by a record check to find out whether they are included in the list of
undesirable employees given by other companies.
Thereafter, she continued, if an applicant is found to be acceptable, a final interview by the Chief
Supervisor is scheduled and followed by a training program which consists of seminars and
actual driving and Psycho-physical tests and X-ray examinations. The seminars, which last for
a total of eighteen (18) days, include familiarization with assigned routes, existing traffic rules
and regulations, Constabulary Highway Patrol Group (CHPG) seminar on defensive driving,
preventive maintenance, proper vehicle handling, interpersonal relationship ,and administrative
rules on discipline and on-the-job training. Upon completion of all the seminars and tests, a final
clearance is issued, an employment contract is executed and the driver is ready to report for
duty. 8
MMTC's Transport Supervisor, Christian Bautista, testified that it was his duty to monitor the
daily operation of buses in the field, to countercheck the dispatcher on duty prior to the operation
of the buses in the morning and to see to it that the bus crew follow written guidelines of the
company, which include seeing to it that its employees are in proper uniform, briefed in traffic
rules and regulations before the start of duty, fit to drive and, in general, follow other rules and
regulations of the Bureau of Land Transportation as well as of the company. 9
129
The reorganized trial court, in its decision of August 1, 1989, 10 found both drivers of the colliding
vehicles concurrently negligent for non-observance of appropriate traffic rules and regulations
and for failure to take the usual precautions when approaching an intersection. As joint
tortfeasors, both drivers, as well as defendant Lamayo, were held solidarily liable for damages
sustained by plaintiff Custodio. Defendant MMTC, on the bases of the evidence presented was,
however, absolved from liability for the accident on the ground that it was not only careful and
diligent in choosing and screening applicants for job openings but was also strict and diligent in
supervising its employees by seeing to it that its employees were in proper uniforms, briefed in
traffic rules and regulations before the start of duty, and that it checked its employees to
determine whether or not they were positive for alcohol and followed other rules and regulations
and guidelines of the Bureau of Land Transportation and of the company.
The trial court accordingly ruled:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
dismissing the complaint against the Metro Manila Transit Corporation and
ordering defendants Agudo P. Calebag, Victorino Lamayo and Godofredo C.
Leonardo to pay plaintiffs, jointly and severally, the following:
a) the sum of P10,000.00 by way of medical expenses;
b) the sum of P5,000.00 by way of expenses of litigation;
c) the sum of P15,000.00 by way of moral damages;
d) the sum of P2,672.00 by way of loss of earnings;
e) the sum of P5,000.00 by way of exemplary damages;
f) the sum of P6,000.00 by way of attorney's fees; and
g) costs of suit.
SO ORDERED. 11
Plaintiff's motion to have that portion of the trial court's decision absolving MMTC from liability
reconsidered 12having been denied for lack of merit, 13 an appeal was filed by her with respondent
appellate court. After consideration of the appropriate pleadings on appeal and finding the appeal
meritorious, the Court of Appeals modified the trial court's decision by holding MMTC solidarily
liable with the other defendants for the damages awarded by the trial court because of their
concurrent negligence, concluding that while there is no hard and fast rule as to what constitutes
sufficient evidence to prove that an employer has exercised the due diligence required of it in the
selection and supervision of its employees, based on the quantum of evidence adduced the said
appellate court was not disposed to say that MMTC had exercised the diligence required of a
good father of a family in the selection and supervision of its driver, Godofredo Leonardo. 14
The Court of Appeals was resolute in its conclusion and denied the motions for reconsideration
of appellee Custodio and appellant MMTC in a resolution dated February 17, 1982, 15 thus
prompting MMTC to file the instant petition invoking the review powers of this Court over the
decision of the Court of Appeals, raising as issues for resolution whether or not (1) the
documentary evidence to support the positive testimonies of witnesses Garbo and Bautista are
still necessary; (2) the testimonies of witnesses Garbo and Bautista may still be disturbed on
appeal; and (3) the evidence presented during the trial with respect to the proof of due diligence
of petitioner MMTC in the selection and supervision of its employees, particularly driver
Leonardo, is sufficient.
Prefatorily, private respondent questions the timeliness of the filing of the petition at bar in view
of the procedural stricture that the timely perfection of an appeal is both a mandatory and
jurisdictional requirement. This is a legitimate concern on the part of private respondent and
presents an opportune occasion to once again clarify this point as there appears to be some
confusion in the application of the rules and interpretative rulings regarding the computation of
reglementary periods at this stage of the proceedings.
The records of this case reveal that the decision of respondent Court of Appeals, dated October
31, 1991, was received by MMTC on November 18, 1991 16 and it seasonably filed a motion for
the reconsideration thereof on November 28, 1991. 17 Said motion for reconsideration was denied
by respondent court in its resolution dated February 17, 1992, which in turn was received by
MMTC on March 9, 1992. 18 Therefore, it had, pursuant to Section 1, Rule 45 of the Rules of
Court, fifteen (15) days therefrom or up to March 24, 1992 within which to file its petition, for
review on certiorari. Anticipating, however, that it may not be able to file said petition before the
lapse of the reglementary period therefor, MMTC filed a motion on March 19, 1992 for an
extension of thirty (30) days to file the present petition, with proof of service of copies thereof to
respondent court and the adverse parties. The Court granted said motion, with the extended
period to be counted from the expiration of the reglementary period. 19 Consequently, private
respondent had thirty (30) days from March 24, 1992 within which to file its petition, or up to
April 23, 1992, and the eventual filing of said petition on April 14, 1992 was well within the
period granted by the Court.
We digress to reiterate, in view of erroneous submissions that we continue to receive, that in the
case of a petition for review on certiorari from a decision rendered by the Court of Appeals, Section
1, Rule 45 of the Rules of Court, which has long since been clarified in Lacsamana vs. The Hon.
Second Special Cases Division of the Intermediate Appellate Court, et al., 20 allows the same to be
filed "within fifteen (15) days from notice of judgment or of the denial of the motion for
reconsideration filed in due time, and paying at the same time to the corresponding docket fee."
In other words, in the event a motion for reconsideration is filed and denied, the period of fifteen
(15) days begins to run all over again from notice of the denial resolution. Otherwise put, if a
motion for reconsideration is filed, the reglementary period within which to appeal the decision
of the Court of Appeals to the Supreme Court is reckoned from the date the party who intends
to appeal received the order denying the motion for reconsideration. 21 Furthermore, a motion
for extension of time to file a petition for review may be filed with this Court within said
reglementary period, paying at the same time the corresponding docket fee.
1. The first two issues raised by petitioner shall be correlatively discussed in view of their
interrelation.
In its present petition, MMTC insists that the oral testimonies of its employees were presented
as witnesses in its behalf sufficiently prove, even without the presentation documentary evidence,
that driver Leonardo had complied with all the hiring and clearance requirements and had
undergone all trainings, tests and examinations preparatory to actual employment, and that said
positive testimonies spell out the rigid procedure for screening of job applicants and the
supervision of its employees in the field. It underscored the fact that it had indeed complied with
the measure of diligence in the selection and supervision of its employees as enunciated
in Campo, et al. vs. Camarote, et al. 22 requiring an employer, in the exercise of the diligence of a
good father of a family, to carefully examine the applicant for employment as to his qualifications,
experience and record service, and not merely be satisfied with the possession of a professional
driver's license.
It goes on to say since the testimonies of these witnesses were allegedly neither discredited nor
impeached by the adverse party, they should be believed and not arbitrarily disregarded or
rejected nor disturbed on appeal. It assiduously argues that inasmuch as there is no law
requiring that facts alleged by petitioner be established by documentary evidence, the probative
force and weight of their testimonies should not be discredited, with the further note that the
130
lower court having passed upon the relevancy of the oral testimonies and considered the same
as unrebutted, its consideration should no longer be disturbed on appeal. 23
Private respondent, on the other hand, retorts that the factual findings of respondent court are
conclusive upon the High Court which cannot be burdened with the task of analyzing and
weighing the evidence all over again. 24
At this juncture, it suffices to note that factual findings of the trial court may be reversed by the
Court of Appeals, which is vested by law with the power to review both legal and factual issues,
if on the evidence of record, it appears that the trial court may have been mistaken 25 particularly
in the appreciation of evidence, which is within the domain of the Court of Appeals. 26 The general
rule laid down in a plethora of cases is that such findings of fact by the Court of Appeals are
conclusive upon and beyond the power of review of the Supreme Court. 27 However, it is now
well-settled that while the findings of fact of the Court of Appeals are entitled to great respect,
and even finality at times, that rule is not inflexible and is subject to well established exceptions,
to wit: (1) when the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where
there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same are contrary to the admissions of both appellant
and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition, as well as in the petitioner's main and reply
briefs are not disputed by the respondents and (10) when the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and are contradicted by the evidence
on record. 28
When as in this case, the findings of the Court of Appeals and the trial court are contrary to each
other, this court may scrutinize the evidence on record, 29 in order to arrive at a correct finding
based thereon. 30
A perusal of the same shows that since there is no dispute as to the finding of concurrent
negligence on the part of the defendant Calebag, the driver of the passenger jeepney, and co-
defendant Leonardo, the bus driver of petitioner MMTC, both of whom were solidarily held liable
with defendant Lamayo, the owner of the jeepney, we are spared the necessity of determining the
sufficiency of evidence establishing the fact of negligence. 31 The contrariety is in the findings of
the two lower courts, and which is the subject of this present controversy, with regard to the
liability of MMTC as employer of one the erring drivers.
The trial court, in absolving MMTC from liability ruled that
On the question as to whether defendant MMTC was successful in proving
its defense that indeed it had exercised the due diligence of a good father of
a family in the selection and supervision of defendant Leonardo, this Court
finds that based on the evidence presented during the trial, defendant
MMTC was able to prove that it was not only careful and diligent in choosing
and screening applicants for job openings but also strict (and) diligent in
supervising its employees by seeing to it that its employees were in proper
uniforms, briefed in traffic rules and regulations before the start of duty,
checked employees to determine whether they were positive for alcohol and
followed other rules and regulations and guidelines of the Bureau of Land
Transportation as well as its company. Having successfully proven such
defense, defendant MMTC therefore, cannot be held liable for the accident.
Having reached this conclusion, the Court now, holds that defendant
MMTC be totally absolved from liability and that the complaint against it be
dismissed. . . . 32
whereas respondent court was of the opinion that
It is surprising though that witness Milagros Garbo did not testify nor
present any evidence that defendant-appellee's driver, defendant Godofredo
Leonardo has complied with or has undergone all clearances and trainings
she referred to. The clearances, result of seminars and tests which
Godofredo Leonardo submitted and complied with, if any, were not
presented in court despite the fact that they are obviously in the possession
and control of defendant-appellee. Instead, it resorted to generalities. The
Court has ruled that due diligence in (the) selection and supervision of
employee(s) are not proved by mere testimonies to the effect that its
applicant has complied with all the company requirements before one is
admitted as an employee but without proof thereof. . . .
On the part of Christian Bautista, the transport supervisor of defendant-
appellee, he testified that it is his duty to monitor the operation of buses in
the field; to countercheck the dispatchers' duty prior to the operation of the
buses in the morning; to see to it that bus crew follows written guidelines
of the company (t.s.n., April 29, 1988, pp. 4-5), but when asked to present
in court the alleged written guidelines of the company he merely stated that
he brought with him a "wrong document" and defendant-appellee's counsel
asked for reservation to present such written guidelines in the next hearing
but the same was (sic) never presented in court. 33
A thorough and scrupulous review of the records of this case reveals that the conclusion of
respondent Court of Appeals is more firmly grounded on jurisprudence and amply supported by
the evidence of record than that of the court below.
It is procedurally required for each party in a case to prove his own affirmative assertion by the
degree of evidence required by law. 34 In civil cases, the degree of evidence required of a party in
order to support his claim is preponderance of evidence, or that evidence adduced by one party
which is more conclusive and credible than that of the other party. It is, therefore, incumbent on
the plaintiff who is claiming a right to prove his case. Corollarily, defendant must likewise prove
own allegation to buttress its claim that it is not liable. 35
In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence required by law to obtain a favorable
judgment. 36 It is entirely within each of the parties discretion, consonant with the theory of the
case it or he seeks to advance and subject to such procedural strategy followed thereby, to
present all available evidence at its or his disposal in the manner which may be deemed
necessary and beneficial to prove its or his position, provided only that the same shall measure
up to the quantum of evidence required by law. In making proof in its or his case, it is paramount
that the best and most complete evidence be formally entered. 37
Coming now to the case at bar, while there is no rule which requires that testimonial evidence,
to hold sway, must be corroborated by documentary evidence, or even subject evidence for that
matter, inasmuch as the witnesses' testimonies dwelt on mere generalities, we cannot consider
the same as sufficiently persuasive proof that there was observance of due diligence in the
selection and supervision of employees. 38 Petitioner's attempt to prove its diligentissimi patris
familias in the selection and supervision of employees through oral evidence must fail as it was
unable to buttress the same with any other evidence, object or documentary, which might obviate
the apparent biased nature of the testimony. 39
Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum
as would convincingly and undoubtedly prove its observance of the diligence of a good father of
a family has its precursor in the underlying rationale pronounced in the earlier case of Central
Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., 40 set amidst an almost
identical factual setting, where we held that:
131
 . . . . This witness spoke of an "affidavit of experience" which a driver-
applicant must accomplish before he is employed by the company, a written
"time schedule" for each bus, and a record of the inspections and thorough
checks pertaining to each bus before it leaves the car barn; yet no attempt
was ever made to present in evidence any of these documents, despite the
fact that they were obviously in the possession and control of the defendant
company.
xxx xxx xxx
Albert also testified that he kept records of the preliminary and final tests
given him as well as a record of the qualifications and experience of each of
the drivers of the company. It is rather strange, therefore, that he failed to
produce in court the all important record of Roberto, the driver involved in
this case.
The failure of the defendant company to produce in court any "record" or
other documentary proof tending to establish that it had exercised all the
diligence of a good father of a family in the selection and supervision of its
drivers and buses, notwithstanding the calls therefor by both the trial court
and the opposing counsel, argues strongly against its pretensions.
We are fully aware that there is no hard-and-fast rule on the quantum of
evidence needed to prove due observance of all the diligence of a good father
of a family as would constitute a valid defense to the legal presumption of
negligence on the part of an employer or master whose employee has by his
negligence, caused damage to another. . . . (R)educing the testimony of
Albert to its proper proportions, we do not have enough trustworthy
evidence left to go by. We are of the considered opinion, therefore, that the
believable evidence on the degree of care and diligence that has been
exercised in the selection and supervision of Roberto Leon y Salazar, is not
legally sufficient to overcome the presumption of negligence against the
defendant company.
Whether or not the diligence of a good father of a family has been observed by petitioner is a
matter of proof which under the circumstances in the case at bar has not been clearly
established. It is not felt by the Court that there is enough evidence on record as would overturn
the presumption of negligence, and for failure to submit all evidence within its control, assuming
the putative existence thereof, petitioner MMTC must suffer the consequences of its own inaction
and indifference.
2. In any event, we do not find the evidence presented by petitioner sufficiently convincing to
prove the diligence of a good father of a family, which for an employer doctrinally translates into
its observance of due diligence in the selection and supervision of its employees but which
mandate, to use an oft-quoted phrase, is more often honored in the breach than in the
observance.
Petitioner attempted to essay in detail the company's procedure for screening job applicants and
supervising its employees in the field, through the testimonies of Milagros Garbo, as its training
officer, and Christian Bautista, as its transport supervisor, both of whom naturally and
expectedly testified for MMTC. It then concluded with its sweeping pontifications that "thus, there
is no doubt that considering the nature of the business of petitioner, it would not let any
applicant-drivers to be (sic) admitted without undergoing the rigid selection and training process
with the end (in) view of protecting the public in general and its passengers in particular; . . .
thus, there is no doubt that applicant had fully complied with the said requirements otherwise
Garbo should not have allowed him to undertake the next set of requirements . . . and the training
conducted consisting of seminars and actual driving tests were satisfactory otherwise he should
have not been allowed to drive the subject vehicle. 41
These statements strike us as both presumptuous and in the nature of petitio principii, couched
in generalities and shorn of any supporting evidence to boost their verity. As earlier observed,
respondent court could not but express surprise, and thereby its incredulity, that witness Garbo
neither testified nor presented any evidence that driver Leonardo had complied with or had
undergone all the clearances and trainings she took pains to recite and enumerate. The supposed
clearances, results of seminars and tests which Leonardo allegedly submitted and complied with
were never presented in court despite the fact that, if true, then they were obviously in the
possession and control of petitioner. 42
The case at bar is clearly within the coverage of Article 2176 and 2177, in relation to Article
2180, of the Civil Code provisions on quasi-delicts as all the elements thereof are present, to wit:
(1) damages suffered by the plaintiff, (2) fault or negligence of the defendant or some other person
for whose act he must respond, and (3) the connection of cause and effect between fault or
negligence of the defendant and the damages incurred by plaintiff. 43 It is to be noted that
petitioner was originally sued as employer of driver Leonardo under Article 2180, the pertinent
parts of which provides that:
The obligation imposed by article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is
responsible.
xxx xxx xxx
Employers shall be liable for 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.
xxx xxx xxx
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.
The basis of the employer's vicarious liability has been explained under this ratiocination:
The responsibility imposed by this article arises by virtue of a
presumption juris tantum of negligence on the part of the persons made
responsible under the article, derived from their failure to exercise due care
and vigilance over the acts of subordinates to prevent them from causing
damage. Negligence is imputed to them by law, unless they prove the
contrary. Thus, the last paragraph of the article says that such
responsibility ceases if is proved that the persons who might be held
responsible under it exercised the diligence of a good father of a family
(diligentissimi patris familias) to prevent damage. It is clear, therefore, that
it is not representation, nor interest, nor even the necessity of having
somebody else answer for the damages caused by the persons devoid of
personality, but it is the non-performance of certain duties of precaution
and prudence imposed upon the persons who become responsible by civil
bond uniting the actor to them, which forms the foundation of such
responsibility. 44
The above rule is, of course, applicable only where there is an employer-employee relationship,
although it is not necessary that the employer be engaged in business or industry. Whether or
not engaged in any business or industry, the employer under Article 2180 is liable for torts
committed by his employees within the scope of their assigned tasks. But, it is necessary first to
establish the employment relationship. Once this is done, the plaintiff must show, to hold the
132
employer liable, that the employee was acting within the scope of his assigned task when the tort
complained of was committed. It is only then that the defendant, as employer, may find it
necessary to interpose the defense of due diligence in the selection and supervision of
employees. 45 The diligence of a good father of a family required to be observed by employers to
prevent damages under Article 2180 refers to due diligence in the selection and supervision of
employees in order to protect the public. 46
With the allegation and subsequent proof of negligence against the defendant driver and of an
employer-employee relation between him and his co-defendant MMTC in this instance, the case
in undoubtedly based on a quasi-delict under Article 2180 47 When the employee causes damage
due to his own negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, 48 rebuttable only by proof of observance of
the diligence of a good father of a family. For failure to rebut such legal presumption of negligence
in the selection and supervision of employees, the employer is likewise responsible for
damages, 49 the basis of the liability being the relationship of pater familias or on the employer's
own negligence. 50
As early as the case of Gutierrez vs. Gutierrez, 51 and thereafter, we have consistently held that
where the injury is due to the concurrent negligence of the drivers of the colliding vehicles, the
drivers and owners of the said vehicles shall be primarily, directly and solidarily liable for
damages and it is immaterial that one action is based on quasi-delict and the other on culpa
contractual, as the solidarily of the obligation is justified by the very nature thereof. 52
It should be borne in mind that the legal obligation of employers to observe due diligence in the
selection and supervision of employees is not to be considered as an empty play of words or a
mere formalism, as appears to be the fashion of the times, since the non-observance thereof
actually becomes the basis of their vicarious liability under Article 2180.
On the matter of selection of employees, Campo vs. Camarote, supra, lays down this admonition:
. . . . In order tat the owner of a vehicle may be considered as having
exercised all diligence of a good father of a family, he should not have been
satisfied with the mere possession of a professional driver's license; he
should have carefully examined the applicant for employment as to his
qualifications, his experience and record of service. These steps appellant
failed to observe; he has therefore, failed to exercise all due diligence
required of a good father of a family in the choice or selection of driver.
Due diligence in the supervision of employees, on the other hand, includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the employer has
relations through his or its employees and the imposition of necessary disciplinary measures
upon employees in case of breach or as may be warranted to ensure the performance of acts
indispensable to the business of and beneficial to their employer. 53 To this, we add that actual
implementation and monitoring of consistent compliance with said rules should be the constant
concern of the employer, acting through dependable supervisors who should regularly report on
their supervisory functions.
In order that the defense of due diligence in the selection and supervision of employees may be
deemed sufficient and plausible, it is not enough to emptily invoke the existence of said company
guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to
the presumption of negligence on the part of the employer, the latter has the burden of proving
that it has been diligent not only in the selection of employees but also in the actual supervision
of their work. The mere allegation of the existence of hiring procedures and supervisory policies,
without anything more, is decidedly not sufficient to overcome presumption.
We emphatically reiterate our holding, as a warning to all employers, that "(t)he mere formulation
of various company policies on safety without showing that they were being complied with is not
sufficient to exempt petitioner from liability arising from negligence of its employees. It is
incumbent upon petitioner to show that in recruiting and employing the erring driver the
recruitment procedures and company policies on efficiency and safety were followed." 54 Paying
lip-service to these injunctions or merely going through the motions of compliance therewith will
warrant stern sanctions from the Court.
These obligations, imposed by the law and public policy in the interests and for the safety of the
commuting public, herein petitioner failed to perform. Respondent court was definitely correct
in ruling that ". . . due diligence in the selection and supervision of employee (is) not proved by
mere testimonies to the effect that its applicant has complied with all the company requirements
before one is admitted as an employee but without proof thereof." 55 It is further a distressing
commentary on petitioner that it is a government-owned public utility, maintained by public
funds, and organized for the public welfare.
The Court it is necessary to once again stress the following rationale behind these all-important
statutory and jurisprudential mandates, for it has been observed that despite its pronouncement
in Kapalaran Bus Line vs. Coronado, et al., supra, there has been little improvement in the
transport situation in the country:
In requiring the highest possible degree of diligence from common carriers
and creating a presumption of negligence against them, the law compels
them to curb the recklessness of their drivers. While the immediate
beneficiaries of the standard of extraordinary diligence are, of course, the
passengers and owners of the cargo carried by a common carrier, they are
not the only persons that the law seeks to benefit. For if common carriers
carefully observe the statutory standard of extraordinary diligence in
respect of their own passengers, they cannot help but simultaneously
benefit pedestrians and the owners and passengers of other vehicles who
are equally entitled to the safe and convenient use of our roads and
highways. The law seeks to stop and prevent the slaughter and maiming of
people (whether passengers or not) and the destruction of property (whether
freight or not) on our highways by buses, the very size and power of which
seem often to inflame the minds of their drivers. . . .
Finally, we believe that respondent court acted in the exercise of sound discretion when it
affirmed the trial court's award, without requiring the payment of interest thereon as an item of
damages just because of delay in the determination thereof, especially since private respondent
did not specifically pray therefor in her complaint. Article 2211 of the Civil Code provides that
in quasi-delicts, interest as a part of the damages may be awarded in the discretion of the court,
and not as a matter of right. We do not perceive that there have been international dilatory
maneuvers or any special circumstances which would justify that additional award and,
consequently, we find no reason to disturb said ruling.
WHEREFORE, the impugned decision of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J. and Nocon, JJ., concur.
Padilla, J., is on leave.
133
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 157917 August 29, 2012
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,
vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and
the COURT OF APPEALS Respondents.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to
observe extraordinary diligence in the conduct of his business. He is presumed to be negligent
when death occurs to a passenger. His liability may include indemnity for loss of earning capacity
even if the deceased passenger may only be an unemployed high school student at the time of
the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA)
affirmed with modification the decision rendered on December 3, 1999 by the Regional Trial
Court (RTC), Branch 260, in Paraaque City that had decreed them jointly and severally liable
with Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita
Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a high
school student of Don Bosco Technical Institute (Don Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from their respective
residences in Paraaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Pereas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the capacity
to transport 14 students at a time, two of whom would be seated in the front beside the driver,
and the others in the rear, with six students on either side. They employed Clemente Alfaro
(Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don Bosco. On
August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from
the Zarates residence. Aaron took his place on the left side of the van near the rear door. The
van, with its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all
the 14 student riders on their way to Don Bosco. Considering that the students were due at Don
Bosco by 7:15 a.m., and that they were already running late because of the heavy vehicular
traffic on the South Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m.
by traversing the narrow path underneath the Magallanes Interchange that was then commonly
used by Makati-bound vehicles as a short cut into Makati. At the time, the narrow path was
marked by piles of construction materials and parked passenger jeepneys, and the railroad
crossing in the narrow path had no railroad warning signs, or watchmen, or other responsible
persons manning the crossing. In fact, the bamboo barandilla was up, leaving the railroad
crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was blocked
because he overtook the passenger bus on its left side. The train blew its horn to warn motorists
of its approach. When the train was about 50 meters away from the passenger bus and the van,
Alano applied the ordinary brakes of the train. He applied the emergency brakes only when he
saw that a collision was imminent. The passenger bus successfully crossed the railroad tracks,
but the van driven by Alfaro did not. The train hit the rear end of the van, and the impact threw
nine of the 12 students in the rear, including Aaron, out of the van. Aaron landed in the path of
the train, which dragged his body and severed his head, instantaneously killing him. Alano fled
the scene on board the train, and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereas, PNR and Alano. The Pereas and PNR filed their respective
answers, with cross-claims against each other, but Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
(2) Spouses Zarate engaged the services of spouses Perea for the adequate and safe
transportation carriage of the former spouses' son from their residence in Paraaque
to his school at the Don Bosco Technical Institute in Makati City;
(3) During the effectivity of the contract of carriage and in the implementation thereof,
Aaron, the minor son of spouses Zarate died in connection with a vehicular/train
collision which occurred while Aaron was riding the contracted carrier Kia Ceres van
of spouses Perea, then driven and operated by the latter's employee/authorized
driver Clemente Alfaro, which van collided with the train of PNR, at around 6:45 A.M.
of August 22, 1996, within the vicinity of the Magallanes Interchange in Makati City,
Metro Manila, Philippines;
(4) At the time of the vehicular/train collision, the subject site of the vehicular/train
collision was a railroad crossing used by motorists for crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no appropriate
and safety warning signs and railings at the site commonly used for railroad crossing;
(6) At the material time, countless number of Makati bound public utility and private
vehicles used on a daily basis the site of the collision as an alternative route and short-
cut to Makati;
(7) The train driver or operator left the scene of the incident on board the commuter
train involved without waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in fact intended
by the railroad operator for railroad crossing at the time of the vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
134
 (10) PNR refused to acknowledge any liability for the vehicular/train collision;
(11) The eventual closure of the railroad crossing alleged by PNR was an internal
arrangement between the former and its project contractor; and
(12) The site of the vehicular/train collision was within the vicinity or less than 100
meters from the Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his functions,
liable for negligence constituting the proximate cause of the vehicular collision, which
resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the employer of defendant
Alfaro are liable for any negligence which may be attributed to defendant Alfaro;
The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil
Code.
In their defense, the Pereas adduced evidence to show that they had exercised the diligence of
a good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro
had been issued a drivers license and had not been involved in any vehicular accident prior to
the collision; that their own son had taken the van daily; and that Teodoro Perea had sometimes
accompanied Alfaro in the vans trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow
path traversed by the van had not been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision, 3 disposing:

(3) Whether or not defendant Philippine National Railways being the operator of the
railroad system is liable for negligence in failing to provide adequate safety warning
signs and railings in the area commonly used by motorists for railroad crossings,
constituting the proximate cause of the vehicular collision which resulted in the death
of the plaintiff spouses' son;
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;

(4) Whether or not defendant spouses Perea are liable for breach of the contract of (2) Actual damages in the amount of Php100,000.00;
carriage with plaintiff-spouses in failing to provide adequate and safe transportation
for the latter's son;
(3) For the loss of earning capacity- Php2,109,071.00;

(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary
(4) Moral damages in the amount of Php4,000,000.00;
damages, and attorney's fees;

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Whether or not defendants spouses Teodorico and Nanette Perea observed the
diligence of employers and school bus operators;
(6) Attorneys fees in the amount of Php200,000.00; and
(7) Whether or not defendant-spouses are civilly liable for the accidental death of
Aaron John Zarate; (7) Cost of suit.

(8) Whether or not defendant PNR was grossly negligent in operating the commuter
train involved in the accident, in allowing or tolerating the motoring public to cross,
and its failure to install safety devices or equipment at the site of the accident for the
protection of the public;
(9) Whether or not defendant PNR should be made to reimburse defendant spouses
for any and whatever amount the latter may be held answerable or which they may be
ordered to pay in favor of plaintiffs by reason of the action;
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for reconsideration, 4 reiterating that the
cooperative gross negligence of the Pereas and PNR had caused the collision that led to the
death of Aaron; and that the damages awarded to the Zarates were not excessive, but based on
the established circumstances.
The CAs Ruling

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the
amounts claimed by the latter in their Complaint by reason of its gross negligence; Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral PNR assigned the following errors, to wit:5
and exemplary damages and attorney's fees. 2
The Court a quo erred in:

135
 1. In finding the defendant-appellant Philippine National Railways jointly and severally
liable together with defendant-appellants spouses Teodorico and Nanette Perea and
defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron
Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses
despite overwhelming documentary evidence on record, supporting the case of
defendants-appellants Philippine National Railways.
The Pereas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral
and exemplary damages and attorneys fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas against the
Philippine National Railways and in not holding the latter and its train driver primarily
responsible for the incident.
The trial court erred in awarding excessive damages and attorneys fees.
The trial court erred in awarding damages in the form of deceaseds loss of earning capacity in
the absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to P 2,500,000.00; and deleted the attorneys fees because the RTC
did not state the factual and legal bases, to wit: 6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch
260 of Paraaque City is AFFIRMED with the modification that the award of Actual Damages is
reduced to P 59,502.76; Moral Damages is reduced to P 2,500,000.00; and the award for
Attorneys Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity, taking cognizance of the ruling
in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company, 7 wherein the Court
gave the heirs of Cariaga a sum representing the loss of the deceaseds earning capacity despite
Cariaga being only a medical student at the time of the fatal incident. Applying the formula
adopted in the American Expectancy Table of Mortality:
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life
expectancy from age of 21 (the age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age when he died). Considering that the
nature of his work and his salary at the time of Aarons death were unknown, it used the
prevailing minimum wage of P 280.00/day to compute Aarons gross annual salary to
be P 110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by Aarons
life expectancy of 39.3 years, his gross income would aggregate to P 4,351,164.30, from which
his estimated expenses in the sum of P 2,189,664.30 was deducted to finally arrive at P
2,161,500.00 as net income. Due to Aarons computed net income turning out to be higher than
the amount claimed by the Zarates, only P 2,109,071.00, the amount expressly prayed for by
them, was granted.
On April 4, 2003, the CA denied the Pereas motion for reconsideration. 8
Issues
In this appeal, the Pereas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial courts decision holding the petitioners jointly
and severally liable to pay damages with Philippine National Railways and dismissing their cross-
claim against the latter.
II. The lower court erred in affirming the trial courts decision awarding damages for loss of
earning capacity of a minor who was only a high school student at the time of his death in the
absence of sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the Pereas and the PNR,
basing their claim against the Pereas on breach of contract of carriage and against the PNR on
quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereas defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
drivers license and that he had not been involved in any vehicular accident prior to the fatal
collision with the train; that they even had their own son travel to and from school on a daily
basis; and that Teodoro Perea himself sometimes accompanied Alfaro in transporting the
passengers to and from school. The RTC gave scant consideration to such defense by regarding
such defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereas
operated as a common carrier; and that their standard of care was extraordinary diligence, not
the ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9primarily because he only caters to some specific or privileged individuals, and
his operation is neither open to the indefinite public nor for public use, the exact nature of the
operation of a school bus service has not been finally settled. This is the occasion to lay the
matter to rest.
136
A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier. 10 A private carrier is one who, without making the activity
a vocation, or without holding himself or itself out to the public as ready to act for all who may
desire his or its services, undertakes, by special agreement in a particular instance only, to
transport goods or persons from one place to another either gratuitously or for hire. 11The
provisions on ordinary contracts of the Civil Code govern the contract of private carriage.The
diligence required of a private carrier is only ordinary, that is, the diligence of a good father of
the family. In contrast, a common carrier is a person, corporation, firm or association engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or air,
for compensation, offering such services to the public.12Contracts of common carriage are
governed by the provisions on common carriers of the Civil Code, the Public Service Act, 13 and
other special laws relating to transportation. A common carrier is required to observe
extraordinary diligence, and is presumed to be at fault or to have acted negligently in case of the
loss of the effects of passengers, or the death or injuries to passengers. 14
In relation to common carriers, the Court defined public use in the following terms in United
States v. Tan Piaco,15viz:
"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we
must look not only to the character of the business to be done, but also to the proposed mode of
doing it. If the use is merely optional with the owners, or the public benefit is merely incidental,
it is not a public use, authorizing the exercise of the jurisdiction of the public utility commission.
There must be, in general, a right which the law compels the owner to give to the general public.
It is not enough that the general prosperity of the public is promoted. Public use is not
synonymous with public interest. The true criterion by which to judge the character of the use
is whether the public may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided
any distinction between a person or an enterprise offering transportation on a regular or an
isolated basis; and has not distinguished a carrier offering his services to the general public, that
is, the general community or population, from one offering his services only to a narrow segment
of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code
coincides neatly with the notion of public service under the Public Service Act, which
supplements the law on common carriers found in the Civil Code. Public service, according to
Section 13, paragraph (b) of the Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientle, whether permanent or occasional, and
done for the general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. x x x.17
Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators,18 custom brokers and warehousemen,19 and
barge operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of
the business actually transacted, or the number and character of the conveyances used in the
activity, but whether the undertaking is a part of the activity engaged in by the carrier that he
has held out to the general public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in, as advertised and held
out to the general public, the individual or the entity rendering such service is a private, not a
common, carrier. The question must be determined by the character of the business actually
carried on by the carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes. 21
Applying these considerations to the case before us, there is no question that the Pereas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a
fee. Despite catering to a limited clientle, the Pereas operated as a common carrier because
they held themselves out as a ready transportation indiscriminately to the students of a
particular school living within or near where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety of the passengers is defined
by law. Given the nature of the business and for reasons of public policy, the common carrier is
bound "to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case."22 Article 1755
of the Civil Code specifies that the common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with
a due regard for all the circumstances." To successfully fend off liability in an action upon the
death or injury to a passenger, the common carrier must prove his or its observance of that
extraordinary diligence; otherwise, the legal presumption that he or it was at fault or acted
negligently would stand.23 No device, whether by stipulation, posting of notices, statements on
tickets, or otherwise, may dispense with or lessen the responsibility of the common carrier as
defined under Article 1755 of the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or reason by which the
Court might now reverse the CAs findings on their liability. On the contrary, an examination of
the records shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already presumed to be negligent
at the time of the accident because death had occurred to their passenger. 25 The presumption of
negligence, being a presumption of law, laid the burden of evidence on their shoulders to
establish that they had not been negligent. 26 It was the law no less that required them to prove
their observance of extraordinary diligence in seeing to the safe and secure carriage of the
passengers to their destination. Until they did so in a credible manner, they stood to be held
legally responsible for the death of Aaron and thus to be held liable for all the natural
consequences of such death.
There is no question that the Pereas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in
the selection and supervision of their driver was not legally sufficient. According to Article 1759
of the Civil Code, their liability as a common carrier did not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of their employee.
This was the reason why the RTC treated this defense of the Pereas as inappropriate in this
action for breach of contract of carriage.
The Pereas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier. 27 In
this connection, the records showed their drivers actual negligence. There was a showing, to
begin with, that their driver traversed the railroad tracks at a point at which the PNR did not
permit motorists going into the Makati area to cross the railroad tracks. Although that point had
been used by motorists as a shortcut into the Makati area, that fact alone did not excuse their
driver into taking that route. On the other hand, with his familiarity with that shortcut, their
driver was fully aware of the risks to his passengers but he still disregarded the risks.
Compounding his lack of care was that loud music was playing inside the air-conditioned van at
137
the time of the accident. The loudness most probably reduced his ability to hear the warning
horns of the oncoming train to allow him to correctly appreciate the lurking dangers on the
railroad tracks. Also, he sought to overtake a passenger bus on the left side as both vehicles
traversed the railroad tracks. In so doing, he lost his view of the train that was then coming from
the opposite side of the passenger bus, leading him to miscalculate his chances of beating the
bus in their race, and of getting clear of the train. As a result, the bus avoided a collision with
the train but the van got slammed at its rear, causing the fatality. Lastly, he did not slow down
or go to a full stop before traversing the railroad tracks despite knowing that his slackening of
speed and going to a full stop were in observance of the right of way at railroad tracks as defined
by the traffic laws and regulations. 28 He thereby violated a specific traffic regulation on right of
way, by virtue of which he was immediately presumed to be negligent. 29
The omissions of care on the part of the van driver constituted negligence,30 which, according to
Layugan v. Intermediate Appellate Court,31 is "the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would not do, 32 or as
Judge Cooley defines it, (t)he failure to observe for the protection of the interests of another
person, that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury."33
The test by which to determine the existence of negligence in a particular case has been aptly
stated in the leading case of Picart v. Smith, 34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in
a given case is not determined by reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must
of course be always determined in the light of human experience and in view of the facts involved
in the particular case. Abstract speculation cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before
them or known to them. They are not, and are not supposed to be, omniscient of the future.
Hence they can be expected to take care only when there is something before them to suggest or
warn of danger. Could a prudent man, in the case under consideration, foresee harm as a result
of the course actually pursued? If so, it was the duty of the actor to take precautions to guard
against that harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born
of this prevision, is always necessary before negligence can be held to exist. Stated in these terms,
the proper criterion for determining the existence of negligence in a given case is this: Conduct
is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen
that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct
or guarding against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely negligent when
he traversed the railroad tracks at a point not allowed for a motorists crossing despite being fully
aware of the grave harm to be thereby caused to his passengers; and when he disregarded the
foresight of harm to his passengers by overtaking the bus on the left side as to leave himself
blind to the approach of the oncoming train that he knew was on the opposite side of the bus.
Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate Court, 35 where
the Court held the PNR solely liable for the damages caused to a passenger bus and its
passengers when its train hit the rear end of the bus that was then traversing the railroad
crossing. But the circumstances of that case and this one share no similarities. In Philippine
National Railways v. Intermediate Appellate Court, no evidence of contributory negligence was
adduced against the owner of the bus. Instead, it was the owner of the bus who proved the
exercise of extraordinary diligence by preponderant evidence. Also, the records are replete with
the showing of negligence on the part of both the Pereas and the PNR. Another distinction is
that the passenger bus in Philippine National Railways v. Intermediate Appellate Court was
traversing the dedicated railroad crossing when it was hit by the train, but the Pereas school
van traversed the railroad tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same
complaint as defendants against whom the Zarates had the right to relief, whether jointly,
severally, or in the alternative, in respect to or arising out of the accident, and questions of fact
and of law were common as to the Zarates.36 Although the basis of the right to relief of the Zarates
(i.e., breach of contract of carriage) against the Pereas was distinct from the basis of the Zarates
right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless
could be held jointly and severally liable by virtue of their respective negligence combining to
cause the death of Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence
despite the school van of the Pereas traversing the railroad tracks at a point not dedicated by
the PNR as a railroad crossing for pedestrians and motorists, because the PNR did not ensure
the safety of others through the placing of crossbars, signal lights, warning signs, and other
permanent safety barriers to prevent vehicles or pedestrians from crossing there. The RTC
observed that the fact that a crossing guard had been assigned to man that point from 7 a.m. to
5 p.m. was a good indicium that the PNR was aware of the risks to others as well as the need to
control the vehicular and other traffic there. Verily, the Pereas and the PNR were joint
tortfeasors.
2.
Was the indemnity for loss of
Aarons earning capacity proper?
The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the RTC
on the liability, the CA modified the amount. Both lower courts took into consideration that
Aaron, while only a high school student, had been enrolled in one of the reputable schools in the
Philippines and that he had been a normal and able-bodied child prior to his death. The basis
for the computation of Aarons earning capacity was not what he would have become or what he
would have wanted to be if not for his untimely death, but the minimum wage in effect at the
time of his death. Moreover, the RTCs computation of Aarons life expectancy rate was not
reckoned from his age of 15 years at the time of his death, but on 21 years, his age when he
would have graduated from college.
We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1wphi1 They cited People v. Teehankee, Jr.,37 where the Court deleted the
indemnity for victim Jussi Leinos loss of earning capacity as a pilot for being speculative due to
his having graduated from high school at the International School in Manila only two years before
the shooting, and was at the time of the shooting only enrolled in the first semester at the Manila
Aero Club to pursue his ambition to become a professional pilot. That meant, according to the
Court, that he was for all intents and purposes only a high school graduate.
We reject the Pereas submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron
would be some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician,
or a lawyer). Instead, the computation of Aarons earning capacity was premised on him being a
lowly minimum wage earner despite his being then enrolled at a prestigious high school like Don
Bosco in Makati, a fact that would have likely ensured his success in his later years in life and
at work.
138
And, secondly, the fact that Aaron was then without a history of earnings should not be taken LUCAS P. BERSAMIN
against his parents and in favor of the defendants whose negligence not only cost Aaron his life Associate Justice
and his right to work and earn money, but also deprived his parents of their right to his presence
and his services as well. Our law itself states that the loss of the earning capacity of the deceased
shall be the liability of the guilty party in favor of the heirs of the deceased, and shall in every
case be assessed and awarded by the court "unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time of his
death."38Accordingly, we emphatically hold in favor of the indemnification for Aarons loss of
earning capacity despite him having been unemployed, because compensation of this nature is
awarded not for loss of time or earnings but for loss of the deceaseds power or ability to earn
money.39

This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company, 40 fourth-year medical student Edgardo
Carriagas earning capacity, although he survived the accident but his injuries rendered him
permanently incapacitated, was computed to be that of the physician that he dreamed to become.
The Court considered his scholastic record sufficient to justify the assumption that he could
have finished the medical course and would have passed the medical board examinations in due
time, and that he could have possibly earned a modest income as a medical practitioner. Also,
in People v. Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and
murder victim Allan Gomez could have easily landed good-paying jobs had they graduated in due
time, and that their jobs would probably pay them high monthly salaries from P 10,000.00
to P 15,000.00 upon their graduation. Their earning capacities were computed at rates higher
than the minimum wage at the time of their deaths due to their being already senior agriculture
students of the University of the Philippines in Los Baos, the countrys leading educational
institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereas plead for the reduction of the moral and exemplary damages awarded to the Zarates
in the respective amounts of P 2,500,000.00 and P 1,000,000.00 on the ground that such
amounts were excessive.

The plea is unwarranted.

The moral damages of P 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates deep
mental anguish over their sons unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the
Zarates obtain the means, diversions or amusements that would alleviate their suffering for the
loss of their child. At any rate, reducing the amount as excessive might prove to be an injustice,
given the passage of a long time from when their mental anguish was inflicted on them on August
22, 1996.

Anent the P 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if
only to render effective the desired example for the public good. As a common carrier, the Pereas
needed to be vigorously reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an award of exemplary
damages in that amount would suffice to instill in them and others similarly situated like them
the ever-present need for greater and constant vigilance in the conduct of a business imbued
with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated
on November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

139
 Republic of the Philippines respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No.
SUPREME COURT 209968, drawn against the Wespac-Sydney and informing the latter to be reimbursed from the
Manila respondent bank's dollar account in Westpac-New York. The respondent bank on the same day
likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of
Wespac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No.
SECOND DIVISION 209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the
respondent bank has no deposit dollar account with the drawee Wespac-Sydney.
G.R. No. 118492 August 15, 2001
On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H.
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When
vs. petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went
THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents. directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the
registration desk, in the presence of other delegates from various member of the conference
secretariat that he could not register because the foreign exchange demand draft for his
DE LEON, JR., J.: registration fee had been dishonored for the second time. A discussion ensued in the presence
and within the hearing of many delegates who were also registering. Feeling terribly embarrassed
and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat
Before us is a petition for review of the Decision1 dated July 22, 1994 and Resolution2 dated that he be shown the subject foreign exchange demand draft that had been dishonored as well
December 29, 1994 of the Court of Appeals3 affirming with modification the Decision4 dated as the covering letter after which he promised that he would pay the registration fees in cash. In
November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which the meantime he demanded that he be given his name plate and conference kit. The lady member
dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo of the conference secretariat relented and gave him his name plate and conference kit. It was
Puyat-Reyes against respondent Far East Bank and Trust Company. only two (2) days later, or on September 20, 1988, that he was given the dishonored demand
draft and a covering letter. It was then that he actually paid in cash the registration fees as he
had earlier promised.
The undisputed facts of the case are as follows:

Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too
In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in
was embarassed and humiliated at the registration desk of the conference secretariat when she
Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to
was told in the presence and within the hearing of other delegates that she could not be registered
the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager,
due to the dishonor of the subject foreign exchange demand draft. She felt herself trembling and
treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the respondent
unable to look at the people around her. Fortunately, she saw her husband, coming toward her.
bank to apply for a foreign exchange demand draft in Australian dollars.
He saved the situation for her by telling the secretariat member that he had already arranged for
the payment of the registration fee in cash once he was shown the dishonored demand draft.
Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft Only then was petitioner Puyat-Reyes given her name plate and conference kit.
in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the
order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House
by respondent bank's assistant cashier, Mr. Yasis, who at first denied the application for the
of Representatives representing the lone Congressional District of Makati, Metro Manila. She has
reason that respondent bank did not have an Australian dollar account in any bank in Sydney.
been an officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal
Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent
Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et
need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo
Pontifice Award. She has also been awarded a plaque of appreciation from the Philippine
of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank
Tuberculosis Society for her extraordinary service as the Society's campaign chairman for the
would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for
ninth (9th) consecutive year.
brevity) and have the latter reimburse itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement has been
customarily resorted to since the 1960's and the procedure has proven to be problem-free. PRCI On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila,
and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent bank due
approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of to the dishonor of the said foreign exchange demand draft issued by the respondent bank. The
the 20th Asian Racing Conference. petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to
unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the
presence of an international audience.
On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign
Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six
Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of the 20 th Asian Racing On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent
Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank) and against the plaintiffs (herein petitioners), the dispositive portion of which states:
bank.1wphi1.nt

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

On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated plaintiff's complaint, and ordering plaintiffs to pay to defendant, on its counterclaim,
as FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: the amount of P50,000.00, as reasonable attorney's fees. Costs against the plaintiff.
"xxx No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a
cable to respondent bank informing the latter that its dollar account in the sum of One Thousand
Six Hundred Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in SO ORDERED.5
response to PRCI's complaint about the dishonor of the said foreign exchange demand draft,

140
The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994,
the appellate court affirmed the decision of the trial court but in effect deleted the award of
attorney's fees to the defendant (herein respondent bank) and the pronouncement as to the costs.
The decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other
respect. No special pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the respondent bank liable for damages
for the reason that it exerted every effort for the subject foreign exchange demand draft to be
honored. The appellate court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went through
smoothly, considering that its New York account had been debited and that there was
no miscommunication between it and Westpac-New York. SWIFT is a world wide
association used by almost all banks and is known to be the most reliable mode of
communication in the international banking business. Besides, the above procedure,
with the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York
as the reimbursement Bank had been in place since 1960s and there was no reason
for the Bank to suspect that this particular demand draft would not be honored by
Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications of the
Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney of
the Bank's SWIFT message as an MT799 format. However, a closer look at the Bank's
Exhs. "6" and "7" would show that despite what appears to be an asterick written over
the figure before "99", the figure can still be distinctly seen as a number "1" and not
number "7", to the effect that Westpac-Sydney was responsible for the dishonor and
not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-
Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are just documentary copies
of the cable message sent to Wespac-Sydney. Hence, if there was mistake committed
by Westpac-Sydney in decoding the cable message which caused the Bank's message
to be sent to the wrong department, the mistake was Westpac's, not the Bank's. The
Bank had done what an ordinary prudent person is required to do in the particular
situation, although appellants expect the Bank to have done more. The Bank having
done everything necessary or usual in the ordinary course of banking transaction, it
cannot be held liable for any embarrassment and corresponding damage that
appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT
NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF
AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF
DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE
DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENT'S
WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN
OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT
AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK. 8
The petitioners contend that due to the fiduciary nature of the relationship between the
respondent bank and its clients, the respondent should have exercised a higher degree of
diligence than that expected of an ordinary prudent person in the handling of its affairs as in the
case at bar. The appellate court, according to petitioners, erred in applying the standard of
diligence of an ordinary prudent person only. Petitioners also claim that the respondent bank
violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a drawer
that "xxx on due presentment, the instrument will be accepted or paid, or both, according to its
tenor xxx." Thus, the petitioners argue that respondent bank should be held liable for damages
for violation of this warranty. The petitioners pray this Court to re-examine the facts to cite
certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review) shall
raise only questions of law which must be distinctly set forth." Thus, we have ruled that factual
findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court
and they carry even more weight when the Court of Appeals affirms the factual findings of the
trial court.10
The courts a quo found that respondent bank did not misrepresent that it was maintaining a
deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained to
Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the transfer of
Australian dollars would be effected through Westpac-New York where the respondent bank has
a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD
No. 209968) could be encashed by the payee, the 20th Asian Racing Conference Secretariat. PRCI
and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative,
agreed to that arrangement or procedure. In other words, the petitioners are estopped from
denying the said arrangement or procedure. Similar arrangements have been a long standing
practice in banking to facilitate international commercial transactions. In fact, the SWIFT cable
message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim
reimbursement from its New York branch, Westpac-New York, where respondent bank has a
deposit dollar account. The facts as found by the courts a quo show that respondent bank did
not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the
erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor
of the subject foreign exchange demand draft. An employee of Westpac-Sydney in Sydney,
"MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message
as a format for a letter of credit, and not for a demand draft. The appellate court correct found
that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed,
the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus,
the number "1" in "MT199" cannot be construed as "7". 11
141
The evidence also shows that the respondent bank exercised that degree of diligence expected of
an ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the
subject foreign exchange demand draft, the respondent bank advised Westpac-New York to honor
the reimbursement claim of Westpac-Sydney and to debit the dollar account12 of respondent
bank with the former. As soon as the demand draft was dishonored, the respondent bank,
thinking that the problem was with the reimbursement and without any idea that it was due to
miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account
for the purpose of reimbursing Westpac-Sydney.13 Respondent bank also sent two (2) more cable
messages to Westpac-New York inquiring why the demand draft was not honored.14

With these established facts, we now determine the degree of diligence that banks are required
to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of
Appeals 15 upholding a long standing doctrine, we ruled that the degree of diligence required of
banks, is more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words banks are duty bound to treat the
deposit accounts of their depositors with the highest degree of care. But the said ruling applies
only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits
of their depositors. But the same higher degree of diligence is not expected to be exerted by banks
in commercial transactions that do not involve their fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the diligence
of a good father of a family in regard to the sale and issuance of the subject foreign exchange
demand draft. The case at bar does not involve the handling of petitioners' deposit, if any, with
the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is,
between the respondent bank as the seller of the subject foreign exchange demand draft, and
PRCI as the buyer of the same, with the 20th Asian Racing conference Secretariat in Sydney,
Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was
intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the
20th Asian Racing Conference in Sydney.

The evidence shows that the respondent bank did everything within its power to prevent the
dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable
message to Westpac-Sydney by an employee of the latter could not have been foreseen by the
respondent bank. Being unaware that its employee erroneously read the said cable message,
Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover
for the amount of One Thousand Six Hundred Ten Australian Dollar (AU $1610.00) indicated in
the foreign exchange demand draft. Thus, the respondent bank had the impression that
Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney
despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New
York. That was the reason why the respondent bank had to re-confirm and repeatedly notify
Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer
or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand
draft.

In view of all the foregoing, and considering that the dishonor of the subject foreign exchange
demand draft is not attributable to any fault of the respondent bank, whereas the petitioners
appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the
alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any
event, it was established that the respondent bank acted in good faith and that it did not cause
the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals did not
commit any reversable error in its challenged decision.

WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals
is AFFIRMED. Costs against the petitioners.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

142
 EN BANC
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-
Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF
PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where the
time for compliance had expired and there was breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a period for the performance of
the contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE
PHILIPPINES. Where the defendant virtually admitted non-performance of the contract by
returning the typewriter that he was obliged to repair in a non-working condition, with essential
parts missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of
a period would thus be a mere formality and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendant-appellee
contravened the tenor of his obligation because he not only did not repair the typewriter but
returned it "in shambles, he is liable for the cost of the labor or service expended in the repair
of the typewriter, which is in the amount of P58.75, because the obligation or contract was to
repair it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing
parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but
failed or neglected, to return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT RECOVERABLE; NOT
ALLEGED OR PROVED IN INSTANT CASE. Claims for damages and attorneys fees must be
pleaded, and the existence of the actual basis thereof must be proved. As no findings of fact were
made on the claims for damages and attorneys fees, there is no factual basis upon which to
make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME
COURT; ONLY QUESTIONS OF LAW REVIEWABLE. Where the appellant directly appeals from
the decision of the trial court to the Supreme Court on questions of law, he is bound by the
judgment of the court a quo on its findings of fact.
DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery
of damages but was unsatisfied with the decision rendered by the Court of First Instance of
Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of
P690 00 for actual, temperate and moral damages and attorneys fees.
The appealed judgment, which is brief, is hereunder quoted in full:
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter
repairer, a portable typewriter for routine cleaning and servicing. The defendant was not able to
finish the job after some time despite repeated reminders made by the plaintiff. The defendant
merely gave assurances, but failed to comply with the same. In October, 1963, the defendant
asked from the plaintiff the sum of P6.00 for the purchase of spare parts, which amount the
plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of
the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the
return of the typewriter. The defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to him by the defendant and found
out that the same was in shambles, with the interior cover and some parts and screws missing.
On October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return
of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the
defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines,
and the repair job cost him a total of P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila,
demanding from the defendant the payment of P90.00 as actual and compensatory damages,
P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this court, the defendant made no denials
of the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to
the defendant through a certain Julio Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85
should not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C,
shows that the missing parts had a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum
of P31.10, and the costs of suit.
"SO ORDERED." library
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it
awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor
and materials that went into the repair of the machine, as provided for in Article 1167 of the Civil
Code, reading as follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone." virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not
liable at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not
contain a period, so that plaintiff-appellant should have first filed a petition for the court to fix
the period, under Article 1197 of the Civil Code, within which the defendant appellee was to
comply with the contract before said defendant-appellee could be held liable for breach of
contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose
any appeal, the facts, as found by the trial court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable
typewriter for routine cleaning and servicing" ; that the defendant was not able to finish the job
after some time despite repeated reminders made by the plaintiff" ; that the "defendant merely
gave assurances, but failed to comply with the same" ; and that "after getting exasperated with
the delay of the repair of the typewriter", the plaintiff went to the house of the defendant and
asked for its return, which was done. The inferences derivable from these findings of fact are
that the appellant and the appellee had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to finish it at some future time although
such time was not specified; and that such time had passed without the work having been
accomplished, far the defendant returned the typewriter cannibalized and unrepaired, which in
143
itself is a breach of his obligation, without demanding that he should be given more time to finish
the job, or compensation for the work he had already done. The time for compliance having
evidently expired, and there being a breach of contract by non-performance, it was academic for
the plaintiff to have first petitioned the court to fix a period for the performance of the contract
before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code
for he virtually admitted non-performance by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts missing. The fixing of a period would thus
be a mere formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila
Railroad Co. 98 Phil. 18l).

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

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

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

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering
the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of
P89.85, with interest at the legal rate from the filing of the complaint. Costs in all instances
against appellee Fructuoso Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ.,
concur.

Barredo, J., did not take part.

144
 Republic of the Philippines (e) Ordering defendant United Construction Co., Inc. and third-party
SUPREME COURT defendants (except Roman Ozaeta) to pay the costs in equal shares.
Manila

SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

SECOND DIVISION

The dispositive portion of the decision of the Court of Appeals reads:

G.R. No. L-47851 October 3, 1986

WHEREFORE, the judgment appealed from is modified to include an award

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners, of P200,000.00 in favor of plaintiff-appellant Philippine Bar Association,
vs. with interest at the legal rate from November 29, 1968 until full payment to
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, be paid jointly and severally by defendant United Construction Co., Inc. and
and the PHILIPPINE BAR ASSOCIATION, respondents. third party defendants (except Roman Ozaeta). In all other respects, the
judgment dated September 21, 1971 as modified in the December 8, 1971
Order of the lower court is hereby affirmed with COSTS to be paid by the
G.R. No. L-47863 October 3, 1986 defendant and third party defendant (except Roman Ozaeta) in equal
shares.
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs. SO ORDERED.
COURT OF APPEALS, ET AL., respondents.

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J.
G.R. No. L-47896 October 3, 1986 Carlos in L-47863 seek the reversal of the decision of the Court of Appeals, among other things,
for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss of the PBA
vs. building plus four (4) times such amount as damages resulting in increased cost of the building,
COURT OF APPEALS, ET AL., respondents. P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.

PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977 decision of the Court of
Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila,
Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order of the
lower court dated December 8, 1971. The Court of Appeals in modifying the decision of the lower
court included an award of an additional amount of P200,000.00 to the Philippine Bar
Association to be paid jointly and severally by the defendant United Construction Co. and by the
third-party defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
These petitions arising from the same case filed in the Court of First Instance of Manila were
consolidated by this Court in the resolution of May 10, 1978 requiring the respective respondents
to comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348;
pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located at
the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was
undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of
Juan J. Carlos, the president and general manager of said corporation. The proposal was
approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-
party defendant in this case. The plans and specifications for the building were prepared by the
other third-party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966.

WHEREFORE, judgment is hereby rendered:

(a) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the plaintiff, jointly and severally,
the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment;
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its
environs and the building in question sustained major damage. The front columns of the building
buckled, causing the building to tilt forward dangerously. The tenants vacated the building in
view of its precarious condition. As a temporary remedial measure, the building was shored up
by United Construction, Inc. at the cost of P13,661.28.

(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising
from the partial collapse of the building against United Construction, Inc. and its President and
General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building
was accused by defects in the construction, the failure of the contractors to follow plans and
specifications and violations by the defendants of the terms of the contract.

(d) Dismissing the defendant's and third-party defendants' counterclaims

for lack of merit;
145
Defendants in turn filed a third-party complaint against the architects who prepared the plans
and specifications, alleging in essence that the collapse of the building was due to the defects in
the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for having included Juan J.
Carlos, President of the United Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F.
Nakpil presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and third-
party complaints and the third-party defendants Nakpil & Sons' answer
thereto, the plaintiff need not amend its complaint by including the said
Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the Court should
find after the trial that the above-named defendants Juan J. Carlos and
United Construction Co., Inc. are free from any blame and liability for the
collapse of the PBA Building, and should further find that the collapse of
said building was due to defects and/or inadequacy of the plans, designs,
and specifications p by the third-party defendants, or in the event that the
Court may find Juan F. Nakpil and Sons and/or Juan F. Nakpil
contributorily negligent or in any way jointly and solidarily liable with the
defendants, judgment may be rendered in whole or in part. as the case may
be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has been duly
amended by including the said Juan F. Nakpil & Sons and Juan F. Nakpil
as parties defendant and by alleging causes of action against them
including, among others, the defects or inadequacy of the plans, designs,
and specifications prepared by them and/or failure in the performance of
their contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this
stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among
others, the parties agreed to refer the technical issues involved in the case to a Commissioner.
Mr. Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building during the August
2, 1968 earthquake had been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and specifications prepared by
third-party defendants;
(b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage
sustained;
(c) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision
expected of the architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a
combination of the above-enumerated factors, the degree or proportion in
which each individual factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be completely
demolished or whether it may still be repaired and restored to a tenantable
condition. In the latter case, the determination of the cost of such
restoration or repair, and the value of any remaining construction, such as
the foundation, which may still be utilized or availed of (Record on Appeal,
pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-technical issues. As
aforestated the technical issues were referred to the Commissioner. The non-technical issues
were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may
topple down in case of a strong earthquake. The motions were opposed by the defendants and
the matter was referred to the Commissioner. Finally, on April 30, 1979 the building was
authorized to be demolished at the expense of the plaintiff, but not another earthquake of high
intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970, caused
further damage to the property. The actual demolition was undertaken by the buyer of the
damaged building. (Record on Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted his report on September
25, 1970 with the findings that while the damage sustained by the PBA building was caused
directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also
caused by the defects in the plans and specifications prepared by the third-party defendants'
architects, deviations from said plans and specifications by the defendant contractors and failure
of the latter to observe the requisite workmanship in the construction of the building and of the
contractors, architects and even the owners to exercise the requisite degree of supervision in the
construction of subject building.
All the parties registered their objections to aforesaid findings which in turn were answered by
the Commissioner.
The trial court agreed with the findings of the Commissioner except as to the holding that the
owner is charged with full nine supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified
by the Intermediate Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence,
these petitions.
On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers,
and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the liability of architects when a building
collapses and to submit likewise a critical analysis with computations on the divergent views on
the design and plans as submitted by the experts procured by the parties. The motion having
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been granted, the amicus curiae were granted a period of 60 days within which to submit their
position.
After the parties had all filed their comments, We gave due course to the petitions in Our
Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not
defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion that
the defects in the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No.
4131) and the 1966 Asep Code, the Commissioner added that even if it can be proved that the
defects in the construction alone (and not in the plans and design) caused the damage to the
building, still the deficiency in the original design and jack of specific provisions against torsion
in the original plans and the overload on the ground floor columns (found by an the experts
including the original designer) certainly contributed to the damage which occurred. (Ibid, p.
174).
In their respective briefs petitioners, among others, raised the following assignments of errors:
Philippine Bar Association claimed that the measure of damages should not be limited to
P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals
while United Construction Co., Inc. and the Nakpils claimed that it was an act of God that caused
the failure of the building which should exempt them from responsibility and not the defective
construction, poor workmanship, deviations from plans and specifications and other
imperfections in the case of United Construction Co., Inc. or the deficiencies in the design, plans
and specifications prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils
object to the payment of the additional amount of P200,000.00 imposed by the Court of Appeals.
UCCI also claimed that it should be reimbursed the expenses of shoring the building in the
amount of P13,661.28 while the Nakpils opposed the payment of damages jointly and solidarity
with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-
which caused the failure of the building, exempts from liability, parties who are otherwise liable
because of their negligence.
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the
New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years from
the completion of the structure the same should collapse by reason of a
defect in those plans and specifications, or due to the defects in the ground.
The contractor is likewise responsible for the damage if the edifice fags
within the same period on account of defects in the construction or the use
of materials of inferior quality furnished by him, or due to any violation of
the terms of the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any
of the causes of action by reason of any defect mentioned in the preceding
paragraph.
The action must be brought within ten years following the collapse of the
building.
On the other hand, the general rule is that no person shall be responsible for events which could
not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to have
been expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an
obligation due to an "act of God," the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must be either unforseeable
or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada
v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v.
Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation
as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor
cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were,
and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate cause
of the damage was the act of God. To be exempt from liability for loss because of an act of God,
he must be free from any previous negligence or misconduct by which that loss or damage may
have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G.
4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil.
657).
The negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in the construction as
well as to exercise the requisite degree of supervision; while the third-party defendants were
found to have inadequacies or defects in the plans and specifications prepared by them. As
correctly assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building unable to withstand
the earthquake of August 2, 1968. For this reason the defendant and third-party defendants
cannot claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties
and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan,
January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely
on speculation, surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there
is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the
findings of fact are conflicting , (6) the Court of Appeals went beyond the issues of the case and
its findings are contrary to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola
Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA
147
648, 651); (7) the findings of facts of the Court of Appeals are contrary to those of the trial court;
(8) said findings of facts are conclusions without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs.
Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of
Appeals is premised on the supposed absence of evidence and is contradicted by evidence on
record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98,
Sacay v. Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On
the contrary, the records show that the lower court spared no effort in arriving at the correct
appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties
whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus
curiae who were allowed to intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of
Appeals that "while it is not possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that several buildings in the same
area withstood the earthquake to which the building of the plaintiff was similarly subjected,"
cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial
collapse (and eventual complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on the report of the
Commissioner that the total amount required to repair the PBA building and to restore it to
tenantable condition was P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus unrealized rental income
for one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an
additional sum of P200,000.00 representing the damage suffered by the PBA building as a result
of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total
value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS
and UNITED question the additional award of P200,000.00 in favor of the PBA (L- 47851,
NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further urges
that the unrealized rental income awarded to it should not be limited to a period of one-half year
but should be computed on a continuing basis at the rate of P178,671.76 a year until the
judgment for the principal amount shall have been satisfied L- 47896, PBA's No. 11 Assignment
of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial
and it is undisputed that the building could then still be repaired and restored to its tenantable
condition. The PBA, however, in view of its lack of needed funding, was unable, thru no fault of
its own, to have the building repaired. UNITED, on the other hand, spent P13,661.28 to shore
up the building after the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of
the earthquake on April 7, 1970, the trial court after the needed consultations, authorized the
total demolition of the building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for the damage resulting
from the partial and eventual collapse of the PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision penned by Justice Hugo E.
Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the
Court of Appeals:
There is no question that an earthquake and other forces of nature such as
cyclones, drought, floods, lightning, and perils of the sea are acts of God. It
does not necessarily follow, however, that specific losses and suffering
resulting from the occurrence of these natural force are also acts of God.
We are not convinced on the basis of the evidence on record that from the
thousands of structures in Manila, God singled out the blameless PBA
building in Intramuros and around six or seven other buildings in various
parts of the city for collapse or severe damage and that God alone was
responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the designs
and plans, defective construction, poor workmanship, deviation from plans
and specifications and other imperfections. These deficiencies are
attributable to negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party
defendants-appellants presented in their briefs are premised on legal
generalizations or speculations and on theological fatalism both of which
ignore the plain facts. The lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the
August 2, 1968 earthquake was of such an overwhelming and destructive
character that by its own force and independent of the particular negligence
alleged, the injury would have been produced. If we follow this line of
speculative reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of Manila
would have toppled down. Following the same line of reasoning, Nakpil and
Sons alleges that the designs were adequate in accordance with pre-August
2, 1968 knowledge and appear inadequate only in the light of engineering
information acquired after the earthquake. If this were so, hundreds of
ancient buildings which survived the earthquake better than the two-year
old PBA building must have been designed and constructed by architects
and contractors whose knowledge and foresight were unexplainably
auspicious and prophetic. Fortunately, the facts on record allow a more
down to earth explanation of the collapse. The failure of the PBA building,
as a unique and distinct construction with no reference or comparison to
other buildings, to weather the severe earthquake forces was traced to
design deficiencies and defective construction, factors which are neither
mysterious nor esoteric. The theological allusion of appellant United that
God acts in mysterious ways His wonders to perform impresses us to be
inappropriate. The evidence reveals defects and deficiencies in design and
construction. There is no mystery about these acts of negligence. The
collapse of the PBA building was no wonder performed by God. It was a
result of the imperfections in the work of the architects and the people in
the construction company. More relevant to our mind is the lesson from the
parable of the wise man in the Sermon on the Mount "which built his house
upon a rock; and the rain descended and the floods came and the winds
blew and beat upon that house; and it fen not; for it was founded upon a
rock" and of the "foolish upon the sand. And the rain descended and man
which built his house the floods came, and the winds blew, and beat upon
that house; and it fell and great was the fall of it. (St. Matthew 7: 24-27)."
The requirement that a building should withstand rains, floods, winds,
earthquakes, and natural forces is precisely the reason why we have
professional experts like architects, and engineers. Designs and
constructions vary under varying circumstances and conditions but the
requirement to design and build well does not change.
The findings of the lower Court on the cause of the collapse are more
rational and accurate. Instead of laying the blame solely on the motions and
forces generated by the earthquake, it also examined the ability of the PBA
148
building, as designed and constructed, to withstand and successfully
weather those forces.
The evidence sufficiently supports a conclusion that the negligence and
fault of both United and Nakpil and Sons, not a mysterious act of an
inscrutable God, were responsible for the damages. The Report of the
Commissioner, Plaintiff's Objections to the Report, Third Party Defendants'
Objections to the Report, Defendants' Objections to the Report,
Commissioner's Answer to the various Objections, Plaintiffs' Reply to the
Commissioner's Answer, Defendants' Reply to the Commissioner's Answer,
Counter-Reply to Defendants' Reply, and Third-Party Defendants' Reply to
the Commissioner's Report not to mention the exhibits and the testimonies
show that the main arguments raised on appeal were already raised during
the trial and fully considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should reverse or disturb
the lower Court's factual findings and its conclusions drawn from the facts,
among them:
The Commissioner also found merit in the allegations of the defendants as
to the physical evidence before and after the earthquake showing the
inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of
design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the
Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior columns
reduces the cross-sectional area of each of the columns and the strength
thereof.
4. Two front corners, A7 and D7 columns were very much less reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;
1. Column A7 suffered the severest fracture and maximum sagging. Also
D7.
2. There are more damages in the front part of the building than towards
the rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front
corner parts of the building.
5. There was a lateral displacement of the building of about 8", Maximum
sagging occurs at the column A7 where the floor is lower by 80 cm. than
the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects in the
design, plans and specifications of the PBA building which involved
appreciable risks with respect to the accidental forces which may result
from earthquake shocks. He conceded, however, that the fact that those
deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for
earthquake forces mitigates in a large measure the responsibility or liability
of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion
of the Commissioner's report, voiced opposition to the same on the grounds
that (a) the finding is based on a basic erroneous conception as to the design
concept of the building, to wit, that the design is essentially that of a heavy
rectangular box on stilts with shear wan at one end; (b) the finding that
there were defects and a deficiency in the design of the building would at
best be based on an approximation and, therefore, rightly belonged to the
realm of speculation, rather than of certainty and could very possibly be
outright error; (c) the Commissioner has failed to back up or support his
finding with extensive, complex and highly specialized computations and
analyzes which he himself emphasizes are necessary in the determination
of such a highly technical question; and (d) the Commissioner has analyzed
the design of the PBA building not in the light of existing and available
earthquake engineering knowledge at the time of the preparation of the
design, but in the light of recent and current standards.
The Commissioner answered the said objections alleging that third-party
defendants' objections were based on estimates or exhibits not presented
during the hearing that the resort to engineering references posterior to the
date of the preparation of the plans was induced by the third-party
defendants themselves who submitted computations of the third-party
defendants are erroneous.
The issue presently considered is admittedly a technical one of the highest
degree. It involves questions not within the ordinary competence of the
bench and the bar to resolve by themselves. Counsel for the third-party
defendants has aptly remarked that "engineering, although dealing in
mathematics, is not an exact science and that the present knowledge as to
the nature of earthquakes and the behaviour of forces generated by them
still leaves much to be desired; so much so "that the experts of the different
parties, who are all engineers, cannot agree on what equation to use, as to
what earthquake co-efficients are, on the codes to be used and even as to
the type of structure that the PBA building (is) was (p. 29, Memo, of third-
party defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were to be tried
and inquired into by the Court itself, coupled with the intrinsic nature of
the questions involved therein, constituted the reason for the reference of
the said issues to a Commissioner whose qualifications and experience have
eminently qualified him for the task, and whose competence had not been
questioned by the parties until he submitted his report. Within the
pardonable limit of the Court's ability to comprehend the meaning of the
Commissioner's report on this issue, and the objections voiced to the same,
the Court sees no compelling reasons to disturb the findings of the
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Commissioner that there were defects and deficiencies in the design, plans
and specifications prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans and
specifications, and how said deviations contributed to the damage
sustained by the building.
(b) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building.
These two issues, being interrelated with each other, will be discussed
together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the alleged
deficiencies or defects in the construction and violations or deviations from
the plans and specifications. All these may be summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3 bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires
no larger than 1 inch.
(4) Reinforcement assembly is not concentric with the column, eccentricity
being 3" off when on one face the main bars are only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5,
ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground
floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled worst where
there are no spirals or where spirals are cut. Columns suffered worst
displacement where the eccentricity of the columnar reinforcement
assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 Spacing of spiral is changed from 2" to 5" on centers,
(2) Column D5 No spiral up to a height of 22" from the ground floor,
(3) Column D6 Spacing of spiral over 4 l/2,
(4) Column D7 Lack of lateral ties,
(5) Column C7 Absence of spiral to a height of 20" from the ground level,
Spirals are at 2" from the exterior column face and 6" from the inner column
face,
(6) Column B6 Lack of spiral on 2 feet below the floor beams,
(7) Column B5 Lack of spirals at a distance of 26' below the beam,
(8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals are
uneven 2" to 4",
(9) Column A3 Lack of lateral ties,
(10) Column A4 Spirals cut off and welded to two separate clustered
vertical bars,
(11) Column A4 (second floor Column is completely hollow to a height of
30"
(12) Column A5 Spirals were cut from the floor level to the bottom of the
spandrel beam to a height of 6 feet,
(13) Column A6 No spirals up to a height of 30' above the ground floor
level,
(14) Column A7 Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the Third-Party
defendants.
Ground floor columns.
150
(1) Column A4 Spirals are cut,
(2) Column A5 Spirals are cut,
(3) Column A6 At lower 18" spirals are absent,
(4) Column A7 Ties are too far apart,
(5) Column B5 At upper fourth of column spirals are either absent or
improperly spliced,
(6) Column B6 At upper 2 feet spirals are absent,
(7) Column B7 At upper fourth of column spirals missing or improperly
spliced.
(8) Column C7 Spirals are absent at lowest 18"
(9) Column D5 At lowest 2 feet spirals are absent,
(10) Column D6 Spirals are too far apart and apparently improperly
spliced,
(11) Column D7 Lateral ties are too far apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations given by the
engineering experts for the defendants are either contrary to general
principles of engineering design for reinforced concrete or not applicable to
the requirements for ductility and strength of reinforced concrete in
earthquake-resistant design and construction.
We shall first classify and consider defects which may have appreciable
bearing or relation to' the earthquake-resistant property of the building.
As heretofore mentioned, details which insure ductility at or near the
connections between columns and girders are desirable in earthquake
resistant design and construction. The omission of spirals and ties or hoops
at the bottom and/or tops of columns contributed greatly to the loss of
earthquake-resistant strength. The plans and specifications required that
these spirals and ties be carried from the floor level to the bottom
reinforcement of the deeper beam (p. 1, Specifications, p. 970, Reference
11). There were several clear evidences where this was not done especially
in some of the ground floor columns which failed.
There were also unmistakable evidences that the spacings of the spirals
and ties in the columns were in many cases greater than those called for in
the plans and specifications resulting again in loss of earthquake-resistant
strength. The assertion of the engineering experts for the defendants that
the improper spacings and the cutting of the spirals did not result in loss
of strength in the column cannot be maintained and is certainly contrary
to the general principles of column design and construction. And even
granting that there be no loss in strength at the yield point (an assumption
which is very doubtful) the cutting or improper spacings of spirals will
certainly result in the loss of the plastic range or ductility in the column
and it is precisely this plastic range or ductility which is desirable and
needed for earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the column A4, second
floor, and although this column did not fail, this is certainly an evidence on
the part of the contractor of poor construction.
The effect of eccentricities in the columns which were measured at about 2
1/2 inches maximum may be approximated in relation to column loads and
column and beam moments. The main effect of eccentricity is to change the
beam or girder span. The effect on the measured eccentricity of 2 inches,
therefore, is to increase or diminish the column load by a maximum of
about 1% and to increase or diminish the column or beam movements by
about a maximum of 2%. While these can certainly be absorbed within the
factor of safety, they nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is the subject of great
contention between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5,
ground floor, is the responsibility of the general contractor which is the
UCCI. The burden of proof, therefore, that this cutting was done by others
is upon the defendants. Other than a strong allegation and assertion that
it is the plumber or his men who may have done the cutting (and this was
flatly denied by the plumber) no conclusive proof was presented. The
engineering experts for the defendants asserted that they could have no
motivation for cutting the bar because they can simply replace the spirals
by wrapping around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was sometimes
done through the beam and girder reinforcements which were already in
place as in the case of column A4 second floor. If the reinforcement for the
girder and column is to subsequently wrap around the spirals, this would
not do for the elasticity of steel would prevent the making of tight column
spirals and loose or improper spirals would result. The proper way is to
produce correct spirals down from the top of the main column bars, a
procedure which can not be done if either the beam or girder reinforcement
is already in place. The engineering experts for the defendants strongly
assert and apparently believe that the cutting of the spirals did not
materially diminish the strength of the column. This belief together with the
difficulty of slipping the spirals on the top of the column once the beam
reinforcement is in place may be a sufficient motivation for the cutting of
the spirals themselves. The defendants, therefore, should be held
responsible for the consequences arising from the loss of strength or
ductility in column A5 which may have contributed to the damages
sustained by the building.
The lack of proper length of splicing of spirals was also proven in the visible
spirals of the columns where spalling of the concrete cover had taken place.
This lack of proper splicing contributed in a small measure to the loss of
strength.
The effects of all the other proven and visible defects although nor can
certainly be accumulated so that they can contribute to an appreciable loss
in earthquake-resistant strength. The engineering experts for the
defendants submitted an estimate on some of these defects in the amount
of a few percent. If accumulated, therefore, including the effect of
eccentricity in the column the loss in strength due to these minor defects
may run to as much as ten percent.
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 To recapitulate: the omission or lack of spirals and ties at the bottom
and/or at the top of some of the ground floor columns contributed greatly
to the collapse of the PBA building since it is at these points where the
greater part of the failure occurred. The liability for the cutting of the spirals
in column A5, ground floor, in the considered opinion of the Commissioner
rests on the shoulders of the defendants and the loss of strength in this
column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects, deficiencies
and violations of the plans and specifications of the PBA building
contributed to the damages which resulted during the earthquake of August
2, 1968 and the vice of these defects and deficiencies is that they not only
increase but also aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not only tend to
add but also to multiply the effects of the shortcomings in the design of the
building. We may say, therefore, that the defects and deficiencies in the
construction contributed greatly to the damage which occurred.
Since the execution and supervision of the construction work in the hands
of the contractor is direct and positive, the presence of existence of all the
major defects and deficiencies noted and proven manifests an element of
negligence which may amount to imprudence in the construction work. (pp.
42-49, Commissioners Report).
As the parties most directly concerned with this portion of the Commissioner's report, the
defendants voiced their objections to the same on the grounds that the Commissioner should
have specified the defects found by him to be "meritorious"; that the Commissioner failed to
indicate the number of cases where the spirals and ties were not carried from the floor level to
the bottom reinforcement of the deeper beam, or where the spacing of the spirals and ties in the
columns were greater than that called for in the specifications; that the hollow in column A4,
second floor, the eccentricities in the columns, the lack of proper length of splicing of spirals,
and the cut in the spirals in column A5, ground floor, did not aggravate or contribute to the
damage suffered by the building; that the defects in the construction were within the tolerable
margin of safety; and that the cutting of the spirals in column A5, ground floor, was done by the
plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many of the defects were
minor only the totality of the defects was considered. As regards the objection as to failure to
state the number of cases where the spirals and ties were not carried from the floor level to the
bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the first
one without spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches
at the bottom. The Commissioner likewise specified the first storey columns where the spacings
were greater than that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-
5 and B-7. The objection to the failure of the Commissioner to specify the number of columns
where there was lack of proper length of splicing of spirals, the Commissioner mentioned
groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not
welded, resulting in some loss of strength which could be critical near the ends of the columns.
He answered the supposition of the defendants that the spirals and the ties must have been
looted, by calling attention to the fact that the missing spirals and ties were only in two out of
the 25 columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or
contribute to the damage, but averred that it is "evidence of poor construction." On the claim
that the eccentricity could be absorbed within the factor of safety, the Commissioner answered
that, while the same may be true, it also contributed to or aggravated the damage suffered by
the building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by
the Commissioner by reiterating the observation in his report that irrespective of who did the
cutting of the spirals, the defendants should be held liable for the same as the general contractor
of the building. The Commissioner further stated that the loss of strength of the cut spirals and
inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment
in the column and resulted in the loss of strength, as evidenced by the actual failure of this
column.
Again, the Court concurs in the findings of the Commissioner on these issues and fails to find
any sufficient cause to disregard or modify the same. As found by the Commissioner, the
"deviations made by the defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also aggravated the damage
caused by the defects in the plans and specifications prepared by third-party defendants. (Rollo,
Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the
third-party defendants in effecting the plans, designs, specifications, and construction of the
PBA building and We hold such negligence as equivalent to bad faith in the performance of their
respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which
may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the natural and
probable consequences thereof, although the act of a third person, or an act of God for which he
is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad faith, without which the damage would
not have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, We deem it reasonable to render a decision imposing,
as We do hereby impose, upon the defendant and the third-party defendants (with the exception
of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the
Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with
the exception of attorney's fees) occasioned by the loss of the building (including interest charges
and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay
on such finality, twelve (12%) per cent interest per annum shall be imposed upon afore-
mentioned amounts from finality until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
152
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION, INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of the respondent Court of Appeals
which adjudged the National Power Corporation liable for damages against Engineering
Construction, Inc. The appellate court, however, reduced the amount of damages awarded by
the trial court. Hence, both parties filed their respective petitions: the National Power Corporation
(NPC) in G.R. No. 47379, questioning the decision of the Court of Appeals for holding it liable for
damages and the Engineering Construction, Inc. (ECI) in G.R. No. 47481, questioning the same
decision for reducing the consequential damages and attorney's fees and for eliminating the
exemplary damages.
The facts are succinctly summarized by the respondent Court of Appeals, as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a
successful bidder, executed a contract in Manila with the National
Waterworks and Sewerage Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, equipment, and materials (not
furnished by Owner), and to construct the proposed 2nd lpo-Bicti Tunnel,
Intake and Outlet Structures, and Appurtenant Structures, and
Appurtenant Features, at Norzagaray, Bulacan, and to complete said works
within eight hundred (800) calendar days from the date the Contractor
receives the formal notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase comprising, the
tunnel work covering a distance of seven (7) kilometers, passing through
the mountain, from the Ipo river, a part of Norzagaray, Bulacan, where the
Ipo Dam of the defendant National Power Corporation is located, to Bicti;
the other phase consisting of the outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed the
first major phase of the work, namely, the tunnel excavation work. Some
portions of the outworks at the Bicti site were still under construction. As
soon as the plaintiff corporation had finished the tunnel excavation work at
the Bicti site, all the equipment no longer needed there were transferred to
the Ipo site where some projects were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit Central
Luzon, passing through defendant's Angat Hydro-electric Project and Dam
at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and
heavy rains intermittently fell. Due to the heavy downpour, the water in the
reservoir of the Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the dam, since
the water level had reached the danger height of 212 meters above sea level,
the defendant corporation caused the opening of the spillway gates." (pp.
45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the evidence preponlderantly
established the fact that due to the negligent manner with which the spillway gates of the Angat
Dam were opened, an extraordinary large volume of water rushed out of the gates, and hit the
installations and construction works of ECI at the lpo site with terrific impact, as a result of
which the latter's stockpile of materials and supplies, camp facilities and permanent structures
and accessories either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the appellant
exercised extraordinary care in the opening of the spillway gates of the
Angat Dam. Maintainers of the dam knew very well that it was far more safe
to open them gradually. But the spillway gates were opened only when
typhoon Welming was already at its height, in a vain effort to race against
time and prevent the overflow of water from the dam as it 'was rising
dangerously at the rate of sixty centimeters per hour. 'Action could have
been taken as early as November 3, 1967, when the water in the reservoir
was still low. At that time, the gates of the dam could have been opened in
a regulated manner. Let it be stressed that the appellant knew of the coming
of the typhoon four days before it actually hit the project area. (p. 53, L-
47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a list of
estimated losses and damages to the tunnel project (Ipo side) caused by the
instant flooding of the Angat River (Exh. J-1). The damages were itemized
in four categories, to wit: Camp Facilities P55,700.00; Equipment, Parts
and Plant P375,659.51; Materials P107,175.80; and Permanent
Structures and accessories P137,250.00, with an aggregate total amount
of P675,785.31. The list is supported by several vouchers which were all
submitted as Exhibits K to M-38 a, N to O, P to U-2 and V to X- 60-a (Vide:
Folders Nos. 1 to 4). The appellant did not submit proofs to traverse the
aforementioned documentary evidence. We hold that the lower court did
not commit any error in awarding P 675,785.31 as actual or compensatory
damages.
However, We cannot sustain the award of P333,200.00 as consequential
damages. This amount is broken down as follows: P213,200.00 as and for
the rentals of a crane to temporarily replace the one "destroyed beyond
repair," and P120,000.00 as one month bonus which the appellee failed to
153
 realize in accordance with the contract which the appellee had with
NAWASA. Said rental of the crane allegedly covered the period of one year
at the rate of P40.00 an hour for 16 hours a day. The evidence, however,
shows that the appellee bought a crane also a crawler type, on November
10, 1967, six (6) days after the incident in question (Exh N) And according
to the lower court, which finding was never assailed, the appellee resumed
its normal construction work on the Ipo- Bicti Project after a stoppage of
only one month. There is no evidence when the appellee received the crane
from the seller, Asian Enterprise Limited. But there was an agreement that
the shipment of the goods would be effected within 60 days from the
opening of the letter of credit (Exh. N).<re||an1w> It appearing that
the contract of sale was consummated, We must conclude or at least
assume that the crane was delivered to the appellee within 60 days as
stipulated. The appellee then could have availed of the services of another
crane for a period of only one month (after a work stoppage of one month)
at the rate of P 40.00 an hour for 16 hours a day or a total of P 19,200.00
as rental.
But the value of the new crane cannot be included as part of actual damages
because the old was reactivated after it was repaired. The cost of the repair
was P 77,000.00 as shown in item No. 1 under the Equipment, Parts and
Plants category (Exh. J-1), which amount of repair was already included in
the actual or compensatory damages. (pp. 54-56, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus from NAWASA in the amount
of P120,000.00 (computed at P4,000.00 a day in case construction is finished before the specified
time, i.e., within 800 calendar days), considering that the incident occurred after more than three
(3) years or one thousand one hundred seventy (1,170) days. The court also eliminated the award
of exemplary damages as there was no gross negligence on the part of NPC and reduced the
amount of attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision as being erroneous on
the ground that the destruction and loss of the ECI's equipment and facilities were due to force
majeure. It argues that the rapid rise of the water level in the reservoir of its Angat Dam due to
heavy rains brought about by the typhoon was an extraordinary occurrence that could not have
been foreseen, and thus, the subsequent release of water through the spillway gates and its
resultant effect, if any, on ECI's equipment and facilities may rightly be attributed to force
majeure.
On the other hand, ECI assails the reduction of the consequential damages from P333,200.00 to
P19,000.00 on the grounds that the appellate court had no basis in concluding that ECI acquired
a new Crawler-type crane and therefore, it only can claim rentals for the temporary use of the
leased crane for a period of one month; and that the award of P4,000.00 a day or P120,000.00 a
month bonus is justified since the period limitation on ECI's contract with NAWASA had dual
effects, i.e., bonus for earlier completion and liquidated damages for delayed performance; and
in either case at the rate of P4,000.00 daily. Thus, since NPC's negligence compelled work
stoppage for a period of one month, the said award of P120,000.00 is justified. ECI further
assailes the reduction of attorney's fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of fact and that of the
trial court's, petitioner 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 knew of the
coming typhoon at least four days before it actually struck. And even though 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, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for
in Article 1170 of the Civil Code, which results in loss or damage, the obligor
cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and
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 was, and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with
an act of God in producing a loss, such person is not exempt from liability
by showing that the immediate cause of the damage was the act of God. To
be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which the loss or damage
may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil.
129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship
Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was negligence on the part of NPC is a question
of fact which properly falls within the jurisdiction of the Court of Appeals and will not be
disturbed by this Court unless the same is clearly unfounded. Thus, in Tolentino v. Court of
appeals, (150 SCRA 26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally final and
conclusive upon the Supreme Court (Leonardo v. Court of Appeals, 120
SCRA 890 [1983]. In fact it is settled that the Supreme Court is not
supposed to weigh evidence but only to determine its substantially (Nuez
v. Sandiganbayan, 100 SCRA 433 [1982] and will generally not disturb said
findings of fact when supported by substantial evidence (Aytona v. Court of
Appeals, 113 SCRA 575 [1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other hand
substantial evidence is defined as such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion (Philippine Metal
Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police
Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302
[1985])
Therefore, the respondent Court of Appeals did not err in holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential damages from P333,200.00 to P19,000.00.
As shown by the records, while there was no categorical statement or admission on the part of
ECI that it bought a new crane to replace the damaged one, a sales contract was presented to
the effect that the new crane would be delivered to it by Asian Enterprises within 60 days from
the opening of the letter of credit at the cost of P106,336.75. The offer was made by Asian
Enterprises a few days after the flood. As compared to the amount of P106,336.75 for a brand
new crane and paying the alleged amount of P4,000.00 a day as rental for the use of a temporary
crane, which use petitioner ECI alleged to have lasted for a period of one year, thus, totalling
P120,000.00, plus the fact that there was already a sales contract between it and Asian
Enterprises, there is no reason why ECI should opt to rent a temporary crane for a period of one
year. The appellate court also found that the damaged crane was subsequently repaired and
reactivated and the cost of repair was P77,000.00. Therefore, it included the said amount in the
award of of compensatory damages, but not the value of the new crane. We do not find anything
erroneous in the decision of the appellate court that the consequential damages should represent
154
only the service of the temporary crane for one month. A contrary ruling would result in the
unjust enrichment of ECI.

The P120,000.00 bonus was also properly eliminated as the same was granted by the trial court
on the premise that it represented ECI's lost opportunity "to earn the one month bonus from
NAWASA ... ." As stated earlier, the loss or damage to ECI's equipment and facilities occurred
long after the stipulated deadline to finish the construction. No bonus, therefore, could have
been possibly earned by ECI at that point in time. The supposed liquidated damages for failure
to finish the project within the stipulated period or the opposite of the claim for bonus is not
clearly presented in the records of these petitions. It is not shown that NAWASA imposed them.

As to the question of exemplary damages, we sustain the appellate court in eliminating the same
since it found that there was no bad faith on the part of NPC and that neither can the latter's
negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA
713, 719) we ruled:

Neither may private respondent recover exemplary damages since he is not

entitled to moral or compensatory damages, and again because the
petitioner is not shown to have acted in a wanton, fraudulent, reckless or
oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2
SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA
577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA
155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v.
Mendoza, 24 SCRA 888).

We also affirm the reduction of attorney's fees from P50,000.00 to P30,000.00. There are no
compelling reasons why we should set aside the appellate court's finding that the latter amount
suffices for the services rendered by ECI's counsel.

WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are both DISMISSED for
LACK OF MERIT. The decision appealed from is AFFIRMED.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

155
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21749 September 29, 1967
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant.
REYES, J.B.L., J.:
The present case comes by direct appeal from a decision of the Court of First Instance of Manila
(Case No. 44572) adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in
damages to the plaintiff-appellee Republic of the Philippines.
In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring
Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero" 1 also
belonging to the same corporation, when the barge rammed against one of the wooden piles of
the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the
time, was swollen and the current swift, on account of the heavy downpour of Manila and the
surrounding provinces on August 15 and 16, 1960.
Sued by the Republic of the Philippines for actual and consequential damage caused by its
employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon
Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due
diligence in the selection and supervision of its employees; that the damages to the bridge were
caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey
bridge is an obstruction to navigation.
After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for
the damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair
of the Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from
the date of the filing of the complaint.
Defendant appealed directly to this Court assigning the following errors allegedly committed by
the court a quo, to wit:
I The lower court erred in not holding that the herein defendant-appellant had
exercised the diligence required of it in the selection and supervision of its personnel
to prevent damage or injury to others.1awphl.nt
II The lower court erred in not holding that the ramming of the Nagtahan bailey
bridge by barge L-1892 was caused by force majeure.
III The lower court erred in not holding that the Nagtahan bailey bridge is an
obstruction, if not a menace, to navigation in the Pasig river.
IV The lower court erred in not blaming the damage sustained by the Nagtahan
bailey bridge to the improper placement of the dolphins.
V The lower court erred in granting plaintiff's motion to adduce further evidence in
chief after it has rested its case.
VI The lower court erred in finding the plaintiff entitled to the amount of
P192,561.72 for damages which is clearly exorbitant and without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that when a party
appeals directly to the Supreme Court, and submits his case there for decision, he is deemed to
have waived the right to dispute any finding of fact made by the trial Court. The only questions
that may be raised are those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs.
Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a
party who resorts to the Court of Appeals, and submits his case for decision there, is barred from
contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is
that a contrary rule would encourage the undesirable practice of appellants' submitting their
cases for decision to either court in expectation of favorable judgment, but with intent of
attacking its jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas
Compaia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23, 1966).
Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief.
Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this
appeal are reduced to two:
1) Whether or not the collision of appellant's barge with the supports or piers of the
Nagtahan bridge was in law caused by fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to
introduce additional evidence of damages after said party had rested its case.
As to the first question, considering that the Nagtahan bridge was an immovable and stationary
object and uncontrovertedly provided with adequate openings for the passage of water craft,
including barges like of appellant's, it is undeniable that the unusual event that the barge,
exclusively controlled by appellant, rammed the bridge supports raises a presumption of
negligence on the part of appellant or its employees manning the barge or the tugs that towed it.
For in the ordinary course of events, such a thing does not happen if proper care is used. In
Anglo American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur"
rule (Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224
U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic
& Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on the day in question: that it
assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned
to the task the more competent and experienced among its patrons, had the towlines, engines
and equipment double-checked and inspected; that it instructed its patrons to take extra
precautions; and concludes that it had done all it was called to do, and that the accident,
therefore, should be held due to force majeure or fortuitous event.
These very precautions, however, completely destroy the appellant's defense. For caso
fortuito or force majeure (which in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could
not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the
156
Philippines). It is, therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no
constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas
onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-
contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very measures
adopted by appellant prove that the possibility of danger was not only foreseeable, but actually
foreseen, and was not caso fortuito.

Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the
perils posed by the swollen stream and its swift current, voluntarily entered into a situation
involving obvious danger; it therefore assured the risk, and can not shed responsibility merely
because the precautions it adopted turned out to be insufficient. Hence, the lower Court
committed no error in holding it negligent in not suspending operations and in holding it liable
for the damages caused.

It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located.
Even if true, these circumstances would merely emphasize the need of even higher degree of care
on appellant's part in the situation involved in the present case. The appellant, whose barges
and tugs travel up and down the river everyday, could not safely ignore the danger posed by
these allegedly improper constructions that had been erected, and in place, for years.

On the second point: appellant charges the lower court with having abused its discretion in the
admission of plaintiff's additional evidence after the latter had rested its case. There is an
insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice
defendant-appellant.

We find no merit in the contention. Whether or not further evidence will be allowed after a party
offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and
this discretion will not be reviewed except in clear case of abuse. 3

In the present case, no abuse of that discretion is shown. What was allowed to be introduced,
after plaintiff had rested its evidence in chief, were vouchers and papers to support an item of
P1,558.00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which item
already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of
being unfair, because it was also able to secure, upon written motion, a similar order dated
November 24, 1962, allowing reception of additional evidence for the said defendant-appellant.4

WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is
hereby affirmed. Costs against the defendant-appellant.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.

157
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 147324 May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated
27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom,
Inc. (Globe), had been engaged in the coordination of the provision of various communication
facilities for the military bases of the United States of America (US) in Clark Air Base, Angeles,
Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities
were installed and configured for the exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its personnel or those of American
companies contracted by it to operate said facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with Globe for the use of the communication
facilities. Globe, on the other hand, contracted with local service providers such as the Philippine
Communications Satellite Corporation (Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated
itself to establish, operate and provide an IBS Standard B earth station (earth station) within
Cubi Point for the exclusive use of the USDCA.2 The term of the contract was for 60 months, or
five (5) years.3 In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved.4
At the time of the execution of the Agreement, both parties knew that the Military Bases
Agreement between the Republic of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base
in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which include those located at the US Naval Facility
in Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by
the Senate and ratified by a majority of the votes cast by the people in a national referendum
when the Congress so requires, and such new treaty is recognized as such by the US
Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing
its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements that was supposed to extend the term of the use by the US
of Subic Naval Base, among others. 5 The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing
relationship between the two countries in the spirit of friendship, cooperation and
sovereign equality: Now, therefore, be it Resolved by the Senate, as it is hereby
resolved, To express its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements, at the same
time reaffirming its desire to continue friendly relations with the government and
people of the United States of America.6
On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government
through the US Embassy, notifying it of the Philippines termination of the RP-US Military Bases
Agreement. The Note Verbale stated that since the RP-US Military Bases Agreement, as amended,
shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval
Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the
use of the earth station effective 08 November 1992 in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement.
Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which
provides:
Neither party shall be held liable or deemed to be in default for any failure to perform
its obligation under this Agreement if such failure results directly or indirectly from
force majeure or fortuitous event. Either party is thus precluded from performing its
obligation until such force majeure or fortuitous event shall terminate. For the
purpose of this paragraph, force majeure shall mean circumstances beyond the
control of the party involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire,
floods, typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to
know its commitment to pay the stipulated rentals for the remaining terms of the Agreement
even after [Globe] shall have discontinue[d] the use of the earth station after November 08,
1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been
put into operation, a written notice shall be served to PHILCOMSAT at least sixty (60)
days prior to the expected date of termination. Notwithstanding the non-use of the
earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual
number of T1 circuits in use, but in no case shall be less than the first two (2) T1
circuits, for the remaining life of the agreement. However, should PHILCOMSAT make
use or sell the earth station subject to this agreement, the obligation of [Globe] to pay
158
 the rental for the remaining life of the agreement shall be at such monthly rate as may
be agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24
November 1993 demanding payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed
Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati
a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under
the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit. The case
was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement
due to the termination of the RP-US Military Bases Agreement and the non-ratification by the
Senate of the Treaty of Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of said events exempted it
from paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two
Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its
equivalent in Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment) representing rentals for
the month of December 1992 with interest thereon at the legal rate of twelve
percent (12%) per annum starting December 1992 until the amount is fully
paid;
2. Ordering the defendant to pay the plaintiff the amount of Three Hundred
Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit;
and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate
of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements
constitutes force majeure which exempts Globe from complying with its obligations under the
Agreement; (2) Globe is not liable to pay the rentals for the remainder of the term of the
Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent
of the earth station for December 1992 and of attorneys fees. It explained that it terminated
Philcomsats services on 08 November 1992; hence, it had no reason to pay for rentals beyond
that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats
appeal for lack of merit and affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement occurred and justified the non-
payment by Globe of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as
stated in the Philippine Governments Note Verbale to the US Government, are acts, directions,
or requests of the Government of the Philippines which constitute force majeure. In addition,
there were circumstances beyond the control of the parties, such as the issuance of a formal
order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from ATT and
the complete withdrawal of all US military forces and personnel from Cubi Point, which prevented
further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats
services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting
to US$92,238.00 plus interest, considering that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing the Decision of the Court of
Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION
OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN
ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE
TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING
TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL
COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES. 12
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8 should be deemed ineffective
because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the validity
of the parties definition of force majeure in Section 8 of the Agreement as "circumstances beyond
the control of the party involved including, but not limited to, any law, order, regulation, direction
or request of the Government of the Philippines, strikes or other labor difficulties, insurrection
riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen, were inevitable. 13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to
pay for the rental of the earth station for the entire term of the Agreement because it runs counter
to what was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is
159
inconsistent with the appellate courts pronouncement that Globe is liable to pay rentals for
December 1992 even though it terminated Philcomsats services effective 08 November 1992,
because the US military and personnel completely withdrew from Cubi Point only in December
1992. Philcomsat points out that it was Globe which proposed the five-year term of the
Agreement, and that the other provisions of the Agreement, such as Section 4.1 14 thereof, evince
the intent of Globe to be bound to pay rentals for the entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to
attorneys fees and exemplary damages. 16
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not
contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a
contract from providing for other instances when they would be exempt from fulfilling their
contractual obligations. Globe also claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from complying with its obligations under
the Agreement.17 On the issue of the propriety of awarding attorneys fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in
refusing to pay rentals for the remainder of the term of the Agreement, Globe only acted in
accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in
finding it liable for the amount of US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November 1992. 20
In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual
issue which is not cognizable by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsats Petition in G.R. No.
147324 and required the parties to submit their respective memoranda. 22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed
by Globe in G.R. No. 147334 and required both parties to submit their memoranda. 23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US
Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and
Security, and the consequent withdrawal of US military forces and personnel from Cubi Point
constitute force majeure which would exempt Globe from complying with its obligation to pay
rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence
the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect
because the enumeration of events constituting force majeure therein unduly expands the
concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event
must be unforeseen in order to exempt a party to a contract from complying with its obligations
therein. It insists that since the expiration of the RP-US Military Bases Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US
military forces and personnel from Cubi Point were not unforeseeable, but were possibilities
known to it and Globe at the time they entered into the Agreement, such events cannot exempt
Globe from performing its obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events
or force majeure, refers not only to events that are unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which, could not be foreseen, or which,
though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such
as floods or typhoons,24 or an "act of man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be
deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the
parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a
fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such
stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run
counter to the law, morals, good customs, public order or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith." 28 Courts
cannot stipulate for the parties nor amend their agreement where the same does not contravene
160
law, morals, good customs, public order or public policy, for to do so would be to alter the real
intent of the parties, and would run contrary to the function of the courts to give force and effect
thereto.29
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed upon has the force of law between them. 30
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements must be established: (1) the event must be
independent of the human will; (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor. 31
The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites
are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the
term of the RP-US Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the
parties have control over the subsequent withdrawal of the US military forces and personnel from
Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement
(and its Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on
September 16, 1991 is beyond the control of the parties. This resolution was followed
by the sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the
Philippine Government to the US Government notifying the latter of the formers
termination of the RP-US Military Bases Agreement (as amended) on 31 December
1992 and that accordingly, the withdrawal of all U.S. military forces from Subic Naval
Base should be completed by said date. Subsequently, defendant [Globe] received a
formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and
a notification from ATT dated July 29, 1992 to terminate the provision of T1s services
(via an IBS Standard B Earth Station) effective November 08, 1992. Plaintiff
[Philcomsat] was furnished with copies of the said order and letter by the defendant
on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government
of the Philippines and circumstances beyond the control of the defendant. The formal
order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the
complete withdrawal of all the military forces and personnel from Cubi Point in the
year-end 1992 are also acts and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute "force majeure or fortuitous event(s) as defined under
paragraph 8 of the Agreement.
From the foregoing, the Court finds that the defendant is exempted from paying the
rentals for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as
amended) the continued stay of all US Military forces and personnel from Subic Naval
Base would no longer be allowed, hence, plaintiff would no longer be in any position
to render the service it was obligated under the Agreement. To put it blantly (sic), since
the US military forces and personnel left or withdrew from Cubi Point in the year end
December 1992, there was no longer any necessity for the plaintiff to continue
maintaining the IBS facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until the end of
its five-year term without fault on the part of either party. The Court of Appeals was thus correct
in ruling that the happening of such fortuitous events rendered Globe exempt from payment of
rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat
cannot be compelled to perform its corresponding obligation under the Agreement. As noted by
the appellate court:
We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would
like to charge GLOBE rentals for the balance of the lease term without there being any
corresponding telecommunications service subject of the lease. It will be grossly unfair
and iniquitous to hold GLOBE liable for lease charges for a service that was not and
could not have been rendered due to an act of the government which was clearly
beyond GLOBEs control. The binding effect of a contract on both parties is based on
the principle that the obligations arising from contracts have the force of law between
the contracting parties, and there must be mutuality between them based essentially
on their equality under which it is repugnant to have one party bound by the contract
while leaving the other party free therefrom (Allied Banking Corporation v. Court
of Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals for the month of
December 1992, the Court likewise affirms the appellate courts ruling that Globe should pay the
same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November
1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they
actually ceased using the earth station subject of the Agreement was not established during the
trial.34 However, the trial court found that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the USDCA had
control over the earth station and had the option of using the same. Furthermore, Philcomsat
could not have removed or rendered ineffective said communication facility until after 31
December 1992 because Cubi Point was accessible only to US naval personnel up to that time.
Hence, the Court of Appeals did not err when it affirmed the trial courts ruling that Globe is
liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled to
attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and must be supported by
factual, legal and equitable justifications. 36 In previously decided cases, the Court awarded
attorneys fees where a party acted in gross and evident bad faith in refusing to satisfy the other
partys claims and compelled the former to litigate to protect his rights; 37 when the action filed
is clearly unfounded,38 or where moral or exemplary damages are awarded. 39 However, in cases
where both parties have legitimate claims against each other and no party actually prevailed,
such as in the present case where the claims of both parties were sustained in part, an award of
attorneys fees would not be warranted.40
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 41 In the present
case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsats
demands for payment of rentals. It was established during the trial of the case before the trial
court that Globe had valid grounds for refusing to comply with its contractual obligations after
1992.
161
WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 63619 is AFFIRMED.

SO ORDERED.

Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

162
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 113003 October 17, 1997
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,
vs.
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN
TUMBOY, respondents.
ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether
or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that
exempts the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and
Jasmin, bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along
Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The
bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted
in the death of 28-year-old Tito Tumboy and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's
fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and
Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants
therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito.
They also filed a third-party complaint against Philippine Phoenix Surety and Insurance, Inc.
This third-party defendant filed an answer with compulsory counterclaim. At the pre-trial
conference, the parties agreed to a stipulation of facts. 1
Upon a finding that the third party defendant was not liable under the insurance contract, the
lower court dismissed the third party complaint. No amicable settlement having been arrived at
by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the defendants
was brought about by the driver's failure to exercise the diligence required of the carrier in
transporting passengers safely to their place of destination. According to Leny Tumboy, the bus
left Mangagoy at 3:00 o'clock in the afternoon. The winding road it traversed was not cemented
and was wet due to the rain; it was rough with crushed rocks. The bus which was full of
passengers had cargoes on top. Since it was "running fast," she cautioned the driver to slow
down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard
something explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous event.
Abundio Salce, who was the bus conductor when the incident happened, testified that the 42-
seater bus was not full as there were only 32 passengers, such that he himself managed to get a
seat. He added that the bus was running at a speed of "60 to 50" and that it was going slow
because of the zigzag road. He affirmed that the left front tire that exploded was a "brand new
tire" that he mounted on the bus on April 21, 1988 or only five (5) days before the incident. The
Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts
on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated
that all driver applicants in Yobido Liner underwent actual driving tests before they were
employed. Defendant Cresencio Yobido underwent such test and submitted his professional
driver's license and clearances from the barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a decision 2 dismissing the action for lack of merit.
On the issue of whether or not the tire blowout was a caso fortuito, it found that "the falling of
the bus to the cliff was a result of no other outside factor than the tire blow-out." It held that the
ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus 3 that a tire blowout is "a mechanical
defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had
been subjected to a more thorough or rigid check-up before it took to the road that morning" is
inapplicable to this case. It reasoned out that in said case, it was found that the blowout was
caused by the established fact that the inner tube of the left front tire "was pressed between the
inner circle of the left wheel and the rim which had slipped out of the wheel." In this case,
however, "the cause of the explosion remains a mystery until at present." As such, the court
added, the tire blowout was "a caso fortuito which is completely an extraordinary circumstance
independent of the will" of the defendants who should be relieved of "whatever liability the
plaintiffs may have suffered by reason of the explosion pursuant to Article 1174 4of the Civil
Code."
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the
following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that the
defendants did not exercise utmost and/or extraordinary diligence required of carriers under
Article 1755 of the Civil Code, and (c) deciding the case contrary to the ruling in Juntilla
v. Fontanar, 5 and Necesito v. Paras. 6
On August 23, 1993, the Court of Appeals rendered the Decision 7 reversing that of the lower
court. It held that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of
the blow-out, if due to a factory defect, improper mounting, excessive tire pressure, is
not an unavoidable event. On the other hand, there may have been adverse conditions
on the road that were unforeseeable and/or inevitable, which could make the blow-
out a caso fortuito. The fact that the cause of the blow-out was not known does not
relieve the carrier of liability. Owing to the statutory presumption of negligence against
the carrier and its obligation to exercise the utmost diligence of very cautious persons
to carry the passenger safely as far as human care and foresight can provide, it is the
burden of the defendants to prove that the cause of the blow-out was a fortuitous
event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is
not caso-fortuito.
Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge
defendants' burden. As enunciated in Necesito vs. Paras, the passenger has neither
choice nor control over the carrier in the selection and use of its equipment, and the
good repute of the manufacturer will not necessarily relieve the carrier from liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and
rough. The driver could have explained that the blow-out that precipitated the
accident that caused the death of Toto Tumboy could not have been prevented even if
he had exercised due care to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered
ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito
Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial
expenses.
163
 SO ORDERED.
The defendants filed a motion for reconsideration of said decision which was denied on November
4, 1993 by the Court of Appeals. Hence, the instant petition asserting the position that the tire
blowout that caused the death of Tito Tumboy was a caso fortuito. Petitioners claim further that
the Court of Appeals, in ruling contrary to that of the lower court, misapprehended facts and,
therefore, its findings of fact cannot be considered final which shall bind this Court. Hence, they
pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of the
established principle that the factual findings of the Court of Appeals are final and may not be
reviewed on appeal by this Court. This general principle is subject to exceptions such as the one
present in this case, namely, that the lower court and the Court of Appeals arrived at diverse
factual findings. 8 However, upon such re-examination, we found no reason to overturn the
findings and conclusions of the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode
of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is
not bound absolutely and at all events to carry them safely and without injury. 9 However, when
a passenger is injured or dies while travelling, the law presumes that the common carrier is
negligent. Thus, the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common carriers are presumed
to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.
Article 1755 provides that "(a) common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with
a due regard for all the circumstances." Accordingly, in culpa contractual, once a passenger dies
or is injured, the carrier is presumed to have been at fault or to have acted negligently. This
disputable presumption may only be overcome by evidence that the carrier had observed
extraordinary diligence as prescribed by Articles 1733, 10 1755 and 1756 of the Civil Code or that
the death or injury of the passenger was due to a fortuitous event. 11 Consequently, the court
need not make an express finding of fault or negligence on the part of the carrier to hold it
responsible for damages sought by the passenger. 12
In view of the foregoing, petitioners' contention that they should be exempt from liability because
the tire blowout was no more than a fortuitous event that could not have been foreseen, must
fail. A fortuitous event is possessed of the following characteristics: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) it must be impossible to foresee the event
which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the obliger must be free from any participation in the aggravation of the
injury resulting to the creditor. 13 As Article 1174 provides, no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other
words, there must be an entire exclusion of human agency from the cause of injury or loss. 14
Under the circumstances of this case, the explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the situation. The fact that the tire was
new did not imply that it was entirely free from manufacturing defects or that it was properly
mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a
brand name noted for quality, resulting in the conclusion that it could not explode within five
days' use. Be that as it may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso fortuito that would exempt the
carrier from liability for damages. 15
Moreover, a common carrier may not be absolved from liability in case of force majeure or
fortuitous event alone. The common carrier must still prove that it was not negligent in causing
the death or injury resulting from an accident. 16 This Court has had occasion to state:
While it may be true that the tire that blew-up was still good because the grooves of
the tire were still visible, this fact alone does not make the explosion of the tire a
fortuitous event. No evidence was presented to show that the accident was due to
adverse road conditions or that precautions were taken by the jeepney driver to
compensate for any conditions liable to cause accidents. The sudden blowing-up,
therefore, could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at the time of the
accident. 17
It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus
was running at "60-50" kilometers per hour only or within the prescribed lawful speed limit.
However, they failed to rebut the testimony of Leny Tumboy that the bus was running so fast
that she cautioned the driver to slow down. These contradictory facts must, therefore, be resolved
in favor of liability in view of the presumption of negligence of the carrier in the law. Coupled
with this is the established condition of the road rough, winding and wet due to the rain. It
was incumbent upon the defense to establish that it took precautionary measures considering
partially dangerous condition of the road. As stated above, proof that the tire was new and of
good quality is not sufficient proof that it was not negligent. Petitioners should have shown that
it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary
check-ups of the vehicle's parts. As the late Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to require of carriers to test the strength
of each and every part of its vehicles before each trip; but we are of the opinion that a
due regard for the carrier's obligations toward the traveling public demands adequate
periodical tests to determine the condition and strength of those vehicle portions the
failure of which may endanger the safety of the passengers. 18
Having failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence, petitioners are hereby held liable for damages. Article 1764 19 in relation to
Article 2206 20 of the Civil Code prescribes the amount of at least three thousand pesos as
damages for the death of a passenger. Under prevailing jurisprudence, the award of damages
under Article 2206 has been increased to fifty thousand pesos (P50,000.00). 21
Moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven. However, the same damages may be recovered when breach of contract of carriage results
in the death of a passenger, 22 as in this case. Exemplary damages, awarded by way of example
or correction for the public good when moral damages are awarded, 23 may likewise be recovered
in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or
malevolent manner. 24 Because petitioners failed to exercise the extraordinary diligence required
of a common carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted
recklessly. 25 As such, private respondents shall be entitled to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the
modification that petitioners shall, in addition to the monetary awards therein, be liable for the
award of exemplary damages in the amount of P20,000.00. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
164
 Republic of the Philippines Register of Deeds of Negros Occidental, and annotated on Transfer
SUPREME COURT Certificates of Title Nos. T-24207, RT-2252, RT-12035, and RT-12036
Manila covering said Lot Nos. 310, 140, 141 and 101-A;

SECOND DIVISION 5. That since the crop year 1957-1958 up to crop year 1967-1968, inclusive,
Alonso Gatuslao has been milling all the sugarcane grown and produced on
said Lot Nos. 310, 140, 141 and 101-A with the Mill of BMMC;.
G.R. Nos. 81100-01 February 7, 1990

6. Since the crop year 1920-21 to crop year 1967-1968, inclusive, the canes
BACOLOD-MURCIA MILLING CO., INC., petitioner, of planters adhered to the mill of BMMC were transported from the
vs. plantation to the mill by means of cane cars and through railway system
HON. COURT OF APPEALS AND ALONSO GATUSLAO, respondents. operated by BMMC;

BACOLOD-MURCIA MILLING CO., INC., petitioner, 7. The loading points at which planters Alonso Gatuslao was and should
vs. deliver and load all his canes produced in his plantation, Hda. San Roque,
HON. COURT OF APPEALS, ALONSO GATUSLAO, AGRO-INDUSTRIAL DEVELOPMENT OF were at the Arimas Line, Switch 2, and from which loading stations, BMMC
SILAY-SARAVIA (AIDSISA) AND BACOLOD-MURCIA AGRICULTURAL COOPERATIVE had been hauling planter Gatuslao's sugar cane to its mill or factory
MARKETING ASSOCIATION (BM-ACMA), respondents. continuously until the crop year 1967-68;

Jalandoni, Herrera, Del Castillo & Associates for petitioner. 8. BMMC had not been able to use its cane cars and railway system for the
cargo crop year 1968-1969;
Taada, Vico & Tan for respondent AIDSISA.
9. Planter Alonso Gatuslao on various dates requested transportation
San Juan, Gonzalez, San Agustin & Sinense for respondents Alfonso Gatuslao and BM- facilities of BMMC to be sent to his loading stations or switches for purposes
ACMA. of hauling and milling his sugarcane crops of crop year 1968-1969;

10. The estimated gross production of Hda. San Roque for the crop year
1968-1969 is 4,500 piculs.

PARAS, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV
Nos. 59716-59717 promulgated on September 11, 1987 affirming in toto the decision of the Court
of First Instance of Negros Occidental in two consolidated civil cases, the dispositive portion of
which reads as follows:
The records show that since the crop year 1920-1921 to the crop year 1967-1968, the canes of
the adhered planters were transported from the plantation to the mill of BMMC by means of cane
cars and through a railway system operated by BMMC which traversed the land of the adherent
planters, corresponding to the rights of way on their lands granted by the planters to the Central
for the duration of the milling contracts which is for "un periodo de cuarenta y cinco anos o
cosechas a contar desde la cosecha de 1920-1921" 2 (a period of 45 years or harvests, beginning
with a harvest of 1920-1921).

PREMISES CONSIDERED, the decision appealed from is hereby affirmed in

toto.
The uncontroverted facts of the case 1 are as follows:
1. xxx xxx xxx
2. BMMC is the owner and operator of the sugar central in Bacolod City,
Philippines;
3. ALONSO GATUSLAO is a registered planter of the Bacolod-Murcia Mill
District with Plantation Audit No. 3-79, being a registered owner of Lot Nos.
310, 140, 141 and 101-A of the Cadastral Survey of Murcia, Negros
Occidental, otherwise known as Hda. San Roque;
BMMC constructed the railroad tracks in 1920 and the adherent planters granted the BMMC a
right of way over their lands as provided for in the milling contracts. The owners of the hacienda
Helvetia were among the signatories of the milling contracts. When their milling contracts with
petitioner BMMC expired at the end of the 1964-1965 crop year, the corresponding right of way
of the owners of the hacienda Helvetia granted to the Central also expired.
Thus, the BMMC was unable to use its railroad facilities during the crop year 1968-1969 due to
the closure in 1968 of the portion of the railway traversing the hacienda Helvetia as per decision
of the Court in Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First Instance of
Negros Occidental, G.R. No. L-27084, (24 SCRA 500 [1968]). In the same case the Court ruled
that the Central's conventional right of way over the hacienda Helvetia ceased with the expiration
of its amended milling contracts with the landowners of the hacienda at the end of the 1964-
1965 crop year and that in the absence of a renewal contract or the establishment of a
compulsory servitude of right of way on the same spot and route which must be predicated on
the satisfaction of the preconditions required by law, there subsists no right of way to be
protected.

4. On May 24, 1957 BMMC and Alonso Gatuslao executed an 'Extension

and Modification of Milling Contract (Annex 'A' of the complaint in both Consequently, the owners of the hacienda Helvetia required the Central to remove the railway
cases) which was registered on September 17, 1962 in the Office of the tracks in the hacienda occupying at least 3,245 lineal meters with a width of 7 meters or a total

165
of 22,715 square meters, more or less. That was the natural consequence of the expiration of the
milling contracts with the landowners of the hacienda Helvetia (Angela Estate, Inc. and Fernando
Gonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid). BMMC filed a complaint for
legal easement against the owners of the hacienda, with the Court of First Instance of Negros
Occidental which issued on October 4, 1965 an ex parte writ of preliminary injunction
restraining the landowners from reversing and/or destroying the railroad tracks in question and
from impeding, obstructing or in any way preventing the passage and operation of plaintiffs
locomotives and cane cars over defendants' property during the pendency of the litigation and
maintained the same in its subsequent orders of May 31, and November 26, 1966. The outcome
of the case, however, was not favorable to the plaintiff BMMC. In the same case the landowners
asked this Court to restrain the lower court from enforcing the writ of preliminary injunction it
issued, praying that after the hearing on the merits, the restraining order be made permanent
and the orders complained of be annulled and set aside. The Court gave due course to the
landowner's petition and on August 10, 1967 issued the writ of preliminary injunction enjoining
the lower court from enforcing the writ of preliminary injunction issued by the latter on October
4, 1965.
The writ of preliminary injunction issued by the Court was lifted temporarily on motion that
through the mediation of the President of the Philippines the Angela Estate and the Gonzaga
Estate agreed with the Central to allow the use of the railroad tracks passing through the
hacienda Helvetia during the 1967-1968 milling season only, for the same purpose for which
they had been previously used, but it was understood that the lifting of the writ was without
prejudice to the respective rights and positions of the parties in the case and not deemed a waiver
of any of their respective claims and allegations in G.R. No. L-27084 or in any other case between
the same parties, future or pending. The Court resolved to approve the motion only up to and
including June 30, 1968 to give effect to the agreement but to be deemed automatically reinstated
beginning July 1, 1968 (Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First
Instance of Negros Occidental, ibid.).
The temporary lifting of the writ of preliminary injunction assured the milling of the 1967-1968
crop but not the produce of the succeeding crop years which situation was duly communicated
by the President and General Manager of the BMMC to the President of Bacolod-Murcia Sugar
Farmers Corporation (BMSFC) on January 2, 1968. 3
On October 30, 1968, Alonso Gatuslao, one of private respondents herein, and his wife, Maria
H. Gatuslao, filed Civil Case No. 8719 in the Court of First Instance of Negros Occidental, against
petitioner herein, Bacolod-Murcia Milling Co., Inc. (BMMC), for breach of contract, praying
among others, for the issuance of a writ of preliminary mandatory injunction ordering defendant
to immediately send transportation facilities and haul the already cut sugarcane to the mill site
and principally praying after hearing, that judgment be rendered declaring the rescission of the
milling contract executed by plaintiffs and defendant in 1957 for seventeen (17) years or up to
crop year 1973-74, invoking as ground the alleged failure and/or inability of defendant to comply
with its specific obligation of providing the necessary transportation facilities to haul the
sugarcane of Gatuslao from plaintiffs plantation specifically for the crop year 1967-1968.
Plaintiffs further prayed for the recovery of actual and compensatory damages as well as moral
and exemplary damages and attorney's fees. 4
In answer, defendant BMMC claimed that despite its inability to use its railways system for its
locomotives and cane cars to haul the sugarcanes of all its adhered planters including plaintiffs
for the 1968-69 crop year allegedly due to force majeure, in order to comply with its obligation,
defendant hired at tremendous expense, private trucks as prime movers for its trailers to be used
for hauling of the canes, especially for those who applied for and requested transportation
facilities. Plaintiffs, being one of said planters, instead of loading their cut canes for the 1968-69
crop on the cargo trucks of defendant, loaded their cut canes on trucks provided by the Bacolod-
Murcia Agricultural Cooperative Marketing Association, Inc. (B-M ACMA) which transported
plaintiffs' canes of the 1968-69 sugarcanes crop. Defendant prayed in its counterclaim for the
dismissal of Civil Case No. 8719 for the recovery of actual damages, moral and exemplary
damages and for attorney's fees. 5
On November 21, 1968, BMMC filed in the same court Civil Case No. 8745 against Alonso
Gatuslao, the Agro-Industrial Development of Silay-Saravia (AIDSISA) and the Bacolod-Murcia
Agricultural Cooperative Marketing Associations, Inc. (B-M ACMA), seeking specific performance
under the mining contract executed on May 24, 1957 between plaintiff and defendant Alonso
Gatuslao praying for the issuance of writs of preliminary mandatory injunction to stop the alleged
violation of the contract by defendant Alonso Gatuslao in confederation, collaboration and
connivance with defendant BM-ACMA, AIDSISA, and for the recovery of actual, moral and
exemplary damages and attorney's fees. 6
Defendant Alonso Gatuslao and the Bacolod-Murcia Agricultural Cooperative Marketing
Association, Inc. filed their answer on January 27, 1969 with compulsory counter-claims, stating
by way of special and affirmative defense, among others, that the case is barred by another action
pending between the same parties for the same cause of action. 7
Defendant Agro-Industrial Development Corporation of Silay-Saravia, Inc. filed its answer on
February 8, 1969, alleging among others by way of affirmative defense that before it agreed to
mill the sugarcane of its co-defendant Alonso Gatuslao, it carefully ascertained and believed in
good faith that: (a) plaintiff was incapable of the sugarcane of AIDSISA's co-defendant planters
as well as the sugarcane of other planters formerly adherent to plaintiff, (b) plaintiff had in effect
agreed to a rescission of its milling contracts with its adhered planters, including the defendant
planter, because of inadequate means of transportation. and had warned and advised them to
mill their sugarcane elsewhere, and had thus induced them to believe and act on the belief, that
it could not mill their sugarcane and that it would not object to their milling with other centrals;
and (c) up to now plaintiff is incapable of hauling the sugarcane of AIDSISA's co-defendants to
plaintiffs mill site for milling purposes.
The two cases, Civil Cases Nos. 8719 and 8745 were consolidated for joint trial before Branch II
of the Court of First Instance of Negros Occidental. 8 On September 8, 1969, the parties in both
civil cases filed their partial stipulation of facts which included a statement of the issues raised
by the parties. 9
On February 6, 1976, the lower court rendered judgment declaring the milling contract dated
May 24, 1957 rescinded. The dispositive portion of the decision 10 reads:
WHEREFORE, judgment is hereby rendered as follows:
(1) In Civil Case No. 8719 the milling contract (Exh. "121") dated May 24,
1957 is hereby declared rescinded or resolved and the defendant Bacolod-
Murcia Company, Inc. is hereby ordered to pay plaintiffs Alonso Gatuslao
and Maria H. Gatuslao the amount of P2,625.00 with legal interest from the
time of the filing of the complaint by way of actual damages; P5,000.00 as
attorney's fees and the costs of the suit; defendant's counterclaim is
dismissed; and
(2) The complaint in Civil Case No. 8745 as well as the counterclaims
therein are ordered dismissed, without costs.
Bacolod-Murcia Milling Co., Inc. defendant in Civil Case No. 8719 and plaintiff in Civil Case No.
8745 appealed the case to respondent Court of Appeals which affirmed in toto (Rollo, p. 81) the
decision of the lower court. The motion for reconsideration filed by defendant-appellant Bacolod-
Murcia Milling Company, petitioner herein, was denied by the appellate court for lack of
merit. 11 Hence, this petition.
The issues 12 raised by petitioner are as follows:
166
 I agency from the cause of the injury or loss (Vasquez v. Court of Appeals, supra). In the case at
WHETHER OR NOT THE CLOSURE OF PETITIONER'S RAIL ROAD LINES
CONSTITUTE FORCE MAJEURE.
II
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO HAS THE RIGHT
TO RESCIND THE MILLING CONTRACT WITH PETITIONER UNDER
ARTICLE 1191 OF THE CIVIL CODE.
III
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO WAS JUSTIFIED
IN VIOLATING HIS MILLING CONTRACT WITH PETITIONER.
IV
WHETHER OR NOT PRIVATE RESPONDENTS GATUSLAO AND B-M ACMA
ARE GUILTY OF BAD FAITH IN THE EXERCISE OF THEIR DUTIES AND
ARE IN ESTOPPEL TO QUESTION THE ADEQUACY OF THE
TRANSPORTATION FACILITIES OF PETITIONER AND ITS CAPACITY TO
MILL AND HAUL THE CANES OF ITS ADHERENT PLANTERS.
The crux of the issue is whether or not the termination of petitioner's right of way over the
hacienda Helvetia caused by the expiration of its amended milling contracts with the landowners
of the lands in question is a fortuitous event or force majeure which will exempt petitioner BMMC
from fulfillment of its contractual obligations.
It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) that the closure of its
railroad lines constitute force majeure, citing Article 1174 of the Civil Code, exempting a person
from liability for events which could not be foreseen or which though foreseen were inevitable.
This Court has consistently ruled that when an obligor is exempted from liability under the
aforecited provision of the Civil Code for a breach of an obligation due to an act of God, the
following elements must concur: (a) the cause of the breach of the obligation must be
independent of the wig of the debtor; (b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; (d) the debtor must be free from any participation in, or aggravation of the injury
to the creditor (Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v.
Court of Appeals, 144 SCRA 596 [1986]). Applying the criteria to the instant case, there can be
no other conclusion than that the closure of the railroad tracks does not constitute force majeure.
The terms of the milling contracts were clear and undoubtedly there was no reason for BAMC to
expect otherwise. The closure of any portion of the railroad track, not necessarily in the hacienda
Helvetia but in any of the properties whose owners decided not to renew their milling contracts
with the Central upon their expiration, was forseeable and inevitable.
Petitioner Central should have anticipated and should have provided for the eventuality before
committing itself. Under the circumstances it has no one to blame but itself and cannot now
claim exemption from liability.
In the language of the law, the event must have been impossible to foresee, or if it could be
foreseen, must have been impossible to avoid. There must be an entire exclusion of human
bar, despite its awareness that the conventional contract of lease would expire in Crop Year
1964-1965 and that refusal on the part of any one of the landowners to renew their milling
contracts and the corresponding use of the right of way on their lands would render impossible
compliance of its commitments, petitioner took a calculated risk that all the landowners would
renew their contracts. Unfortunately, the sugar plantation of Angela Estate, Inc. which is located
at the entrance of the mill was the one which refused to renew its milling contract. As a result,
the closure of the railway located inside said plantation paralyzed the entire transportation
system. Thus, the closure of the railway lines was not an act of God nor does it constitute force
majeure. It was due to the termination of the contractual relationships of the parties, for which
petitioner is charged with knowledge. Verily, the lower court found that the Angela Estate, Inc.
notified BMMC as far back as August or September 1965 of its intention not to allow the passage
of the railway system thru its land after the aforesaid crop year. Adequate measures should have
been adopted by BMMC to forestall such paralyzation but the records show none. All its efforts
were geared toward the outcome of the court litigation but provided no solutions to the transport
problem early enough in case of an adverse decision.
The last three issues being inter-related will be treated as one. Private respondent Gatuslao filed
an action for rescission while BMMC filed in the same court an action against Gatuslao, the Agro
Industrial Development Silay Saravia (AIDSISA) and the Bacolod-Murcia Agricultural
Cooperative Marketing Associations, Inc. (B-M ACMA) for specific performance under the milling
contract.
There is no question that the contract in question involves reciprocal obligations; as such party
is a debtor and creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed simultaneously so that the performance of one
is conditioned upon the simultaneous fulfillment of the other (Boysaw v. Interphil Promotions,
Inc., 148 SCRA 643 [1987]).
Under Article 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with what is incumbent upon him. In fact, it
is well established that the party who deems the contract violated may consider it revoked or
rescinded pursuant to their agreement and act accordingly, even without previous court action
(U.P. v. de los Angeles, 35 SCRA 102 [1970]; Luzon Brokerage Co., Inc. v. Maritime Building Co.,
Inc., 43 SCRA 94 [1972]).
It is the general rule, however, that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would defeat the very
object of the parties in making the agreement. The question of whether a breach of a contract is
substantial depends upon the attendant circumstances (Universal Food Corporation v. Court of
Appeals, et al., 33 SCRA 1 [1970]).
The issue therefore, hinges on who is guilty of the breach of the milling contract.
Both parties are agreed that time is of the essence in the sugar industry; so that the sugarcanes
have to be milled at the right time, not too early or too late, if the quantity and quality of the juice
are to be assured. As found by the trial court, upon the execution of the amended milling contract
on May 24, 1957 for a period of 17 crop years, BMMC undertook expressly among its principal
prestations not only to mill Gatuslao's canes but to haul them by railway from the loading
stations to the mill. Atty. Solidum, Chief Legal Counsel and in Charge of the Legal-Crop Loan
Department of the BMMC Bacolod City admits that the mode of transportation of canes from the
fields to the mill is a vital factor in the sugar industry; precisely for this reason the mode of
transportation or hauling the canes is embodied in the milling contract. 13 But BMMC is now
unable to haul the canes by railways as stipulated because of the closure of the railway lines; so
that resolution of this issue ultimately rests on whether or not BMMC was able to provide
adequate and efficient transportation facilities of the canes of Gatuslao and the other planters
milling with BMMC during the crop year 1968-1969. As found by both the trial court and the
Court of Appeals, the answer is in the negative.
167
Armando Guanzon, Dispatcher of the Transportation Department of BMMC testified that when
the Central was still using the railway lines, it had between 900 to 1,000 cane cars and 10
locomotives, each locomotive pulling from 30 to 50 cane cars with maximum capacity of 8 tons
each. 14 This testimony was corroborated by Rodolfo Javelosa, Assistant Crop Loan Inspector in
the Crop Loan Department of petitioner. 15After the closure of the railway lines, petitioner on
February 5, 1968 through its President and General Manager, informed the National Committee
of the National Federation of Sugarcane Planters that the trucking requirement for hauling
adherent planters produce with a milling average of 3,500 tons of canes daily at an average load
of 5 tons per truck is not less than 700 trucks daily plus another 700 empty trucks to be shuttled
back to the plantations to be available for loading the same day. 16 Guanzon, however, testified
that petitioner had only 280 units of trailers, 20 tractors and 3 trucks plus 20 trucks more or
less hired by the Central and given as repartos (allotments) to the different planters. 17 The 180
trailers that the Central initially had were permanently leased to some planters who had their
own cargo trucks while out of the 250 BMMC trailers existing during the entire milling season
only 70 were left available to the rest of the planters pulled by 3 trucks. 18
It is true that BMMC purchased 20 units John Deere Tractors (prime movers) and 230 units,
Vanguard Trailers with land capacity of 3 tons each but that was only on October 1968 as
registered in the Land Transportation Commission, Bacolod City. 19
The evidence shows that great efforts had been exerted by the planters to enter into some
concrete understanding with BMMC with a view of obtaining a reasonable assurance that the
latter would be able to haul and mill their canes for the 1968-1969 crop year, but to no avail. 20
As admitted by BMMC itself, in its communications with the planters, it is not in a position to
provide adequate transportation for the canes in compliance with its commitment under the
milling contract. Said communications 21 were quoted by the Court of Appeals as follows:
We are sorry to inform you that unless we can work out a fair and equitable
solution to this problem of closure of our railroad lines, the milling of your
canes for the crop year 1968-69 would be greatly hampered to the great
detriment of our economy and the near elimination of the means of
livelihood of most planters and the possible starvation of thousands of
laborers working in the sugar District of Bacolod-Murcia Milling Co.
and
We are fully conscious of our contractual obligations to our existing Milling
Contract. But, if prevented by judicial order we will find ourselves unable
to serve you in the hauling of the canes through our railroad lines. It is for
this reason that we suggest you explore other solutions to the problem in
the face of such an eventuality so that you may be able to proceed with the
planting of your canes with absolute peace of mind and the certainty that
the same will be properly milled and not left to rot in the fields.
also,
In the meantime, and before July 1, 1968, the end of the temporary
arrangement we have with Fernando Gonzaga, Inc. and the Angela Estate,
Inc. for the use of the rights of ways, our lawyers are studying the possibility
of getting a new injunction from the Supreme Court or the Court of First
Instance of Negros Occidental based on the new grounds interposed in said
memorandum not heretofore raised previously nor in the Capitol
Subdivision case. And if we are doing this, it is principally to prevent any
injury to your crops or foreclosure of your property, which is just in line
with the object of your plans.
On March 26, 1968 the President of the Bacolod-Murcia Sugar Farmer's Corporation writing on
behalf of its planter-members demanded to know the plans of the Central for the crop year 1968-
1969, stating that if they fail to hear from the Central on or before the 15th of April they will feel
free to make their own plans in order to save their crops and the possibility of foreclosure of their
properties. 22
In its letter dated April 1, 1968, the president of BMMC simply informed the Bacolod-Murcia
Sugar Farmer's Corporation that they were studying the possibility of getting a new injunction
from the court before expiration of their temporary arrangement with Fernando Gonzaga, Inc.
and the Angela Estate, Inc. 23
Pressing for a more definite commitment (not a mere hope or expectation), on May 30, 1968 the
Bacolod-Murcia Sugar Farmer's Corporation requested the Central to put up a performance bond
in the amount of P13 million within a 5-day period to allay the fears of the planters that their
sugar canes can not be milled at the Central in the coming milling season. 24
BMMC's reply was only to express optimism over the final outcome of its pending cases in court.
Hence, what actually happened afterwards is that petitioner failed to provide adequate
transportation facilities to Gatuslao and other adherent planters.
As found by the trial court, the experience of Alfonso Gatuslao at the start of the 1968-1969
milling season is reflective of the inadequacies of the reparto or trailer allotment as well as the
state of unpreparedness on the part of BMMC to meet the problem posed by the closure of the
railway lines.
It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers arrived and
when two trailers finally arrived on October 20, 1968 after several unheeded requests, they were
left on the national highway about one (1) kilometer away from the loading station. Such fact
was confirmed by Carlos Butog the driver of the truck that hauled the trailers. 25
Still further, Javelosa, Assistant Crop Loan Inspector, testified that the estimated production of
Gatuslao for the crop year 1968-1969 was 4,400 piculs hauled by 10 cane cars a week with a
maximum capacity of 8 tons. 26 Compared with his later schedule of only one trailer a week with
a maximum capacity of only 3 to 4 tons, 27 there appears to be no question that the means of
transportation provided by BMMC is very inadequate to answer the needs of Gatuslao.
Undoubtedly, BMMC is guilty of breach of the conditions of the milling contract and that
Gatuslao is the injured party. Under the same Article 1191 of the Civil Code, the injured party
may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. In fact, he may also seek rescission even after he had chosen fulfillment
if the latter should become impossible.
Under the foregoing, Gatuslao has the right to rescind the milling contract and neither the
court a quo erred in decreeing the rescission claimed nor the Court of Appeals in affirming the
same.
Conversely, BMMC cannot claim enforcement of the contract. As ruled by this Court, by virtue
of the violations of the terms of the contract, the offending party has forfeited any right to its
enforcement (Boysaw v. Interphil Promotions, Inc., 148 SCRA 645 [1987]).
Likewise, the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. (B-M ACMA)
cannot be faulted for organizing itself to take care of the needs of its members. Definitely, it was
organized at that time when petitioner could not assure the planters that it could definitely haul
and mill their canes. More importantly, as mentioned earlier in a letter dated January 12, 1968,
168
J. Araneta, President & General Manager of the Central itself suggested to the Bacolod-Murcia
Sugar Farmer's Corporation that it explore solutions to the problem of hauling the canes to the
milling station in the face of the eventuality of a judicial order permanently closing the railroad
lines so that the planters may be able to proceed with their planting of the canes with absolute
peace of mind and the certainty that they will be properly milled and not left to rot in the fields.
As a result, the signing of the milling contract between private respondents AIDSISA and B-M-
ACMA on June 19, 1968 28 was a matter of self-preservation inasmuch as the sugarcanes were
already matured and the planters had crop loans to pay. Further delay would mean tremendous
losses. 29

In its defense AIDSISA stressed as earlier stated, that it agreed to mill the sugarcanes of Gatuslao
only after it had carefully ascertained and believed in good faith that BMMC was incapable of
milling the sugarcanes of the adherent planters because of inadequate transportation and in fact
up to now said Central is incapable of hauling the sugarcanes of the said planters to its mill site
for milling purposes.

As an extra precaution, AIDSISA provided in paragraph 15 30 of its milling contract that

If any member of the planter has an existing milling contract with other
sugar central, then this milling contract with the Central shall be of no force
and effect with respect to that member or those members having such
contract, if that other sugar central is able, ready and willing, to mill said
member or members' canes in accordance with their said milling
contract. (Emphasis supplied)

The President of BANC himself induced the planters to believe and to act on the belief that said
Central would not object to the milling of their canes with other centrals.

Under the circumstances, no evidence of bad faith on the part of private respondents could be
found much less any plausible reason to disturb the findings and conclusions of the trial court
and the Court of Appeals.

PREMISES CONSIDERED, the petition is hereby DENIED for lack of merit and the decision of
the Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

169
 Republic of the Philippines and holding that the facts of robbery and defendant Maria Abad's possesion of the pendant on
SUPREME COURT that unfortunate day have been duly published, declared respondents not responsible for the
Manila loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages
to the owner. Plaintiff thereupon instituted the present proceeding.

EN BANC
It is now contended by herein petitioner that the Court of Appeals erred in finding that there was
robbery in the case, although nobody has been found guilty of the supposed crime. It is
petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the
obligor from his obligation under a contract, pursuant to Article 1174 of the new Civil Code,
G.R. No. L-29640 June 10, 1971 there ought to be prior finding on the guilt of the persons responsible therefor. In short, that the
occurrence of the robbery should be proved by a final judgment of conviction in the criminal
case. To adopt a different view, petitioner argues, would be to encourage persons accountable
GUILLERMO AUSTRIA, petitioner, for goods or properties received in trust or consignment to connive with others, who would be
vs. willing to be accused in court for the robbery, in order to be absolved from civil liability for the
THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. loss or disappearance of the entrusted articles.
ABAD, respondents.
We find no merit in the contention of petitioner.
Antonio Enrile Inton for petitioner.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person
Jose A. Buendia for respondents. from responsibility, it is necessary that (1) the event must be independent of the human will (or
rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in
or aggravation of the injury to the creditor. 1 A fortuitous event, therefore, can be produced by
nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by
bandits, robbery, 2 etc., provided that the event has all the characteristics enumerated above.
REYES, J.B.L., J.:

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it
Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-
were really true that the pendant, which she was obliged either to sell on commission or to return
G.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods
to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would
for sale) it is necessary that there be prior conviction for robbery before the loss of the article
have extinguished her liability. The point at issue in this proceeding is how the fact of robbery is
shall exempt the consignee from liability for such loss.
to be established in order that a person may avail of the exempting provision of Article 1174 of
the new Civil Code, which reads as follows:
In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo
Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or
ART. 1174. Except in cases expressly specified by law, or when it is
to be returned on demand. On 1 February 1961, however, while walking home to her residence
otherwise declared by stipulation, or when the nature of the obligation
in Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her
requires the assumption of risk, no person shall be responsible for those
on the face, while the other snatched her purse containing jewelry and cash, and ran away.
events which could not be foreseen, or which, though foreseen, were
Among the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The
inevitable.
incident became the subject of a criminal case filed in the Court of First Instance of Rizal against
certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).
It may be noted the reform that the emphasis of the provision is on the events, not on the agents
or factors responsible for them. To avail of the exemption granted in the law, it is not necessary
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria
that the persons responsible for the occurrence should be found or punished; it would only be
brought in the Court of First Instance of Manila an action against her and her husband for
sufficient to established that the enforceable event, the robbery in this case did take place
recovery of the pendant or of its value, and damages. Answering the allegations of the complaint,
without any concurrent fault on the debtor's part, and this can be done by preponderant
defendants spouses set up the defense that the alleged robbery had extinguished their obligation.
evidence. To require in the present action for recovery the prior conviction of the culprits in the
criminal case, in order to establish the robbery as a fact, would be to demand proof beyond
After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants reasonable doubt to prove a fact in a civil case.
spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest
thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event,
that defendants failed to prove the fact of robbery, or, if indeed it was committed, that defendant
such debtor must, in addition to the cams itself, be free of any concurrent or contributory fault
Maria Abad was guilty of negligence when she went home without any companion, although it
or negligence. 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing
was already getting dark and she was carrying a large amount of cash and valuables on the day
that:
in question, and such negligence did not free her from liability for damages for the loss of the
jewelry.
ART. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured
tenor thereof, are liable for damages.
a reversal of the judgment. The appellate court overruling the finding of the trial court on the
lack of credibility of the two defense witnesses who testified on the occurrence of the robbery,
170
It is clear that under the circumstances prevailing at present in the City of Manila and its
suburbs, with their high incidence of crimes against persons and property that renders travel
after nightfall a matter to be sedulously avoided without suitable precaution and protection, the
conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying
jewelry of considerable value would be negligent per se and would not exempt her from
responsibility in the case of a robbery. We are not persuaded, however, that the same rule should
obtain ten years previously, in 1961, when the robbery in question did take place, for at that
time criminality had not by far reached the levels attained in the present day.

There is likewise no merit in petitioner's argument that to allow the fact of robbery to be
recognized in the civil case before conviction is secured in the criminal action, would prejudice
the latter case, or would result in inconsistency should the accused obtain an acquittal or should
the criminal case be dismissed. It must be realized that a court finding that a robbery has
happened would not necessarily mean that those accused in the criminal action should be found
guilty of the crime; nor would a ruling that those actually accused did not commit the robbery
be inconsistent with a finding that a robbery did take place. The evidence to establish these facts
would not necessarily be the same.

WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition
in this case is hereby dismissed with costs against the petitioner.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.

Castro, J., took no part.

171
 Republic of the Philippines
SUPREME COURT
Baguio City
FIRST DIVISION
G.R. No. 144169 March 28, 2001
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM
INSURANCE CO., INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the
decision of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000
denying the motion for reconsideration of the aforesaid decision. The original complaint that is
the subject matter of this case is an accion pauliana -- an action filed by Philam Insurance
Company, Inc. (respondent Philam) to rescind or annul the donations made by petitioner Khe
Hong Cheng allegedly in fraud of creditors. The main issue for resolution is whether or not the
action to rescind the donations has already prescribed. While the first paragraph of Article 1389
of the Civil Code states: "The action to claim rescission must be commenced within four years..."
the question is, from which point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears
that on or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on
board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra
at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of
copra was covered by a marine insurance policy issued by American Home Insurance Company
(respondent Philam's assured). M/V PRINCE ERlC, however, sank somewhere between Negros
Island and Northeastern Mindanao, resulting in the total loss of the shipment. Because of the
loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to
the consignee.1wphi1.nt
Having been subrogated into the rights of the consignee, American Home instituted Civil Case
No. 13357 in the Regional Trial Court (RTC) of Makati , Branch 147 to recover the money paid
to the consignee, based on breach of contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land
in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with
an area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was
donated to Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two
(2) parcels of land located in Butuan City, covered by TCT No. RT-12838. On the basis of said
deeds, TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of
Ray Steven and TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was
issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No.13357 on
December 29, 1993, four years after the donations were made and the TCTs were registered in
the donees' names. The decretal portion of the aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant, ordering the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by the plaintiff to the
Philippine Agricultural Trading Corporation with legal interest at 12% from the time
of the filing of the complaint in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of execution was forthwith' issued on
September 14, 1995. Said writ of execution however, was not served. An alias writ of execution
was, thereafter, applied for and granted in October 1996. Despite earnest efforts, the sheriff
found no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng
to levy or garnish for the satisfaction of the trial court's decision. When the sheriff, accompanied
by counsel of respondent Philam, went to Butuan City on January 17, 1997, to enforce
the alias writ of execution, they discovered that petitioner Khe Hong Cheng no longer had any
property and that he had conveyed the subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of
Makati City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe
Hong Cheng in favor of his children and for the nullification of their titles (Civil Case No.97-415).
Respondent Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid
deeds in fraud of his creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal
on the ground that the action had already prescribed. They posited that the registration of the
deeds of donation on December 27, 1989 constituted constructive notice and since the
complaint a quo was filed only on February 25, 1997, or more than four (4) years after said
registration, the action was already barred by prescription. 3
Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam's
complaint had not yet prescribed. According to the trial court, the prescriptive period began to
run only from December 29, 1993, the date of the decision of the trial court in Civil Case No.
13357.4
On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent Philam.
The CA declared that the action to rescind the donations had not yet prescribed. Citing Articles
1381 and 1383 of the Civil Code, the CA basically ruled that the four year period to institute the
action for rescission began to run only in January 1997, and not when the decision in the civil
case became final and executory on December 29, 1993. The CA reckoned the accrual of
respondent Philam's cause of action on January 1997, the time when it first learned that the
judgment award could not be satisfied because the judgment creditor, petitioner Khe Hong
Cheng, had no more properties in his name. Prior thereto, respondent Philam had not yet
exhausted all legal means for the satisfaction of the decision in its favor, as prescribed under
Article 1383 of the Civil Code.5
The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial
court did not commit any error in denying petitioners' motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging that:
I
172
 PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF
DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON
THE GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG TO
SATISFY THE JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT THAT AS
EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF
DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR
RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER
1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE
THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED.6
Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year
prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be
commenced within four years." Since this provision of law is silent as to when the prescriptive
period would commence, the general rule, i.e., from the moment the cause of action accrues,
therefore, applies. Article 1150 of the Civil Code is particularly instructive:
Art. 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be counted from the day they may be
brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action
which determines the starting point for the computation of the prescriptive period for the
action.7 Article 1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed
of only after all other legal remedies have been exhausted and have been proven futile. For
an accion pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to, the alienation, although
demandable later; 2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; 3) That the creditor has no other legal remedy
to satisfy his claim, but would benefit by rescission of the conveyance to the third
person; 4) That the act being impugned is fraudulent; 5) That the third person who
received the property conveyed, if by onerous title, has been an accomplice in the
fraud.8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the matter:
An accion pauliana accrues only when the creditor discovers that he has no other legal
remedy for the satisfaction of his claim against the debtor other than an accion
pauliana. The accion pauliana is an action of a last resort. For as long as the creditor
still has a remedy at law for the enforcement of his claim against the debtor, the
creditor will not have any cause of action against the creditor for rescission of the
contracts entered into by and between the debtor and another person or persons.
Indeed, an accion pauliana presupposes a judgment and the issuance by the trial
court of a writ of execution for the satisfaction of the judgment and the failure of the
Sheriff to enforce and satisfy the judgment of the court. It presupposes that the
creditor has exhausted the property of the debtor. The date of the decision of the trial
court against the debtor is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of his property. After
all, the decision of the trial court against the debtor will retroact to the time when the
debtor became indebted to the creditor.9
Petitioners, however, maintain that the cause of action of respondent Philam against them for
the rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner
Khe Hong Cheng registered the subject conveyances with the Register of Deeds. Respondent
Philam allegedly had constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. - Every conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered land
shall, if registered, filed or entered in the Office of the Register of Deeds for the province
or city where the land to which it relates lies, be constructive notice to all persons
from the time of such registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is
misplaced, for in no way does this imply that the specific provisions of the former may be all
together ignored. To count the four year prescriptive period to rescind an allegedly fraudulent
contract from the date of registration of the conveyance with the Register of Deeds, as alleged by
the petitioners, would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an action for rescission of an
allegedly fraudulent conveyance of property, i.e., the creditor has no other legal remedy to satisfy
his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial
court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff
to enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the
property of the debtor: The date of the decision of the trial court is immaterial. What is important
is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the debtor will retroact to the time when
the debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition are excluded, because
the accion pauliana presupposes a judgment and unsatisfied execution, which cannot
exist when the debt is not yet demandable at the time the rescissory action is brought.
Rescission is a subsidiary action, which presupposes that the creditor has exhausted
the property of the debtor which is impossible in credits which cannot be enforced
because of a suspensive term or condition.
While it is necessary that the credit of the plaintiff in the accion pauliana must be prior
to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even
if the judgment be subsequent to the alienation, it is merely declaratory with
retroactive effect to the date when the credit was constituted."10
173
These principles were reiterated by the Court when it explained the requisites of an accion
pauliana in greater detail, to wit:
"The following successive measures must be taken by a creditor before he may bring
an action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of
the debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek
rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana). Without availing of the first and second remedies, i.e.. exhausting the
properties of the debtor or subrogating themselves in Francisco Bareg's transmissible
rights and actions. petitioners simply: undertook the third measure and filed an action
for annulment of sale. This cannot be done."11 (Emphasis ours)
A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming
that respondent Philam's complaint is a real action and should have been filed with the RTC of
Butuan City since the property subject matter or the donations are located therein. Suffice it to
say that petitioners are already deemed to have waived their right to question the venue of the
instant case. Improper venue should be objected to as follows 1) in a motion to dismiss filed
within the time but before the filing of the answer; 13 or 2) in the answer as an affirmative defense
over which, in the discretion of the court, a preliminary hearing may be held as if a motion to
dismiss had been filed.14 Having failed to either file a motion to dismiss on the ground of improper
of venue or include the same as an affirmative defense in their answer, petitioners are deemed
to have their right to object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.

SO ORDERED.
In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of
the accion pauliana on the basis of lack of cause of action:
Davide, Jr., Puno, Pardo, and Ynares-Santiago, JJ., concur.

"In this case, plaintiffs appellants had not even commenced an action against
defendants-appellees Bareng for the collection of the alleged indebtedness, Plaintiffs-
appellants had not even tried to exhaust the property of defendants-appellees Bareng,
Plaintiffs-appellants, in seeking the rescission of the contracts of sale entered into
between defendants-appellees, failed to show and prove that defendants-appellees
Bareng had no other property, either at the time of the sale or at the time this action
was filed, out of which they could have collected this (sic) debts." (Emphasis ours)

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng
had executed the deeds of donation in favor of his children, the complaint against Butuan
Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court.
Respondent Philam had no inkling, at the time, that the trial courts judgment would be in its
favor and further, that such judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam
filed his complaint on December 27, 1989, such complaint would have been dismissed for being
premature. Not only were all other legal remedies for the enforcement of respondent Philam's
claims not yet exhausted at the time the needs of donation were executed and registered.
Respondent Philam would also not have been able to prove then that petitioner Khe Hong Cheng
had no more property other than those covered by the subject deeds to satisfy a favorable
judgment by the trial court.

It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that
he had reserved to himself property sufficient to answer for his debts contracted prior to this
date:

"That the DONOR further states, for the same purpose as expressed in the next
preceding paragraph, that this donation is not made with the object of defrauding his
creditors having reserved to himself property sufficient to answer his debts contracted
prior to this date".12

As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer
had any properties in his name. It was only then that respondent Philam's action for rescission
of the deeds of donation accrued because then it could be said that respondent Philam had
exhausted all legal means to satisfy the trial court's judgment in its favor. Since respondent
Philam filed its complaint for accion pauliana against petitioners on February 25, 1997, barely a
month from its discovery that petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the subject deeds clearly had not yet
prescribed.

174
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 134685 November 19, 1999
MARIA ANTONIA SIGUAN, petitioner,
vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her
children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan?
This is the pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of
the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and
P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank,
the checks were dishonored for the reason "account closed." Demands to make good the checks
proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22,
docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23
of the Regional Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the
court a quo convicted LIM as charged. The case is pending before this Court for review and
docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in
Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by
the Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April
1997, acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages,
plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil,
was registered with the Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu
City, containing an area of 563 sq. m. and covered by
TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu
City, containing an area of 600 sq. m. and covered by
TCT No. 93434;
(3) a parcel of land situated at Cebu City containing
an area of 368 sq. m. and covered by TCT No. 87019;
and
(4) a parcel of land situated at Cebu City, Cebu
containing an area of 511 sq. m. and covered by TCT
No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees. 5
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch
18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null
and void the new transfer certificates of title issued for the lots covered by the questioned Deed.
The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that
sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors, including her; that LIM conspired
and confederated with her children in antedating the questioned Deed of Donation, to petitioner's
and other creditors' prejudice; and that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in
Criminal Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said
decision to the Court of Appeals. As regards the questioned Deed of Donation, she maintained
that it was not antedated but was made in good faith at a time when she had sufficient property.
Finally, she alleged that the Deed of Donation was registered only on 2 July 1991 because she
was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned
deed of donation; (2) declared null and void the transfer certificates of title issued in the names
of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City
to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed
the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages;
P10,000 as attorney's fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the
decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the
requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing
prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to
commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged
before a notary public, appears on its face to have been executed on 10 August 1989. Under
Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is
evidence of the fact which gave rise to its execution and of the date thereof. No antedating of the
Deed of Donation was made, there being no convincing evidence on record to indicate that the
notary public and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred
in August 1990, or a year after the execution of the Deed of Donation, the first requirement
for accion pauliana was not met.
Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was
nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October
1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud must
prejudice the creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and submits
the following issue:
175
 WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED
INTO IN FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in
fraud of creditors is contrary to well-settled jurisprudence laid down by this Court as early as
1912 in the case of Oria v. McMicking, 8which enumerated the various circumstances indicating
the existence of fraud in a transaction. She reiterates her arguments below, and adds that
another fact found by the trial court and admitted by the parties but untouched by the Court of
Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216
declaring Victoria Suarez as LIM's judgment creditor before the execution of the Deed of
Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section
23, 9 Rule 132 of the Rules of Court, in holding that "being a public document, the said deed of
donation is evidence of the fact which gave rise to its execution and of the date of the latter." Said
provision should be read with Section 30 10 of the same Rule which provides that notarial
documents are prima facie evidence of their execution, not "of the facts which gave rise to their
execution and of the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code,
which provides: "The donation is always presumed to be in fraud of creditors when at the time
of the execution thereof the donor did not reserve sufficient property to pay his debts prior to the
donation." In this case, LIM made no reservation of sufficient property to pay her creditors prior
to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and requisites of accion
pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the
credit of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the
Court of Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court;
(d) petitioner failed to present convincing evidence that the Deed of Donation was antedated and
executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of
damages, attorney's fees and expenses of litigation because there is no factual basis therefor in
the body of the trial court's decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in
fraud of petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages,
attorney's fees and expenses of litigation are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases brought before it from the
Court of Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings
of fact of the latter court are conclusive, except in a number of instances. 11 In the case at bar,
one of the recognized exceptions warranting a review by this Court of the factual findings of the
Court of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court
of Appeals are conflicting, especially on the issue of whether the Deed of Donation in question
was in fraud of creditors.
Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are
"those contracts undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them."
The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action
to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a
credit prior to the alienation, 12although demandable later; (2) the debtor has made a subsequent
contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal
remedy to satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person
who received the property conveyed, if it is by onerous title, has been an accomplice in the
fraud. 15
The general rule is that rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement
setting aside the contract. 16 Without any prior existing debt, there can neither be injury nor
fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior
to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the
judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the
date when the credit was constituted. 17
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990,
while the deed of donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was antedated
to make it appear that it was made prior to petitioner's credit. Notably, that deed is a public
document, it having been acknowledged before a notary public. 18 As such, it is evidence of the
fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules
of Court.
Petitioner's contention that the public documents referred to in said Section 23 are only those
entries in public records made in the performance of a duty by a public officer does not hold
water. Section 23 reads:
Sec. 23. Public documents as evidence. Documents consisting of entries
in public records made in the performance of a duty by a public officer
are prima facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the fact which gave
rise to their execution and of the date of the latter. (Emphasis supplied).
The phrase "all other public documents" in the second sentence of Section 23 means those public
documents other than the entries in public records made in the performance of a duty by a public
officer. And these include notarial documents, like the subject deed of donation. Section 19, Rule
132 of the Rules of Court provides:
Sec. 19. Classes of docum/ents. For the purpose of their presentation in
evidence, documents are either public or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills and
testaments. . . .
It bears repeating that notarial documents, except last wills and testaments, are public
documents and are evidence of the facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not
enough to overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only
in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.
176
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third requisite
was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors
may be rescinded only when the creditors cannot in any manner collect the claims due them.
Also, Article 1383 of the same Code provides that the action for rescission is but 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 term "subsidiary remedy" has been defined as "the
exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission
is resorted to." 19It is, therefore, "essential that the party asking for rescission prove that he has
exhausted all other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged
nor proved that she did so. On this score, her action for the rescission of the questioned deed is
not maintainable even if the fraud charged actually did exist." 21
The fourth requisite for an accion pauliana to prosper is not present either.
Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into in fraud of creditors
when the donor did not reserve sufficient property to pay all debts contracted before the donation.
Likewise, Article 759 of the same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient
property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits existing
before the execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was
executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation.
Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was
executed, LIM had the following properties:
(1) A parcel of land containing an area of 220 square
meters, together with the house constructed thereon,
situated in Sto. Nio Village, Mandaue City, Cebu,
registered in the name of Rosa Lim and covered by TCT
No. 19706; 22
Q These properties at the Sto. Nio Village, how much
did you acquire this property?
A Including the residential house P800,000.00 to
P900,000.00.
Q How about the lot which includes the house. How
much was the price in the Deed of Sale of the house
and lot at Sto. Nio Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent
the property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in
nos. 3 and 4, the total market value stated in the tax declarations dated 23 November
1993 was P56,871.60. Aside from these tax declarations, petitioner did not present
evidence that would indicate the actual market value of said properties. It was not,
therefore, sufficiently established that the properties left behind by LIM were not
sufficient to cover her debts existing before the donation was made. Hence, the
presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759
and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may
be proved in any other manner recognized by the law of evidence. Thus in the consideration of
whether certain transfers are fraudulent, the Court has laid down specific rules by which the
character of the transaction may be determined. The following have been denominated by the
Court as badges of fraud:
(1) The fact that the consideration of the conveyance
is fictitious or is inadequate;

(2) A parcel of land located in Benros Subdivision, (2) A transfer made by a debtor after suit has begun
Lawa-an, Talisay, Cebu; 23 and while it is pending against him;

(3) A parcel of land containing an area of 2.152 (3) A sale upon credit by an insolvent debtor;
hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and
covered by Tax Declaration No. 13572. 24 (4) Evidence of large indebtedness or complete
insolvency;

(4) A parcel of land containing an area of 3.6

hectares, with coconut trees thereon, situated at (5) The transfer of all or nearly all of his property by a
Hindag-an, St. Bernard, Southern Leyte, and debtor, especially when he is insolvent or greatly
covered by Tax Declaration No. 13571. 25 embarrassed financially;

During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was (6) The fact that the transfer is made between father
bought by her in the amount of about P800,000 to P900,000. 26 Thus: and son, when there are present other of the above
circumstances; and

ATTY. FLORIDO:
(7) The failure of the vendee to take exclusive
possession of all the property. 28

177
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud
are as varied as the men who perpetrate the fraud in each case. This Court has therefore declined
to define it, reserving the liberty to deal with it under whatever form it may present itself. 29

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above
or any other circumstance from which fraud can be inferred. Accordingly, since the four
requirements for the rescission of a gratuitous contract are not present in this case, petitioner's
action must fail.

In her further attempt to support her action for rescission, petitioner brings to our attention the
31 July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216.
LIM was therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the
sum of P169,000 for the obligation LIM incurred on 8 October 1987. This decision was affirmed
by the Court of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her
civilly liable for P169,000 as actual damages.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to
the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code
provides that rescission shall only be to the extent necessary to cover the damages caused. Under
this Article, only the creditor who brought the action for rescission can benefit from the
rescission; those who are strangers to the action cannot benefit from its effects. 31 And the
revocation is only to the extent of the plaintiff creditor's unsatisfied credit; as to the excess, the
alienation is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.

Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses
of litigation in favor of the petitioner. We have pored over the records and found no factual or
legal basis therefor. The trial court made these awards in the dispositive portion of its decision
without stating, however, any justification for the same in the ratio decidendi. Hence, the Court
of Appeals correctly deleted these awards for want of basis in fact, law or equity.

WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of
Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.

Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

178
 Republic of the Philippines On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
SUPREME COURT deliveries of the shipment to the consignee's warehouse. The latter excepted
Manila to one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

EN BANC
Plaintiff contended that due to the losses/damage sustained by said drum,
the consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same (Exhs. H, I, J, K, L).
G.R. No. 97412 July 12, 1994
As a consequence of the losses sustained, plaintiff was compelled to pay the
EASTERN SHIPPING LINES, INC., petitioner, consignee P19,032.95 under the aforestated marine insurance policy, so
vs. that it became subrogated to all the rights of action of said consignee
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. against defendants (per "Form of Subrogation", "Release" and Philbanking
check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
said:
Zapa Law Office for private respondent.
Defendants filed their respective answers, traversing the material
allegations of the complaint contending that: As for defendant Eastern
Shipping it alleged that the shipment was discharged in good order from
the vessel unto the custody of Metro Port Service so that any damage/losses
VITUG, J.: incurred after the shipment was incurred after the shipment was turned
over to the latter, is no longer its liability (p. 17, Record); Metroport averred
that although subject shipment was discharged unto its custody, portion of
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on
the same was already in bad order (p. 11, Record); Allied Brokerage alleged
a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the
that plaintiff has no cause of action against it, not having negligent or at
arrastre operator and the customs broker; (b) whether the payment of legal interest on an award
fault for the shipment was already in damage and bad order condition when
for loss or damage is to be computed from the time the complaint is filed or from the date the
received by it, but nonetheless, it still exercised extra ordinary care and
decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to
diligence in the handling/delivery of the cargo to consignee in the same
above, is twelve percent (12%) or six percent (6%).
condition shipment was received by it.

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
From the evidence the court found the following:
undisputed facts that have led to the controversy are hereunder reproduced:

The issues are:

This is an action against defendants shipping company, arrastre operator
and broker-forwarder for damages sustained by a shipment while in
defendants' custody, filed by the insurer-subrogee who paid the consignee 1. Whether or not the shipment sustained
the value of such losses/damages. losses/damages;

On December 4, 1981, two fiber drums of riboflavin were shipped from 2. Whether or not these losses/damages were
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by sustained while in the custody of defendants (in whose
defendant Eastern Shipping Lines under Bill of Lading respective custody, if determinable);
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
3. Whether or not defendant(s) should be held liable
for the losses/damages (see plaintiff's pre-Trial Brief,
Upon arrival of the shipment in Manila on December 12, 1981, it was Records, p. 34; Allied's pre-Trial Brief, adopting
discharged unto the custody of defendant Metro Port Service, Inc. The latter plaintiff's Records, p. 38).
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.
As to the first issue, there can be no doubt that the
shipment sustained losses/damages. The two drums
On January 7, 1982 defendant Allied Brokerage Corporation received the were shipped in good order and condition, as clearly
shipment from defendant Metro Port Service, Inc., one drum opened and shown by the Bill of Lading and Commercial Invoice
without seal (per "Request for Bad Order Survey." Exh. D). which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro

179
 Port Service, Inc., it excepted to one drum in bad
order.
Correspondingly, as to the second issue, it follows that
the losses/damages were sustained while in the
respective and/or successive custody and possession
of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This
becomes evident when the Marine Cargo Survey
Report (Exh. G), with its "Additional Survey Notes", are
considered. In the latter notes, it is stated that when
the shipment was "landed on vessel" to dock of Pier #
15, South Harbor, Manila on December 12, 1981, it
was observed that "one (1) fiber drum (was) in damaged
condition, covered by the vessel's Agent's Bad Order
Tally Sheet No. 86427." The report further states that
when defendant Allied Brokerage withdrew the
shipment from defendant arrastre operator's custody
on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact.
Net unrecovered spillages was
15 kgs. The report went on to state that when the
drums reached the consignee, one drum was found
with adulterated/faked contents. It is obvious,
therefore, that these losses/damages occurred before
the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737
of the New Civil Code, the common carrier's duty to
observe extraordinary diligence in the vigilance of
goods remains in full force and effect even if the goods
are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination,
until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the
goods (Art. 1738, NCC). Defendant Eastern Shipping's
own exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on December
12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment
is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal
interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the
liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss,
whichever is lesser, while the liability of defendant
Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each,
pursuant to Section 6.01 of the Management
Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims
and crossclaim of
defendant/cross-claimant Allied
Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the
conclusion drawn therefrom is correct. As there is sufficient evidence that
the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the
amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave
abuse of discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING
OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL
COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not
all that novel. Indeed, we do have a fairly good number of previous decisions this Court can
merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from
the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an express finding
of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of
Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed but these cases,
180
enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to
this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and
the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad
Co., 19 SCRA 5 [1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it
is the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and
the CARRIER are therefore charged with the obligation to deliver the goods
in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-
versa, nor that attendant facts in a given case may not vary the rule. The instant petition has
been brought solely by Eastern Shipping Lines, which, being the carrier and not having been
able to rebut the presumption of fault, is, in any event, to be held liable in this particular case.
A factual finding of both the court a quo and the appellate court, we take note, is that "there is
sufficient evidence that the shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just
a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the
lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in
lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the
date of demand, judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when
the demand can be established with reasonable certainty." And as was held
by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit
were for damages, "unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof
(Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the
decision." (Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages
for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
third party defendants and against the defendants and third party plaintiffs
as follows:
Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month as
the estimated monthly loss suffered by them as a result of the fire of May
6, 1969 up to the time they are actually paid or already the total sum of
P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs
against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded
but sustained the trial court in adjudging legal interest from the filing of the complaint
until fully paid. When the appellate court's decision became final, the case was
remanded to the lower court for execution, and this was when the trial court issued
its assailed resolution which applied the 6% interest per annum prescribed in Article
2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as
amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan, or forbearance of any
money, goods, or credits and the rate allowed in judgments, in the absence
of express contract as to such rate of interest, shall be twelve (12%)
percent per annum. This Circular shall take effect immediately. (Emphasis
found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any other
kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within the
coverage of the said law for it is not within the ambit of the authority granted
to the Central Bank.
xxx xxx xxx
181
 Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property
and does not involve any loan, much less forbearances of any money, goods
or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which reads
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 interest agreed
upon, and in the absence of stipulation, the legal
interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28
July 1986. The case was for damages occasioned by an injury to person and loss of property.
The trial court awarded private respondent Pedro Manabat actual and compensatory damages
in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully
paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12%
to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November
29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification
of the amount granted by the lower court, the Court of Appeals sustained the trial court's
decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
fees) occasioned by the loss of the building (including interest charges and
lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve (12%) per
cent interest per annum shall be imposed upon aforementioned amounts from
finality until paid. Solidary costs against the defendant and third-party
defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court 10 ruled out the applicability
of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15
April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1)
loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final judgment, that will
cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in
other words, as part of the judgment for damages. Clearly, they are not
applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the
then Intermediate Appellate Court reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon
at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988,
this Court, while recognizing the right of the private respondent to recover damages, held the
award, however, for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered
a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose
from a breach of employment contract. For having been illegally dismissed, the petitioner was
awarded by the trial court moral and exemplary damages without, however, providing any legal
interest thereon. When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally, the amounts stated
in the dispositive portion of the decision, including the sum of P1,400.00 in
concept of compensatory damages, with interest at the legal rate from the
date of the filing of the complaint until fully paid (Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing
grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed
the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of
interest "at the legal rate" from the time of the filing of the complaint. . . Said
circular [Central Bank Circular No. 416] does not apply to actions based on
a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner
to pay the private respondents certain sums of money as just compensation for their lands so
182
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal II. With regard particularly to an award of interest in the concept of actual and compensatory
interest per annum under the Civil Code, the Court 15 declared: damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money,
goods or credits but expropriation of certain parcels of land for a public
purpose, the payment of which is without stipulation regarding interest,
and the interest adjudged by the trial court is in the nature of indemnity
for damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of
indemnity for damages for the delay in the payment thereof. Therefore,
since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not
by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v. Intermediate Appellate Court (1988).
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate
of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. 26 Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular imposing
the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as
well as to judgments involving such loan or forbearance of money, goods or credits, and that the
6% interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common time frame in the computation
of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
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
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
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 decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment
thereof.

The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, SO ORDERED.
on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal interest should be Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo,
from the time of the filing of the complaint until fully paid, the "second group" varied on the Melo, Quiason, Puno and Kapunan, JJ., concur.
commencement of the running of the legal interest.

Mendoza, J., took no part.

Malayan held that the amount awarded should bear legal interest from the date of the decision of
the court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should
be from the date of the decision.'" American Express International v. IAC, introduced a different
time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the)
decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending
on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way
of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages. 20

183
 Republic of the Philippines
P198.00 x 26 days x 8 months = P41,184.00
SUPREME COURT
Manila

BACKWAGES
EN BANC

Date Dismissed = January 24, 1997

G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER, Rate per day = P196.00

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
Date of Decisions = Aug. 18, 1998
DECISION
a) 1/24/97 to 2/5/98 = 12.36 mos.
PERALTA, J.:

P196.00/day x 12.36 mos. = P62,986.56

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the
Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009
denying petitioners motion for reconsideration. b) 2/6/98 to 8/18/98 = 6.4 months

The factual antecedents are undisputed.

Prevailing Rate per day = P62,986.00

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch
of the National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) P198.00 x 26 days x 6.4 mos. = P32,947.20
and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found TOTAL = P95.933.76
that he was dismissed from employment without a valid or just cause. Thus, petitioner was
awarded backwages and separation pay in lieu of reinstatement in the amount of P158,919.92.
The dispositive portion of the decision, reads:
xxxx
With the foregoing, we find and so rule that respondents failed to discharge the burden of
showing that complainant was dismissed from employment for a just or valid cause. All the more, WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of
it is clear from the records that complainant was never afforded due process before he was constructive dismissal and are therefore, ordered:
terminated. As such, we are perforce constrained to grant complainants prayer for the payments
of separation pay in lieu of reinstatement to his former position, considering the strained
relationship between the parties, and his apparent reluctance to be reinstated, computed only To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred
up to promulgation of this decision as follows: eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred
SEPARATION PAY thirty-three and 36/100 (P95,933.36) representing his backwages; and

Date Hired = August 1990 All other claims are hereby dismissed for lack of merit.

SO ORDERED.4
Rate = P198/day

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Date of Decision = Aug. 18, 1998 Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor
Arbiter. Respondents filed a motion for reconsideration, but it was denied. 6

Length of Service = 8 yrs. & 1 month

184
 I Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED,
COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN
UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED
THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION
OF THE OCTOBER 15, 1998 DECISION Dissatisfied, respondents filed a Petition for Review on
Certiorari before the CA. On August 24, 2000, the CA issued a Resolution dismissing the petition.
Respondents filed a Motion for Reconsideration, but it was likewise denied in a Resolution dated
May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding
no reversible error on the part of the CA, this Court denied the petition in the Resolution dated
April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and executory
on May 27, 2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution
conference was consequently scheduled, but respondents failed to appear. 10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of
the Resolution of the Supreme Court on May 27, 2002. 11 Upon recomputation, the Computation
and Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff
to collect from respondents the total amount of P471,320.31. Respondents filed a Motion to
Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded
separation pay of P62,986.56 and limited backwages of P95,933.36, no more recomputation is
required to be made of the said awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore. 14 On January 13, 2003, the Labor
Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on
January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a
Resolution17 granting the appeal in favor of the respondents and ordered the recomputation of
the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to
be final and executory. Consequently, another pre-execution conference was held, but
respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed judgment award in the sum
of P471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for
recomputation, where the judgment award of petitioner was reassessed to be in the total amount
of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the
original amount as determined by the Labor Arbiter in his Decision dated October 15, 1998,
pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment
award that was due to petitioner in the amount of P147,560.19, which petitioner eventually
received.
award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order 20 granting the motion, but only up to the
amount of P11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that
should be enforced considering that it was the one that became final and executory. However,
the Labor Arbiter reasoned that since the decision states that the separation pay and backwages
are computed only up to the promulgation of the said decision, it is the amount of P158,919.92
that should be executed. Thus, since petitioner already received P147,560.19, he is only entitled
to the balance of P11,459.73.
Petitioner then appealed before the NLRC, 21 which appeal was denied by the NLRC in its
Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was
likewise denied in the Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that
since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which
already became final and executory, a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce the said judgment. Consequently, it
can no longer be modified in any respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October
9, 2009.
Hence, the petition assigning the lone error:
OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF
THE SAME DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in
the Labor Arbiters decision, the same is not final until reinstatement is made or until finality of
the decision, in case of an award of separation pay. Petitioner maintains that considering that
the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the
April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of
Entries on May 27, 2002, the reckoning point for the computation of the backwages and
separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was
rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment
of interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were
awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter, no more
recomputation is required to be made of said awards. Respondents insist that since the decision
clearly stated that the separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer appealed the decision,
petitioner is only entitled to the award as computed by the Labor Arbiter in the total amount
of P158,919.92. Respondents added that it was only during the execution proceedings that the
petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to
petitioner at this point of the proceedings would substantially vary the decision of the Labor
Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
185
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution was the
propriety of the computation of the awards made, and whether this violated the principle of
immutability of judgment. Like in the present case, it was a distinct feature of the judgment of
the Labor Arbiter in the above-cited case that the decision already provided for the computation
of the payable separation pay and backwages due and did not further order the computation of
the monetary awards up to the time of the finality of the judgment. Also in Session Delights, the
dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the
labor arbiter's original computation of the awards made, pegged as of the time the decision was
rendered and confirmed with modification by a final CA decision, is legally proper. The question
is posed, given that the petitioner did not immediately pay the awards stated in the original labor
arbiter's decision; it delayed payment because it continued with the litigation until final judgment
at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the
way the original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed
with finality. This is the finding of the illegality of the dismissal and the awards of separation pay
in lieu of reinstatement, backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor
arbiter made shows that it was time-bound as can be seen from the figures used in the
computation. This part, being merely a computation of what the first part of the decision
established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in
the labor arbiter's decision that the CA had affirmed. The public and private respondents, on the
other hand, posit that a re-computation is necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had
taken place, also made a computation of the award, is understandable in light of Section 3, Rule
VIII of the then NLRC Rules of Procedure which requires that a computation be made. This
Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor
arbiter's decision. As we noted above, this implication is apparent from the terms of the
computation itself, and no question would have arisen had the parties terminated the case and
implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the
finding of illegality as well as on all the consequent awards made. Hence, the petitioner appealed
the case to the NLRC which, in turn, affirmed the labor arbiter's decision. By law, the NLRC
decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds
through a timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded
its authority in affirming the payment of 13th month pay and indemnity, lapsed to finality and
was subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of
the original labor arbiter's decision, the implementing labor arbiter ordered the award re-
computed; he apparently read the figures originally ordered to be paid to be the computation due
had the case been terminated and implemented at the labor arbiter's level. Thus, the labor arbiter
re-computed the award to include the separation pay and the backwages due up to the finality
of the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29, 2003) and included
as well the payment for awards the final CA decision had deleted - specifically, the proportionate
13th month pay and the indemnity awards. Hence, the CA issued the decision now questioned
in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially
considered the labor arbiter's original decision in accordance with its basic component parts as
we discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of
the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28
Consequently, from the above disquisitions, under the terms of the decision which is sought to
be executed by the petitioner, no essential change is made by a recomputation as this step is a
necessary consequence that flows from the nature of the illegality of dismissal declared by the
Labor Arbiter in that decision.29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law specifically, Article 279 of the Labor Code and
the established jurisprudence on this provision that is read into the decision. By the nature of
an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under
Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal upon
execution of the decision does not constitute an alteration or amendment of the final decision
being implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot
avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's
decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms,
qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing
separation pay, the final decision effectively declares that the employment relationship ended so
that separation pay and backwages are to be computed up to that point. 31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc.
v. Court of Appeals,32 the Court laid down the guidelines regarding the manner of computing
legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
186
 with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution
No. 796 dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series
of 1982 and, accordingly, issued Circular No. 799, 35 Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall
be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and
Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank
Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum
- as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations
for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but
will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless,
that the new rate could only be applied prospectively and not retroactively. Consequently, the
twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July
1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest
rates and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July
1, 2013, said judgments shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.1wphi1
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6%
per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED
and SET ASIDE. Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January
24, 1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332
became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one
month pay per year of service; and
187
 (3) interest of twelve percent (12%) per annum of the total monetary awards, computed
from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1,
2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary
benefits awarded and due to petitioner in accordance with this Decision.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

188
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 194201 November 27, 2013
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,
vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE C.
CORALES, Respondents.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
seeking to partially set aside the Decision,2 dated 30 March 2010, and the Resolution,3 dated 13
October 2010, of the Court of Appeals (CA) in CA-G.R. CV No. 91250. The challenged Decision
dismissed the appeal of herein respondent Philippine National Bank (respondent bank) and
affirmed the decision of the Regional Trial Court (RTC), Branch 84, Batangas City with the
modification that the interest rate to be applied by respondent bank on the principal loan
obligation of petitioners Spouses Bayani H. Andal and Gracia G. Andal (petitioners spouses)
shall be 12% per annum, to be computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from [respondent bank] in the
amount of P21,805,000.00, for which they executed twelve (12) promissory notes x x x
[undertaking] to pay [respondent bank] the principal loan with varying interest rates of 17.5% to
27% per interest period. It was agreed upon by the parties that the rate of interest may be
increased or decreased for the subsequent interest periods, with prior notice to [petitioners-
spouses], in the event of changes in interest rates prescribed by law or the Monetary Board x x
x, or in the banks overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor of [respondent
bank] a real estate mortgage using as collateral five (5) parcels of land including all improvements
therein, all situated in Batangas City and covered by Transfer Certificate of Title (TCT) Nos. T-
641, T-32037, T-16730, T-31193 and RT 363 (3351) of the Registry of Deeds of Batangas City,
in the name of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their loan obligation,
otherwise the former will declare the latters loan due and demandable. On July 17, 2001,
[petitioners-spouses] paid P14,800,000.00 to [respondent bank] to avoid foreclosure of the
properties subject of the real estate mortgage. Accordingly, [respondent bank] executed a release
of real estate mortgage over the parcels of land covered by TCT Nos. T-31193 and RT-363 (3351).
However, despite payment x x x, [respondent bank] proceeded to foreclose the real estate
mortgage, particularly with respect to the three (3) parcels of land covered by TCT Nos. T-641, T-
32037 and T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent bank] emerging as
the highest and winning bidder. Accordingly, on August 30, 2002, a certificate of sale of the
properties involved was issued. [Respondent bank] consolidated its ownership over the said
properties and TCT Nos. T-52889, T-52890, and T-52891 were issued in lieu of the cancelled
TCT[s] x x x. This prompted [petitioners-spouses] to file x x x a complaint for annulment of
mortgage, sheriffs certificate of sale, declaration of nullity of the increased interest rates and
penalty charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to religiously pay their
loan obligation to [respondent bank], but the exorbitant rate of interest unilaterally determined
and imposed by the latter prevented the former from paying their obligation. [Petitioners-spouses]
also alleged that they signed the promissory notes in blank, relying on the representation of
[respondent bank] that they were merely proforma [sic] bank requirements. Further, [petitioners-
spouses] alleged that the unilateral increase of interest rates and exorbitant penalty charges are
akin to unjust enrichment at their expense, giving [respondent bank] no right to foreclose their
mortgaged properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the allegations in the complaint.
x x x [respondent bank] alleged that: the penalty charges imposed on the loan was expressly
stipulated under the credit agreements and in the promissory notes; although [petitioners-
spouses] paid to [respondent bank] P14,800,000.00 on July 10, 2001, the former was still
indebted to the latter in the amount of P33,960,633.87; assuming arguendo that the imposition
was improper, the foreclosure of the mortgaged properties is in order since [respondent banks]
bid in the amount of P28,965,100.00 was based on the aggregate appraised rates of the
foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and against respondent
bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in accordance with Article
2209 of the Civil Code effective the next 30, 31 and 180 days respectively from the date of the
twelve (12) promissory notes x x x covered by the real estate x x x mortgages, to be applied on a
declining balance of the principal after the partial payments of P14,800,00.00 (paid July 17,
2001) and P2,000,000.006 (payments of P300,000.00 on October 1, 1999, P1,800,000.00 as [of]
December 1, 1999, P700,000.00 [on] January 31, 2000) per certification of [respondent bank] to
be reckoned at (sic) the dates the said payments were made, thus the corrected amounts of the
liability for principal balance and the said 6% charges per annum shall be the new basis for the
[petitioners-spouses] to make payments to the [respondent bank] x x x which shall automatically
extinguish and release the mortgage contracts and the outstanding liabilities of the [petitioners-
spouses]; [respondent bank] shall then surrender the new transfer certificates of title x x x in its
name to the [c]ourt x x x, [c]anceling the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of Sales and the
consolidation of titles of the subject real properties, including the cancellation of the new Transfer
Certificates of Title x x x in the name of the [respondent] bank and reinstating Transfer
Certificates of Title Nos. T-641, T-32037 and T-16730 in the names of the [petitioners-spouses];
the latter acts to be executed by the Register of Deeds of Batangas City. 7
The foregoing disposition of the RTC was based on the following findings of fact:
As of this writing the [respondent] bank have (sic) not complied with the said orders as to the
interest rates it had been using on the loan of [petitioners-spouses] and the monthly computation
of interest vis a vis (sic) the total shown in the statement of account as of Aug 30, 2002. Such
refusal amounts to suppression of evidence thus tending to show that the interest used by the
bank was unilaterally increased without the written consent of the [petitioners-
spouses]/borrower as required by law and Central Bank Circular No. 1171. The latter circular
189
provides that any increase of interest in a given interest period will have to be expressly agreed
to in writing by the borrower. The mortgaged properties were subject of foreclosure and were sold
on August 30, 2002 and the [respondent] banks statement of account as of August 30, 2002 x
x x shows unpaid interest up to July 17, 2001 of P12,695,718.99 without specifying the rate of
interest for each interest period of thirty days. Another statement of account of [respondent bank]
x x x as [of] the date of foreclosure on August 30, 2002 shows account balance of P20,505,916.51
with a bid price of P28,965,100.00 and showing an interest of P16,163,281.65. Again, there are
no details of the interest used for each interest period from the time these loans were incurred
up to the date of foreclosure. These statements of account together with the stated interest and
expenses after foreclosure were furnished by the [respondent] bank during the court hearings.
The central legal question is that there is no agreement in writing from the [petitioners-
spouses]/borrowers for the interest rate for each interest period neither from the data coming
from the Central Bank or the cost of money which is understood to mean the interest cost of the
bank deposits form the public. Such imposition of the increased interest without the consent of
the borrower is null and void pursuant to Article 1956 of the Civil Code and as held in the
pronouncement of the Supreme Court in several cases and C.B. Circular No. 1191 that the
interest rate for each re-pricing period under the floating rate of interest is subject to mutual
agreement in writing. Art. 1956 states that no interest is due unless it has been expressly
stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the creditor/mortgagee,
belongs to the class of potestative condition which is null and void under Art. 1308 of the New
Civil Code. The fulfillment of a condition cannot be left to the sole will of [one of] the contracting
parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale for a higher
amount than what is legally due is likewise null and void because under the Civil Code, a
mortgage may be foreclosed only to enforce the fulfillment of the obligation for whose security it
was constituted (Art. 2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest since no interest
may be collected based on the stipulation that is null and void and legally inexistent and
unenforceable. x x x. Since the interest imposed is illegal and void only the rate of 6% interest
per month shall be imposed as liquidated damages under Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed forms and therefore
contracts of adhesion and x x x any dispute or doubt concerning them shall be resolved in favor
of the x x x borrower. This (sic) circumstances tend to support the contention of the [petitioners-
spouses] that they were made to sign the real estate mortgages/promissory notes in blank with
respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses] property and any foreclosure
thereof is illegal, unreasonable and void, since [petitioners-spouses] are not and cannot be
considered in default for their inability to pay the arbitrarily, illegally, and unconscionably
adjusted interest rates and penalty charges unilaterally made and imposed by [respondent] bank.
The [petitioners-spouses] submitted to the court certified copies of the weighted average of
Selected Domestic Interest Rates of the local banks obtained from the Bangko Sentral ng
Pilipinas Statistical Center and it shows a declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate was ever used to
increase or decrease the interest rates charged upon the [petitioners-spouses] mortgage loan for
the 30 day re- pricing period subsequent to the first 30 days from [the] dates of the promissory
notes. These documents submitted being certified public documents are entitled to being taken
cognizance of by the court as an aid to its decision making. x x x. 8
Respondent bank appealed the above judgment of the trial court to the CA. Its main contention
is that the lower court erred in ordering the re-computation of petitioners-spouses loans and
applying the interest rate of 6% per annum. According to respondent bank, the stipulation on
the interest rates of 17.5% to 27%, subject to periodic adjustments, was voluntarily agreed upon
by the parties; hence, it was not left to the sole will of respondent bank. Thus, the lower court
erred in reducing the interest rate to 6% and in setting aside the penalty charges, as such is
contrary to the principle of the obligatory force of contracts under Articles 1315 and 1159 of the
Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent banks] contention.
Settled is the rule that the contracting parties are free to enter into stipulations, clauses, terms
and conditions as they may deem convenient, as long as these are not contrary to law, morals,
good customs, public order or public policy. Pursuant to Article 1159 of the Civil Code, these
obligations arising from such contracts have the force of law between the parties and should be
complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly stipulated in the
promissory notes the rate of interest to be applied to the loan obtained by the latter from the
former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates stated in the
promissory notes since the latter voluntarily signed the same. However, we find more credible
and believable the version of [petitioners-spouses] that they were made to sign the said
promissory notes in blank with respect to the rate of interest and penalty charges, and
subsequently, [respondent] bank filled in the blanks, imposing high interest rate beyond which
they were made to understand at the time of the signing of the promissory notes.
xxxx
The signing by [petitioners-spouses] of the promissory notes in blank enabled [respondent] bank
to impose interest rates on the loan obligation without prior notice to [petitioners-spouses]. The
unilateral determination and imposition of interest rates by [respondent] bank without
[petitioners-spouses] assent is obviously violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code x x x.
xxxx
[Respondent banks] act converted the loan agreement into a contract of adhesion where the
parties do not bargain on equal footing, the weaker partys participation, herein [petitioners-
190
spouses], being reduced to the alternative to take it or leave it. [Respondent] bank tried to
sidestep this issue by averring that [petitioners-spouses], as businessmen, were on equal footing
with [respondent bank] as far as the subject loan agreements are concerned. That may be true
insofar as entering into the original loan agreements and mortgage contracts are concerned.
However, that does not hold true when it comes to the unilateral determination and imposition
of the escalated interest rates imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed different rates in the
twelve (12) promissory notes: interest rate of 18% in five (5) promissory notes; 17.5% in two (2)
promissory notes; 23% in one (1) promissory note; and 27% in three (3) promissory notes.
Obviously, the interest rates are excessive and arbitrary. Thus, the foregoing interest rates
imposed on [petitioners-spouses] loan obligation without their knowledge and consent should
be disregarded, not only for being iniquitous and exorbitant, but also for being violative of the
principle of mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of 6%. It is well-settled
that when an obligation is breached and consists in the payment of a sum of money, i.e., loan or
forbearance of money, the interest due shall be that which may have been stipulated in writing.
In the absence of stipulation, the rate of interest shall be 12% interest per annum to be computed
from default, i.e., from judicial or extra-judicial demand and subject to the provisions of Article
1169 of the Civil Code. Since the interest rates printed in the promissory notes are void for the
reasons above-stated, the rate of interest to be applied to the loan should be 12% per annum
only.10
The CA, consequently, dismissed respondent banks appeal and affirmed the decision of the trial
court with the modification that the rate of interest shall be 12% per annum instead of 6%.
Respondent bank filed a Motion for Reconsideration of the CA decision. Petitioners-spouses, on
the other hand, filed a comment praying for the denial of respondent banks motion for
reconsideration. They also filed an "Urgent Manifestation" 11 calling the attention of the CA to its
respective decisions in the cases of Spouses Enrique and Epifania Mercado v. China Banking
Corporation, et. al. (CA-GR CV No. 75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v.
The Ex-Officio Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029).13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the Special Seventh
Division of the CA held that where the interest rate is potestative, the entire interest is null and
void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of RTC, Batangas City,
the then Ninth Division of the CA ruled that under the doctrine of operative facts, no interest is
due after the auction sale because the loan is paid in kind by the auction sale, and interest shall
commence to run again upon finality of the judgment declaring the auction sale null and void.14
The CA denied respondent banks Motion for Reconsideration for lack of merit. It likewise found
no merit in petitioners-spouses contention that no interest is due on their principal loan
obligation from the time of foreclosure until finality of the judgment annulling the foreclosure
sale. According to the CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the subject promissory
notes after finding that the same are iniquitous and exorbitant, and for being violative of the
principle of mutuality of contracts. Nevertheless, in Equitable PCI Bank v. Ng Sheung Ngor, the
Supreme Court ruled that because the escalation clause was annulled, the principal amount of
the loan was subject to the original or stipulated interest rate of interest, and that upon maturity,
the amount due was subject to legal interest at the rate of 12% per annum. In this case, while
we similarly annulled the escalation clause contained in the promissory notes, this Court opted
not to impose the original rates of interest stipulated therein for being excessive, the same being
17.5% to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing Corporation v. Spouses
Cesario Gravador and Norma De Vera, et. al. that stipulations authorizing the imposition of
iniquitous or unconscionable interest are contrary to morals, if not against the law. x x x. The
nullity of the stipulation on the usurious interest does not, however, affect the lenders right to
recover the principal of the loan. The debt due is to be considered without the stipulation of the
excessive interest. A legal interest of 12% per annum will be added in place of the excessive
interest formerly imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the imposition by this Court
of a 12% rate of interest per annum on the principal loan obligation of [petitioners-spouses],
computed from the time of default, is proper as it is consistent with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of this Court in CA-
G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and executory, the same merely have
persuasive effect but do not outweigh the decisions of the Supreme Court which we are duty-
bound to follow, conformably with the principle of stare decisis.
The doctrine of stare decisis enjoins adherence to judicial precedents.1wphi1 It requires courts
in a country to follow the rule established in a decision of the Supreme Court thereof. That
decision becomes a judicial precedent to be followed in subsequent cases by all courts in the
land. The doctrine of stare decisis is based on the principle that once a question of law has been
examined and decided, it should be deemed settled and closed to further argument. 15 (Emphasis
supplied.)
Petitioners-spouses are now before us, reiterating their position that no interest should be
imposed on their loan, following the respective pronouncements of the CA in the Caraig and
Mercado Cases. Petitioners-spouses insist that "if the application of the doctrine of operative
facts is upheld, as applied in Caraig vs. Alday, x x x, interest in the instant case would be
computed only from the finality of judgment declaring the foreclosure sale null and void. If
Mercado vs. China Banking Corporation x x x, applying by analogy the rule on void usurious
interest to void potestative interest rate, is further sustained, no interest is due when the
potestative interest rate stipulation is declared null and void, as in the instant case. 16
Our Ruling
We dismiss the appeal.
We cannot subscribe to the contention of petitioners-spouses that no interest should be due on
the loan they obtained from respondent bank, or that, at the very least, interest should be
computed only from the finality of the judgment declaring the foreclosure sale null and void, on
account of the exorbitant rate of interest imposed on their loan.
It is clear from the contract of loan between petitioners-spouses and respondent bank that
petitioners-spouses, as borrowers, agreed to the payment of interest on their loan obligation.
That the rate of interest was subsequently declared illegal and unconscionable does not entitle
petitioners-spouses to stop payment of interest.1wphi1 It should be emphasized that only the
rate of interest was declared void. The stipulation requiring petitioners-spouses to pay interest
on their loan remains valid and binding. They are, therefore, liable to pay interest from the time
they defaulted in payment until their loan is fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that "[petitioners-spouses]
cannot be considered in default for their inability to pay the arbitrary, illegal and unconscionable
interest rates and penalty charges unilaterally imposed by [respondent] bank." 17 This is precisely
191
the reason why the foreclosure proceedings involving petitioners-spouses properties were
invalidated. As pointed out by the CA, "since the interest rates are null and void, [respondent]
bank has no right to foreclose [petitioners-spouses] properties and any foreclosure thereof is
illegal. x x x. Since there was no default yet, it is premature for [respondent] bank to foreclose
the properties subject of the real estate mortgage contract." 18

Thus, for the purpose of computing the amount of liability of petitioners-spouses, they are
considered in default from the date the Resolution of the Court in G.R. No. 194164 (Philippine
National Bank v. Spouses Bayani H. Andal and Gracia G. Andal) which is the appeal interposed
by respondent bank to the Supreme Court from the judgment of the CA became final and
executory. Based on the records of G.R. No. 194164, the Court denied herein respondent banks
appeal in a Resolution dated 10 January 2011. The Resolution became final and executory on
20 May 2011.19

In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the Governor of
the Bangko Sentral ng Pilipinas on 21 June 2013, and in accordance with the ruling of the
Supreme Court in the recent case of Dario Nacar v. Gallery Frames and/or Felipe Bordey,
Jr.,20 effective 1 July 2013, the rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express contract as to such
rate of interest, shall be six percent (6%) per annum. Accordingly, the rate of interest of 12% per
annum on petitioners-spouses obligation shall apply from 20 May 2011 the date of default
until 30 June 2013 only. From 1 July 2013 until fully paid, the legal rate of 6% per annum shall
be applied to petitioners-spouses unpaid obligation.

IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the Court of Appeals
in CA-G.R. CV No. 91250 is AFFIRMED with the MODIFICATION that the 12% interest per
annum shall be applied from the date of default until 30 June 2013 only, after which date and
until fully paid, the outstanding obligation of petitioners-spouses shall earn interest at 6% per
annum. Let the records of this case be remanded to the trial court for the proper computation of
the amount of liability of petitioners Spouses Bayani H. Andal and Gracia G. Andal, in
accordance with the pronouncements of the Court herein and with due regard to the payments
previously made by petitioners-spouses.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

192
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 192986 January 15, 2013
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman, GOVERNOR
ARMANDO M. TETANGCO, JR., and its incumbent members: JUANITA D. AMATONG,
ALFREDO C. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE and
CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance to the public, filed
directly with this Court this Petition for Certiorari under Rule 65 of the 1997 Rules of Court,
seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the
Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no authority
to continue enforcing Central Bank Circular No. 905, 1 issued by the CB-MB in 1982, which
"suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation
organized to engage in pro bono concerns and activities relating to money lending issues. It was
incorporated on July 9, 2010,2 and a month later, it filed this petition, joined by its founder and
president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the Usury
Law. Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix the
maximum rates of interest which banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates
of interest which banks may charge for different types of loans and for any other credit
operations, or may fix the maximum differences which may exist between the interest or
rediscount rates of the Central Bank and the rates which the banks may charge their customers
if the respective credit documents are not to lose their eligibility for rediscount or advances in
the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending
operations of the banks shall apply only to future operations and not to those made prior to the
date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the
Board may also fix the maximum rates that banks may pay to or collect from their customers in
the form of commissions, discounts, charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving
the CB-MB authority to prescribe different maximum rates of interest which may be imposed for
a loan or renewal thereof or the forbearance of any money, goods or credits, provided that the
changes are effected gradually and announced in advance. Thus, Section 1-a of Act No. 2655
now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by prevailing economic and social conditions:
Provided, That changes in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops, finance companies and other similar credit institutions
although the rates prescribed for these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB Circular No. 905,
Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its General
Provisions, removed the ceilings on interest rates on loans or forbearance of any money, goods
or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan
or forbearance of any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or juridical, shall
not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CBs "Manual of Regulations for Banks
and Other Financial Intermediaries" (Manual of Regulations) by removing the applicable ceilings
on specific interest rates. Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the ceilings for
interest and other charges, commissions, premiums, and fees applicable to commercial banks;
Sections 12 and 17 removed the interest ceilings for thrift banks (Book II, Subsections 2303,
2349); Sections 19 and 21 removed the ceilings applicable to rural banks (Book III, Subsection
3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P). 4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, Section 135,
reads:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of this Act,
Republic Act No. 265, as amended, the provisions of any other law, special charters, rule or
regulation issued pursuant to said Republic Act No. 265, as amended, or parts thereof, which
may be inconsistent with the provisions of this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
Petition for Certiorari
193
To justify their skipping the hierarchy of courts and going directly to this Court to secure a writ
of certiorari, petitioners contend that the transcendental importance of their Petition can readily
be seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory
or constitutional authority to prescribe the maximum rates of interest for all kinds of
credit transactions and forbearance of money, goods or credit beyond the limits
prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No.
905, which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular
No. 905.5
Petitioners attached to their petition copies of several Senate Bills and Resolutions of the 10th
Congress, which held its sessions from 1995 to 1998, calling for investigations by the Senate
Committee on Banks and Financial Institutions into alleged unconscionable commercial rates of
interest imposed by these entities. Senate Bill (SB) Nos. 37 6 and 1860,7 filed by Senator Vicente
C. Sotto III and the late Senator Blas F. Ople, respectively, sought to amend Act No. 2655 by
fixing the rates of interest on loans and forbearance of credit; Philippine Senate Resolution (SR)
No. 1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay, Jr., Gregorio B. Honasan
and Franklin M. Drilon, respectively, urged the aforesaid Senate Committee to investigate ways
to curb the high commercial interest rates then obtaining in the country; Senator Ernesto
Maceda filed SB No. 1151 to prohibit the collection of more than two months of advance interest
on any loan of money; and Senator Raul Roco filed SR No. 1144 11 seeking an investigation into
an alleged cartel of commercial banks, called "Club 1821", reportedly behind the regime of high
interest rates. The petitioners also attached news clippings12 showing that in February 1998 the
banks prime lending rates, or interests on loans to their best borrowers, ranged from 26% to
31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the
CB-MB was authorized only to prescribe or set the maximum rates of interest for a loan or
renewal thereof or for the forbearance of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social conditions, the changes to be effected
gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB to lift or
suspend the limits of interest on all credit transactions, when it issued CB Circular No. 905.
They further insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was
clearly only to fix the banks maximum rates of interest, but always within the limits prescribed
by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated without the benefit
of any prior public hearing, is void because it violated Article 5 of the New Civil Code, which
provides that "Acts executed against the provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905, the benchmark 91-
day Treasury bills (T-bills),13 then known as "Jobo" bills14 shot up to 40% per annum, as a result.
The banks immediately followed suit and re-priced their loans to rates which were even higher
than those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also
unconstitutional in light of Section 1 of the Bill of Rights, which commands that "no person shall
be deprived of life, liberty or property without due process of law, nor shall any person be denied
the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to Section
109 of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of R.A. No.
7653, the BSP-MB has been stripped of the power either to prescribe the maximum rates of
interest which banks may charge for different kinds of loans and credit transactions, or to
suspend Act No. 2655 and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for certiorari, as well as to grant due course
thereto, is addressed to the sound discretion of the court. 15 A petition for certiorari being an
extraordinary remedy, the party seeking to avail of the same must strictly observe the procedural
rules laid down by law, and non-observance thereof may not be brushed aside as mere
technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal exercising
judicial or quasi-judicial functions.17 Judicial functions are exercised by a body or officer clothed
with authority to determine what the law is and what the legal rights of the parties are with
respect to the matter in controversy. Quasi-judicial function is a term that applies to the action
or discretion of public administrative officers or bodies given the authority to investigate facts or
ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for
their official action using discretion of a judicial nature. 18
The CB-MB (now BSP-MB) was created to perform executive functions with respect to the
establishment, operation or liquidation of banking and credit institutions, and branches and
agencies thereof.19 It does not perform judicial or quasi-judicial functions. Certainly, the
issuance of CB Circular No. 905 was done in the exercise of an executive function. Certiorari will
not lie in the instant case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given question." In
private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that "every action
must be prosecuted or defended in the name of the real party in interest," who is "the party who
stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of
the suit." Succinctly put, a partys standing is based on his own right to the relief sought. 21
Even in public interest cases such as this petition, the Court has generally adopted the "direct
injury" test that the person who impugns the validity of a statute must have "a personal and
substantial interest in the case such that he has sustained, or will sustain direct injury as a
result."22 Thus, while petitioners assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out a sufficient interest in the
vindication of the public order and the securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal injury from the issuance of CB Circular
No. 905.
Petitioners also do not claim that public funds were being misused in the enforcement of CB
Circular No. 905. In Kilosbayan, Inc. v. Morato, 23 involving the on-line lottery contract of the
PCSO, there was no allegation that public funds were being misspent, which according to the
Court would have made the action a public one, "and justify relaxation of the requirement that
an action must be prosecuted in the name of the real party-in-interest." The Court held,
moreover, that the status of Kilosbayan as a peoples organization did not give it the requisite
personality to question the validity of the contract. Thus:
194
Petitioners do not in fact show what particularized interest they have for bringing this suit. It
does not detract from the high regard for petitioners as civic leaders to say that their interest
falls short of that required to maintain an action under the Rule 3, Sec. 2. 24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government, 25 it was held that no
question involving the constitutionality or validity of a law or governmental act may be heard and
decided by the court unless there is compliance with the legal requisites for judicial inquiry,
namely: (a) that the question must be raised by the proper party; (b) that there must be an actual
case or controversy; (c) that the question must be raised at the earliest possible opportunity; and
(d) that the decision on the constitutional or legal question must be necessary to the
determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the requirements before
taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that
the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election
law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes
upon their prerogatives as legislators.
While the Court may have shown in recent decisions a certain toughening in its attitude
concerning the question of legal standing, it has nonetheless always made an exception where
the transcendental importance of the issues has been established, notwithstanding the
petitioners failure to show a direct injury. 27 In CREBA v. ERC,28the Court set out the following
instructive guides as determinants on whether a matter is of transcendental importance, namely:
(1) the character of the funds or other assets involved in the case; (2) the presence of a clear case
of disregard of a constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other party with a more direct and
specific interest in the questions being raised. Further, the Court stated in Anak Mindanao Party-
List Group v. The Executive Secretary29 that the rule on standing will not be waived where these
determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the implementation of CB
Circular No. 905. Neither were borrowers who were actually affected by the suspension of the
Usury Law joined in this petition. Absent any showing of transcendental importance, the petition
must fail.
More importantly, the Court notes that the instant petition adverted to the regime of high interest
rates which obtained at least 15 years ago, when the banks prime lending rates ranged from
26% to 31%,30 or even 29 years ago, when the 91-day Jobo bills reached 40% per annum. In
contrast, according to the BSP, in the first two (2) months of 2012 the bank lending rates
averaged 5.91%, which implies that the banks prime lending rates were lower; moreover, deposit
interests on savings and long-term deposits have also gone very low, averaging 1.75% and 1.62%,
respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be approaching
0%.1wphi1 In the auctions held on November 12, 2012, the rates of 3-month, 6-month and 1-
year T-bills have dropped to 0.150%, 0.450% and 0.680%, respectively. 32 According to Manila
Bulletin, this very low interest regime has been attributed to "high liquidity and strong investor
demand amid positive economic indicators of the country." 33
While the Court acknowledges that cases of transcendental importance demand that they be
settled promptly and definitely, brushing aside, if we must, technicalities of procedure, 34 the
delay of at least 15 years in the filing of the instant petition has actually rendered moot and
academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners allegations of constitutional and statutory
violations of CB Circular No. 905 are really mere challenges made by petitioners concerning the
wisdom of the Circular. It explains that it was in view of the global economic downturn in the
early 1980s that the executive department through the CB-MB had to formulate policies to
achieve economic recovery, and among these policies was the establishment of a market-oriented
interest rate structure which would require the removal of the government-imposed interest rate
ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No.
905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long
been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA,36 citing several cases, CB Circular No. 905 "did not repeal nor in anyway amend the
Usury Law but simply suspended the latters effectivity;"37 that "a CB Circular cannot repeal a
law, [for] only a law can repeal another law;"38 that "by virtue of CB Circular No. 905, the Usury
Law has been rendered ineffective;"39 and "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon." 40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc. 41 cited in DBP v.
Perez,42 we also belied the contention that the CB was engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity. The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law. x x x. 43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized the PNB to
unilaterally increase the rate of interest to 25% per annum, plus a penalty of 6% per annum on
past dues, then to 30% on October 15, 1984, and to 42% on October 25, 1984. The Supreme
Court invalidated the rate increases made by the PNB and upheld the 12% interest imposed by
the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward,
the interest previously stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld
the parties freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the
New Civil Code, under which the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
195
Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended." It does not purport to suspend the Usury Law only as
it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new
BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No. 7653,
which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks,
whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653,
merely supplemented it as it concerns loans by banks and other financial institutions. Had R.A.
No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in
unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are
presumed to be passed with deliberation and full knowledge of all laws existing pertaining to the
subject.46 An implied repeal is predicated upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws. Thus, in the absence of an express repeal,
a subsequent law cannot be construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and old laws.47 We find no such
conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as one that may be sustained within the
sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck
down for being contrary to morals, if not against the law.51 Indeed, under Article 1409 of the Civil
Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified,
nor may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders right
to recover the principal of a loan, nor affect the other terms thereof. 52 Thus, in a usurious loan
with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by
the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without
the stipulated excessive interest, and a legal interest of 12% per annum will be added in place of
the excessive interest formerly imposed,53following the guidelines laid down in the landmark case
of Eastern Shipping Lines, Inc. v. Court of Appeals, 54 regarding the manner of computing legal
interest:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and
the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply
only to loans or forbearance of money, goods, or credits, as well as to judgments involving such
loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies "when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the [adjudged]
amount is fully paid." In either instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition "that the courts are vested with
discretion, depending on the equities of each case, on the award of interest."57 (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
196
 Republic of the Philippines
SUPREME COURT
Baguio City
EN BANC
G.R. No. 179334 April 21, 2015
SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and DISTRICT
ENGINEER CELESTINO R. CONTRERAS, Petitioners,
vs.
SPOUSES HERACLEO and RAMONA TECSON, Respondents.
RESOLUTION
PERALTA, J.:
For resolution is the Motion for Reconsideration1 filed by respondents-movants spouses Heracleo
and Ramona Tecson imploring the Court to take a second look at its July 1, 2013 Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated July 31, 2007 in CAG.R. CV No. 77997 is MODIFIED, in that the valuation of the
subject property owned by respondents shall be P0.70 instead of P1,500.00 per square meter,
with interest at six percent (6%) per annum from the date of taking in 1940 instead of March 17,
1995, until full payment.2
In view of the contrasting opinions of the members of the Third Division on the instant motion,
and the transcendental importance of the issue raised herein, the members of the Third Division
opted to refer the issue to the En Banc for resolution.
For a proper perspective, we briefly state the factual background of the case.
In 1940, the Department of Public Works and Highways (DPWH) took respondents-movants'
subject property without the benefit of expropriation proceedings for the construction of the
MacArthur Highway. In a letter dated December 15, 1994,respondents-movants demanded the
payment of the fair market value of the subject parcel of land. Celestino R. Contreras (Contreras),
then District Engineer of the First Bulacan Engineering District of the DPWH, offered to pay for
the subject land at the rate of Seventy Centavos (P0.70) per square meter, per Resolution of the
Provincial Appraisal Committee (PAC) of Bulacan. Unsatisfied with the offer, respondents-
movants demanded the return of their property, or the payment of compensation at the current
fair market value.3Hence, the complaint for recovery of possession with damages filed by
respondents-movants. Respondents-movants were able to obtain favorable decisions in the
Regional Trial Court (RTC) and the Court of Appeals (CA), with the subject property valued at
One Thousand Five Hundred Pesos (P1,500.00) per square meter, with interest at six percent
(6%) per annum.
Petitioners thus elevated the matter to this Court in a petition for review on certiorari. The only
issue resolved by the Court in the assailed decision is the amount of just compensation which
respondents-movants are entitled to receive from the government for the taking of their property.
Both the RTC and the CA valued the property at One Thousand Five Hundred Pesos (P1,500.00)
per square meter, plus six percent (6%) interest from the time of the filing of the complaint until
full payment. We, however, did not agree with both courts and ruled instead that just
compensation should be based on the value of the property at the time of taking in 1940, which
is Seventy Centavos (P0.70) per square meter. 4 In addition, and by way of compensation, we
likewise awarded an interest of six percent (6%) per annum from 1940 until full payment. 5
Aggrieved, respondents-movants hereby move for the reconsideration of said decision on the
following grounds:
A. THE HONORABLE COURT MAY LOOK INTO THE "JUSTNESS" OF THE
MISERABLE AMOUNT OF COMPENSATION BEING AWARDED TO THE HEREIN
RESPONDENTS; and
B. THE HONORABLE COURT MAY SETTLE FOR A HAPPY MIDDLE GROUND IN THE
NAME OF DOCTRINAL PRECISION AND SUBSTANTIAL JUSTICE. 6
Citing the views of Justices Presbitero J. Velasco, Jr. and Marvic Mario Victor F. Leonen in their
Dissenting and Concurring Opinion and Separate Opinion, respectively, respondents-movants
insist that gross injustice will result if the amount that will be awarded today will be based simply
on the value of the property at the time of the actual taking. Hence, as proposed by Justice
Leonen, they suggest that a happy middle ground be achieved by meeting the need for doctrinal
precision and the thirst for substantial justice. 7
We maintain our conclusions in the assailed July 1, 2013 Decision with modification on the
amount of interest awarded, as well as the additional grant of exemplary damages and attorney's
fees.
At the outset, it should be stressed that the matter of the validity of the State's exercise of the
power of eminent domain has long been settled. In fact, in our assailed decision, We have affirmed
the ruling of the CA that the pre-trial order issued on May 17, 2001 has limited the issues as
follows: (1) whether or not the respondents-movants are entitled to just compensation; (2)
whether or not the valuation would be based on the corresponding value at the time of the taking
or at the time of the filing of the action; and (3) whether or not the respondents-movants are
entitled to damages.8 Moreover, it was held that for failure of respondents-movants to question
the lack of expropriation proceedings for a long period of time, they are deemed to have waived
and are estopped from assailing the power of the government to expropriate or the public use for
which the power was exercised.9 What is, therefore, left for determination in the instant Motion
for Reconsideration, in accordance with our Decision dated July 1, 2013, is the propriety of the
amount awarded to respondents as just compensation.
At this juncture, We hold that the reckoning date for property valuation in determining the
amount of just compensation had already been addressed and squarely answered in the assailed
decision. To be sure, the justness of the award had been taken into consideration in arriving at
our earlier conclusion.
We have in the past been confronted with the same issues under similar factual and procedural
circumstances. We find no reason to depart from the doctrines laid down in the earlier cases as
we adopted in the assailed decision. In this regard, we reiterate the doctrines laid down in the
cases of Forfom Development Corporation (Forfom) v. Philippine National Railways (PNR), 10 Eusebio
v. Luis,11 Manila International Airport Authority v. Rodriguez,12 and Republic v. Sarabia.13
In Forfom, PNR entered the property of Forfom in January 1973 for railroad tracks, facilities and
appurtenances for use of the Carmona Commuter Service without initiating expropriation
proceedings. In 1990, Forfom filed a complaint for recovery of possession of real property and/or
damages against PNR. In Eusebio, respondent's parcel of land was taken in 1980 by the City of
Pasig and used as a municipal road without the appropriate expropriation proceedings. In1996,
respondent filed a complaint for reconveyance and/or damages against the city government and
the mayor. In MIAA, in the early 1970s, petitioner implemented expansion programs for its
runway, necessitating the acquisition and occupation of some of the properties surrounding its
197
premises. As to respondent's property, no expropriation proceedings were initiated. In 1997,
respondent initiated a case for accion reivindicatoria with damages against petitioner. In
Republic, sometime in 1956, the Air Transportation Office (ATO) took possession and control of
a portion of a lot situated in Aklan, registered in the name of respondent, without initiating
expropriation proceedings. Several structures were erected thereon, including the control tower,
the Kalibo crash fire rescue station, the Kalibo airport terminal, and the Headquarters of the PNP
Aviation Security Group. In 1995,several stores and restaurants were constructed on the
remaining portion of the lot. In 1997, respondent filed a complaint for recovery of possession
with damages against the storeowners wherein ATO intervened claiming that the storeowners
were its lessees.
These cases stemmed from similar background, that is, government took control and possession
of the subject properties for public use without initiating expropriation proceedings and without
payment of just compensation; while the landowners failed for a long period of time to question
such government act and later instituted actions for recovery of possession with damages. In
these cases, the Court has uniformly ruled that the fair market value of the property at the time
of taking is controlling for purposes of computing just compensation.
In Forfom, the payment of just compensation was reckoned from the time of taking in 1973;
in Eusebio, the Court fixed the just compensation by determining the value of the property at the
time of taking in 1980; in MIAA, the value of the lot at the time of taking in 1972 served as basis
for the award of compensation to the owner; and, in Republic, the Court was convinced that the
taking occurred in 1956 and was thus the basis in fixing just compensation.
As in the aforementioned cases, just compensation due respondents-movants in this case
should, therefore, be fixed not as of the time of payment but at the time of taking in 1940 which
is Seventy Centavos (P0.70) per square meter, and not One Thousand Five Hundred Pesos
(P1,500.00) per square meter, as valued by the RTC and CA.
While disparity in the above amounts is obvious and may appear inequitable to respondents-
movants as they would be receiving such outdated valuation after a very long period, it should
be noted that the purpose of just compensation is not to reward the owner for the property taken
but to compensate him for the loss thereof. As such, the true measure of the property, as upheld
by a plethora of cases, is the market value at the time of the taking, when the loss resulted. This
principle was plainly laid down in Apo Fruits Corporation and Hijo Plantation, Inc. v. Land Bank
of the Philippines,14 to wit:
x x x In Land Bank of the Philippines v. Orilla, a valuation case under our agrarian reform law,
this Court had occasion to state:
Constitutionally, "just compensation" is the sum equivalent to the market value of the property,
broadly described as the price fixed by the seller in open market in the usual and ordinary course
of legal action and competition, or the fair value of the property as between the one who receives
and the one who desires to sell, it being fixed at the time of the actual taking by the
government. Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. It has been repeatedly stressed by this Court
that the true measure is not the taker's gain but the owner's loss. The word "just" is used
to modify the meaning of the word "compensation" to convey the idea that the equivalent to be
given for the property to be taken shall be real, substantial, full and ample. [Emphasis
supplied.]15
Indeed, the State is not obliged to pay premium to the property owner for appropriating the
latter's property; it is only bound to make good the loss sustained by the landowner, with due
consideration of the circumstances availing at the time the property was taken. More, the concept
of just compensation does not imply fairness to the property owner alone. Compensation must
also be just to the public, which ultimately bears the cost of expropriation. 16
Notwithstanding the foregoing, we recognize that the owner's loss is not only his property but
also its income-generating potential.17 Thus, when property is taken, full compensation of its
value must immediately be paid to achieve a fair exchange for the property and the potential
income lost.18 Accordingly, in Apo, we held that the rationale for imposing the interest is to
compensate the petitioners for the income they would have made had they been properly
compensated for their properties at the time of the taking. 19 Thus:
We recognized in Republic v. Court of Appeals the need for prompt payment and the necessity of
the payment of interest to compensate for any delay in the payment of compensation for property
already taken. We ruled in this case that:
The constitutional limitation of "just compensation" is considered to be the sum equivalent to
the market value of the property, broadly described to be the price fixed by the seller in open
market in the usual and ordinary course of legal action and competition or the fair value of the
property as between one who receives, and one who desires to sell, i[f] fixed at the time of the
actual taking by the government. Thus, if property is taken for public use before
compensation is deposited with the court having jurisdiction over the case, the final
compensation must include interest[s] on its just value to be computed from the time the
property is taken to the time when compensation is actually paid or deposited with the
court. In fine, between the taking of the property and the actual payment, legal interest[s]
accrue in order to place the owner in a position as good as (but not better than) the
position he was in before the taking occurred.[Emphasis supplied]20
In other words, the just compensation due to the landowners amounts to an effective forbearance
on the part of the State-a proper subject of interest computed from the time the property was
taken until the full amount of just compensation is paid-in order to eradicate the issue of the
constant variability of the value of the currency over time. 21 In the Court's own words:
The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal value
of the property to be computed from the time petitioner instituted condemnation proceedings
and "took" the property in September 1969. This allowance of interest on the amount found
to be the value of the property as of the time of the taking computed, being an effective
forbearance, at 12% per annum should help eliminate the issue of the constant
fluctuation and inflation of the value of the currency over time x x x. 22
On this score, a review of the history of the pertinent laws, rules and regulations, as well as the
issuances of the Central Bank (CB)or Bangko Sentral ng Pilipinas (BSP)is imperative in arriving
at the proper amount of interest to be awarded herein.
On May 1, 1916, Act No. 265523 took effect prescribing an interest rate of six percent (6%) or
such rate as may be prescribed by the Central Bank Monetary Board (CB-MB)for loans or
forbearance of money, in the absence of express stipulation as to such rate of interest, to wit:
Section 1. The rate of interest for the loan or forbearance of any money goods, or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall
be six per centum per annum or such rate as may be prescribed by the Monetary Board
of the Central Bank of the Philippines for that purpose in accordance with the authority
hereby granted.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by prevailing economic and social conditions.
198
In the exercise of the authority herein granted, the Monetary Board may prescribe higher Law, Rule and Regulations, Date of Effectivity Interest Rate
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as
BSP Issuance
such loans made by pawnshops finance companies and other similar credit institutions although
the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board
is also authorized to prescribe different maximum rate or rates for different types of borrowings, Act No. 2655 May 1, 1916 6%
including deposits and deposit substitutes, or loans of financial intermediaries.24

Under the aforesaid law, any amount of interest paid or stipulated to be paid in excess of that CB Circular No. 416 July 29, 1974 12%
fixed by law is considered usurious, therefore unlawful.25
CB Circular No. 905 December 22, 1982 12%
On July 29, 1974, the CB-MB, pursuant to the authority granted to it under the aforequoted
provision, issued Resolution No. 1622.1wphi1 On even date, Circular No. 416 was issued,
implementing MB Resolution No. 1622, increasing the rate of interest for loans and forbearance CB Circular No. 799 July 1, 2013 6%
of money to twelve percent (12%) per annum, thus:
Shipping Lines v. Court of Appeals,31 then later on in Nacar v. Gallery Frames, 32 save for the
By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise reduction of interest rate to 6% for loans or forbearance of money, thus:
known as the "Usury Law," the Monetary Board, in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan or forbearance of any money, goods or 1. When the obligation is breached, and it consists in the payment of a sum of money,
credits and the rate allowed in judgments, in the absence of express contract as to such i.e., a loan or forbearance of money, the interest due should be that which may
rate of interest, shall be twelve per cent (12%) per annum. 26 have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of
The foregoing rate was sustained in CB Circular No. 90527 which took effect on December 22, stipulation, the rate of interest shall be 6% per annum to be computed from default,
1982, particularly Section 2 thereof, which states: i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.33

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall
continue to be twelve per cent (12%) per annum. 28
Recently, the BSP Monetary Board (BSP-MB),in its Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 2 of Circular No. 905, Series of 1982, and accordingly, issued
Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which reads:
Applying the foregoing law and jurisprudence, respondents-movants are entitled to interest in
the amount of One Million Seven Hundred Eighteen Thousand Eight Hundred Forty-Eight
Pesos and Thirty-Two Centavos (P1,718,848.32) as of September 30, 2014,34 computed as
follows:
January 1, 194035 to July 28, 1974 P 10,553.4937

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby July 29, 1974 to March 16, 1995 26,126.3138
amending Section 2 of Circular No. 905, Series of 1982:

March 17, 199536to June 30, 2013 232,070.3339

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of an express contract as to such rate
of interest, shall be six percent (6%) per annum. July 1, 2013 to September 30, 2014 250,098.1940

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.
Market Value of the Property at the time of
P 518,848.32
taking including interest
This Circular shall take effect on 01 July 2013.29

Accordingly, the prevailing interest rate for loans and forbearance of money is six percent (6%) Market value of the property at the time of
per annum, in the absence of an express contract as to such rate of interest. taking including interest P 518,848.32

In summary, the interest rates applicable to loans and forbearance of money, in the absence of
an express contract as to such rate of interest, for the period of 1940 to present are as follows: Add: Exemplary damages 1,000.000.00

It is important to note, however, that interest shall be compounded at the time judicial demand
is made pursuant to Article 221230 of the Civil Code of the Philippines, and sustained in Eastern
199

Attorney's fees 200,000.00
Total Amount of Interest due to Respondents-
P1,718,848.16
Movants as of September 30, 2014
Considering that respondents-movants only resorted to judicial demand for the payment of the
fair market value of the land on March 17, 1995, it is only then that the interest earned shall
itself earn interest.
Lastly, from finality of the Court's Resolution on reconsideration until full payment, the total
amount due to respondents-movants shall earn a straight six percent (6%) legal interest,
pursuant to Circular No. 799 and the case of Nacar. Such interest is imposed by reason of the
Court's decision and takes the nature of a judicial debt.
Clearly, the award of interest on the value of the land at the time of taking in 1940 until full
payment is adequate compensation to respondents-movants for the deprivation of their property
without the benefit of expropriation proceedings. Such interest, however meager or enormous it
may be, cannot be inequitable and unconscionable because it resulted directly from the
application of law and jurisprudence-standards that have taken into account fairness and equity
insetting the interest rates due for the use or forbearance of money. 41 Thus, adding the interest
computed to the market value of the property at the time of taking signifies the real, substantial,
full and ample value of the property. Verily, the same constitutes due compliance with the
constitutional mandate on eminent domain and serves as a basic measure of fairness. In addition
to the foregoing interest, additional compensation shall be awarded to respondents-movants by
way of exemplary damages and attorney's fees in view of the government's taking without the
benefit of expropriation proceedings. As held in Eusebio v. Luis, 42 an irregularity in an
expropriation proceeding cannot ensue without consequence. Thus, the Court held that the
government agency's illegal occupation of the owner's property for a very long period of time
surely resulted in pecuniary loss to the owner, to wit:
However, in taking respondents' property without the benefit of expropriation proceedings and
without payment of just compensation, the City of Pasig clearly acted in utter disregard of
respondents' proprietary rights. Such conduct cannot be countenanced by the Court. For said
illegal taking, the City of Pasig should definitely be held liable for damages to
respondents. Again, in Manila International Airport Authority v. Rodriguez, the Court held that
the government agency's illegal occupation of the owner's property for a very long period of time
surely resulted in pecuniary loss to the owner. The Court held as follows:
Such pecuniary loss entitles him to adequate compensation in the form of actual or
compensatory damages, which in this case should be the legal interest (6%) on the value
of the land at the time of taking, from said point up to full payment by the MIAA. This is
based on the principle that interest "runs as a matter of law and follows from the right of the
landowner to be placed in as good position as money can accomplish, as of the date of the taking."
The award of interest renders unwarranted the grant of back rentals as extended by the
courts below. In Republic v. Lara, et al., the Court ruled that the indemnity for rentals is
inconsistent with a property owner's right to be paid legal interest on the value of the property,
for if the condemn or is to pay the compensation due to the owners from the time of the actual
taking of their property, the payment of such compensation is deemed to retro act to the actual
taking of the property; and, hence, there is no basis for claiming rentals from the time of actual
taking. More explicitly, the Court held in Republic v. Garcellano that:
The uniform rule of this Court, however, is that this compensation must be, not in the
form of rentals, but by way of 'interest from the date that the company [or entity]
exercising the right of eminent domain take possession of the condemned lands, and the
amounts granted by the court shall cease to earn interest only from the moment they are
paid to the owners or deposited in court x x x.
xxxx
For more than twenty (20) years, the MIAA occupied the subject lot without the benefit of
expropriation proceedings and without the MIAA exerting efforts to ascertain ownership of the
lot and negotiating with any of the owners of the property. To our mind, these are wanton and
irresponsible acts which should be suppressed and corrected. Hence, the award of
exemplary damages and attorneys fees is in order. However, while Rodriguez is entitled to
such exemplary damages and attorney's fees, the award granted by the courts below should be
equitably reduced. We hold that Rodriguez is entitled only to P200,000.00 as exemplary
damages, and attorney's fees equivalent to one percent (1%) of the amount due. 43
Similarly, in Republic v. CA,44 We held that the failure of the government to initiate an
expropriation proceeding to the prejudice of the landowner may be corrected with the awarding
of exemplary damages, attorney's fees and costs of litigation. Thus:
The Court will not award attorney's fees in light of respondent's choice not to appeal the CA
Decision striking down the award. However, we find it proper to award temperate and
exemplary damages in light of NIA's misuse of its power of eminent domain. Any arm of
the State that exercises the delegated power of eminent domain must wield that power with
circumspection and utmost regard for procedural requirements. A government instrumentality
that fails to observe the constitutional guarantees of just compensation and due process abuses
the authority delegated to it, and is liable to the property owner for damages.
Temperate or moderate damages may be recovered if pecuniary loss has been suffered but the
amount cannot be proved with certainty from the nature of the case.1wphi1 Here, the trial and
appellate courts found that the owners were unable to plant palay on 96,655 square meters of
the Property for an unspecified period during and after NIA's construction of the canals in 1972.
The passage of time, however, has made it impossible to determine these losses with any
certainty. NIA also deprived the owners of the Property of possession of a substantial portion of
their land since 1972. Considering the particular circumstances of this case, an award
of P150,000 as temperate damages is reasonable.
NIA's irresponsible exercise of its eminent domain powers also deserves censure. For more than
three decades, NIA has been charging irrigation fees from respondent and other landowners for
the use of the canals built on the Property, without reimbursing respondent a single cent for the
loss and damage. NIA exhibits a disturbingly cavalier attitude towards respondent's property
rights, rights to due process of law and to equal protection of the laws. Worse, this is not the first
time NIA has disregarded the rights of private property owners by refusing to pay just
compensation promptly. To dissuade NIA from continuing this practice and to set an example
for other agencies exercising eminent domain powers, NIA is directed to pay respondent
exemplary damages of P250,000.45
Applying the aforequoted doctrines to the present case, considering that respondents-movants
were deprived of beneficial ownership over their property for more than seventy (70) years without
the benefit of a timely expropriation proceedings, and to serve as a deterrent to the State from
failing to institute such proceedings within the prescribed period under the law, a grant of
exemplary damages in the amount of One Million Pesos (P1,000,000.00) is fair and reasonable.
Moreover, an award for attorney's fees in the amount of Two Hundred Thousand Pesos
(P200,000.00) in favor of respondents-movants is in order.
In sum, respondents-movants shall be entitled to an aggregate amount of One Million Seven
Hundred Eighteen Thousand Eight Hundred Forty-Eight Pesos and Thirty-Two Centavos
(P1,718,848.32) as just compensation as of September 30, 2014, computed as follows:
200

Market value of the property at the time P 518,848.32
of taking in 1940 including interest
Add: Exemplary Damages 1,000,000.00
Attorney's fees 200,000.00
Total Amount due to Respondents-
movants as of September 30, 2014 P1,718,848.32
This Court is not unaware that at present, stringent laws and rules are put in place to ensure
that owners of real property acquired for national government infrastructure projects are
promptly paid just compensation. Specifically, Section 4 of Republic Act No. 8974 (R.A.
8974),46 which took effect on November 26, 2000, provides sufficient guidelines for implementing
an expropriation proceeding, to wit:
Section 4. Guidelines for Expropriation Proceedings. - Whenever it is necessary to acquire real
property for the right-of-way or location for any national government infrastructure project
through expropriation, the appropriate implementing agency shall initiate the expropriation
proceedings before the proper court under the following guidelines:
(a) Upon the filing of the complaint, and after due notice to the defendant, the
implementing agency shall immediately pay the owner of the property the amount
equivalent to the sum of (1) one hundred percent (100%) of the value of the property
based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR);
and (2) the value of the improvements and/or structures as determined under Section
7 hereof;
(b) In provinces, cities, municipalities and other areas where there is no zonal
valuation, the BIR is hereby mandated within the period of sixty (60) days from the
date of the expropriation case, to come up with a zonal valuation for said area; and
(c) In case the completion of a government infrastructure project is of utmost urgency
and importance, and there is no existing valuation of the area concerned, the
implementing agency shall immediately pay the owner of the property its proffered
value taking into consideration the standards prescribed in Section 5 hereof.
Upon compliance with the guidelines abovementioned, the court shall immediately issue to the
implementing agency an order to take possession of the property and start the implementation
of the project.
Before the court can issue a Writ of Possession, the implementing agency shall present to the
court a certificate of availability of funds from the proper official concerned.
In the event that the owner of the property contests the implementing agency's proffered value,
the court shall determine the just compensation to be paid the owner within sixty (60) days from
the date of filing of the expropriation case. When the decision of the court becomes final and
executory, the implementing agency shall pay the owner the difference between the amount
already paid and the just compensation as determined by the court.
Failure to comply with the foregoing directives shall subject the government official or employee
concerned to administrative, civil and/or criminal sanctions, thus:
Section 11. Sanctions. - Violation of any provisions of this Act shall subject the government
official or employee concerned to appropriate administrative, civil and/or criminal sanctions,
including suspension and/or dismissal from the government service and forfeiture of benefits.
While the foregoing provisions, being substantive in nature or disturbs substantive rights, cannot
be retroactively applied to the present case, We trust that this established mechanism will surely
deter hasty acquisition of private properties in the future without the benefit of immediate
payment of the value of the property in accordance with Section 4 of R.A. 8974. This effectively
addresses J. Velasco's concerns that sustaining our earlier rulings on the matter would be
licensing the government to dispense with constitutional requirements in taking private
properties. Moreover, any gap on the procedural aspect of the expropriation proceedings will be
remedied by the aforequoted provisions.
In effect, R.A. 8974 enshrines a new approach towards eminent domain that reconciles the
inherent unease attending expropriation proceedings with a position of fundamental equity.47
Despite the foregoing developments, however, We emphasize that the government's failure, to
initiate the necessary expropriation proceedings prior to actual taking cannot simply invalidate
the State's exercise of its eminent domain power, given that the property subject of expropriation
is indubitably devoted for public use, and public policy imposes upon the public utility the
obligation to continue its services to the public. To hastily nullify said expropriation in the guise
of lack of due process would certainly diminish or weaken one of the State's inherent powers,
the ultimate objective of which is to serve the greater good. Thus, the non-filing of the case for
expropriation will not necessarily lead to the return of the property to the landowner. What is left
to the landowner is the right of compensation. 48
All told, We hold that putting to rest the issue on the validity of the exercise of eminent domain
is neither tantamount to condoning the acts of the DPWH in disregarding the property rights of
respondents-movants nor giving premium to the government's failure to institute an
expropriation proceeding. This Court had steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its express terms, interpretation
being called for only when such literal application is impossible. 49 To entertain other formula for
computing just compensation, contrary to those established by law and jurisprudence, would
open varying interpretation of economic policies - a matter which this Court has no competence
to take cognizance of. Time and again, we have held that no process of interpretation or
construction need be resorted to where a provision of law peremptorily calls for
application.50 Equity and equitable principles only come into full play when a gap exists in the
law and jurisprudence.51 As we have shown above, established rulings of this Court are in place
for full application to the case at bar, hence, should be upheld.
WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
201