I. INTRODUCTORY CONCEPTS II.

ACTUAL OR COMPENSATORY

PART II. DAMAGES

b.3 loss of earning capacity for personal injury b.3.1 formula in determining loss of earning capacity 2/3 x (80-ATD) x (GAI) G.R. No. 132252 April 27, 2000 PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. JESUS MUYCO and ARNULFO MUYCO (at large), accused, JESUS MUYCO, accused-appellant. BELLOSILLO, J.: JESUS MUYCO and ARNULFO MUYCO, cousins, were charged with murder for the death of Romeo Boteja Jr. on 13 May 1995. Only Jesus Muyco was apprehended while Arnulfo Muyco remains at large. On 11 September 1997 the Regional Trial Court, Br. 25, Iloilo City, found Jesus guilty as charged and correspondingly sentenced him to reclusion perpetua and to pay the heirs of Romeo Boteja Jr. P30,000.00 as death indemnity and P27,000.00 as funeral expenses. Jesus Muyco in this appeal submits that the lower court erred (a) in giving credence to the testimony of Ernesto Boteja, which he (Jesus) claims to be improbable and incredible; (b) in finding him guilty despite the failure of the prosecution to overcome the presumption of his innocence; (c) in disregarding his alibi; and, (d) in appreciating the qualifying aggravating circumstance of treachery. These contentions are without merit as shown by these facts: From 6:00 o'clock to 7:00 o'clock in the evening of 13 May 1995, Jesus Muyco and Arnulfo Muyco together with Romeo Boteja Jr. were in the house of Narciso Nadales at Barangay Pamuringao-Garrido, Cabatuan, Iloilo. At about 9:00 o'clock the trio were seen walking towards the barangay dancehall where they met Ernesto Boteja, an uncle of Romeo and a relative by affinity of Jesus and Arnulfo. Romeo invited his uncle Ernesto for a drink so they all went to the store of Agnes Cao about a hundred (100) meters away from the dancehall to buy whisky. As the store was about to close, Jesus, Arnulfo, Romeo and Ernesto decided to drink their whisky under a mango tree nearby. After drinking for a while, Arnulfo suddenly grabbed the hands of Romeo, and while the latter was struggling, Jesus stabbed him with a knife hitting him near his collarbone. It was fatal. Arnulfo then dragged the lifeless body of Romeo towards the nearby sugarcane field with Jesus following them. Ernesto was shocked by the startling occurrence. He was virtually immobilized. He only moved from there to run for his life when he Saw Jesus and Arnulfo returning from the field with Jesus pointing a knife at him. Ernesto fled towards the opposite side of the sugarcane field and stayed there until dawn. Romeo's body was found lifeless at 11:00 o'clock that same evening. Leticia Boteja, mother of the victim, testified that she incurred P27,000.00 for funeral expenses. Dr. Ricardo Jaboneta autopsied the body of Romeo and found that he sustained one (1) stab wound which penetrated his chest wall. It was fatal. Narciso Nadales narrated that from 6:00 o'clock until 7:00 o'clock in the evening of 13 May 1995 Jesus, Arnulfo and the deceased were in his house drinking. The group left at around 7:30 o'clock in the evening to go to the dancehall. Leo Boteja, another prosecution witness, testified that on 13 May 1995 he joined Jesus, Arnulfo and the victim in the house of Narciso Nadales. They drank mucho. At around 7:30 o'clock in the evening he left for home while Jesus, Arnulfo and the victim proceeded to the dancehall. About two (2) hours later, he also went to the dancehall but could not find Jesus, Arnulfo and the deceased there. At 11:00 o'clock that evening he learned that Romeo Boteja Jr. was killed and his cadaver was found in the sugarcane field. Jesus denied participation in the killing of Romeo Boteja, Jr. and insisted on his alibi. He averred that on 12 May 1995 he visited his brother Severe Muyco at Bgy. Pamuringao-Garrido, Cabatuan, Iloilo, as he got married there a year ago. From 10:00 o'clock in the morning to 5:00 o'clock in the afternoon of 13 May 1995 he drank with his brother Severo, cousin Arnulfo, uncle Crispin Debucon and the deceased Romeo Boteja Jr. whom he met drank for the first time. He did not know whose house it was where they drank. Upon the prodding of Severe, he left Cabatuan and proceeded to Passi, Iloilo, which is about fifty (50) kilometers away, arriving there at 7:00 o'clock in the evening. He spent the night in the house of his cousin Nestor Muyco. Vicente Inion and Joean Nufable corroborated accused-appellant's alibi. Both asserted that they saw Jesus in the house of Nestor in Passi, Iloilo, on the night of 13 May 1995. As already stated, the court a quo ruled against accused-appellant and found him guilty of murder. It did not give any probative value to his denial and alibi in view of his positive identification by prosecution witness Ernesto Boteja. Accused-appellant imputes error on the part of the court a quo in lending credence to the testimony of Ernesto Boteja, contending that his testimony was improbable and incredible. He argues that Ernesto's inaction when his nephew Romeo was stabbed just a meter away from him is contrary to human nature.1wphi1.nt We disagree. Different people react differently to a given type of situation. There is no standard form of human behavioral response when one is confronted with a strange, startling or frightful experience. One person's 1

spontaneous or unthinking, or even instinctive response to a horrid and repulsive stimulus may be aggression, while another person's reaction may be cold indifference. 1 A witness' inability to move, help or even to run away when the incident occurs is not a ground to label his testimony as doubtful and unworthy of belief. There is no prescribed behavior when one is faced with a shocking event. In the case of Ernesto Boteja, his inability to react was understandable as he was shocked by the suddenness of the event and considering that it was his first time to witness a stabbing incident. Thus Q: After Romeo Boteja Jr. was hit and . . . was struggling, what happened next? A: Arnulfo Muyco dragged Romeo towards the sugarcane field. Q: What about you, what did you do? A: I was stunned that being the first time I saw a person stabbed. I was not able to move. I just stayed there. . . . Q: How about during the period that your nephew was stabbed up to the time that he was dragged to the sugarcane field? What did you do? A: I remained standing. I got stunned and nervous. Q: You mean that you remained there standing from the time your nephew was stabbed up to the time that he was dragged? A: Yes sir, because I was nervous. 2 Accused-appellant also cites inconsistencies in the testimony of Ernesto. A close scrutiny of the records however would reveal that there are none at all. That Ernesto testified having seen the victim stabbed on his neck instead of his collarbone was not inconsistency. Dr. Jaboneta who autopsied the body of the victim explained that the wound inflicted was just below the collarbone. For a lay-man like Ernesto who does not have any medical background at all, there is little or no material difference between a neck and a collarbone. Besides, it would be too much to expect from Ernesto to be perfectly accurate in reporting the location of the wound considering the circumstances surrounding the incident. Inconsistencies and discrepancies in the testimony of a witness on minor details only serve to strengthen the credibility of the witness. 3 What is material is that a witness positively identified the two (2) accused as the perpetrators of the crime. This Court has ruled often enough that discrepancies in minor details indicate veracity rather than prevarication. They tend to bolster the probative value of the testimony being questioned. They enhance, rather than destroy, the witness' credibility and the truthfulness of his testimony as they erase any suspicion of being a rehearsed testimony. 4 Contrary to accused-appellant's assertion, the prosecution has more than overcome his presumed innocence; it has satisfactorily established his guilt beyond reasonable doubt. Plainly, his alibi could not be given any weight at all in view of his positive identification by the prosecution's eyewitness. No ill-motive was imputed to Ernesto Boteja that would so move him to falsely testify against accused-appellant. The trial court properly assessed his testimony as credible and trustworthy. We find no reason not to affirm its findings. Weak as it was, accused-appellant's alibi became all the more ineffectual when he failed to demonstrate that it was physically impossible for him to be at the crime scene at the time it was committed. He testified being in Passi, Iloilo, during the stabbing incident. Passi, Iloilo is only fifty (50) kilometers from Cabatuan, Iloilo, the place where the crime was committed. He did not offer any evidence to prove impossibility of access between the two (2) places when the crime transpired. 5 Significantly, the defense even failed to fully establish the presence of accused-appellant in Passi on the night of 13 May 1995. This Court agrees with the court below that treachery attended the commission of the crime. The evidence amply proves that Romeo Boteja Jr. was killed in a manner ensuring suddenness and surprise that virtually incapacitated the victim from offering any resistance or defense. The victim did not have any inkling of the lurking danger to his life. He might have felt at ease with Jesus and Arnulfo for he had been drinking with them since 6:00 o'clock that evening of 13 May 1995 until he was stabbed to death. The attack was so sudden and unexpected that the victim failed to offer any resistance at all. All he could do was to struggle faintly against his attackers. On the other hand, this Court notes that the trial court failed to award damages for loss of earning capacity despite the testimony of Leticia Boteja to this effect. In People v. Dizon 6 this Court discussed the requisites for such award As a rule, documentary evidence should be presented to substantiate the claim for loss of earning capacity. In People v. Verde, the non-presentation of evidence to support the claim for damages for loss of earning capacity did not prevent this Court from awarding said damages. The testimony of the victim's wife as to earning capacity of her murdered husband, who was then 48 years old and was earning P200.00 a day as a tricycle driver, sufficed to establish the basis for such an award. In this case, Erwin Gesmundo was only 15 years old at the time of his death and was earning a daily wage of P100.00 as a construction worker. As in People v. Verde, this Court is inclined to grant the claim for damages for loss of earning capacity despite the absence of documentary evidence. To be able to claim damages for loss of earning capacity despite the nonavailability of documentary evidence, there must be oral testimony that: (a) the victim was self-employed earning less than the minimum wage under the current labor laws and judicial notice was taken of the fact that in the victim's line of work, no documentary evidence is available; (b) the victim was employed as a daily wage worker earning less than the minimum wage under current labor laws. . . 2

In the instant case, the victim was nineteen (19) years old at the time of his death and earning P1,600.00 monthly as a farm laborer. Thus, his heirs are entitled to receive an award for lost earnings in accordance with the following formula: 2/3 (80 - ATD [age at time of death]) x (GAI [gross annual income]) - 80% GAI. 7 Thus 2/3 (80-19) x (P1,600 x 12) - 80% (P1,600.00 x 12) 2/3 (61) x P19,200 - 80% (P19,200) 40.67 x [P19,200 - P15,360] 40.67 x P3,840 = P156,172.80 ========== On the basis of the above computation, the heirs of the deceased Romeo Boteja Jr. are entitled to receive P156,172.80 from accused-appellant Jesus Muyco. WHEREFORE, the Decision appealed from finding accused-appellant JESUS MUYCO guilty of murder aggravated by treachery and sentencing him to reclusion perpetua, and to pay the heirs of Romeo Boteja Jr. P27,000.00 for funeral expenses is AFFIRMED with the MODIFICATION that the death indemnity is increased to P50,000.00. Accused-appellant is further directed to pay the heirs of his victim the amount of P156,172.80 for lost earnings conformably with prevailing jurisprudence. Costs against accused-appellant. SO ORDERED. G.R. No. 159636 November 25, 2004

VICTORY LINER, INC., petitioner, vs. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and DIANA FRANCES P. GAMMAD, respondents. YNARES-SANTIAGO, J.: Assailed in this petition for review on certiorari is the April 11, 2003 decision1 of the Court of Appeals in CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision2 of the Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for breach of contract of carriage in Civil Case No. 5023. The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie Grace Pagulayan-Gammad,3 was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace and physical injuries to other passengers.4 On May 14, 1996, respondent heirs of the deceased filed a complaint5 for damages arising from culpa contractual against petitioner. In its answer,6 the petitioner claimed that the incident was purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation. After several re-settings,7 pre-trial was set on April 10, 1997.8 For failure to appear on the said date, petitioner was declared as in default.9 However, on petitioners motion10 to lift the order of default, the same was granted by the trial court.11 At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioners proposal to pay P50,000.00.12 After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled for November 17, 199713 but moved to December 8, 1997,14 because the parties and the counsel failed to appear. On December 8, 1997, counsel of petitioner was absent despite due notice and was deemed to have waived right to cross-examine respondent Rosalito.15 Petitioners motion to reset the presentation of its evidence to March 25, 199816 was granted. However, on March 24, 1998, the counsel of petitioner sent the court a telegram17 requesting postponement but the telegram was received by the trial court on March 25, 1998, after it had issued an order considering the case submitted for decision for failure of petitioner and counsel to appear.18 On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive portion of which reads: WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the following: 1. 2. 3. 4. 5. 6. Actual Damages -------------------- P 122,000.00 Death Indemnity --------------------- 50,000.00 Exemplary and Moral Damages----- 400,000.00 Compensatory Damages ---------- 1,500,000.00 Attorneys Fees --------------------- 10% of the total amount granted Cost of the Suit. 3

SO ORDERED.19 On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification as follows: [T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby adjudged in favor of plaintiffs-appellees: 1. Actual Damages in the amount of P88,270.00; 2. Compensatory Damages in the amount of P1,135,536,10; 3. Moral and Exemplary Damages in the amount of P400,000.00; and 4. Attorneys fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary damages herein adjudged. The court a quos judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED. SO ORDERED.20 Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying that the case be remanded to the trial court for cross- examination of respondents witness and for the presentation of its evidence; or in the alternative, dismiss the respondents complaint.21 Invoking APEX Mining, Inc. v. Court of Appeals,22 petitioner argues, inter alia, that the decision of the trial court should be set aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing to appear at the scheduled hearings and move for reconsideration of the orders declaring petitioner to have waived the right to cross-examine respondents witness and right to present evidence, deprived petitioner of its day in court. On August 21, 2003, the Court of Appeals denied petitioners motion for reconsideration.23 Hence, this petition for review principally based on the fact that the mistake or gross negligence of its counsel deprived petitioner of due process of law. Petitioner also argues that the trial courts award of damages were without basis and should be deleted. The issues for resolution are: (1) whether petitioners counsel was guilty of gross negligence; (2) whether petitioner should be held liable for breach of contract of carriage; and (3) whether the award of damages was proper. It is settled that the negligence of counsel binds the client. This is based on the rule that any act performed by a counsel within the scope of his general or implied authority is regarded as an act of his client. Consequently, the mistake or negligence of counsel may result in the rendition of an unfavorable judgment against the client. However, the application of the general rule to a given case should be looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the foregoing have been recognized by the court in cases where reckless or gross negligence of counsel deprives the client of due process of law, or when its application will result in outright deprivation of the clients liberty or property or where the interests of justice so require, and accord relief to the client who suffered by reason of the lawyers gross or palpable mistake or negligence.24 The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan successfully moved for the setting aside of the order of default. In fact, petitioner was represented by Atty. Paguirigan at the pretrial who proposed settlement for P50,000.00. Although Atty. Paguirigan failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to cross-examine respondents witness and to present evidence, he nevertheless, filed a timely appeal with the Court of Appeals assailing the decision of the trial court. Hence, petitioners claim that it was denied due process lacks basis. Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for not appearing at the pre-trial, three notices (dated October 23, 1996,25 January 30, 1997,26 and March 26, 1997,27) requiring attendance at the pre-trial were sent and duly received by petitioner. However, it was only on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to appear at the pre-trial when petitioner, through its finance and administrative manager, executed a special power of attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory negligence and fault cannot be imputed solely on previous counsel. The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the negligent counsel not only allowed the adverse decision against his client to become final and executory, but deliberately misrepresented in the progress report that the case was still pending with the Court of Appeals when the same was dismissed 16 months ago.29 These circumstances are absent in this case because Atty. Paguirigan timely filed an appeal from the decision of the trial court with the Court of Appeals. In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not the client should bear the adverse consequences of its counsels negligence. In that case, Gold Line Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial despite notice and was declared as in default. After the plaintiffs presentation of evidence ex parte, the trial court rendered decision ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became final and executory because counsel of Gold Line did not file any appeal. Finding that Goldline was not denied due process of law and is thus bound by the negligence of its lawyer, the Court held as follows This leads us to the question of whether the negligence of counsel was so gross and reckless that petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied that the requirements 4

of due process were observed in the instant case. Petitioner was never deprived of its day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that notices were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint, an answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its opportunity to participate in the trial of the case and to adduce evidence in its behalf because of negligence. In the application of the principle of due process, what is sought to be safeguarded against is not the lack of previous notice but the denial of the opportunity to be heard. The question is not whether petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity to present its side of the controversy. Verily, as petitioner retained the services of counsel of its choice, it should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor sympathy. To cater to petitioners arguments and reinstate its petition for relief from judgment would put a premium on the negligence of its former counsel and encourage the non-termination of this case by reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsels act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter be heard to complain that the result might have been different had his counsel proceeded differently. The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for opening cases, there would never be an end to a suit so long as a new counsel could be hired every time it is shown that the prior counsel had not been sufficiently diligent, experienced or learned.31 Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with dishonesty was not able to file an answer and position paper. He was found guilty solely on the basis of complainants evidence and was dismissed with forfeiture of all benefits and disqualification from government service. Challenging the decision of the Ombudsman, the employee contended that the gross negligence of his counsel deprived him of due process of law. In debunking his contention, the Court said Neither can he claim that he is not bound by his lawyers actions; it is only in case of gross or palpable negligence of counsel when the courts can step in and accord relief to a client who would have suffered thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient legal knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be no end to controversy. Fundamental to our judicial system is the principle that every litigation must come to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there must be a limit to it. Viewed vis--vis the foregoing jurisprudence, to sustain petitioners argument that it was denied due process of law due to negligence of its counsel would set a dangerous precedent. It would enable every party to render inutile any adverse order or decision through the simple expedient of alleging gross negligence on the part of its counsel. The Court will not countenance such a farce which contradicts long-settled doctrines of trial and procedure.33 Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence.34 In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Graces death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of contract of carriage. Nevertheless, the award of damages should be modified. Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in breach of its contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for loss of earning capacity, and (3) moral damages. In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie Grace which under current jurisprudence is fixed at P50,000.00.37 The award of compensatory damages for the loss of the deceaseds earning capacity should be deleted for lack of basis. As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when (1) the deceased is self-employed earning less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the deceaseds line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws.38 In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning capacity was the bare testimony of the deceaseds wife that her husband was earning P8,000.00 monthly as a legal researcher of a private corporation. Finding that the deceased was neither self-employed nor employed as a daily-wage worker earning less than the minimum wage under the labor laws existing at the time of his death, the Court held that testimonial evidence alone is insufficient to justify an award for loss of earning capacity.

Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the testimony of their wives, no documentary proof about their income was presented by the prosecution. Thus The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not selfemployed or employed as daily-wage workers earning less than the minimum wage under the labor laws existing at the time of their death. Placido Agustin was a Social Security System employee who received a monthly salary of P5,000. Roberto Raagas was the President of Sinclair Security and Allied Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro Jr. was a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of P7,500. Clearly, these cases do not fall under the exceptions where indemnity for loss of earning capacity can be given despite lack of documentary evidence. Therefore, for lack of documentary proof, no indemnity for loss of earning capacity can be given in these cases. (Emphasis supplied) Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39 years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a salary of P83,088.00 per annum when she died.41 No other evidence was presented. The award is clearly erroneous because the deceaseds earnings does not fall within the exceptions. However, the fact of loss having been established, temperate damages in the amount of P500,000.00 should be awarded to respondents. Under Article 2224 of the Civil Code, temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be proved with certainty. In Pleno v. Court of Appeals,42 the Court sustained the trial courts award of P200,000.00 as temperate damages in lieu of actual damages for loss of earning capacity because the income of the victim was not sufficiently proven, thus The trial court based the amounts of damages awarded to the petitioner on the following circumstances: ... "As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an industrious and resourceful person with several projects in line, and were it not for the incident, might have pushed them through. On the day of the incident, Pleno was driving homeward with geologist Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income however has not been sufficiently established so that this Court cannot award actual damages, but, an award of temperate or moderate damages may still be made on loss or impairment of earning capacity. That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from double vision in his left eye is also established. Because of this, he suffers from some inferiority complex and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L11037, Dec. 29, 1960, and in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given." ... We rule that the lower courts awards of damages are more consonant with the factual circumstances of the instant case. The trial courts findings of facts are clear and well-developed. Each item of damages is adequately supported by evidence on record. Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh43 and People v. Almedilla,44 to justify the award of temperate damages in lieu of damages for loss of earning capacity which was not substantiated by the required documentary proof. Anent the award of moral damages, the same cannot be lumped with exemplary damages because they are based on different jural foundations.45 These damages are different in nature and require separate determination.46 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 contractual obligations and, as in this case, when the act of breach of contract itself constitutes the tort that results in physical injuries. By special rule in Article 1764 in relation to Article 2206 of the Civil Code, moral damages may also be awarded in case the death of a passenger results from a breach of carriage.47 On the other hand, exemplary damages, which are awarded by way of example or correction for the public good may be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.48 Respondents in the instant case should be awarded moral damages to compensate for the grief caused by the death of the deceased resulting from the petitioners breach of contract of carriage. Furthermore, the petitioner failed to prove that it exercised the extraordinary diligence required for common carriers, it is presumed to have acted recklessly.49 Thus, the award of exemplary damages is proper. Under the circumstances, we find it reasonable to award respondents the amount of P100,000.00 as moral damages and P100,000.00 as exemplary damages. These amounts are not excessive.50 The actual damages awarded by the trial court reduced by the Court of Appeals should be further reduced. In People v. Duban,51 it was held that only substantiated and proven expenses or those that appear to have been genuinely incurred in connection with the death, wake or burial of the victim will be recognized. A list of expenses (Exhibit "J"),52 and the contract/receipt for the construction of the tomb (Exhibit "F")53 in this case, cannot be considered competent proof and cannot replace the official receipts necessary to justify the award. Hence, actual damages should be further reduced to P78,160.00,54 which was the amount supported by official receipts. 6

Pursuant to Article 220855 of the Civil Code, attorneys fees may also be recovered in the case at bar where exemplary damages are awarded. The Court finds the award of attorneys fees equivalent to 10% of the total amount adjudged against petitioner reasonable. Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,56 it was held that 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 payment of interest in the concept of actual and compensatory damages, subject to the following rules, to wit 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In 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. (Emphasis supplied). In the instant case, petitioner should be held liable for payment of interest as damages for breach of contract of carriage. Considering that the amounts payable by petitioner has been determined with certainty only in the instant petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule.57 WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional Trial Court of Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As modified, petitioner Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00 as indemnity for the death of Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as exemplary damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10% of the total amount as attorneys fees; and the costs of suit. Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per annum computed from the finality of this decision until fully paid. SO ORDERED.

G.R. No. 166869

February 16, 2010

PHILIPPINE HAWK CORPORATION, Petitioner vs. VIVIAN TAN LEE, Respondent PERALTA, J.: This is a Petition for Review on Certiorari of the Decision of the Court of Appeals in CA-G.R. CV No. 70860, promulgated on August 17, 2004, affirming with modification the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 102, dated March 16, 2001, in Civil Case No. Q-91-9191, ordering petitioner Philippine Hawk Corporation and Margarito Avila to jointly and severally pay respondent Vivian Tan Lee damages as a result of a vehicular accident. The facts are as follows: On March 15, 2005, respondent Vivian Tan Lee filed before the RTC of Quezon City a Complaint against petitioner Philippine Hawk Corporation and defendant Margarito Avila for damages based on quasidelict, arising from a vehicular accident that occurred on March 17, 1991 in Barangay Buensoceso, Gumaca, Quezon. The accident resulted in the death of respondents husband, Silvino Tan, and caused respondent physical injuries. 7

On June 18, 1992, respondent filed an Amended Complaint, in her own behalf and in behalf of her children, in the civil case for damages against petitioner. Respondent sought the payment of indemnity for the death of Silvino Tan, moral and exemplary damages, funeral and interment expenses, medical and hospitalization expenses, the cost of the motorcycles repair, attorneys fees, and other just and equitable reliefs. The accident involved a motorcycle, a passenger jeep, and a bus with Body No. 119. The bus was owned by petitioner Philippine Hawk Corporation, and was then being driven by Margarito Avila. In its Answer, petitioner denied liability for the vehicular accident, alleging that the immediate and proximate cause of the accident was the recklessness or lack of caution of Silvino Tan. Petitioner asserted that it exercised the diligence of a good father of the family in the selection and supervision of its employees, including Margarito Avila. On March 25, 1993, the trial court issued a Pre-trial Order stating that the parties manifested that there was no possibility of amicable settlement between them. However, they agreed to stipulate on the following facts: 1. On March 17, 1991, in Bgy. Buensoceso, Gumaca, Quezon, plaintiff Vivian Lee Tan and her husband Silvino Tan, while on board a motorcycle with [P]late No. DA-5480 driven by the latter, and a Metro Bus with [P]late No. NXR-262 driven by Margarito Avila, were involved in an accident; As a result of the accident, Silvino Tan died on the spot while plaintiff Vivian Lee Tan suffered physical injuries which necessitated medical attention and hospitalization; The deceased Silvino Tan is survived by his wife, plaintiff Vivian Lee Tan and four children, three of whom are now residents of the United States; and Defendant Margarito Avila is an employee of defendant Philippine Hawk.

2. 3. 4.

The parties also agreed on the following issues: 1. 2. Whether or not the proximate cause of the accident causing physical injuries upon the plaintiff Vivian Lee Tan and resulting in the death of the latters husband was the recklessness and negligence of Margarito Avila or the deceased Silvino Tan; and Whether or not defendant Philippine Hawk Transport Corporation exercised the diligence of a good father of the family in the selection and supervision of its driver Margarito Avila.

Respondent testified that on March 17, 1991, she was riding on their motorcycle in tandem with her husband, who was on the wheel, at a place after a Caltex gasoline station in Barangay Buensoceso, Gumaca, Quezon on the way to Lopez, Quezon. They came from the Pasumbal Machine Shop, where they inquired about the repair of their tanker. They were on a stop position at the side of the highway; and when they were about to make a turn, she saw a bus running at fast speed coming toward them, and then the bus hit a jeep parked on the roadside, and their motorcycle as well. She lost consciousness and was brought to the hospital in Gumaca, Quezon, where she was confined for a week. She was later transferred to St. Lukes Hospital in Quezon City, Manila. She suffered a fracture on her left chest, her left arm became swollen, she felt pain in her bones, and had high blood pressure. Respondents husband died due to the vehicular accident. The immediate cause of his death was massive cerebral hemorrhage. Respondent further testified that her husband was leasing and operating a Caltex gasoline station in Gumaca, Quezon that yielded one million pesos a year in revenue. They also had a copra business, which gave them an income of P3,000.00 a month or P36,000.00 a year. Ernest Ovial, the driver of the passenger jeep involved in the accident, testified that in the afternoon of March 17, 1991, his jeep was parked on the left side of the highway near the Pasumbal Machine Shop. He did not notice the motorcycle before the accident. But he saw the bus dragging the motorcycle along the highway, and then the bus bumped his jeep and sped away. For the defense, Margarito Avila, the driver of petitioners bus, testified that on March 17, 1999, at about 4:30 p.m., he was driving his bus at 60 kilometers per hour on the Maharlika Highway. When they were at Barangay Buensoceso, Gumaca, Quezon, a motorcycle ran from his left side of the highway, and as the bus came near, the motorcycle crossed the path of the bus, and so he turned the bus to the right. He heard a loud banging sound. From his side mirror, he saw that the motorcycle turned turtle (bumaliktad). He did not stop to help out of fear for his life, but drove on and surrendered to the police. He denied that he bumped the motorcycle. Avila further testified that he had previously been involved in sideswiping incidents, but he forgot how many times.

Rodolfo Ilagan, the bus conductor, testified that the motorcycle bumped the left side of the bus that was running at 40 kilometers per hour. Domingo S. Sisperes, operations officer of petitioner, testified that, like their other drivers, Avila was subjected to and passed the following requirements: (1) Submission of NBI clearance; (2) Certification from his previous employer that he had no bad record;

(3) Physical examination to determine his fitness to drive; (4) Test of his driving ability, particularly his defensive skill; and (5) Review of his driving skill every six months. Efren Delantar, a Barangay Kagawad in Buensoceso, Gumaca, Quezon, testified that the bus was running on the highway on a straight path when a motorcycle, with a woman behind its driver, suddenly emerged from the left side of the road from a machine shop. The motorcycle crossed the highway in a zigzag manner and bumped the side of the bus. In its Decision dated March 16, 2001, the trial court rendered judgment against petitioner and defendant Margarito Avila, the dispositive portion of which reads: ACCORDINGLY, MARGARITO AVILA is adjudged guilty of simple negligence, and judgment is hereby rendered in favor of the plaintiff Vivian Lee Tan and h[er] husbands heirs ordering the defendants Philippine Hawk Corporation and Margarito Avila to pay them jointly and solidarily the sum of P745,575.00 representing loss of earnings and actual damages plus P50,000.00 as moral damages. The trial court found that before the collision, the motorcycle was on the left side of the road, just as the passenger jeep was. Prior to the accident, the motorcycle was in a running position moving toward the right side of the highway. The trial court agreed with the bus driver that the motorcycle was moving ahead of the bus from the left side of the road toward the right side of the road, but disagreed that the motorcycle crossed the path of the bus while the bus was running on the right side of the road. The trial court held that if the bus were on the right side of the highway, and Margarito Avila turned his bus to the right in an attempt to avoid hitting the motorcyle, then the bus would not have hit the passenger jeep, which was then parked on the left side of the road. The fact that the bus also hit the passenger jeep showed that the bus must have been running from the right lane to the left lane of the highway, which caused the collision with the motorcycle and the passenger jeep parked on the left side of the road. The trial court stated that since Avila saw the motorcycle before the collision, he should have stepped on the brakes and slowed down, but he just maintained his speed and veered to the left. The trial court found Margarito Avila guilty of simple negligence. The trial court held petitioner bus company liable for failing to exercise the diligence of a good father of the family in the selection and supervision of Avila, having failed to sufficiently inculcate in him discipline and correct behavior on the road. On appeal, the Court of Appeals affirmed the decision of the trial court with modification in the award of damages. The dispositive portion of the decision reads: WHEREFORE, foregoing premises considered, the appeal is DENIED. The assailed decision dated March 16, 2001 is hereby AFFIRMED with MODIFICATION. Appellants Philippine Hawk and Avila are hereby ordered to pay jointly and severally appellee the following amount: (a) P168,019.55 as actual damages; (b) P10,000.00 as temperate damages; (c) P100,000.00 as moral damages; (d) P590,000.00 as unearned income; and (e) P50,000.00 as civil indemnity. Petitioner filed this petition, raising the following issues: 1) The Court of Appeals committed grave abuse of discretion amounting to lack of jurisdiction in passing upon an issue, which had not been raised on appeal, and which had, therefore, attained finality, in total disregard of the doctrine laid down by this Court in Abubakar v. Abubakar, G.R. No. 134622, October 22, 1999. The Court of Appeals committed reversible error in its finding that the petitioners bus driver saw the motorcycle of private respondent executing a U-turn on the highway about fifteen (15) meters away and thereafter held that the Doctrine of Last Clear was applicable to the instant case. This was a palpable error 9

2)

for the simple reason that the aforesaid distance was the distance of the witness to the bus and not the distance of the bus to the respondents motorcycle, as clearly borne out by the records. 3) The Court of Appeals committed reversible error in awarding damages in total disregard of the established doctrine laid down in Danao v. Court of Appeals, 154 SCRA 447 and Viron Transportation Co., Inc. v. Delos Santos, G.R. No. 138296, November 22, 2000.

In short, the issues raised by petitioner are: (1) whether or not negligence may be attributed to petitioners driver, and whether negligence on his part was the proximate cause of the accident, resulting in the death of Silvino Tan and causing physical injuries to respondent; (2) whether or not petitioner is liable to respondent for damages; and (3) whether or not the damages awarded by respondent Court of Appeals are proper. Petitioner seeks a review of the factual findings of the trial court, which were sustained by the Court of Appeals, that petitioners driver was negligent in driving the bus, which caused physical injuries to respondent and the death of respondents husband. The rule is settled that the findings of the trial court, especially when affirmed by the Court of Appeals, are conclusive on this Court when supported by the evidence on record. The Court has carefully reviewed the records of this case, and found no cogent reason to disturb the findings of the trial court, thus: The Court agree[s] with the bus driver Margarito that the motorcycle was moving ahead of the bus towards the right side from the left side of the road, but disagrees with him that it crossed the path of the bus while the bus was running on the right side of the highway. If the bus were on the right side of the highway and Margarito turned his bus to the right in an attempt to avoid hitting it, then the bus would not have hit the passenger jeep vehicle which was then parked on the left side of the road. The fact that the bus hit the jeep too, shows that the bus must have been running to the left lane of the highway from right to the left, that the collision between it and the parked jeep and the moving rightways cycle became inevitable. Besides, Margarito said he saw the motorcycle before the collision ahead of the bus; that being so, an extra-cautious public utility driver should have stepped on his brakes and slowed down. Here, the bus never slowed down, it simply maintained its highway speed and veered to the left. This is negligence indeed. Petitioner contends that the Court of Appeals was mistaken in stating that the bus driver saw respondents motorcycle about 15 meters away before the collision, because the said distance, as testified to by its witness Efren Delantar Ong, was Ongs distance from the bus, and not the distance of the bus from the motorcycle. Petitioner asserts that this mistaken assumption of the Court of Appeals made it conclude that the bus driver, Margarito Avila, had the last clear chance to avoid the accident, which was the basis for the conclusion that Avila was guilty of simple negligence. A review of the records showed that it was petitioners witness, Efren Delantar Ong, who was about 15 meters away from the bus when he saw the vehicular accident. Nevertheless, this fact does not affect the finding of the trial court that petitioners bus driver, Margarito Avila, was guilty of simple negligence as affirmed by the appellate court. Foreseeability is the fundamental test of negligence. To be negligent, a defendant must have acted or failed to act in such a way that an ordinary reasonable man would have realized that certain interests of certain persons were unreasonably subjected to a general but definite class of risks. In this case, the bus driver, who was driving on the right side of the road, already saw the motorcycle on the left side of the road before the collision. However, he did not take the necessary precaution to slow down, but drove on and bumped the motorcycle, and also the passenger jeep parked on the left side of the road, showing that the bus was negligent in veering to the left lane, causing it to hit the motorcycle and the passenger jeep. Whenever an employees negligence causes damage or injury to another, there instantly arises a presumption that the employer failed to exercise the due diligence of a good father of the family in the selection or supervision of its employees. To avoid liability for a quasi-delict committed by his 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. The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable to respondent, since it failed to exercise the diligence of a good father of the family in the selection and supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate in him discipline and correct behavior on the road. Indeed, petitioners tests were concentrated on the ability to drive and physical fitness to do so. It also did not know that Avila had been previously involved in sideswiping incidents. As regards the issue on the damages awarded, petitioner contends that it was the only one that appealed the decision of the trial court with respect to the award of actual and moral damages; hence, the Court of Appeals erred in awarding other kinds of damages in favor of respondent, who did not appeal from the trial courts decision.

10

Petitioners contention is unmeritorious. Section 8, Rule 51 of the 1997 Rules of Civil Procedure provides: SEC. 8. Questions that may be decided. -- No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court pass upon plain errors and clerical errors. Philippine National Bank v. Rabat cited the book of Justice Florenz D. Regalado to explain the section above, thus: In his book, Mr. Justice Florenz D. Regalado commented on this section, thus: 1. Sec. 8, which is an amendment of the former Sec. 7 of this Rule, now includes some substantial changes in the rules on assignment of errors. The basic procedural rule is that only errors claimed and assigned by a party will be considered by the court, except errors affecting its jurisdiction over the subject matter. To this exception has now been added errors affecting the validity of the judgment appealed from or the proceedings therein. Also, even if the error complained of by a party is not expressly stated in his assignment of errors but the same is closely related to or dependent on an assigned error and properly argued in his brief, such error may now be considered by the court. These changes are of jurisprudential origin. 2. The procedure in the Supreme Court being generally the same as that in the Court of Appeals, unless otherwise indicated (see Secs. 2 and 4, Rule 56), it has been held that the latter is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. Also, an unassigned error closely related to an error properly assigned (PCIB vs. CA, et al., L-34931, Mar. 18, 1988), or upon which the determination of the question raised by error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error (Ortigas, Jr. vs. Lufthansa German Airlines, L-28773, June 30, 1975; Soco vs. Militante, et al., G.R. No. 58961, June 28, 1983). It may also be observed that under Sec. 8 of this Rule, the appellate court is authorized to consider a plain error, although it was not specifically assigned by the appellant (Dilag vs. Heirs of Resurreccion, 76 Phil. 649), otherwise it would be sacrificing substance for technicalities. In this case for damages based on quasi-delict, the trial court awarded respondent the sum of P745,575.00, representing loss of earning capacity (P590,000.00) and actual damages (P155,575.00 for funeral expenses), plus P50,000.00 as moral damages. On appeal to the Court of Appeals, petitioner assigned as error the award of damages by the trial court on the ground that it was based merely on suppositions and surmises, not the admissions made by respondent during the trial. In its Decision, the Court of Appeals sustained the award by the trial court for loss of earning capacity of the deceased Silvino Tan, moral damages for his death, and actual damages, although the amount of the latter award was modified. The indemnity for loss of earning capacity of the deceased is provided for by Article 2206 of the Civil Code. Compensation of this nature is awarded not for loss of earnings, but for loss of capacity to earn money. As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased's line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws. In this case, the records show that respondents husband was leasing and operating a Caltex gasoline station in Gumaca, Quezon. Respondent testified that her husband earned an annual income of one million pesos. Respondent presented in evidence a Certificate of Creditable Income Tax Withheld at Source for the Year 1990, which showed that respondents husband earned a gross income of P950,988.43 in 1990. It is reasonable to use the Certificate and respondents testimony as bases for fixing the gross annual income of the deceased at one million pesos before respondents husband died on March 17, 1999. However, no documentary evidence was presented regarding the income derived from their copra business; hence, the testimony of respondent as regards such income cannot be considered. In the computation of loss of earning capacity, only net earnings, not gross earnings, are to be considered; that is, the total of the earnings less expenses necessary for the creation of such earnings or income, less living and other incidental expenses. In the absence of documentary evidence, it is reasonable to 11

peg necessary expenses for the lease and operation of the gasoline station at 80 percent of the gross income, and peg living expenses at 50 percent of the net income (gross income less necessary expenses). In this case, the computation for loss of earning capacity is as follows: Net Earning = Life Expectancy Capacity x Gross Annual Income Reasonable and (GAI) Necessary Expenses (80% of GAI) X X = [2/3 (80-65)] = 2/3 (15) x x P1,000,000.00 P200,000.00 P800,000.00 P100,000.00 (Living Expenses) X X X = 30/3 = 10 = P1,000,000.00 x x P100,000.00 P100,000.00

[2/3 (80-age at the time of death)]

The Court of Appeals also awarded actual damages for the expenses incurred in connection with the death, wake, and interment of respondents husband in the amount of P154,575.30, and the medical expenses of respondent in the amount of P168,019.55. Actual damages must be substantiated by documentary evidence, such as receipts, in order to prove expenses incurred as a result of the death of the victim or the physical injuries sustained by the victim. A review of the valid receipts submitted in evidence showed that the funeral and related expenses amounted only to P114,948.60, while the medical expenses of respondent amounted only to P12,244.25, yielding a total of P127,192.85 in actual damages. Moreover, the Court of Appeals correctly sustained the award of moral damages in the amount of P50,000.00 for the death of respondents husband. Moral damages are not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the plaintiff to obtain means, diversions or amusements that will serve to alleviate the moral suffering he/she has undergone due to the defendants culpable action and must, perforce, be proportional to the suffering inflicted. In addition, the Court of Appeals correctly awarded temperate damages in the amount of P10,000.00 for the damage caused on respondents motorcycle. Under Art. 2224 of the Civil Code, temperate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The cost of the repair of the motorcycle was prayed for by respondent in her Complaint. However, the evidence presented was merely a job estimate of the cost of the motorcycles repair amounting to P17, 829.00. The Court of Appeals aptly held that there was no doubt that the damage caused on the motorcycle was due to the negligence of petitioners driver. In the absence of competent proof of the actual damage caused on the motorcycle or the actual cost of its repair, the award of temperate damages by the appellate court in the amount of P10,000.00 was reasonable under the circumstances. The Court of Appeals also correctly awarded respondent moral damages for the physical injuries she sustained due to the vehicular accident. Under Art. 2219 of the Civil Code, moral damages may be recovered in quasi-delicts causing physical injuries. However, the award of P50,000.00 should be reduced to P30,000.00 in accordance with prevailing jurisprudence. Further, the Court of Appeals correctly awarded respondent civil indemnity for the death of her husband, which has been fixed by current jurisprudence at P50,000.00. The award is proper under Art. 2206 of the Civil Code. In fine, the Court of Appeals correctly awarded civil indemnity for the death of respondents husband, temperate damages, and moral damages for the physical injuries sustained by respondent in addition to the damages granted by the trial court to respondent. The trial court overlooked awarding the additional damages, which were prayed for by respondent in her Amended Complaint. The appellate court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of the case.

12

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated August 17, 2004 in CA-G.R. CV No. 70860 is hereby AFFIRMED with MODIFICATION. Petitioner Philippine Hawk Corporation and Margarito Avila are hereby ordered to pay jointly and severally respondent Vivian Lee Tan: (a) civil indemnity in the amount of Fifty Thousand Pesos (P50,000.00); (b) actual damages in the amount of One Hundred TwentySeven Thousand One Hundred Ninety-Two Pesos and Eighty-Five Centavos ( P127,192.85); (c) moral damages in the amount of Eighty Thousand Pesos (P80,000.00); (d) indemnity for loss of earning capacity in the amount of One Million Pesos (P1,000,000.00); and (e) temperate damages in the amount of Ten Thousand Pesos (P10,000.00). Costs against petitioner. SO ORDERED. b.4 Attorneys fees and interest

G.R. No. 73886 January 31, 1989 JOHN C. QUIRANTE and DANTE CRUZ, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, MANUEL C. CASASOLA, and ESTRELLITA C. CASASOLA, respondents. Quirante & Associates Law Office for petitioners. R.S. Bernaldo & Associates for private respondents. REGALADO, J.: This appeal by certiorari seeks to set aside the judgment' 1 of the former Intermediate Appellate Court promulgated on November 6, 1985 in AC-G.R. No. SP-03640, 2 which found the petition for certiorari therein meritorious, thus: Firstly, there is still pending in the Supreme Court a petition which may or may not ultimately result in the granting to the Isasola (sic) family of the total amount of damages given by the respondent Judge. Hence the award of damages confirmed in the two assailed Orders may be premature. Secondly, assuming that the grant of damages to the family is eventually ratified, the alleged confirmation of attorney's fees will not and should not adversely affect the non-signatories thereto. WHEREFORE, in view of the grave abuse of discretion (amounting to lack of jurisdiction) committed by the respondent Judge, We hereby SET ASIDE his questioned orders of March 20, 1984 and May 25, 1984. The restraining order previously issued is made permanent. 3 The challenged decision of respondent court succinctly sets out the factual origin of this case as follows: ... Dr. Indalecio Casasola (father of respondents) had a contract with a building contractor named Norman GUERRERO. The Philippine American General Insurance Co. Inc. (PHILAMGEN, for short) acted as bondsman for GUERRERO. In view of GUERRERO'S failure to perform his part of the contract within the period specified, Dr. Indalecio Casasola, thru his counsel, Atty. John Quirante, sued both GUERRERO and PHILAMGEN before the Court of first Instance of Manila, now the Regional Trial Court (RTC) of Manila for damages, with PHILAMGEN filing a cross-claim against GUERRERO for indemnification. The RTC rendered a decision dated October 16, 1981. ... 4 In said decision, the trial court ruled in favor of the plaintiff by rescinding the contract; ordering GUERRERO and PHILAMGEN to pay the plaintiff actual damages in the amount of P129,430.00, moral damages in the amount of P50,000.00, exemplary damages in the amount of P40,000.00 and attorney's fees in the amount of P30,000.00; ordering Guerrero alone to pay liquidated damages of P300.00 a day from December 15, 1978 to July 16, 1979; and ordering PHILAMGEN to pay the plaintiff the amount of the surety bond equivalent to P120,000.00. 5 A motion for reconsideration filed by PHILAMGEN was denied by the trial court on November 4, 1982. 6 Not satisfied with the decision of the trial court, PHILAMGEN filed a notice of appeal but the same was not given due course because it was allegedly filed out of time. The trial court thereafter issued a writ of execution. 7 A petition was filed in AC-G.R. No. 00202 with the Intermediate Appellate Court for the quashal of the writ of execution and to compel the trial court to give due course to the appeal. The petition was dismissed on May 4, 1983 8 so the case was elevated to this Court in G.R. No. 64334. 9 In the meantime, on November 16, 1981, Dr. Casasola died leaving his widow and several children as survivors. 10 On June 18, 1983, herein petitioner Quirante filed a motion in the trial court for the confirmation of his attorney's fees. According to him, there was an oral agreement between him and the late Dr. Casasola with regard to his attorney's fees, which agreement was allegedly confirmed in writing by the widow, Asuncion Vda. de Casasola, and the two daughters of the deceased, namely Mely C. Garcia and Virginia C. Nazareno. Petitioner avers that pursuant to said agreement, the attorney's fees would be computed as follows: A. In case of recovery of the P120,000.00 surety bond, the attorney's fees of the undersigned counsel (Atty. Quirante) shall be P30,000.00. 13

B. In case the Honorable Court awards damages in excess of the P120,000.00 bond, it shall be divided equally between the Heirs of I. Casasola, Atty. John C. Quirante and Atty. Dante Cruz. The trial court granted the motion for confirmation in an order dated March 20, 1984, despite an opposition thereto. It also denied the motion for reconsideration of the order of confirmation in its second order dated May 25, 1984. 11 These are the two orders which are assailed in this case. Well settled is the rule that counsel's claim for attorney's fees may be asserted either in the very action in which the services in question have been rendered, or in a separate action. If the first alternative is chosen, the Court may pass upon said claim, even if its amount were less than the minimum prescribed by law for the jurisdiction of said court, upon the theory that the right to recover attorney's fees is but an incident of the case in which the services of counsel have been rendered ." 12 It also rests on the assumption that the court trying the case is to a certain degree already familiar with the nature and extent of the lawyer's services. The rule against multiplicity of suits will in effect be subserved. 13 What is being claimed here as attorney's fees by petitioners is, however, different from attorney's fees as an item of damages provided for under Article 2208 of the Civil Code, wherein the award is made in favor of the litigant, not of his counsel, and the litigant, not his counsel, is the judgment creditor who may enforce the judgment for attorney's fees by execution. 14 Here, the petitioner's claims are based on an alleged contract for professional services, with them as the creditors and the private respondents as the debtors. In filing the motion for confirmation of attorney's fees, petitioners chose to assert their claims in the same action. This is also a proper remedy under our jurisprudence. Nevertheless, we agree with the respondent court that the confirmation of attorney's fees is premature. As it correctly pointed out, the petition for review on certiorari filed by PHILAMGEN in this Court (G.R. No. 64834) "may or may not ultimately result in the granting to the Isasola (sic) family of the total amount of damages" awarded by the trial court. This especially true in the light of subsequent developments in G.R. No. 64334. In a decision promulgated on May 21, 1987, the Court rendered judgment setting aside the decision of May 4, 1983 of the Intermediate Appellate Court in AC-G.R. No. 00202 and ordering the respondent Regional Trial Court of Manila to certify the appeal of PHILAMGEN from said trial court's decision in Civil Case No. 122920 to the Court of Appeal. Said decision of the Court became final and executory on June 25, 1987. Since the main case from which the petitioner's claims for their fees may arise has not yet become final, the determination of the propriety of said fees and the amount thereof should be held in abeyance. This procedure gains added validity in the light of the rule that the remedy for recovering attorney's fees as an incident of the main action may be availed of only when something is due to the client. Thus, it was ruled that: ... an attorney's fee cannot be determined until after the main litigation has been decided and the subject of recovery is at the disposition of the court. The issue over attorney's fee only arises when something has been recovered from which the fee is to be paid. 15 It is further observed that the supposed contract alleged by petitioners as the basis for their fees provides that the recovery of the amounts claimed is subject to certain contingencies. It is subject to the condition that the fee shall be P30,000.00 in case of recovery of the P120,000.00 surety bond, plus an additional amount in case the award is in excess of said P120,000.00 bond, on the sharing basis hereinbefore stated. With regard to the effect of the alleged confirmation of the attorney's fees by some of the heirs of the deceased. We are of the considered view that the orderly administration of justice dictates that such issue be likewise determined by the court a quo inasmuch as it also necessarily involves the same contingencies in determining the propriety and assessing the extent of recovery of attorney's fees by both petitioners herein. The court below will be in a better position, after the entire case shall have been adjudicated, inclusive of any liability of PHILAMGEN and the respective participations of the heirs of Dr. Casasola in the award, to determine with evidentiary support such matters like the basis for the entitlement in the fees of petitioner Dante Cruz and as to whether the agreement allegedly entered into with the late Dr. Casasola would be binding on all his heirs, as contended by petitioner Quirante. We, therefore, take exception to and reject that portion of the decision of the respondent court which holds that the alleged confirmation to attorney's fees should not adversely affect the non-signatories thereto, since it is also premised on the eventual grant of damages to the Casasola family, hence the same objection of prematurity obtains and such a holding may be pre-emptive of factual and evidentiary matters that may be presented for consideration by the trial court. WHEREFORE, with the foregoing observation, the decision of the respondent court subject of the present recourse is hereby AFFIRMED. SO ORDERED. G.R. No. 107508 April 25, 1996 PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE MARKETING, respondents. KAPUNAN, J.: 14

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29, 1992 of respondent Court of Appeals in CA-G.R. CV No. 24776 and its resolution dated September 16, 1992, denying petitioner Philippine National Bank's motion for reconsideration of said decision. The facts of the case are as follows. A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry of Education and Culture (now Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was drawn against Philippine National Bank (herein petitioner). On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to petitioner for clearing. Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount stated in the check. However, on October 19, 1981, petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check, the reason being that there was a "material alteration" of the check number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the check back to petitioner. Petitioner, however, returned the check to PBCom. On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since the latter had already withdrawn the amount of the check as of October 15, 1981. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from petitioner. Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila against PBCom which, in turn, filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner, on its part, filed a fourth-party complaint against F. Abante Marketing. On October 3, 1989; the Regional Trial Court rendered its decision the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered as follows: 1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered to recredit or reimburse plaintiff Capitol City Development Bank the amount of P97,650.00, plus interest of 12 percent thereto from October 19, 1981 until the amount is fully paid; 2.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is ordered to reimburse and indemnify Philippine Bank of Communications for whatever amount PBCom pays to plaintiff; 3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB pays to PBCom; 4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol City Development Bank attorney's fees in the amount of Ten Thousand (P10,000.00) Pesos; but PBCom is entitled to reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn reimbursed or indemnified by F. Abante Marketing for the same amount; 5.) The Counterclaims of PBCom and PNB are hereby dismissed; 6.) No pronouncement as to costs. SO ORDERED. 1 An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29, 1992, the decretal portion of which reads: WHEREFORE, the judgment appealed from is modified by exempting PBCom from liability to plaintiff-appellee for attorney's fees and ordering PNB to honor the check for P97,650.00, with interest as declared by the trial court, and pay plaintiff-appellee attorney's fees of P10,000.00. After the check shall have been honored by PNB, PBCom shall re-credit plaintiffappellee's account with it with the amount. No pronouncement as to costs. SO ORDERED. 2 15

A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16, 1992 for lack of merit. 3 Hence, petitioner filed the instant petition which raises the following issues: I WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW. II WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE. III WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK WITHIN THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY RECOVER THE VALUE OF THE CHECK FROM THE COLLECTING BANK. IV WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD LIABLE FOR ATTORNEY'S FEES. 4 We find no merit in the petition. We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question. Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031) 5 which provides: Sec. 225. What constitutes a material alteration. Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; (f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable Instruments Law. It maintains that under Section 125(f), any change that alters the effect of the instrument is a material alteration. 6 We do not agree. An alteration is said to be material if it alters the effect of the instrument. 7 It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. 8 In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law. Section 1 of the Negotiable Instruments Law provides: Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements: 16

(a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only according to its original tenor." 9 Reproduced hereunder are some examples of material and immaterial alterations: A. Material Alterations: (1) Substituting the words "or bearer" for "order." (2) Writing "protest waived" above blank indorsements. (3) A change in the date from which interest is to run. (4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich. Aug. 5, 1901. Pay to G.L. or order $9 fifty cents CTR" The insertion of the figure 5 before the figure 9, the instrument being otherwise unchanged. (5) Adding the words "with interest" with or without a fixed rate. (6) An alteration in the maturity of a note, whether the time for payment is thereby curtailed or extended. (7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion." (8) Plaintiff, without consent of the defendant, struck out the name of the defendant as payee and inserted the name of the maker of the original note. (9) Striking out the name of the payee and substituting that of the person who actually discounted the note. (10) Substituting the address of the maker for the name of a co-maker. 10 B. Immaterial Alterations: (1) Changing "I promise to pay" to "We promise to pay", where there are two makers. (2) Adding the word "annual" after the interest clause. (3) Adding the date of maturity as a marginal notation. (4) Filling in the date of actual delivery where the makers of a note gave it with the date in blank, "July ____." (5) An alteration of the marginal figures of a note where the sum stated in words in the body remained unchanged. (6) The insertion of the legal rate of interest where the note had a provision for "interest at _______ per cent." (7) A printed form of promissory note had on the margin the printed words, "Extended to ________." The holder on or after maturity wrote in the blank space the words "May 1, 1913," 17

as a reference memorandum of a promise made by him to the principal maker at the time the words were written to extend the time of payment. (8) Where there was a blank for the place of payment, filling in the blank with the place desired. (9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed that the draft should be discounted by the trust company of which the indorsee was cashier. (10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was negotiated to the plaintiff. (11) An extension of time given by the holder of a note to the principal maker, without the consent of a surety co-maker. 11 The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. Despite these findings, however, petitioner insists, that: xxx xxx xxx It is an accepted concept, besides being a negotiable instrument itself, that a TCAA check by its very nature is the medium of exchange of governments (sic) instrumentalities of agencies. And as (a) safety measure, every government office o(r) agency (is) assigned TCAA checks bearing different number series. A concrete example is that of the disbursements of the Ministry of Education and Culture. It is issued by the Bureau of Treasury sizeable bundles of checks in booklet form with serial numbers different from other government office or agency. Now, for fictitious payee to succeed in its malicious intentions to defraud the government, all it need do is to get hold of a TCAA Check and have the serial numbers of portion (sic) thereof changed or altered to make it appear that the same was issued by the MEG. Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined to have been issued by a particular office or agency of the government. 12 xxx xxx xxx Petitioner's arguments fail to convince. The check's serial number is not the sole indication of its origin.. As succinctly found by the Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. Thus, we quote with favor the findings of the respondent court: xxx xxx xxx If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this case had no material effect whatsoever on the integrity of the check. The identity of the issuing government office or agency was not changed thereby and the amount of the check was not charged against the account of another government office or agency which had no liability under the check. The owner and issuer of the check is boldly and clearly printed on its face, second line from the top: "MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee are the rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to have been falsely or fraudulently intercalated into the check. The ownership of the check is established without the necessity of recourse to the serial number. Neither there any proof that the amount of the check was erroneously charged against the account of a government office or agency other than the Ministry of Education and Culture. Hence, the alteration in the number of the check did not affect or change the liability of the Ministry of Education and Culture under the check and, therefore, is immaterial. The genuineness of the amount and the signatures therein of then Deputy Minister of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity of the different codes appearing therein questioned . . . 13 (Emphasis ours.) Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one.

18

We now go to the second issue. It is petitioner's submission that the certification issued by Minrado C. Batonghinog, Cashier III of the MEC clearly shows that the check was altered. Said certification reads: July 22, 1985 TO WHOM IT MAY CONCERN: This is to certify that according to the records of this Office, TCAA PNB Check Mo. SN73666223-3 dated August 7, 1981 drawn in favor of F. Abante Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY PESOS ONLY (P97,650.00) was not issued by this Office nor released to the payee concerned. The series number of said check was not included among those requisition by this Office from the Bureau of Treasury. Very truly yours, (SGD.) MINRADO C. BATONGHINOG (Cashier III) Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was not presented, still the best evidence of the material alteration would be the disputed check itself and the serial number thereon. Petitioner thus assails the refusal of respondent court to give weight to the certification because the author thereof was not presented to identify it and to be cross-examined thereon. We agree with the respondent court. The one who signed the certification was not presented before the trial court to prove that the said document was really the document he prepared and that the signature below the said document is his own signature. Neither did petitioner present an eyewitness to the execution of the questioned document who could possibly identify it. 16 Absent this proof, we cannot rule on the authenticity of the contents of the certification. Moreover, as we previously emphasized, there was no material alteration on the check, the change of its serial number not being substantial to its negotiability. Anent the third issue whether or not the drawee bank may still recover the value of the check from the collecting bank even if it failed to return the check within the twenty-four (24) hour clearing period because the check was tampered suffice it to state that since there is no material alteration in the check, petitioner has no right to dishonor it and return it to PBCom, the same being in all respects negotiable. However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their respective decisions, the trial court and the Court of Appeals failed to explicitly state the rationale for the said award. The trial court merely ruled as follows: With respect to Capitol's claim for damages consisting of alleged loss of opportunity, this Court finds that Capitol failed to adequately substantiate its claim. What Capitol had presented was a self-serving, unsubstantiated and speculative computation of what it allegedly could have earned or realized were it not for the debit made by PBCom which was triggered by the return and debit made by PNB. However, this Court finds that it would be fair and reasonable to impose interest at 12% per annum on the principal amount of the check computed from October 19, 1981 (the date PBCom debited Capitol's account) until the amount is fully paid and reasonable attorney's fees. 17 (Emphasis ours.) And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned before it the award of attorney's fees, assigning the latter as one of the errors committed by the trial court. 18 The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently in Consolidated Bank & Trust Corporation (Solidbank) v. Court of Appeals: 19 The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case. However, the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the Philippines demands factual, legal and equitable justification, without which the award is a conclusion without a premise and improperly left to speculation and conjecture. It becomes a violation of the proscription against the imposition of a penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the award must be stated in the text of the court's decision. If it is stated only in the dispositive portion of the decision, the same shall be disallowed. As to the award of attorney's fees being an exception rather than the rule, it is necessary for the court to make findings of fact and law that would bring the case within the exception and justify the grant of the award (Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [176 SCRA 539]). WHEREFORE, premises considered, except for the deletion of the award of attorney's fees, the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED. 19

G.R. No. 119707

November 29, 2001

VERONICA PADILLO, petitioner, vs. COURT OF APPEALS, and TOMAS AVERIA, JR., respondents. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals dated November 22, 1994 in CA-G.R. CV No. 40142 reversing the Decision2 dated March 31, 1992 of the Regional Trial Court of Lucena City, Branch 54 in Civil Case No. 9114 on the ground of res judicata. Civil Case No. 9114, which found its way to this Court via the instant petition, is a petition3 for declaratory relief and damages initiated by petitioner Veronica Padillo4 on December 14, 1983. In the petition filed against respondent Tomas Averia, Jr. and one Beato Casilang, petitioner Padillo alleged that she is the absolute owner of a Two Hundred Fifty-One (251) square meter parcel of land with improvements thereon located in Quezon Avenue, Lucena City, Quezon Province, covered and described in Transfer Certificate of Title (TCT) No. T-9863, which she purchased from Marina M. de Vera-Quicho and Margarita de Vera. Petitioner ascribed fault upon Averia and Casilang with unlawful refusal to turn over the property in her favor; and that respondent Averia even instituted Civil Case No. 1690-G,5 a suit for rescission of two (2) deeds solely for harassment and dilatory purposes although the suit actually established petitioner's right of ownership over the subject property. Petitioner Padillo prayed for the issuance of an injunctive writ to place her in the possession and use of her said property, and prohibiting respondents from disturbing the same; and ultimately, that judgment be rendered ordering respondent Averia and Casilang to pay jointly and severally to petitioner Padillo: (a) One Hundred Fifty Thousand Pesos (P150,000.00) annual unrealized income for the use of her said property from January 4, 1982, (b) moral and exemplary damages the amount of which she leaves to the court for proper evaluation and (c) attorney's fees of Eighty Thousand Pesos (P80,000.00) .plus Six Hundred Pesos (P600.00) per appearance in court. In his Answer,6 Casilang specifically denied the material allegations of the petition. He alleged that as early as June 1, 1982, he vacated the subject property and, thus, the case against him should be dismissed. On March 2, 1984, respondent Averia filed his Answer with Counterclaim and Motion to Dismiss7 wherein he invoked the decision rendered in Civil Case No. 1620-G, a suit for specific performance against Marina M. de Vera-Quicho. He further raised the defenses of litis pendencia, laches, estoppel, res judicata and lack of cause of action, and prayed for the dismissal of the petition as well as the grant of his counterclaims for damages. It appears that prior to the institution of Civil Case No. 9114, there were already three (3) actions which involved the said property, namely, Civil Case No. 1620-G, M.C. No. 374 82, and Civil Case No. 1690-G. Civil Case No. 1620-G was instituted by respondent Averia against Marina M. de Vera-Quicho and the Register of Deeds of Lucena City for specific performance and/or damages which involved the lot subject of the sale. A subsequent decision dated June 2, 1983 rendered by the Regional Trial Court of Gumaca, Quezon, Branch 62 in said Civil Case No. 1620-G ordered Marina M. de Vera-Quicho to execute the necessary documents over the property covered by said Transfer Certificate of Title (TCT) No. T-9863 and enjoined the Register of Deeds of Lucena City to desist from entering any encumbrance or transaction on said certificate of title and/or cancel the same except in favor of respondent Averia.8 The said decision became final and executory as no motion for reconsideration or appeal was filed therefrom.9 M. C. No. 374-82,10 was instituted by petitioner Padillo on July 6, 1982 to compel the Register of Deeds of Lucena City to register the deed of sale dated February 10, 1982 wherein Margarita de Vera11 sold to petitioner Padillo her one-half () pro-indiviso share of the lot and the building erected thereon, covered by TCT No. T9863, considering the refusal of the Register of Deeds to register said deed of sale in view of a restraining order issued in Civil Case No. 1620-G. The petition to register the deed was opposed by respondent Averia. On July 7, 1983, during the pendency of M.C. No. 374-82, Civil Case No. 1690-G was instituted by respondent Averia against spouses Edilberto de Mesa and petitioner Padillo.12 The said case is a complaint for rescission of two(2) deeds of sale, namely: (a) the "Kasulatan ng Bilihan na may Pasubali" dated January 5, 1982 wherein Marina M. de Vera-Quicho sold to petitioner Padillo her one-half () pro-indiviso share over lot together with the house thereon, subject of TCT No. T-9863, which was registered and annotated at the back of said TCT on January 11, 1982 per Entry No. 54967, and (b) the deed of sale dated February 10, 1982 subject of M.C. no. 374-82. Respondent Averia claimed ownership of the same lot subject of TCT No. T-9863 by virtue of an unregistered contract to sell dated January 5, 1982 executed in his favor by Marina M. de Vera-Quicho.13 Petitioner Padillo sought the dismissal of the amended complaint.14 In an Order dated September 30, 1983, Civil Case No. 1690-G was dismissed by Branch 61 of the RTC of Gumaca, Quezon Province for improper venue.15 Respondent Averia interposed an appeal with the Court of Appeals.16 In the meantime. a decision dated September 23, 1983 was rendered in M.C. No. 374-82 wherein Branch 57 of the RTC, Lucena City ordered the Register of Deeds to register the deed of sale dated February 10, 1982.17 Respondent Averia assailed the decision in M.C. No. 374-82 via a petition for certiorari and prohibition in G.R. No. 6512918 with the Supreme Court contending that the trial court has no jurisdiction to order the registration of a deed of sale which is opposed on the ground of an antecedent contract to sell. In a Decision dated December 29, 1986, the Supreme Court declared that the trial court has jurisdiction since Section 2 of Presidential Decree No. 1529 (Property Registration Decree) eliminated the distinction between the general jurisdiction and the limited jurisdiction of the Regional Trial Court acting as a cadastral court under Section 112 of Act 496 (Land Registration Act).19 The Supreme Court set aside the September 23, 1983 decision of the trial 20

court and ordered a new trial where all parties interested in the case may appear and be given opportunity to be heard. Pursuant to the Supreme Court's decision, a new trial was conducted in M.C. No. 37482. Following notice and hearing in the new trial, the trial court rendered a Decision dated May 5, 1988, which declared petitioner Padillo as sole and exclusive owner of the property in question and ordered the Register of Deeds of Lucena City to register the questioned deed of sale in favor of petitioner Padillo. The decision of the RTC in M.C. No. 374-82 was appealed to the Court of Appeals20 which rendered judgment on December 28, 1990 sustaining the decision of the trial court. Dissatisfied, respondent Averia appealed to the Supreme Court via a petition for review on certiorari which was denied in a Resolution dated June 17, 1991 for failure to show that the Court of Appeals had committed any reversible error in the questioned judgment.21 Respondent Averia sought reconsideration but the same was denied in a Resolution dated August 26, 1991.22 A subsequent motion for leave to file a second motion for reconsideration was likewise denied on October 21, 1991.23 While the foregoing proceedings ensued in M.C. No. 374-82, the trial court in Civil Case No. 9114, issued an Order dated March 20, 1984 wherein it deferred the resolution of respondent Averia's motion to dismiss and ordered the case temporarily archived in view of the pendency in the Court of Appeals of the appeal of respondent Averia in Civil Case No. 1690-G.24 When the Court of Appeals subsequently affirmed, in a decision dated September 16, 1987, the dismissal of Civil Case No. 1690-G for improper venue,25 the hearing in Civil Case No. 9114 was resumed on November 19, 198726 but resolution of respondent Averia's November 18, 1987 Motion to Dismiss27 was deferred in view of the pendency of M.C. No. 374-82.28 When M.C. No. 374-82 was finally resolved in the decision dated May 5, 1988, the trial court in an Order dated June 1, 1988 proceeded to deny respondent Averia's Motion to Dismiss and Motion to Suspend Further Proceeding in Civil Case No. 9114.29 Thereafter, respondent Averia assailed the denial of his motion to dismiss in a petition for certiorari and prohibition, docketed as CA-G.R. SP No. 15356, before the Court of Appeals, which on December 21, 1989 rendered a decision therein ordering the suspension of the proceedings in Civil Case No. 9114 to await the final termination of M.C. No. 37442 then pending appeal with the Court of Appeals.30 No appeal was filed therefrom, hence, the decision of the appellate court in CA-G.R. SP No. 15356 became final.31 With the Supreme Court denying the petition to challenge the Court of Appeal's affirmance of the decision in M.C. No. 374-82,32 the trial court rendered the assailed March 31, 1992 Decision33 in Civil Case No. 9114, which reads: WHEREFORE, in view of the foregoing considerations, judgment is rendered ordering Tomas Averia, Jr. or any persons claiming any right from him, to vacate and surrender the possession of the lot covered by TCT No. T9863 of the Registry of Deeds of Lucena City and the building erected thereon, to Veronica Padillo and to pay the latter the following amounts: 1) Unrealized income from the lot and building in the sum of P150,000.00 every year from January 5, 1982 until Tomas Averia vacates the same; 2) Attorneys fees in the sum of P107,000.00 plus P1,000.00 per appearance in the hearing of the case and litigation expenses of P10,000.00; 3) Moral damages of P50,000.00; 4) Exemplary damages of P20,000.00; and 5) Costs of suit. SO ORDERED. On appeal to the Court of Appeals, the appellate court in CA-G.R. CV No. 40142 rendered its subject decision on November 22, 1994 reversing the trial court based on the ground of res judicata. The appellate court ratiocinated: The Court finds that res judicata bars the appellee's claims. MC No. 374-82 resolved the case on the merits. Civil Case No. 1620-G, dismissed on account of improper venue, may not strictly speaking be considered an adjudication of the case on the merits . . . xxx xxx xxx

Not having claimed the damages she supposedly suffered despite the new trial ordered for MC No. 374-82, and the clarification of the expanded jurisdiction of the court a quo, the appellee is correctly perceived by the appellant to have already lost her right to recover the same in the instant suit. In finding the decision in the former case a bar to the latter, the Court is guided by the long-standing rule that a final judgment or order on the merits rendered by a court having jurisdiction over the subject matter and the parties is conclusive in a subsequent case between the same parties and their successors-in-interest litigating upon the same thing and issue (Vencilao vs. Varo, 182 SCRA 492, citing Sy Kao vs. Court of Appeals, 132 SCRA 302; Carandang vs. Venturanza, 133 SCRA 344; Catholic Vicar Apostolic of the Mountain Province vs. Court, 165 SCRA 515). It matters little that the instant case is supposedly one for declaratory relief and damages, while the former case 21

is one originally for registration of the appellee's documents of title. A party cannot by varying the form of action or adopting a different method of presenting his case escape the operation of the principle that one and the same cause of action shall not be twice litigated between the parties and their privies (Filipinas Investment and Finance Corp. vs. Intermediate Appellate Court, 179 SCRA S06; Bugnay Construction and Development Corp. vs. Laron, 176 SCRA 804). On the principle, moreover, that res judicata bars not only the relitigation in a subsequent action of the issues raised, passed upon and adjudicated, but also the ventilation in said subsequent suit of any other issue which could have been raised in the first but was not (Africa vs. NLRC, 170 SCRA 776), the court a quo clearly erred in not holding the instant action to be barred by prior judgment.34 Disagreeing with the foregoing disquisition, petitioner sought reconsideration of the same but it proved unavailing inasmuch as petitioners motion for reconsideration35 was denied in a Resolution36 dated April 7, 1995. The Court of Appeals, in resolving petitioners motion for reconsideration in the negative, rendered the following pronouncements: Contrary, however, to [Padillo's] position, the Court's application of the principle of res judicata was neither based nor in any way dependent on the inaccuracies emphasized in the motion and incidents she filed. While it is readily conceded that the Court was obviously referring to Civil Case No. 1690-G as that which the Gumaca Court dismissed on account of improper venue, the passage which states that the self-same was filed ahead of MC No. 374-82 is one actually quoted from the trial court's March 31, 1992 decision which [Padillo] did not and still does not contest. Corrected though the Court may stand on these particulars, however, it bears emphasis that the instant case was determined to be barred by res judicata not so much on account of the decision rendered in Civil Case No. 1690-G but by that rendered in MC No. 374-82. It consequently matters little that the latter case was originally filed ahead of the former as [Padillo] had been wont to stress. The fact that its new trial was only ordered on December 29, 1986 together with a clarification of the land registration court's expanded jurisdiction under Section 2 of Presidential Decree No. 1592 effectively rendered the decision promulgated therein a bar to the claim for damages [Padillo] pursued in the instant case. It is, moreover, repugnant to the prohibition against multiplicity of suits to allow [Padillo] or any party-litigant for that matter to claim in a separate action the damages she supposedly suffered as a consequence to the filing of another. Considering that the December 21, 1989 decision rendered in CA-G.R. SP No. 15356 granted the petition then filed by [Averia] (p. 200, rec.), the Court, finally, fails to appreciate the sapience of [Padillo's] invocation thereof as a bar to the appeal herein perfected by [Averia]. x x x37 Hence, petitioner interposed the instant petition for review anchored on seven (7) assigned errors, to wit: A. THE RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR AMOUNTING TO GRAVE 'ABUSE OF DISCRETION IN ITS INCORRECT CITATIONS AND PERCEPTIONS OF FACTS UPON WHICH IT PREDICATED ITS DECISION. B. THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DISREGARDING THE EFFECT OF THE JUDGMENTS OF A CO-EQUAL COURT IN CA-G.R. CV NO. 18802 AND THAT OF THE SUPREME COURT IN G.R. NO. 96662 DECLARING PETITIONER THE ABSOLUTE OWNER OF THE COMMERCIAL PROPERTY UNDER TCT NO. T-9863. C. THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE JUST AND EQUITABLE JUDGMENT OF THE TRIAL COURT IN CIVIL CASE NO. 9114. D. THE RESPONDENT COURT OF APPEALS ERRED IN NULLIFYING THE JUDGMENT OF THE APPELLATE COURT IN CA-G.R. NO. 15356 BETWEEN THE SAME PARTIES ON THE SAME CAUSE AND ISSUES. E. THE RESPONDENT COURT OF APPEALS ERRED AMOUNTING TO GRAVE ABUSE OF DISCRETION IN FAILING TO NOTE THE BAD FAITH OF PRIVATE RESPONDENT IN MOST OF HIS ACTS TO POSSESS A PROPERTY NOT HIS OWN. F. RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN FAILING TO NOTE AND OBSERVE THAT PRIVATE RESPONDENT INTENTIONALLY PROLONG THE UNDUE EXPLOITATION OF PFTITIONER'S REALTY EVEN AFTER THE SUPREME COURT'S DECISION IN G.R. NO. 96662. G. THE MEMBERS OF THE FIRST DIVISION OF RESPONDENT COURT GRAVELY ABUSED THEIR DISCRETION IN VIOLATING THE CONSTITUTIONAL MANDATE ON "CONSULATION" AS PROVIDED IN SECTION 13, ARTICLE VIII OF THE FUNDAMENTAL LAW.38 Petitioner attacks the appellate court's posture that petitioner should have set up her claim for unrealized income, litigation expenses and/or attorney's fees, as well as moral and exemplary damages, as a distinct cause of action in M.C. No. 374-82 for she contends that it was not anticipated that respondent Averia would oppose M.C. No. 37s82. Neither could she invoke art counterclaim for damages in Civil Case No. 1690-G for the Regional Trial Court of Gumaca, Quezon, Branch 61 promptly dismissed it. Furthermore, res judicata as a ground for the dismissal of the instant case was already rejected by the Court of Appeals in the December 21, 1989 decision promulgated in CA-G.R. SP No. 15356. Lastly, petitioner cites anew the alleged inaccuracies in the finding that Civil Case No. 1690-G was filed ahead of M.C. No. 37442 and that Civil Case No. 1620-G was dismissed by the Regional Trial Court of Gumaca, Quezon on the ground of improper venue. The doctrine of res judicata is embodied in Section 47, Rule 39 of the Revised Rules of Court,39 which states: Sec. 47. Effect of judgments or final orders. The effect of a judgment or final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows: xxx xxx xxx 22

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; (c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto. Section 49 (b) refers to bar by prior judgment while Section 49 (c) enunciates conclusiveness of judgment. Bar by prior judgment exists when, between the first case where the judgment was rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three (3) identities are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. It is final as to the claim or demand in controversy, including the parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. But where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is termed conclusiveness of judgment.40 Under ordinary circumstances, this Court would have subscribed to the appellate court's conclusion that M.C. No. 37442 barred petitioner's claim for damages in Civil Case No. 9114 since all four (4) essential requisites in order for res judicata as a "bar by prior judgment" to attach are present in the instant case, to wit: 1. The former judgment must be final; 2. It must have been rendered by a court having jurisdiction over the subject matter and the parties; 3. It must be a judgment or order on the merits; and 4. There must be between the first and second action identity of parties, identity of subject matter, and identity of cause of action.41 M.C. No. 374-82, as affirmed by the Court of Appeals and the Supreme Court, is a final judgment.42 Branch 57 of the Regional Trial Court of Lucena City, in the new trial it conducted in M.C. No. 374-82, following clarification by the Supreme Court of its expanded jurisdiction,43 had obtained jurisdiction over the subject matter as well as the parties thereto. The judgment of Branch 57 of Lucena City in M.C. No. 374-82, as affirmed by the Court of Appeals and the Supreme Court, is a judgment on the merits. A judgment is on the merits when it determines the rights and liabilities of the parties based on the disclosed facts, irrespective of formal, technical or dilatory objections.44 Finally, there is identity of parties, subject matter and causes of action. M.C. No. 37482 and Civil Case No. 9114 both involved the petitioner and respondent Averia. The subject matter of both actions is the parcel of land and building erected thereon covered by TCT No. T-9863. The causes of action are also identical since the same evidence would support and establish M.C. No. 374-82 and Civil Case No. 9114.45 However, a different conclusion is warranted under the principle of law of the case. Law of the case has been defined as the opinion delivered on a former appeal. More specifically, it means that whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court.46 As a general rule, a decision on a prior appeal of the same case is held to be the law of the case whether that question is right or wrong, the remedy of the party deeming himself aggrieved being to seek a rehearing.47 The concept of Law of the Case was further elucidated in the 1919 case of Zarate v. Director of Lands,48 thus: A well-known legal principle is that when an appellate court has once declared the law in a case, such declaration continues to be the law of that case even on a subsequent appeal. The rule made by an appellate court, while it may be reversed in other cases, cannot be departed from in subsequent proceedings in the same case. The "Law of the Case," as applied to a former decision of an appellate court, merely expresses the practice of the courts in refusing to reopen what has been decided. Such a rule is 'necessary to enable an appellate court to perform its duties satisfactorily and efficiently, which would be impossible if a question, once considered and decided by it, were to be litigated anew in the same case upon any and every subsequent appeal.' Again, the rule is necessary as a matter of policy to end litigation. 'There would be no end to a suit if every obstinate litigant could, by repeated appeals, compel a court to listen to criticisms on their opinions, or speculate of chances from changes in its members.' x x x The phrase "Law of the Case" is described in a decision coming from the Supreme Court of Missouri in the following graphical language: The general rule, nakedly and badly put, is that legal conclusions announced on a first appeal, whether on the general law or the law as applied to the concrete facts, not only prescribed the duty and limit the power of the trial court to strict obedience and conformity thereto, but they become and remain the law of the case in all after steps below or above on subsequent appeal. The rule is grounded on convenience, experience, and reason. Without the rule there would be no end to criticism, reagitation, reexamination, and reformulation. In short, there would be endless litigation. It would be intolerable if parties litigant were allowed to speculate on changes in the personnel of a court, or on the chance of our rewriting propositions once gravely ruled on solemn argument and handed down as the law of a given case. An itch to reopen questions foreclosed on a first 23

appeal, would result in the foolishness of the inquisitive youth who pulled up his corn to see how it grew. Courts are allowed, if they so choose, to act like ordinary sensible persons. The administration of justice is a practical affair. The rule is a practical and a good one of frequent and beneficial use. x x x49 The appellate court apparently overlooked the significance of this principle called the law of the case which is totally different from the concept of res judicata. Law of the case does not have the finality of the doctrine of res judicata, and applies only to that one case, whereas res judicata forecloses parties or privies in one case by what has been done in another case.50 In the 1975 case of Comilang v. Court of Appeals (Fifth Division.),51 a further distinction was made in this manner: The doctrine of law of the case is akin to that of former adjudication, but is more limited in its application. It relates entirely to questions of law, and is confined in its operation to subsequent proceedings in the same case. The doctrine of res judicata differs therefrom in that it is applicable to the conclusive determination of issues of fact, although it may include questions of law, and although it may apply to collateral proceedings in the same action or general proceeding, it is generally concerned with the effect of an adjudication in a wholly independent proceeding. Significantly in the instant case, the law of the case on the matter of the pendency of M.C. No. 374-82 to bar Civil Case No. 9114 has been settled in CA-G.R. SP No. 15356. It is worthwhile to consider that at the time this Court in G.R. No. 65129 ordered the new trial of M.C. No. 37482, after clarifying the expanded jurisdiction of the trial court with authority to decide non-contentious and contentious issues, Civil Case No. 9114 was already existent. When the issue of the dismissal of Civil Case No. 9114 on the ground of pendency of M.C. No. 374-82 was raised before the trial court wherein the said Civil Case No. 9114 was docketed, the trial court chose to merely defer resolution thereof. And when the said issue of litis pendentia was raised before the Court of Appeals via a special civil action of certiorari in CA-G.R. SP No. 15356, the Court of Appeals, while agreeing with respondent Averia's arguments on the existence of litis pendentia, which would ultimately result in res judicata, incorrectly ordered the mere suspension of Civil Case No. 9114 to await the final termination of M.C. No. 374-82, instead of dismissing the case and/or ordering that the claim for damages be filed in M.C. No. 374-82. The decision of the Court of Appeals was promulgated on December 21, 1989 and by then, M.C. No. 374 82 had long been resolved by the trial court and pending appeal with the Court of Appeals. Since no appeal was filed from the decision of the Court of Appeals in CA-G.R. SP No. 15356, the resolution therein of the appellate court which ordered the suspension instead of dismissal of Civil Case No. 9114, became final. Thus, even if erroneous, the ruling of the Court of Appeals in CA-G.R. SP No. 15356 has become the law of the case as between herein petitioner Padillo and respondent Averia, and may no longer be disturbed or modified.52 It is not subject to review or reversal in any court. Petitioner, therefore, should not be faulted for yielding in good faith to the ruling of the Court of Appeals, Fourteenth Division, in CA-G.R. SP No. 15356 and continuing to pursue her claim for damages in Civil Case No. 9114. The decision of the Court of Appeals in CA-G.R. SP No. 15356 on the matter of the issue of existence of M.C. No. 37442 as a bar to Civil Case No. 9114 should dictate all further proceedings. Notwithstanding the foregoing conclusion, this Court is not inclined to sustain the monetary award for damages granted by the trial court. Concerning the alleged forgone income of One Hundred Fifty Thousand Pesos (P150,000.00) per year since 1982 as testified on by petitioner as the income she could have realized had possession of the property not been withheld from her by respondent Averia,53 we consider such amount of expected profit highly conjectural and speculative. With an allegation that respondent made millions for the improper use and exploitation of the property, petitioner's testimony regarding the matter of unrealized income is sadly lacking of the requisite details on how such huge amount of income could be made possible. Petitioner did not detail out how such huge amount of income could have been derived from the use of the disputed lot and building. Well-entrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed. If the proof adduced thereon is flimsy and insufficient, as in this case, no damages will be allowed.54 Verily, the testimonial evidence on alleged unrealized income earlier referred to is not enough to warrant the award of damages. It is too vague and unspecified to induce faith and reliance. The only amount of unrealized income petitioner should be entitled to is the unrealized monthly rentals which respondent Averia admits to be in the amount of Eight Hundred Pesos (P800.00) a month or Nine Thousand Six Hundred Pesos (P9,600.00) a year during the sixth (6th) to tenth (10th) year of the Contract of Lease between Marina de Vera Quicho, as Lessor, and respondent Averia, as Lessee, which fell on 1982 to 1986.55 Inasmuch as respondent Averia had been in possession of the property from January 1982 to February 1992 when he vacated the property,56 it is but just for him to pay petitioner the unrealized rentals of Ninety-Seven Thousand Six Hundred Pesos (P97,600.00) for that period of time. Furthermore, said amount of Ninety-Seven Thousand Six Hundred Pesos (P97,600.00) shall earn interest57 at the legal rate58 computed from the finality of this decision.59 On the award of moral and exemplary damages in the amounts of Fifty Thousand Pesos (P50,000.00) and Twenty Thousand Pesos (P20,000.00), respectively, we find that there is no sound basis for the award. It cannot be logically inferred that just because respondent Averia instituted Civil Case No. 1690-G while M.C. No. 374-82 was pending, malice or bad faith is immediately ascribable against the said respondent to warrant such an award. The issue of whether the trial court in M.C. No. 374-82 could adjudicate contentious issues was only resolved by this Court in G.R. No. 65129 on December 29, 198660 long after the dismissal of Civil Case No. 1690-G which was instituted by respondent Averia.61 That respondent Averia instituted a separate suit which was 24

subsequently dismissed and all actions or appeals taken by respondent Averia relative to M.C. No. 374-82 does not per se make such actions or appeals wrongful and subject respondent Averia to payment of moral damages. The law could not have meant to impose a penalty on the right to litigate. Such right is so precious that moral damages may not be charged on those who may exercise it erroneously. One may have erred, but error alone is not a ground for moral damages.62 In the absence of malice and bad faith, the mental anguish suffered by a person for having been made a party in a civil case is not the kind of anxiety which would warrant the award of moral damages.63 The emotional distress, worries and anxieties suffered by her and her husband64 are only such as are usually caused to a party hauled into Court as a party in a litigation. Therefore, there is no sufficient justification for the award of moral damages, more so, exemplary damages, and must therefore be deleted. With respect to attorney's fees, the award thereof is the exception rather than the general rule; counsel's fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.65 Attorney's fees as part of damages are not the same as attorney's fees in the concept of the amount paid to a lawyer. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter, while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party.66 Attorney's fees as part of damages is awarded only in the instances specified in Article 2208 of the Civil Code.67 As such, 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, and in all cases it must be reasonable. Thereunder, the trial court may award attorney's fees where it deems just and equitable that it be so granted. While we respect the trial court's exercise of its discretion in this case, we find the award of the trial court of attorney's fees in the sum of One Hundred Seven Thousand Pesos (P107,000.00) plus One Thousand Pesos (P1,000.00) per appearance in the hearing of the case and litigation expenses of Ten Thousand Pesos (P10,000.00), to be unreasonable and excessive. Attorney's fees as part of damages is not meant to enrich the winning party at the expense of the losing litigant. Thus, it should be reasonably reduced to Twenty-Five Thousand Pesos (P25,000.00). Because of the conclusions we have thus reached, there is no need to delve any further on the other assigned errors. WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated November 22, 1994 in CA-G.R. CV No. 40142 is REVERSED and SET ASIDE and another in its stead is hereby rendered ORDERING respondent Tomas Averia, Jr., to pay petitioner Veronica Padillo the amounts of (a) Ninety-Seven Thousand Six Hundred Pesos (P97,600.00) as unrealized rentals which shall earn interest at the legal rate from the finality of the this decision until fully paid, and (b) Twenty-Five Thousand Pesos (P25,000.00) as attorney's fees. SO ORDERED. G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent. VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: 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 the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). 25

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). 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). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 8586, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: 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 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 same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice 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 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. 26

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, 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: 27

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 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, 28

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, 14 decided 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 expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared: . . . , (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 29

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). 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. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17 depending on whether or not the amount involved is a loan or forbearance, 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 from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. 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 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. 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. 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. SO ORDERED. G.R. No. 164401 June 25, 2008

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING JUDGE, Regional Trial Court, Branch 11, Sindangan, Zamboanga Del Norte; THE REGIONAL TRIAL COURT SHERIFF, Branch 11, Sindangan, Zamboanga Del Norte; THE CLERK OF COURT OF MANILA, as Ex-Officio Sheriff; and LAMBERTO T. CHUA, respondents.

30

VELASCO, JR., J.: The Case Before us is a petition for review under Rule 45, seeking to nullify and set aside the Decision1 and Resolution dated November 6, 2003 and July 6, 2004, respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 75688. The impugned CA Decision and Resolution denied the petition for certiorari interposed by petitioners assailing the Resolutions2 dated November 6, 2002 and January 7, 2003, respectively, of the Regional Trial Court (RTC), Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, a suit for winding up of partnership affairs, accounting, and recovery of shares commenced thereat by respondent Lamberto T. Chua. The Facts In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas. For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called for equal sharing of the net profit. After Jacintos death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner Lilibeth Sunga-Chan, continued with the business without Chuas consent. Chuas subsequent repeated demands for accounting and winding up went unheeded, prompting him to file on June 22, 1992 a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment, docketed as Civil Case No. S-494 of the RTC in Sindangan, Zamboanga del Norte and raffled to Branch 11 of the court. After trial, the RTC rendered, on October 7, 1997, judgment finding for Chua, as plaintiff a quo. The RTCs decision would subsequently be upheld by the CA in CA-G.R. CV No. 58751 and by this Court per its Decision dated August 15, 2001 in G.R. No. 143340.3 The corresponding Entry of Judgment4 would later issue declaring the October 7, 1997 RTC decision final and executory as of December 20, 2001. The fallo of the RTCs decision reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows: (1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income and profits of [Shellite] since the time of death of Jacinto L. Sunga, from whom they continued the business operations including all businesses derived from [Shellite]; submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval; (2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to their own use and advantage that legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis; (3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed properties, assets and good will in schedules A, B and C, on pages 4-5 of the petition; (4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until fully paid; (5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in the partnership, or the value thereof in money or moneys worth, if the properties are not physically divisible; (6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and, (7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys [fee] and P25,000.00 as litigation expenses. NO special pronouncements as to COSTS. SO ORDERED.5 (Emphasis supplied.) 31

Via an Order6 dated January 16, 2002, the RTC granted Chuas motion for execution. Over a month later, the RTC, acting on another motion of Chua, issued an amended writ of execution.7 It seems, however, that the amended writ of execution could not be immediately implemented, for, in an omnibus motion of April 3, 2002, Chua, inter alia, asked the trial court to commission a certified public accountant (CPA) to undertake the accounting work and inventory of the partnership assets if petitioners refuse to do it within the time set by the court. Chua later moved to withdraw his motion and instead ask the admission of an accounting report prepared by CPA Cheryl A. Gahuman. In the report under the heading, Computation of Claims,8 Chuas aggregate claim, arrived at using the compounding-of-interest method, amounted to PhP 14,277,344.94. Subsequently, the RTC admitted and approved the computation of claims in view of petitioners failure and refusal, despite notice, to appear and submit an accounting report on the winding up of the partnership on the scheduled hearings on April 29 and 30, 2002.9 After another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-certified valuation and accounting report. In it, petitioners limited Chuas entitlement from the winding up of partnership affairs to an aggregate amount of PhP 3,154,736.65 only.10 Chua, on the other hand, submitted a new computation,11 this time applying simple interest on the various items covered by his claim. Under this methodology, Chuas aggregate claim went down to PhP 8,733,644.75. On November 6, 2002, the RTC issued a Resolution,12 rejecting the accounting report petitioners submitted, while approving the new computation of claims Chua submitted. The fallo of the resolution reads: WHEREFORE, premises considered, this Court resolves, as it is hereby resolved, that the Computation of Claims submitted by the plaintiff dated October 15, 2002 amounting to P8,733,644.75 be APPROVED in all respects as the final computation and accounting of the defendants liabilities in favor of the plaintiff in the above-captioned case, DISAPPROVING for the purpose, in its entirety, the computation and accounting filed by the defendants. SO RESOLVED.13 Petitioners sought reconsideration, but their motion was denied by the RTC per its Resolution of January 7, 2003.14 In due time, petitioners went to the CA on a petition for certiorari15 under Rule 65, assailing the November 6, 2002 and January 7, 2003 resolutions of the RTC, the recourse docketed as CA-G.R. SP No. 75688. The Ruling of the CA As stated at the outset, the CA, in the herein assailed Decision of November 6, 2003, denied the petition for certiorari, thus: WHEREFORE, the foregoing considered, the Petition is hereby DENIED for lack of merit. SO ORDERED.16 The CA predicated its denial action on the ensuing main premises: 1. Petitioners, by not appearing on the hearing dates, i.e., April 29 and 30, 2002, scheduled to consider Chuas computation of claims, or rendering, as required, an accounting of the winding up of the partnership, are deemed to have waived their right to interpose any objection to the computation of claims thus submitted by Chua. 2. The 12% interest added on the amounts due is proper as the unwarranted keeping by petitioners of Chuas money passes as an involuntary loan and forbearance of money. 3. The reiterative arguments set forth in petitioners pleadings below were part of their delaying tactics. Petitioners had come to the appellate court at least thrice and to this Court twice. Petitioners had more than enough time to question the award and it is now too late in the day to change what had become final and executory. Petitioners motion for reconsideration was rejected by the appellate court through the assailed Resolution17 dated July 6, 2004. Therein, the CA explained that the imposition of the 12% interest for forbearance of credit or money was proper pursuant to paragraph 1 of the October 7, 1997 RTC decision, as the computation done by CPA Gahuman was made in "acceptable form under accounting procedures and standards of the properties, assets, income and profits of [Shellite]."18 Moreover, the CA ruled that the imposition of interest is not based on par. 3 of the October 7, 1997 RTC decision as the phrase "shares and interests" mentioned therein refers not to an imposition of interest for use of money in a loan or credit, but to a legal share or right. The appellate court also held that the imposition of interest on the partnership assets falls under par. 2 in relation to par. 1 of the final RTC decision as the restitution mentioned therein does not simply mean restoration but also reparation for the injury or damage committed against the rightful owner of the property. 32

Finally, the CA declared the partnership assets referred to in the final decision as "liquidated claim" since the claim of Chua is ascertainable by mathematical computation; therefore, interest is recoverable as an element of damage. The Issues Hence, the instant petition with petitioners raising the following issues for our consideration: I. Whether or not the Regional Trial Court can [impose] interest on a final judgment of unliquidated claims. II. Whether or not the Sheriff can enforce the whole divisible obligation under judgment only against one Defendant. III. Whether or not the absolute community of property of spouses Lilibeth Sunga Chan with her husband Norberto Chan can be lawfully made to answer for the liability of Lilibeth Chan under the judgment.19 Significant Intervening Events In the meantime, pending resolution of the instant petition for review and even before the resolution by the CA of its CA-G.R. SP No. 75688, the following relevant events transpired: 1. Following the RTCs approval of Chuas computation of claims in the amount of PhP 8,733,644.75, the sheriff of Manila levied upon petitioner Sunga-Chans property located along Linao St., Paco, Manila, covered by Transfer Certificate of Title (TCT) No. 208782,20 over which a building leased to the Philippine National Bank (PNB) stood. In the auction sale of the levied lot, Chua, with a tender of PhP 8 million,21 emerged as the winning bidder. 2. On January 21, 2005, Chua moved for the issuance of a final deed of sale and a writ of possession. He also asked the RTC to order the Registry of Deeds of Manila to cancel TCT No. 208782 and to issue a new certificate. Despite petitioners opposition on the ground of prematurity, a final deed of sale22 was issued on February 16, 2005. 3. On February 18, 2005, Chua moved for the confirmation of the sheriffs final deed of sale and for the issuance of an order for the cancellation of TCT No. 208782. Petitioners again interposed an opposition in which they informed the RTC that this Court had already granted due course to their petition for review on January 31, 2005; 4. On April 11, 2005, the RTC, via a Resolution, confirmed the sheriffs final deed of sale, ordered the Registry of Deeds of Manila to cancel TCT No. 208782, and granted a writ of possession23 in favor of Chua. 5. On May 3, 2005, petitioners filed before this Court a petition for the issuance of a temporary restraining order (TRO). On May 24, 2005, the sheriff of Manila issued a Notice to Vacate24 against petitioners, compelling petitioners to repair to this Court anew for the resolution of their petition for a TRO. 6. On May 31, 2005, the Court issued a TRO,25 enjoining the RTC and the sheriff from enforcing the April 11, 2005 writ of possession and the May 24, 2005 Notice to Vacate. Consequently, the RTC issued an Order26 on June 17, 2005, suspending the execution proceedings before it. 7. Owing to the clashing ownership claims over the leased Paco property, coupled with the filing of an unlawful detainer suit before the Metropolitan Trial Court (MeTC) in Manila against PNB, the Court, upon the banks motion, allowed, by Resolution27 dated April 26, 2006, the consignation of the monthly rentals with the MeTC hearing the ejectment case. The Courts Ruling The petition is partly meritorious. First Issue: Interest Proper in Forbearance of Credit 33

Petitioners, citing Article 221328 of the Civil Code, fault the trial court for imposing, in the execution of its final judgment, interests on what they considered as unliquidated claims. Among these was the claim for goodwill upon which the RTC attached a monetary value of PhP 250,000. Petitioners also question the imposition of 12% interest on the claimed monthly profits of PhP 35,000, reckoned from 1988 to October 15, 1992. To petitioners, the imposable rate should only be 6% and computed from the finality of the RTCs underlying decision, i.e., from December 20, 2001. Third on the petitioners list of unliquidated claims is the yet-to-be established value of the one-half partnership share and interest adjudicated to Chua, which, they submit, must first be determined with reasonable certainty in a judicial proceeding. And in this regard, petitioners, citing Eastern Shipping Lines, Inc. v. Court of Appeals,29 would ascribe error on the RTC for adding a 12% per annum interest on the approved valuation of the one-half share of the assets, inclusive of goodwill, due Chua. Petitioners are partly correct. For clarity, we reproduce the summary valuations and accounting reports on the computation of claims certified to by the parties respective CPAs. Chua claimed the following: A 50% share on assets (exclusive of goodwill) at fair market value (Schedule 1) P 1,613,550.00 B 50% share in the monetary value of goodwill (P500,000 x 50%) 250,000.00 C Legal interest on share of assets from June 1, 1992 to Oct. 15, 2002 at 12% interest per year (Schedule 2) 2,008,869.75 D Unreceived profits from 1988 to 1992 and its corresponding interest from Jan. 1, 1988 to Oct. 15, 2002 (Schedule 3) 4,761,225.00 E Damages F Attorneys fees G Litigation fees TOTAL AMOUNT 50,000.00 25,000.00 25,000.00 P 8,733,644.75

On the other hand, petitioners acknowledged the following to be due to Chua: Total Assets Schedule 1 50% due to Lamberto Chua Total Alleged Profit, Net of Payments Made, May 1992-Sch. 2 50% share in the monetary value of goodwill (500,000 x 50%) Moral and Exemplary Damages Attorneys Fee Litigation Fee TOTAL AMOUNT P2,431,956.35 P1,215,978.16 1,613,758.49 250,000.00 50,000.00 25,000.00 25,000.00 P3,154,736.65

As may be recalled, the trial court admitted and approved Chuas computation of claims amounting to PhP 8,733,644.75, but rejected that of petitioners, who came up with the figure of only PhP 3,154,736.65. We highlight the substantial differences in the accounting reports on the following items, to wit: (1) the aggregate amount of the partnership assets bearing on the 50% share of Chua thereon; (2) interests added on Chuas share of the assets; (3) amount of profits from 1988 through May 30, 1992, net of alleged payments made to Chua; and (4) interests added on the amount entered as profits. From the foregoing submitted valuation reports, there can be no dispute about the goodwill earned thru the years by Shellite. In fact, the parties, by their own judicial admissions, agreed on the monetary value, i.e., PhP 250,000, of this item. Clearly then, petitioners contradict themselves when they say that such amount of goodwill is without basis. Thus, the Court is loathed to disturb the trial courts approval of the amount of PhP 250,000, representing the monetary value of the goodwill, to be paid to Chua. Neither is the Court inclined to interfere with the CAs conclusion as to the total amount of the partnership profit, that is, PhP 1,855,000, generated for the period January 1988 through May 30, 1992, and the total partnership assets of PhP 3,227,100, 50% of which, or PhP 1,613,550, pertains to Chua as his share. To be sure, petitioners have not adduced adequate evidence to belie the above CAs factual determination, confirmatory of 34

the trial courts own. Needless to stress, it is not the duty of the Court, not being a trier of facts, to analyze or weigh all over again the evidence or premises supportive of such determination, absent, as here, the most compelling and cogent reasons. This brings us to the question of the propriety of the imposition of interest and, if proper, the imposable rate of interest applicable. In Reformina v. Tomol, Jr.,30 the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of indemnities in the concept of damages arising from default in the performance of obligations in general and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.31 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,"32 with the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid."33 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."34 Otherwise formulated, the norm to be followed in the future on the rates and application thereof is: I. When an obligation, regardless of its source, is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation breached 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 loans 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.35 Guided by the foregoing rules, the award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly, from January 1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of the RTC decision, until December 20, 2001, when the said decision became final and executory. Thereafter, the total of the monthly profits inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid, as the award for that item is considered to be, by then, equivalent to a forbearance of credit. Likewise, the PhP 250,000 award, representing 35

the goodwill value of the business, the award of PhP 50,000 for moral and exemplary damages, PhP 25,000 attorneys fee, and PhP 25,000 litigation fee shall earn 12% per annum from December 20, 2001 until fully paid. Anent the impasse over the partnership assets, we are inclined to agree with petitioners assertion that Chuas share and interest on such assets partake of an unliquidated claim which, until reasonably determined, shall not earn interest for him. As may be noted, the legal norm for interest to accrue is "reasonably determinable," not, as Chua suggested and the CA declared, determinable by mathematical computation. The Court has certainly not lost sight of the fact that the October 7, 1997 RTC decision clearly directed petitioners to render an accounting, inventory, and appraisal of the partnership assets and then to wind up the partnership affairs by restituting and delivering to Chua his one-half share of the accounted partnership assets. The directive itself is a recognition that the exact share and interest of Chua over the partnership cannot be determined with reasonable precision without going through with the inventory and accounting process. In fine, a liquidated claim cannot validly be asserted without accounting. In net effect, Chuas interest and share over the partnership asset, exclusive of the goodwill, assumed the nature of a liquidated claim only after the trial court, through its November 6, 2002 resolution, approved the assets inventory and accounting report on such assets. Considering that Chuas computation of claim, as approved by the trial court, was submitted only on October 15, 2002, no interest in his favor can be added to his share of the partnership assets. Consequently, the computation of claims of Chua should be as follows: (1) 50% share on assets (exclusive of goodwill) at fair market value (2) 50% share in the monetary value of goodwill (PhP 500,000 x 50%) (3) 12% interest on share of goodwill from December 20, 2001 to October 15, 2000 [PhP 250,000 x 0.12 x 299/365 days] (4) Unreceived profits from 1988 to May 30, 1992 (5) 6% interest on unreceived profits from January 1, 1988 to December 20, 200136 (6) 12% interest on unreceived profits from December 20, 2001 to October 15, 2002 [PhP 3,215,362.50 x 12% x 299/365 days] (7) Moral and exemplary damages (8) Attorneys fee (9) Litigation fee (10) 12% interest on moral and exemplary damages, attorneys fee, and litigation fee from December 20, 2001 to October 15, 2002 [PhP 100,000 x 12% x 299/365 days] TOTAL AMOUNT Second Issue: Petitioners Obligation Solidary Petitioners, on the submission that their liability under the RTC decision is divisible, impugn the implementation of the amended writ of execution, particularly the levy on execution of the absolute community property of spouses petitioner Sunga-Chan and Norberto Chan. Joint, instead of solidary, liability for any and all claims of Chua is obviously petitioners thesis. Under the circumstances surrounding the case, we hold that the obligation of petitioners is solidary for several reasons. For one, the complaint of Chua for winding up of partnership affairs, accounting, appraisal, and recovery of shares and damages is clearly a suit to enforce a solidary or joint and several obligation on the part of petitioners. As it were, the continuance of the business and management of Shellite by petitioners against the will of Chua gave rise to a solidary obligation, the acts complained of not being severable in nature. Indeed, it is well-nigh impossible to draw the line between when the liability of one petitioner ends and the liability of the other starts. In this kind of situation, the law itself imposes solidary obligation. Art. 1207 of the Civil Code thus provides: Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each of the latter is bound to render, entire compliance with the prestation. There is solidary liability only when the 36

PhP 1,613,550.00 250,000.00

24,575.34 1,855,000.00 1,360,362.50

316,074.54 50,000.00 25,000.00 25,000.00

9,830.14 PhP 5,529,392.52

obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (Emphasis ours.) Any suggestion that the obligation to undertake an inventory, render an accounting of partnership assets, and to wind up the partnership affairs is divisible ought to be dismissed. For the other, the duty of petitioners to remit to Chua his half interest and share of the total partnership assets proceeds from petitioners indivisible obligation to render an accounting and inventory of such assets. The need for the imposition of a solidary liability becomes all the more pronounced considering the impossibility of quantifying how much of the partnership assets or profits was misappropriated by each petitioner. And for a third, petitioners obligation for the payment of damages and attorneys and litigation fees ought to be solidary in nature, they having resisted in bad faith a legitimate claim and thus compelled Chua to litigate. Third Issue: Community Property Liable Primarily anchored as the last issue is the erroneous theory of divisibility of petitioners obligation and their joint liability therefor. The Court needs to dwell on it lengthily. Given the solidary liability of petitioners to satisfy the judgment award, respondent sheriff cannot really be faulted for levying upon and then selling at public auction the property of petitioner Sunga-Chan to answer for the whole obligation of petitioners. The fact that the levied parcel of land is a conjugal or community property, as the case may be, of spouses Norberto and Sunga-Chan does not per se vitiate the levy and the consequent sale of the property. Verily, said property is not among those exempted from execution under Section 13,37 Rule 39 of the Rules of Court. And it cannot be overemphasized that the TRO issued by the Court on May 31, 2005 came after the auction sale in question. Parenthetically, the records show that spouses Sunga-Chan and Norberto were married on February 4, 1992, or after the effectivity of the Family Code on August 3, 1988. Withal, their absolute community property may be held liable for the obligations contracted by either spouse. Specifically, Art. 94 of said Code pertinently provides: Art. 94. The absolute community of property shall be liable for: (1) x x x x (2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the community, or by both spouses, or by one spouse with the consent of the other. (3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited. (Emphasis ours.) Absent any indication otherwise, the use and appropriation by petitioner Sunga-Chan of the assets of Shellite even after the business was discontinued on May 30, 1992 may reasonably be considered to have been used for her and her husbands benefit. It may be stressed at this juncture that Chuas legitimate claim against petitioners, as readjusted in this disposition, amounts to only PhP 5,529,392.52, whereas Sunga-Chans auctioned property which Chua acquired, as the highest bidder, fetched a price of PhP 8 million. In net effect, Chua owes petitioner Sunga-Chan the amount of PhP 2,470,607.48, representing the excess of the purchase price over his legitimate claims. Following the auction, the corresponding certificate of sale dated January 15, 2004 was annotated on TCT No. 208782. On January 21, 2005, Chua moved for the issuance of a final deed of sale (1) to order the Registry of Deeds of Manila to cancel TCT No. 208782; (2) to issue a new TCT in his name; and (3) for the RTC to issue a writ of possession in his favor. And as earlier stated, the RTC granted Chuas motion, albeit the Court restrained the enforcement of the RTCs package of orders via a TRO issued on May 31, 2005. Therefore, subject to the payment by Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, we affirm the RTCs April 11, 2005 resolution, confirming the sheriffs final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of Chua. WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the assailed decision and resolution of the CA in CA-G.R. SP No. 75688 are hereby AFFIRMED with the following MODIFICATIONS: (1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC, Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, as effectively upheld by the CA, are AFFIRMED with the 37

modification that the approved claim of respondent Chua is hereby corrected and adjusted to cover only the aggregate amount of PhP 5,529,392.52; (2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, the Resolution dated April 11, 2005 of the RTC, confirming the sheriffs final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of respondent Chua, is AFFIRMED; and The TRO issued by the Court on May 31, 2005 in the instant petition is LIFTED. No pronouncement as to costs. SO ORDERED. G.R. No. 188961 October 13, 2009

AIR FRANCE PHILIPPINES/KLM AIR FRANCE, Petitioner, vs. JOHN ANTHONY DE CAMILIS, Respondent. CORONA, J.: Respondent John Anthony de Camilis filed a case for breach of contract of carriage, damages and attorneys fees against petitioner Air France Philippines/KLM Air France (AF) in the Regional Trial Court (RTC) of Makati City, Branch 59. Respondent alleged that he went on a pilgrimage with a group of Filipinos to selected countries in Europe. According to respondent: (1) AFs agent in Paris failed to inform him of the need to secure a transit visa for Moscow, as a result of which he was denied entry to Moscow and was subjected to humiliating interrogation by the police; (2) another AF agent (a certain Ms. Soeyesol) rudely denied his request to contact his travel companions to inform them that he was being sent back to Paris from Moscow with a police escort; Ms. Soeyesol even reported him as a security threat which resulted in his being subjected to further interrogation by the police in Paris and Rome, and worse, also lifted his flight coupons for the rest of his trip; (3) AF agents in Rome refused to honor his confirmed flight to Paris; (4) upon reaching Paris for his connecting flight to Manila, he found out that the AF agents did not check in his baggage and since he had to retrieve his bags at the baggage area, he missed his connecting flight; (5) he had to shoulder his extended stay in Paris for AFs failure to make good its representation that he would be given a complimentary motel pass and (6) he was given a computer print-out of his flight reservation for Manila but when he went to the airport, he was told that the flight was overbooked. It was only when he made a scene that the AF agent boarded him on an AF flight to Hongkong and placed him on a connecting Philippine Airlines flight to Manila. The RTC found that AF breached its contract of carriage and that it was liable to pay P200,000 actual damages, P1 million moral damages, P1 million exemplary damages and P300,000 attorneys fees to respondent. On appeal, the Court of Appeals (CA) affirmed the RTC decision with modifications.1 The CA ruled that it was respondent (as passenger), and not AF, who was responsible for having the correct travel documents. However, the appellate court stated that this fact did not absolve AF from liability for damages. The CA agreed with the findings of fact of the RTC that AFs agents and representatives repeatedly subjected respondent to very poor service, verbal abuse and abject lack of respect and consideration. As such, AF was guilty of bad faith for which respondent ought to be compensated. The appellate court affirmed the award of P1 million moral damages and P300,000 attorneys fees. However, it reduced the actual damages to US$906 (or its peso equivalent). According to the CA, this amount represented the expenses respondent incurred from the time he was unable to join his group in Rome (due to the unfounded "communiqu" of Ms. Soeyesol that he was a security threat) up to the time his flight reservation from Paris to Manila was dishonored for which he was forced to stay in Paris for two additional days. The appellate court pointed out that, on the other hand, respondents expenses for the Moscow leg of the trip must be borne by him as AF could not be faulted when he was refused entry to Moscow for lack of a transit visa. The CA also decreased the exemplary damages from P1 million to P300,000. The CA further imposed interest at the rate of 6% p.a. from the date of extrajudicial demand2 until full satisfaction, but before judgment becomes final. From the date of finality of the judgment until the obligation is totally paid, 12% interest p.a. shall be imposed. Hence, this recourse. Essentially, AF assails the CAs award of moral and exemplary damages and attorneys fees to respondent as the alleged injury sustained was not clearly established. AF added that, even if respondent was entitled to the 38

same, the amounts awarded were exorbitant. Lastly, it argued that the interest rate should run not from the time of respondents extrajudicial demand but from the time of judgment of the RTC. We deny the petition. Preliminarily, on the issue pertaining to whether or not respondent was entitled to damages and attorneys fees, the same entails a resort to the parties respective evidence. Thus, AF is clearly asking us to consider a question of fact. Time and again, we have held that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 is limited only to questions of law,3 save for certain exceptions,4 none of which are present in this case. Both the RTC and the CA have competently ruled on the issue of respondents entitlement to damages and attorneys fees as they properly laid down both the factual and legal bases for their respective decisions. We see no reason to disturb their findings. The above liabilities of AF shall earn legal interest pursuant to the Courts ruling in Construction Development Corporation of the Philippines v. Estrella,5 citing Eastern Shipping Lines, Inc. v. CA.61avvphi1 Pursuant to this ruling, the legal interest is 6% p.a. and it shall be reckoned from April 25, 2007 when the RTC rendered its judgment, not from the time of respondents extrajudicial demand. This must be so as it was at the time the RTC rendered its judgment that the quantification of damages may be deemed to have been reasonably ascertained. Then, from the time this decision becomes final and executory, the interest rate shall be 12% p.a. until full satisfaction. WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. CV No. 90151 is AFFIRMED. Petitioner is ordered to PAY legal interest of 6% p.a. from the date of promulgation of the decision dated April 25, 2007 of the Regional Trial Court, Branch 59, Makati City and 12% p.a. from the time the decision of this Court attains finality, on all sums awarded until their full satisfaction. Costs against petitioner. SO ORDERED. c. Extent of Recoverable Damages c.1 In contracts and quasi-contracts where there is c.1.a. good faith on obligor G.R. No. L-45048 January 7, 1987 BATONG BUHAY GOLD MINES, INC., petitioner, vs. THE COURT OF APPEALS and INC. MINING CORPORATION, respondents. Taada, Sanchez, Taada & Taada Law Office for petitioner. Quisumbing, Caparas, Ilagan Alcantara & Mosqueda Law Office for private respondent.

PARAS, J.: This is a petition to review the decision dated August 27, 1976 of the Court of Appeals (CA) in CA-G.R. No. 51313-R which modified the decision of the then Court of First Instance (CFI) of Manila, Branch 11 in Civil Case No. 79183 Also sought for review are the resolutions of the aforenamed court dated October 21, 1976 and November 12, 1976 which denied petitioner's motion for reconsideration of the subject decision and petition and/or motion for new trial, respectively. The dispositive portion of the CFI judgment reads: WHEREFORE, the Court renders judgment enjoining the defendants to effect the transfer of the shares covered by Stock Certificate No. 16807 to and in the name of plaintiff INCORPORATED Mining Corporation, and the writ of preliminary mandatory injunction issued on March 16, 1970 is hereby declared permanent. SO ORDERED. Upon the other hand, the decretal portion of the CA decision states: WHEREFORE, the judgment appealed from is hereby modified by adding the following to the dispositive portion thereof: Ordering defendant Batong Buhay Gold Mines, Inc. to pay to the plaintiff the sum of P5,625.55, with interest at the legal rate from March 5, 1970 until full payment; and dismissing the complaint with respect to defendant Del Rosario and Company. Defendant Batong Buhay shall pay the costs. 39

IT IS SO ORDERED. (pp. 67-68, Rollo) The antecedent facts, as found by the Court of Appeals, are as follows: The defendant Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807 covering 62,495 shares with a par value of P0.01 per share to Francisco Aguac who was then legally married to Paula G. Aguac, but the said spouses had lived separately for more than fourteen (14) years prior to the said date. On December 16, 1969, Francisco Aguac sold his 62,495 shares covered by Stock Certificate No. 16807 for the sum of P9,374.70 in favor of the plaintiff, the said transaction being evidenced by a deed of sale (Exhibit D). The said sale was made by Francisco Aguac without the knowledge or consent of his wife Paula G. Aguac. On the same date of the sale, December 16, 1969, Paula G. Aguac wrote a letter to the president of defendant Batong Buhay Gold Mines, Inc. asking that the transfer of the shares sold by her husband be withheld, inasmuch as the same constituted conjugal property and her share of proceeds of the sale was not given to her (Exhibit 1). On January 5, 1970, under a covering letter dated December 26, 1969, plaintiff's counsel presented Stock Certificate No. 16807 duly endorsed by Francisco Aguac for registration and transfer of the said stock certificate in the name of the plaintiff (Exhibit F). The said letter was addressed to defendant Del Rosario and Company which was the transfer agent of Batong Buhay at that time. In a letter dated February 24, 1970 also addressed to Del Rosario and Company, plaintiff's counsel requested information as to the action taken on the transfer of Stock Certificate No. 16807 in favor of the plaintiff, nothing about which having heard despite the lapse of over a month (Exhibit H). In a reply letter dated February 28, 1970, Del Rosario and Company informed plaintiff's counsel that Batong Buhay has referred the matter to their attorneys, inasmuch as there was a "technical problem that has developed in the transfer of stock," and further advised that the plaintiff communicate directly with Batong Buhay for further details (Exhibit 1).lwphl@it It developed that when Batong Buhay was about to effect the cancellation of Stock Certificate No. 16807 and transfer the 62,495 shares covered thereby to the plaintiff and had, in fact, prepared new Stock Certificate No. 27650 dated January 5, 1970, it received the letter of Paula G. Aguac advising it to withhold the transfer of the subject shares of stock on the ground that the same are conjugal property. On March 2, 1970 Francisco Aguac was charged in a criminal complaint Pasil Kalinga-Apayao, docketed as Criminal Case No. 10, entitled "People vs. Francisco Aguac, et al." The defendants justify their refusal to transfer the shares of stock of Francisco Aguac in the name of the plaintiff in view of their apprehension that they might he held liable for damages under Article 173 of the Civil Code and the ruling of the Supreme Court in Bucoy vs. Paulino, 23 SCRA 248. On March 5, 1970, in view of the defendant's inaction on the request for the transfer of the stock certificate in its name, the plaintiff commenced this action before the Court of First Instance of Manila, praying that the defendants be ordered to issue and release the transfer stock certificate covering 62,495 shares of defendant Batong Buhay, formerly registered in the name of Francisco Aguac, in favor of the plaintiff, and for the recovery of compensatory, exemplary and corrective damages and attorney's fees. A writ of preliminary mandatory injunction was prayed for to order the defendants to issue immediately the transfer certificate covering the aforesaid shares of stock of defendant Batong Buhay in the name of the plaintiff. The trial court granted the prayer for the issuance of the writ of preliminary mandatory injunction in its order of March 16, 1970. In compliance therewith, Stock Certificate No. 16807 was cancelled and new Stock Certificate No. 27650 dated January 5, 1970 was issued to and received by the plaintiff on July 20, 1970." On October 28, 1971, the trial court handed down its judgment ordering the defendant (herein petitioner) to effect the transfer of the shares covered by Stock Certificate No. 16807 in the name of herein respondent Incoporated Mining Corporation and declaring permanent the writ of preliminary mandatory injunction issued on March 16, 1970. Private respondent seasonably appealed the aforesaid decision to the Court of Appeals anchored on the lower court's alleged failure to award damages for the wrongful refusal of petitioner to transfer the subject shares of stock and alleged failure to award attorney's fees, cost of injunction bond and expenses of litigation. On August 27, 1986, respondent appellate court rendered the subject decision the dispositive portion of which has already been quoted hereinabove. Hence, this petition. In assailing the decision of the Court of Appeals, petitioner poses the following issues: 1. May the Court of Appeals award damages by way of unrealized profits despite the absence of supporting evidence, or merely on the basis of pure assumption, speculation or conjecture; or can the respondent recover damages by way of unrealized profits when it has not shown that it was damaged in any manner by the act of petitioner? 2. May the appellate court deny the petitioner the chance to present evidence discovered after judgment which were not only very material to its case, but would also show the untenability and illegality of private respondent's position? 40

We answer the first issue in the negative. The petitioner alleges that the appellate court gravely and categorically erred in awarding damages by way of unrealized profit (or lucro cesante) to private respondent. Petitioner company also alleges that the claim for unrealized profit must be duly and sufficiently established, that is, that the claimant must submit proof that it was in fact damaged because of petitioner's act or omission. The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or would have sold the stocks in question on specified dates. While it is true that shares of stock may go up or down in value (as in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely SPECULATIVE, for it was difficult to predict with any decree of certainty the rise and fall in the value of the shares. Thus this Court has ruled that speculative damages cannot be recovered. It is easy to say now that had private respondent gained legal title to the shares, it could have sold the same and reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to transfer the stocks in the former's name at the time demand was made, but then it is also true that human nature, being what it is, private respondent's officials could also have refused to sell and instead wait for expected further increases in value. In view of what has been said, We find no necessity to discuss the second issue. WHEREFORE, the assailed decision and resolutions of the Court of Appeals are hereby SET ASIDE, and a new one is hereby rendered REINSTATING the decision of the trial court. No costs. SO ORDERED. c.1.b bad faith in obligor G.R. No. L-18487 November 28, 1964

GENERAL ENTERPRISES, INC., plaintiff-appellee, vs. LIANGA BAY LOGGING COMPANY, INC., defendant-appellant. RESOLUTION BAUTISTA ANGELO, J.: Defendant seeks the reconsideration of our decision rendered on August 31, 1964 on the grounds that the amount of P400,000.00 awarded to plaintiff as lucrum cessans is not justified considering the evidence available; that assuming the agreement entered into between the parties to be valid, defendant is not guilty of breach thereof because its obligation to supply the monthly two million board feet for the remainder of the period of the agreement was not mandatory but conditional, aside from the fact that it had the right to suspend the operation of the agreement under the proviso contained in paragraph 8 thereof; that the request of defendant for the renegotiation of the prices of logs which was refused by plaintiff was a right expressly granted to it in paragraph 2 of said agreement; and that the award of exemplary damages and attorney's fees to plaintiff is unjustified. Defendant, in addition, filed a motion for a new trial based on a new evidence which allegedly could not have been discovered during the trial consisting of a contract executed between the plaintiff and the Basilan Lumber Company and of a record of the export of logs of the latter company during the years 1960 and 1961 which allegedly tend to show that even if additional quantity of logs were made available by defendant to plaintiff during the remaining period of the contract, the latter would not have been able to sell said logs, plus another record tending to show that plaintiff reported to the government as commission received from the sale of 7,405,861 board feet of defendant's logs in the year 1959 the sum of P66,036.86 which merely represents 8% of the 13% commission agreed upon between plaintiff and defendant to bolster its claim that 5% of said commission should be deducted from the lucrum cessans that may be awarded to plaintiff. Plaintiff opposed the motion for reconsideration and new trial on the ground that no new point has been raised therein but that it would only unduly delay the disposition of the case. To this opposition defendant filed a reply and a counter-manifestation. As a basis for the actual damages awarded to plaintiff we stated in our decision that "whether logs were delivered to plaintiff, plaintiff earned the commission. Had defendant continued to deliver the logs plaintiff could have continued earning its commission in much the same way as in previous shipments." Defendant's counsel now finds this premise erroneous because it assumes facts not in accordance with the mode of implementation of the agreement in question. It is claimed that, according to said mode, a sale must always precede the supply or delivery of logs. If no sale is made by plaintiff, defendant does not have to supply or deliver any quantity of logs. The commission is earned only on sales made. If there is no sale there is no commission. So, counsel concludes, it is erroneous to assume that had the operation of the agreement continued plaintiff would have earned its commission on the basis of the 34 million board feet called for during the remaining period of the agreement. Counsel predicates his argument on something which plaintiff was precisely prevented from doing. It is true that a sale must always precede the supply or delivery of logs and the commission is earned only on sales made. But, how could plaintiff conclude sales when defendant has stubbornly refused to continue with the operation of the contract in spite of the warning given to it by plaintiff? Had the operation not been stopped, 41

plaintiff would have undoubtedly continued the flow of sales in pursuance of the agreement. But defendant prevented this for reasons of its own. The question of whether the obligation to supply the additional monthly two million board feet during the remaining period of the agreement is mandatory or conditional, or whether defendant had the right to suspend its operation as a consequence of its request for renegotiation of prices, are matters that have already been discussed in our main decision. We do not need to repeat here the discussion we have made thereon. We only need to emphasize that, since defendant is guilty of breaking the agreement for reasons purely of its own, in disregard of its express covenant, it held itself liable for all consequential damages that may result from such breach, whether foreseen or unforeseen, and one of the items that may be considered in determining said damages is the failure to realize whatever profits could have been earned during the remaining life of the agreement.1 It is not, therefore, proper to base such damages purely in transactions that had been accomplished in the past and ignore those that could have been accomplished in the future. As the law says, in case of fraud or bad faith, "the obligor shall be responsible for all damages that may be reasonably attributed to the non-performance of the obligation" (Article 2201, new Civil Code). But we agree with counsel that the commission paid by plaintiff to Frinat International in the sale of logs of defendant should be deducted from the award made in its favor. But what is the rate of such commission? The record does not appear clear on this matter. On one hand, it shows that the 5% commission earned by Frinat International, as sub-agent, was paid by defendant as an additional commission, as may be gathered from defendant's brief (pp. 6, 70, 85, 88, 141 and 197). On the other hand, plaintiff itself admitted that it does not in all cases receive the whole 13% commission because in cases where plaintiff's officials could not personally contact the buyers or conclude sales with them, plaintiff has to pay a commission of 2% to a sub-agent (appellee's brief pp. 21 and 85). The most that can be said, therefore, is that what plaintiff had paid in its previous sales in the form of commission to Frinat International was 2% and not 5% as claimed. This is the most that can be deducted from the 13% commission corresponding to plaintiff. As already stated in our main decision, the commission earned by plaintiff based on actual sales effected during the first seven months was P.0107456 per board foot. The total board feet which under the terms of the agreement defendant was obligated to deliver for the next 17 months is 34 million board feet. Multiplying 34 million board feet by P.0107456, the product is P365,350.40. Deducting therefrom the 2 % commission that corresponds to Frinat International, which amounts to P56,207.76, the balance is P309,142.64, which should be the lucrum cessans to which plaintiff is entitled. Under Article 2210, interest may be allowed upon damages awarded for breach of contract, in the discretion of the court. Considering the circumstances of this case, we do not deem it justified to further charge interest on the damages herein involved. The exemplary damages and attorney's fees awarded in the decision are in our opinion proper and so further discussion thereof is unnecessary. With regard to the motion for a new trial, the contract with Basilan Lumber Company alleged to be a newly discovered evidence is not really so for it could have been presented during the trial. As a matter of fact, the original of said contract was already presented as Exhibit O and claimed in the brief to have been the basis of the agreement in question. The claim that plaintiff turned down offers for distribution from other companies does not necessarily prove that even if defendant had continued to make available the 2 million board feet monthly plaintiff could not have been able to sell the same, because at the time of the execution of the agreement plaintiff was also the distributor of other companies; like the Basilan Lumber Company, Martha Enterprises, Selective Philippine Lumber Company, and it complied with its commitments with said entities. WHEREFORE, we hereby modify our decision rendered on August 31, 1964 in the sense of awarding to plaintiff the sum of P309,142.64 as lucrum cessans affirming said decision in all other respects. The motion for new trial is denied. c.2 In crimes and quasi-delicts G.R. No. 152040 March 31, 2006

MARIKINA AUTO LINE TRANSPORT CORPORATION and FREDDIE L. SUELTO, Petitioners, vs. PEOPLE OF THE PHILIPPINES and ERLINDA V. VALDELLON, Respondents. CALLEJO, SR., J.: Before the Court is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CR No. 16739 affirming the Joint Decision of the Regional Trial Court (RTC) in Criminal Case No. Q-93-42629 and Civil Case No. Q-93-16051, where Freddie Suelto was convicted of reckless imprudence resulting in damages to property. Erlinda V. Valdellon is the owner of a two-door commercial apartment located at No. 31 Kamias Road, Quezon City. The Marikina Auto Line Transport Corporation (MALTC) is the owner-operator of a passenger bus with Plate Number NCV-849. Suelto, its employee, was assigned as the regular driver of the bus.2 At around 2:00 p.m. on October 3, 1992, Suelto was driving the aforementioned passenger bus along Kamias Road, Kamuning, Quezon City, going towards Epifanio de los Santos Avenue (EDSA). The bus suddenly swerved to the right and struck the terrace of the commercial apartment owned by Valdellon located along Kamuning Road.3 Upon Valdellons request, the court ordered Sergio Pontiveros, the Senior Building Inspection Officer of 42

the City Engineers Office, to inspect the damaged terrace. Pontiveros submitted a report enumerating and describing the damages: (1) The front exterior and the right side concrete columns of the covered terrace were vertically displaced from its original position causing exposure of the vertical reinforcement. (2) The beams supporting the roof and parapet walls are found with cracks on top of the displaced columns. (3) The 6 CHB walls at [the] right side of the covered terrace were found with cracks caused by this accident. (4) The front iron grills and concrete balusters were found totally damaged and the later [sic] beyond repair.4 He recommended that since the structural members made of concrete had been displaced, the terrace would have to be demolished "to keep its monolithicness, and to insure the safety and stability of the building."5 Photographs6 of the damaged terrace were taken. Valdellon commissioned Engr. Jesus R. Regal, Jr. to estimate the cost of repairs, inclusive of labor and painting, and the latter pegged the cost at P171,088.46.7 In a letter dated October 19, 1992 addressed to the bus company and Suelto, Valdellon demanded payment of P148,440.00, within 10 days from receipt thereof, to cover the cost of the damage to the terrace.8 The bus company and Suelto offered a P30,000.00 settlement which Valdellon refused.9 Valdellon filed a criminal complaint for reckless imprudence resulting in damage to property against Suelto. After the requisite preliminary investigation, an Information was filed with the RTC of Quezon City. The accusatory portion of the Information reads: That on or about the 3rd day of October 1992, in Quezon City, Philippines, the said accused, being then the driver and/or person in charge of a Marikina Auto Line bus bearing Plate No. NVC-849, did then and there unlawfully, and feloniously drive, manage, and operate the same along Kamias Road, in said City, in a careless, reckless, negligent, and imprudent manner, by then and there making the said vehicle run at a speed greater than was reasonable and proper without taking the necessary precaution to avoid accident to person/s and damage to property, and considering the condition of the traffic at said place at the time, causing as a consequence of his said carelessness, negligence, imprudence and lack of precaution, the said vehicle so driven, managed and operated by him to hit and bump, as in fact it hit and bump a commercial apartment belonging to ERLINDA V. VALDELLON located at No. 31 Kamias Road, this City, thereby causing damages to said apartment in the total amount of P171,088.46, Philippine Currency, to her damage and prejudice in the total amount aforementioned. CONTRARY TO LAW.10 Valdellon also filed a separate civil complaint against Suelto and the bus company for damages. She prayed that after due proceedings, judgment be rendered in her favor, thus: WHEREFORE, it is respectfully prayed of this Honorable Court to issue a writ of preliminary attachment against the defendants upon approval of plaintiffs bond, and after trial on the merits, to render a decision in favor of the plaintiff, ordering the defendants, jointly and severally, to pay a) the total sum of P171,088.46 constituting the expenses for the repair of the damaged apartment of plaintiff, with interests to be charged thereon at the legal rate from the date of the formal demand until the whole obligation is fully paid; b) the sum of not less than P20,000.00 each as compensatory and exemplary damages; c) the sum of P20,000.00 as attorneys fees and the sum of P1,000.00 for each appearance of plaintiffs counsel; and costs of suit; PLAINTIFF further prays for such other reliefs as may be just and equitable in the premises.11 A joint trial of the two cases was ordered by the trial court.12 The trial court conducted an ocular inspection of the damaged terrace, where defendants offered to have it repaired and restored to its original state. Valdellon, however, disagreed because she wanted the building demolished to give way for the construction of a new one.13 During the trial, Valdellon testified on the damage caused to the terrace of her apartment, and, in support thereof, adduced in evidence a receipt for P35,000.00, dated October 20, 1993, issued by the BB Construction and Steel Fabricator for "carpentry, masonry, welding job and electrical [work]."14 Pontiveros of the Office of the City Engineer testified that there was a need to change the column of the terrace, but that the building should also be demolished because "if concrete is destroyed, [one] cannot have it restored to its original position."15 Engr. Jesus Regal, Jr., the proprietor of the SSP Construction, declared that he inspected the terrace and estimated the cost of repairs, including labor, at P171,088.46. Suelto testified that at 2:00 p.m. on October 3, 1992, he was driving the bus on its way to Ayala Avenue, Makati, Metro Manila. When he reached the corner of K-H Street at Kamias Road, Quezon City, a passenger jeepney suddenly crossed from EDSA going to V. Luna and swerved to the lane occupied by the bus. Suelto had 43

to swerve the bus to the right upon which it hit the side front of the terrace of Valdellons two-door apartment.16 Based on his estimate, the cost to the damage on the terrace of the apartment amounted to P40,000.00.17 On cross-examination, Suelto declared that he saw the passenger jeepney when it was a meter away from the bus. Before then, he had seen some passenger jeepneys on the right trying to overtake one another.18 Architect Arnulfo Galapate testified that the cost of the repair of the damaged terrace amounted to P55,000.00.19 On April 28, 1994, the trial court rendered judgment finding Suelto guilty beyond reasonable doubt of reckless imprudence resulting in damage to property, and ordered MALTC and Suelto to pay, jointly and severally, P150,000.00 to Valdellon, by way of actual and compensatory damages, as well as attorneys fees and costs of suit. The fallo of the decision reads: WHEREFORE, finding the accused FREDDIE SUELTO Y LIWAG guilty beyond reasonable doubt of the crime of Reckless Imprudence Resulting in Damage to Property, said accused is hereby sentenced to suffer imprisonment of ONE (1) YEAR. With respect to the civil liability, judgment is hereby rendered in favor of plaintiff Erlinda Valdellon and against defendant Marikina Auto Line Transport Corporation and accused Freddie Suelto, where both are ordered, jointly and severally, to pay plaintiff: a. the sum of P150,000.00, as reasonable compensation sustained by plaintiff for her damaged apartment; b. the sum of P20,000.00, as compensatory and exemplary damages; c. the sum of P20,000.00, as attorneys fees; and, d. the costs of suit. SO ORDERED.20 MALTC and Suelto, now appellants, appealed the decision to the CA, alleging that the prosecution failed to prove Sueltos guilt beyond reasonable doubt. They averred that the prosecution merely relied on Valdellon, who testified only on the damage caused to the terrace of her apartment which appellants also alleged was excessive. Appellant Suelto further alleged that he should be acquitted in the criminal case for the prosecutions failure to prove his guilt beyond reasonable doubt. He maintained that, in an emergency case, he was not, in law, negligent. Even if the appellate court affirmed his conviction, the penalty of imprisonment imposed on him by the trial court is contrary to law. In its Brief for the People of the Philippines, the Office of the Solicitor General (OSG) submitted that the appealed decision should be affirmed with modification. On Sueltos claim that the prosecution failed to prove his guilt for the crime of reckless imprudence resulting in damage to property, the OSG contended that, applying the principle of res ipsa loquitur, the prosecution was able to prove that he drove the bus with negligence and recklessness. The OSG averred that the prosecution was able to prove that Sueltos act of swerving the bus to the right was the cause of damage to the terrace of Valdellons apartment, and in the absence of an explanation to the contrary, the accident was evidently due to appellants want of care. Consequently, the OSG posited, the burden was on the appellant to prove that, in swerving the bus to the right, he acted on an emergency, and failed to discharge this burden. However, the OSG averred that the trial court erred in sentencing appellant to a straight penalty of one year, and recommended a penalty of fine. On June 20, 2000, the CA rendered judgment affirming the decision of the trial court, but the award for actual damages was reduced to P100,000.00. The fallo of the decision reads: WHEREFORE, premises considered, the decision dated April 28, 1994, rendered by the court a quo is AFFIRMED with the modification that the sum of P150,000.00 as compensation sustained by the plaintiff-appellee for her damaged apartment be reduced to P100,000.00 without pronouncement as to costs. SO ORDERED.21 Appellants filed a Motion for Reconsideration, but the CA denied the same.22 MALTC and Suelto, now petitioners, filed the instant petition reiterating its submissions in the CA: (a) the prosecution failed to prove the crime charged against petitioner Suelto; (b) the prosecution failed to adduce evidence to prove that respondent suffered actual damages in the amount of P100,000.00; and (c) the trial court erred in sentencing petitioner Suelto to one (1) year prison term. On the first issue, petitioners aver that the prosecution was mandated to prove that petitioner Suelto acted with recklessness in swerving the bus to the right thereby hitting the terrace of private respondents apartment. However, the prosecution failed to discharge its burden. On the other hand, petitioner Suelto was able to prove that he acted in an emergency when a passenger jeepney coming from EDSA towards the direction of the bus overtook another vehicle and, in the process, intruded into the lane of the bus. On the second issue, petitioners insist that private respondent was able to prove only the amount of P35,000.00 by way of actual damages; hence, the award of P100,000.00 is barren of factual basis. On the third issue, petitioner Suelto posits that the straight penalty of imprisonment recommended by the trial court, and affirmed by the CA, is contrary to Article 365 of the Revised Penal Code. 44

The petition is partially granted. On the first issue, we find and so resolve that respondent People of the Philippines was able to prove beyond reasonable doubt that petitioner Suelto swerved the bus to the right with recklessness, thereby causing damage to the terrace of private respondents apartment. Although she did not testify to seeing the incident as it happened, petitioner Suelto himself admitted this in his answer to the complaint in Civil Case No. Q-9316051, and when he testified in the trial court. Suelto narrated that he suddenly swerved the bus to the right of the road causing it to hit the column of the terrace of private respondent. Petitioners were burdened to prove that the damage to the terrace of private respondent was not the fault of petitioner Suelto. We have reviewed the evidence on record and find that, as ruled by the trial court and the appellate court, petitioners failed to prove that petitioner acted on an emergency caused by the sudden intrusion of a passenger jeepney into the lane of the bus he was driving. It was the burden of petitioners herein to prove petitioner Sueltos defense that he acted on an emergency, that is, he had to swerve the bus to the right to avoid colliding with a passenger jeep coming from EDSA that had overtaken another vehicle and intruded into the lane of the bus. The sudden emergency rule was enunciated by this Court in Gan v. Court of Appeals,23 thus: [O]ne who suddenly finds himself in a place of danger, and is required to act without time to consider the best means that may be adopted to avoid the impending danger, is not guilty of negligence if he fails to adopt what subsequently and upon reflection may appear to have been a better method unless the emergency in which he finds himself is brought about by his own negligence. Under Section 37 of Republic Act No. 4136, as amended, otherwise known as the Land Transportation and Traffic Code, motorists are mandated to drive and operate vehicles on the right side of the road or highway: SEC. 37. Driving on right side of highway. Unless a different course of action is required in the interest of the safety and the security of life, person or property, or because of unreasonable difficulty of operation in compliance herewith, every person operating a motor vehicle or an animal-drawn vehicle on a highway shall pass to the right when meeting persons or vehicles coming toward him, and to the left when overtaking persons or vehicles going the same direction, and when turning to the left in going from one highway to another, every vehicle shall be conducted to the right of the center of the intersection of the highway. Section 35 of the law provides, thus: Sec. 35. Restriction as to speed.(a) Any person driving a motor vehicle on a highway shall drive the same at a careful and prudent speed, not greater nor less than is reasonable and proper, having due regard for the traffic, the width of the highway, and of any other condition then and there existing; and no person shall drive any motor vehicle upon a highway at such a speed as to endanger the life, limb and property of any person, nor at a speed greater than will permit him to bring the vehicle to a stop within the assured clear distance ahead (emphasis supplied). In relation thereto, Article 2185 of the New 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 mishap, he was violating any traffic regulation." By his own admission, petitioner Suelto violated the Land Transportation and Traffic Code when he suddenly swerved the bus to the right, thereby causing damage to the property of private respondent. However, the trial court correctly rejected petitioner Sueltos defense, in light of his contradictory testimony vis-vis his Counter-Affidavit submitted during the preliminary investigation: It is clear from the photographs submitted by the prosecution (Exhs. C, D, G, H & I) that the commercial apartment of Dr. Valdellon sustained heavy damage caused by the bus being driven by Suelto. "It seems highly improbable that the said damages were not caused by a strong impact. And, it is quite reasonable to conclude that, at the time of the impact, the bus was traveling at a high speed when Suelto tried to avoid the passenger jeepney." Such a conclusion finds support in the decision of the Supreme Court in People vs. Ison, 173 SCRA 118, where the Court stated that "physical evidence is of the highest order. It speaks more eloquently than a hundred witnesses." The pictures submitted do not lie, having been taken immediately after the incident. The damages could not have been caused except by a speeding bus. Had the accused not been speeding, he could have easily reduced his speed and come to a full stop when he noticed the jeep. Were he more prudent in driving, he could have avoided the incident or even if he could not avoid the incident, the damages would have been less severe. In addition to this, the accused has made conflicting statements in his counter-affidavit and his testimony in court. In the former, he stated that the reason why he swerved to the right was because he wanted to avoid the passenger jeepney in front of him that made a sudden stop. But, in his testimony in court, he said that it was to avoid a passenger jeepney coming from EDSA that was overtaking by occupying his lane. Such glaring inconsistencies on material points render the testimony of the witness doubtful and shatter his credibility. Furthermore, the variance between testimony and prior statements renders the witness unreliable. Such inconsistency results in the loss in the credibility of the witness and his testimony as to his prudence and diligence. As already maintained and concluded, the severe damages sustained could not have resulted had the accused acted as a reasonable and prudent man would. The accused was not diligent as he claims to be. What is more 45

probable is that the accused had to swerve to the right and hit the commercial apartment of the plaintiff because he could not make a full stop as he was driving too fast in a usually crowded street.24 Moreover, if the claim of petitioners were true, they should have filed a third-party complaint against the driver of the offending passenger jeepney and the owner/operator thereof. Petitioner Sueltos reliance on the sudden emergency rule to escape conviction for the crime charged and his civil liabilities based thereon is, thus, futile. On the second issue, we 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 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. 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 factual basis for such award. Indeed, the trial court merely declared in the decretal portion of its 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. The damaged portions of the apartment in question are not disputed. Considering the aforesaid damages which are the direct result of the accident, the reasonable, and adequate compensation due is hereby fixed at P100,000.00.25 Under Article 2199 of the New Civil Code, actual damages include all the natural and probable consequences of the act or omission complained of, classified as one for the loss of what a person already possesses (dao emergente) and the other, for the failure to receive, as a benefit, that which would have pertained to him (lucro cesante). As expostulated by the Court in PNOC Shipping and Transport Corporation v. Court of Appeals:26 Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has been done, to compensate for the injury inflicted and not to impose a penalty. In actions based on torts or quasi-delicts, actual damages include all the natural and probable consequences of the act or omission complained of. There are two kinds of actual or compensatory damages: one is the loss of what a person already possesses (dao emergente), and the other is the failure to receive as a benefit that which would have pertained to him (lucro cesante).27 The burden of proof is on the party who would be defeated if no evidence would be presented on either side. The burden is to establish ones case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side, is superior to that of the other. Actual damages are not presumed. The claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence obtainable. Specific facts that could afford a basis for measuring whatever compensatory or actual damages are borne must be pointed out. Actual damages cannot be anchored on mere surmises, speculations or conjectures. As the Court declared: As stated at the outset, to enable an injured party to recover actual or compensatory damages, he is required to prove the actual amount of loss with reasonable degree of certainty premised upon competent proof and on the best evidence available. The burden of proof is on the party who would be defeated if no evidence would be presented on either side. He must establish his case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side is superior to that of the other. In other words, damages cannot be presumed and courts, in making an award, must point out specific facts that could afford a basis for measuring whatever compensatory or actual damages are borne.28 The Court further declared that "where goods are destroyed by the wrongful act of defendant, the plaintiff is entitled to their value at the time of the destruction, that is, normally, the sum of money which he would have to pay in the market for identical or essentially similar goods, plus in a proper case, damages for the loss of the use during the period before replacement.29 While claimants bare testimonial assertions in support of their claims for damages should not be discarded altogether, however, the same should be admitted with extreme caution. Their testimonies should be viewed in light of claimants self-interest, hence, should not be taken as gospel truth. Such assertion should be buttressed by independent evidence. In the language of the Court: For this reason, Del Rosarios claim that private respondent incurred losses in the total amount of P6,438,048.00 should be admitted with extreme caution considering that, because it was a bare assertion, it should be supported by independent evidence. Moreover, because he was the owner of private respondent corporation whatever testimony he would give with regard to the value of the lost vessel, its equipment and cargoes should be viewed in the light of his self-interest therein. We agree with the Court of Appeals that his testimony as to the equipment installed and the cargoes loaded on the vessel should be given credence considering his familiarity thereto. However, we do not subscribe to the conclusion that his valuation of such 46

equipment, cargo, and the vessel itself should be accepted as gospel truth. We must, therefore, examine the documentary evidence presented to support Del Rosarios claim as regards the amount of losses.30 An estimate of the damage cost will not suffice: Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred. It is not enough that the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts that afford a basis for measuring whatever compensatory damages are borne. Private respondents merely sustained an estimated amount needed for the repair of the roof of their subject building. What is more, whether the necessary repairs were caused only by petitioners alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question that remains indeterminable.31 We note, however, that petitioners adduced evidence that, in their view, the cost of the damage to the terrace of private respondent would amount to P55,000.00.32 Accordingly, private respondent is entitled to P55,000.00 actual damages. We also agree with petitioner Sueltos contention that the trial court erred in sentencing him to suffer a straight penalty of one (1) year. This is so because under the third paragraph of Article 365 of the Revised Penal Code, the offender must be sentenced to pay a fine when the execution of the act shall have only resulted in damage to property. The said provision reads in full: ART. 365. Imprudence and negligence. Any person who, by reckless imprudence, shall commit any act which, had it been intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its maximum period, to prision correccional in its medium period; if it would have constituted a less grave felony, the penalty of arresto mayor in its minimum and medium periods shall be imposed; if it would have constituted a light felony, the penalty of arresto menor in its maximum period shall be imposed. Any person who, by simple imprudence or negligence, shall commit an act which would, otherwise, constitute a grave felony, shall suffer the penalty of arresto mayor in its medium and maximum periods; if it would have constituted a less serious felony, the penalty of arresto mayor in its minimum period shall be imposed. When the execution of the act covered by this article shall have only resulted in damage to the property of another, the offender shall be punished by a fine ranging from an amount equal to the value of said damages to three times such value, but which shall in no case be less than 25 pesos. A fine not exceeding two hundred pesos and censure shall be imposed upon any person who, by simple imprudence or negligence, shall cause some wrong which, if done maliciously, would have constituted a light felony. In the imposition of these penalties, the courts shall exercise their sound discretion, without regard to the rules prescribed in Article 64 (Emphasis supplied). In the present case, the only damage caused by petitioner Sueltos act was to the terrace of private respondents apartment, costing P55,000.00. Consequently, petitioners contention that the CA erred in awarding P100,000.00 by way of actual damages to private respondent is correct. We agree that private respondent is entitled to exemplary damages, and find that the award given by the trial court, as affirmed by the CA, is reasonable. Considering the attendant circumstances, we rule that private respondent Valdellon is entitled to only P20,000.00 by way of exemplary damages. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The joint decision of the Regional Trial Court of Quezon City is AFFIRMED WITH THE MODIFICATION that petitioner Suelto is sentenced to pay a fine of P55,000.00 with subsidiary imprisonment in case of insolvency. Petitioners are ORDERED to pay to Erlinda V. Valdellon, jointly and severally, the total amount of P55,000.00 by way of actual damages, and P20,000.00 by way of exemplary damages. No pronouncement as to costs. SO ORDERED. III. MORAL DAMAGES b. Purpose G.R. No. 88013 March 19, 1990 SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents. Don P. Porcuincula for petitioner. San Juan, Gonzalez, San Agustin & Sinense for private respondent. CRUZ, J.: We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts.

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The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds. The dishonored checks are the following: 1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00: 2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73: 3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00; 4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00: 5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00: 6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45: 7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and 8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2 As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred. The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4 In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs. After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6 The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendantappellant. It is this ruling that is faulted in the petition now before us. This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment. As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the 48

complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner. We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner. Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim. We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case." From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9 We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect. Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00. Now for the exemplary damages. The pertinent provisions of the Civil Code are the following: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. 49

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages. After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired. ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs. SO ORDERED. G.R. No. L-46877 January 22, 1988 LOURDES CYNTHIA MAKABALI and GEORGINA MAKABALI, petitioners, vs. COURT OF APPEALS and BARON TRAVEL CORPORATION, respondents. FERNAN, J.: The sole issue in this petition for review is whether or not petitioners are entitled to more than the P5,000.00 moral and exemplary damages, P1,000.00 attorney's fees and costs awarded to them by the Court of Appeals in the light of the circumstances of the case. Petitioner Georgina Makabali had just graduated from the College of Medicine, University of the Philippines, and as a graduation gift from her father, was given a trip to Hongkong. Since she had never been abroad, her parents insisted that she be accompanied by her sister and co-petitioner Lourdes Cynthia Makabali, a schoolteacher at the Colegio de San Agustin, Dasmarias Village. An advertisement of private respondent Baron Travel Corporation in the March 30, 1969 issue of the newspaper The Sunday Times' offering a package tour to Hongkong caught the attention of petitioner Georgina Makabali. In response to her inquiry, private respondent sent her the literature pertaining to its Hongkong package tour together with the time schedule, description of the tour, tour conditions and brochure. At private respondent's office, petitioners were assured that they would be going with a group of thirteen [13] other travelers to be led by a tour guide, a certain Mr. Arsenio Rosal, and that a representative of private respondent would see them off at the Manila International Airport to give them final instructions. Petitioners were also that they would be lodged at the President Hotel in Hongkong. These promises and representations convinced the petitioners to purchase the Hongkong package tour offered by private respondent. On the departure date, May 10, 1969, petitioners searched for the tour group they were supposed to meet at the Manila International Airport. They likewise searched for private respondent's representative who would give them final instructions on their trip to Hongkong. They met neither private respondent's tour group nor its representative. When they were paged through the public address system to board their plane for Hongkong, they had no choice but to do so without receiving any instructions from private respondent's representative. Inside the plane, petitioners did not meet anyone from the Baron Tour Group. They looked for and found a certain Mr. Arsenio Rosal who, to their embarrassment, protested that he was not a tour guide but a business executive working with International Harvester Macleod, Inc. and who was going to Hongkong as a paying passenger. In fact, he knew no one from private respondent Baron Travel Corporation and had nothing to do with it. In Hongkong, nobody met petitioners at the airport. W. Rosal who was a member of the Abaya Tour Group, requested their tour leader to accommodate petitioners provided they pay all their expenses in Hongkong. Thereafter, petitioners called up the President Hotel in Hongkong where private respondent promised to book them but it had no accommodations for them. Petitioners lost no time in sending a cable to private respondent informing it that they had no hotel accommodations. Left with no alternative, petitioners tagged along with the Abaya Tour Group. Petitioners claimed public humiliation due to the fact that they had to pay for their lunch while the rest of the group had prepaid meals. They could not go shopping with the Abaya group for fear that their limited funds would not be sufficient to pay for their hotel bills. There were times when breakfast consisted of hot dogs bought along the sidewalk while lunch and supper consisted of apples and oranges.

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On the third night, they tried to place a long-distance call to their home but could not get through. The next morning, petitioners sent a cable to their parents. According to petitioners, they had to scrimp on their limited budget for fear that their meager pocket money would not be enough to pay for their hotel bills. All these caused them sleepless nights because of great worry, mental anguish and public humiliation. It was only at 9:00 in the morning of May 13, 1969 or on the fourth day of the supposed five-day tour that petitioners were notified that private respondent had finally made arrangements for the payment of their bills. By that time, the supposed tour was practically over. Upon their return, petitioners complained to private respondent who according to petitioners did not even bother to apologize but simply ignored their complaint and gave them the run around. An action for moral and exemplary damages, attorney's fees and costs was filed by the petitioners in the then Court of First Instance of Manila, Branch XVI and docketed as Civil Case No. 76912. Petitioners in their complaint prayed for an award of P100 as actual and compensatory damages, P30,000.00 as moral damages, P6,000.00 as exemplary damages plus attorney's fees and costs the Court rendered judgment in petitioner's favor but awarded them only P500.00 as moral and exemplary damages, P100.00 as attorney's fees and costs, stating the following as its justification for the award: Plaintiffs claim P35,000 for damages aside from attorney's fees. These are too much and too high. Travel agents are only paid 10% commissions for the trips they sell. Besides, Baron rectified on time its oversight and made it possible for the plaintiff to enjoy the rest of their trip. 1 Unsatisfied, petitioners appeared to the Court of appeals. Private respondent likewise appealed. The Court of Appeals made the following findings and ruling: It is a fact that the plaintiff had to shift for themselves upon arriving in Hongkong and that defendant arranged for the hotel bills of plaintiffs only after said plaintiffs had cabled it for confirmation. There is no doubt that the plaintiffs suffered humiliation and anxiety during the first days of their stay in Hongkong. The defendant was remiss in the performance of its obligation to the plaintiffs. It acted in wanton disregard of the rights of the plaintiffs. The trial court correctly stated that the amount of damages claimed by the plaintiffs are too high. However, the amounts awarded as damages and attorney's fees by the trial court are inadequate. Under the established facts and equity of the case, the plaintiffs are entitled to the sum of P5,000.00 as moral and exemplary damages and the amount of P1,000.00 as attorney's fees. WHEREFORE, the decision appealed from is hereby modified in that the defendant is ordered to pay the plaintiff the sum of P5,000.00 as moral and exemplary damages and the sum of P1,000.00 as attorney's fees and the costs. SO ORDERED. 2 Still unsatisfied, petitioners elevated this case to Us on a petition for review on a lone assignment of error, to wit: THE COURT OF APPEALS ERRED IN AWARDING PETITIONERS THE PITIFUL SUMS OF P5,000.00 AS MORAL AND EXEMPLARY DAMAGES AND P1,000.00 AS ATTORNEY'S FEES IN THE LIGHT OF THE SOCIAL STANDING OF PETITIONER GEORGINA MAKABALI, WHO IS A DOCTOR OF MEDICINE, AND OF PETITIONER LOURDES CYNTHIA MAKABALI, WHO IS A TEACHER; IN THE LIGHT OF THE SLEEPLESS NIGHTS AND PUBLIC HUMILIATION THEY SUFFERED FOR THREE DAYS AND THREE NIGHTS; IN THE LIGHT OF THE CALLOUS FAILURE OF PRIVATE RESPONDENT TO HAVE ANYONE ATTEND TO PETITIONER IN SPITE OF THE FACT THAT IT RAKES IN MORE THAN HALF A MILLION PESOS A MONTH FROM AIR FREIGHT ALONE. 3 To begin with, there is no hard and fast rule in the determination of what would be a fair amount of moral damages, since each case must be governed by its own peculiar circumstances. 4 Article 2217 of the Civil Code recognizes that moral damages which include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury, are incapable of pecuniary estimation. As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by way of example or correction for the public good. While exemplary damages cannot be recovered as a matter of right, 5 they need not be proved, although 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. 6 A review of related jurisprudence shows that We had awarded moral damages in more or less similar cases ranging from P20,060.00 [Northwest Airlines, Inc. v. Cuenca] 7 P25,000.00 [Yutuk v. Manila Electric Company, Air France v. Carrascoso], 8 P50,000.00 [KLM Royal Dutch Airlines v. Court of Appeals], 9 P150,000.00 [Ortigas v. Lufthansa German Airlines], 10 and P200,000.00 [Lopez v. Pan American World Airways], 11 to P500,000.00 [Zulueta v. Pan American World Airways], 12 As to exemplary damages, We awarded in Yutuk and Air France P10,000.00, in Lopez P75,000.00, in Ortigas P100,000.00 and in Zulueta P200,000.00. It will thus be noted that We have awarded moral and exemplary damages depending upon the facts attendant to each case. It will also be noted that We gave separate awards for moral and exemplary damages. This is as it 51

should be because the nature and purposes of said damages are different. While moral damages have to do with injury personal to the awardee, such as physical suffering and the like, exemplary damages are imposed by way of example or correction for the public good. It is essential however, in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer, 13 and are allowable only when specifically prayed for in the complaint. 14 As reflected in the records of the case, the Court of appeals was in agreement with the findings of the trial court that petitioners suffered anguish, embarrassment and mental sufferings due to failure of private respondent to perform its obligation to the petitioners. According to the Court of Appeals, private respondent acted in wanton disregard of the rights of petitioners. These pronouncements lay the basis and justification for this Court to award petitioners moral and exemplary damages. In the light of the circumstances obtaining in the case at bar, especially the social standing of petitioners and the embarrassment and humiliation suffered by them, the anxiety they must have felt in their first journey to a foreign land under uncertain circumstances and with meager funds which could run out any time, We are inclined to award damages to the petitioner more than what was awarded by the Court of Appeals. It must be emphasized that moral damages are not intended to enrich the complainant at the expense of a defendant. They are awarded only to enable the injured parties to obtain means, diversions or amusements that will serve to alleviate the moral sufferings the injured parties have undergone by reason of defendant's culpable action. In other words, the award of moral damages is aimed at a restoration within the limits of the possible, of the spiritual status quo ante; and therefore it must be proportionate to the suffering inflicted. 15 The amount of P5,000.00 is minimal compared to the sufferings and embarrassment of petitioners who left Manila with high spirits and excitement hoping to enjoy their first trip to a foreign land only to be met with uncertainties and humiliations. We note however that petitioners limited their claim for moral and exemplary damages in their complaint filed with the Court of First Instance to a total of P35,000.00 plus attorney's fees and costs. We feel that Our award should not exceed the said amount. WHEREFORE, the decision of the Court of Appeals subject of the petition for review is hereby modified, increasing the award to petitioners of moral and exemplary damages to P35,000.00 and attorney's fees to P5,000.00 with costs. This decision is immediately executory. SO ORDERED. c. Burden of Proof; Quantum of Evidence G.R. No. L-45770 March 30, 1988 PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS, NAPOLEON C. NAVARRO, PATRICIA CRUZ, VICENTE B. MEDINA and LETICIA LOPEZ, respondents. FERNAN, J.: This is a petition for review on certiorari of the decision rendered by respondent Court of Appeals dated December 27, 1976 in CA-G.R. No. 48720-R dismissing the complaint of petitioner Philippine National Bank in Civil Case No. 4507 and on the counterclaim modifying the decision of the trial court by reducing the award of moral and exemplary damages from P100,000.00 to P10,000,00 with legal interest from the date of filing of the counterclaim and ordering petitioner bank to pay the amount of P5,000.00 as attorney's fees, without pronouncement as to costs; as well as from the Resolution denying petitioner's motion for reconsideration. Private respondent Napoleon Navarro was an employee of petitioner Philippine National Bank stationed at Cabanatuan City as Branch Accountant. On various dates from 1962 to 1965, Id private respondent Napoleon Navarro prepared fifty-one [51] manager's checks and their corresponding debit tickets purportedly representing refund of deposits of petitioner's clients although he knew that there were no deposits necessitating such refund. He later caused to be falsified and Identified the signatures of the alleged clients as payees and indorsers, encashed the checks, and appropriated unto himself the proceeds in the aggregate amount of P28,683.77. After the discovery of this anomaly, respondent Navarro was dismissed from the service of Philippine National Bank. On February 25, 1965, petitioner bank filed before the then Court of First Instance of Nueva Ecija Civil Case No. 4506 against Napoleon Navarro to recover the sum defalcated in the amount of P 13,906.81 with a prayer for a writ of preliminary attachment against the properties of Napoleon Navarro. While the writ of preliminary attachment was in the process of issuance, a Deed of Sale of Real Property and Dwelling House dated February 22, 1965 executed by respondents Napoleon Navarro and Patricia Cruz in favor of the other respondents spouses Vicente Medina and Leticia Lopez over the former's properties situated in Cabanatuan City was registered in the Office of the Register of Deeds of Cabanatuan City at 11:50 o'clock in the morning of February 25, 1965. Subsequently, a new transfer certificate of title beating No. T-9424 was issued by the Register of Deeds of Cabanatuan City in the names of spouses Vicente Medina and Leticia Lopez.

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On February 26, 1966, petitioner Philippine National Bank filed Civil Case No. 4507 against respondents Napoleon C. Navarro and his wife Patricia Cruz and the spouses Vicente Medina and Leticia Lopez for the annulment of the aforesaid Deed of Sale and the cancellation of the Transfer Certificate of Title No. T-9424 issued as a consequence of said sale. Subsequently, an amended complaint was filed, the only difference with the original complaint being the amount defalcated by defendant Napoleon Navarro which was finally placed at P28,683.77 after further reconstruction and verification of the records of plaintiffs Cabanatuan Branch. An answer with counterclaim was filed by the defendants Vicente Medina and Leticia Lopez alleging good faith in the acquisition of the property in question and seeking payment of damages, claiming that the filing of the complaint was without legal factual basis and that it besmirched their reputation causing them damages of P50,000.00 and lawyer's fees in the amount of P1,000.00. On motion of petitioner, the trial court ordered the consolidation of Civil Cases Nos. 4506 and 4507. On June 22, 1970, private respondents and defendants Vicente Medina and Leticia Lopez filed a Motion to Admit Answer with Amended Counterclaim in Civil Case No. 4507 whereby the amount claimed for damages was increased to P100,000.00 and lawyer's fees increased to P5,000.00. This motion was allowed by the lower court in an Order dated June 24, 1970. Prior thereto, petitioner filed an opposition to the motion to admit answer with amended counterclaim contending that petitioner was not given an opportunity to be heard and to oppose the admission of the aforementioned pleading, and that the supposed evidence presented to show that said defendants suffered moral damages in the amount of P100,000.00 and the increase of their lawyer's fees from P1,000.00 to P5,000.00 was insufficient in fact and in law, hence it should be disregarded. 1 On August 26, 1970, the lower court rendered judgment the dispositive portion reading as follows: WHEREFORE, judgment is rendered finding Napoleon Navarro, defendant in Civil Case No. 4506 liable to the plaintiff in the amount of P13,906.81. The complaint of the plaintiff in Civil Case No. 4507 against the defendants is dismissed for lack of evidence, with costs against the plaintiff. On the counterclaim by defendants Vicente Medina and Leticia Lopez, this Court finds the plaintiff Philippine National Bank liable to said defendants for moral and exemplary damages of P100,000.00 which the plaintiffs must pay to the said defendants with interest at the legal rate from the filing of the counterclaim, and for lawyer's fees of P5,000.00 and the costs of this suit. 2 From this decision of the lower court, petitioner Philippine National Bank appealed to respondent Court of Appeals where the case was docketed as CA-G.R. No. 48719-20-R, assailing the lower court's finding [a] on defendant Navarro's liability to the plaintiff in the amount of P13,906.81 and not P28,683.77 as borne out by the evidence; [b] on the plaintiff- appellant's liability to the defendant-appellees Vicente Medina and Leticia Lopez for moral and exemplary damages in the amount of P100,000.00 on the counterclaim; [c] in ordering plaintiff-appellant to pay defendants- appellees Vicente Medina and Leticia Lopez the sum of P5,000.00 as attorney's fees; [d] in admitting the motion to admit Answer with amended counterclaim dated June 19, 1970 together with the answer with amended counterclaim flied by defendants-appellees Vicente Medina and Leticia Lopez for the reason that said motion does not conform with Section 3, Rule 1 0 in conjunction with Sections 4, 5, and 6 of Rule 15 of the Revised Rules of Court; and [e] in not declaring the Deed of Sale of Real Property and Dwelling House dated February 22, 1965 executed between defendants-appellees as rescissible and in not cancelling TCT No. 9424 under the names of spouses Vicente Medina and Leticia Lopez issued by virtue thereof. On December 27, 1976, respondent appellate court promulgated its assailed decision based on these findings: The plaintiff has presented indubitable evidence consisting of manager's checks as well as the corresponding debit tickets, Exhibits F, F-l to DDD-l inclusive showing that the total amount defalcated by defendant Napoleon C. Navarro was in the amount of P 28,683.77 evidenced by fifty- one [511 manager's checks all fraudulently encashed by the said defendant. In view of the foregoing, the lower court erred when it held that defendant Napoleon Navarro was liable to the plaintiff only in the amount of P13,906.81. There is no complete evidence to show that the sale of the real property and dwelling house dated February 22, 1965 executed by defendants Napoleon Navarro and Patricia Cruz in favor of the defendants Vicente B. Medina, and Leticia Lopez was undertaken in fraud of creditors. There is evidence that the plaintiff was aware of the negotiations between defendant Napoleon C. Navarro and defendants Vicente B. Medina and Leticia Lopez. It seems that the purpose of the sale was to enable defendant Napoleon C. Navarro to pay the plaintiff the amount that said Navarro defalcated There is no showing that the plaintiff acted maliciously and in a wanton manner in filing Civil Case No. 4507 against the spouses Vicente B. Medina and Leticia Lopez. There is no doubt that the Id spouses suffered mental anguish for having been made defendants in Civil Case No. 4507. However, under the established facts and circumstances the amount of P100,000.00 awarded to said spouses as moral damages is excessive. The moral and exemplary damages awarded to spouses Vicente Medina and Leticia Lopez should be reduced to P10,000.00. The defendants Vicente B. Medina and Leticia Lopez had to engage counsel to resist the action instituted against them by the Philippine National Bank. Hence, the trial court did not err in awarding to said spouses the amount of P 5,000.00 as attorney's fees. WHEREFORE, the decision appealed from is hereby modified in that in Civil Case No. 4506, the defendant Napoleon C. Navarro is ordered to pay the plaintiff the amount of P28,683.77 with legal interest from February 25, 1965, the date of the filing of the complaint and in Civil Case No. 4507, the complaint is dismissed and the 53

plaintiff Philippine National Bank is ordered to pay defendants Vicente Medina and Leticia Lopez the amount of P10,000.00 as moral and exemplary damages with legal interest from the date of the filing of the counterclaim and the amount of P5,000.00 as attorney's fees, without pronouncement as to costs. SO ORDERED. 3 Both petitioner and private respondents Vicente E. Medina and Leticia Lopez moved for a reconsideration of said decision. While both motions were denied, only petitioner PNB came to this Court through the instant petition for review and only in so far as the decision of the Appellate Court in Civil Case No. 4507 is concerned. Petitioner contends that: I PNB's COMPLAINT IN CIVIL CASE NO. 4507 WAS NOT FILED MALICIOUSLY AND IN BAD FAITH, HENCE NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES. II THE CONCLUSION OF THE RESPONDENT COURT THAT THE FILING OF CML CASE NO. 4507 WAS NOT MADE MALICIOUSLY AND IN A WANTON MANNER IS INCONSISTENT WITH ITS AWARD OF MORAL AND EXEMPLARY DAMAGES IN THE REDUCED AMOUNT OF P10,000.00. III THE AWARD OF P5,000.00 AS ATTORNEY'S FEES HAS NO BASIS IN FACT AND IN LAW. IV RESPONDENTS SPOUSES MEDINA AND LOPEZ' MOTION TO ADMIT ANSWER WITH AMENDED COUNTERCLAIM CONTRAVENES SECTION 3, RULE 10 IN CONJUNCTION WITH SECTIONS 4,5, & 6, RULE 15 OF THE REVISED RULES OF COURT. V THE DISMISSAL OF CIVIL CASE NO. 4507 IS WITHOUT BASIS IN LAW AND IN FACT. Civil Case No. 4507 Was the action brought by petitioner against private respondents seeking the annulment of the Deed of Sale of Real Property and Dwelling House executed by private respondent spouses Napoleon C. Navarro and Patricia Cruz in favor of private respondents spouses Vicente E. Medina and Leticia Lopez and covered by Transfer Certificate of Title No. T-9424. According to petitioner, the sale was fraudulently entered into between aforesaid parties to defeat petitioner's recovery of the amount defalcated by private respondent Napoleon C. Navarro during the time that the latter was employed by the former as accountant in its Cabanatuan Branch, and which amount was the subject of Civil Case No. 4506. The controversy revolves on the issue of consistency. Is respondent appellate court's finding on the nonexistence of malice and bad faith on petitioner's part when it filed Civil Case No. 4507 consistent with the lower court's order awarding moral and exemplary damages originally in the amount of P100,000.00 but reduced to P10,000.00 by respondent appellate court and attorney's fees in the amount of P5,000.00 both in favor of private respondents spouses Medina and Lopez? As mentioned earlier, respondent appellate court ruled that there is no showing that the plaintiff acted maliciously and in a wanton manner in filing Civil Case No. 4507. It was however further ruled that there is no doubt that said spouses suffered mental anguish for having been made defendants in Civil Case No. 4507. This Court is tasked to resolve this inconsistency. Article 2217 of the Civil Code recognizes that moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by way of example or correction for the public good. While exemplary damages cannot be recovered as a matter of right, 4 they need not be proved, although 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. 5 While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court, 6 it is nevertheless essential that the claimant satisfactorily proves the existence of the factual basis of the damages and its causal relation to defendant's acts. This is so because moral damages though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. Moral damages, in other words, are not corrective or exemplary damages. 7 For moral damages to be awarded, the law requires a wrongful act or omission attributable to petitioner as the proximate cause of the mental anguish suffered by private respondents spouses Vicente E. Medina and Leticia Lopez. Respondent appellate court categorically ruled in the negative yet awarded moral and exemplary damages in the reduced amount of P10,000.00 in favor of aforesaid respondent spouses. This brings to light Our ruling in Boysaw v. Interphil Promotions, Inc. 8 which enunciates that: 54

In order that a person may be made liable to the payment of moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate such right is so precious that moral damages may not be charged on those who may exercise it erroneously, For these the law taxes costs. 9 Conformably with settled jurisprudence and in agreement with petitioner's contention, We find the conclusion of respondent appellate court that the filing of Civil Case No. 4507 was not made maliciously and in a wanton manner inconsistent with its award of moral and exemplary damages in the reduced amount of P10,000.00. In the absence of malice and bad faith, the mental anguish suffered by respondents spouses Medina and Lopez for having been made defendants in Civil Case No. 4507 is not that kind of anxiety which would warrant the award of moral damages. The worries and anxieties suffered by respondents spouses Medina and Lopez were only such as are usually, caused to a party haled into court as a defendant in a litigation. 10 Therefore, there is no sufficient justification for the award of moral damages, more so, exemplary damages. In the same manner that We find no basis for the award of moral damages to respondents spouses Medina and Lopez, We find petitioner neither liable for attorney's fees. It is not sound public policy to place a penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing party and his counsel to swell the fees to undue proportions. To sentence litigant to pay his adversary's lawyer's fees would be imposing a penalty on his right to litigate. Even under the New Civil Code 11 a litigant would not be entitled to recover the fees paid to his attorney as damages where no bad faith on the part of his adversary was shown. 12 Needless to say, award of attorney's fees is the exception rather than the general rule. In the fourth assignment of error, petitioner assigns a procedural flaw to the Motion to Admit Answer with Amended Counterclaim filed on June 22, 1970 by private respondents spouses Medina and Lopez, the assailed portion pertaining to the Notice addressed to the Clerk of Court which reads: THE CLERK OF COURT May you please include the foregoing motion in the Court's calendar for hearing on June 24, 1970 at 9:00 o'clock in the morning or as soon thereafter as counsel may be heard, at which date and hour the undersigned will submit the same for the consideration of the Honorable Court. 13 Petitioner asserts that the foregoing notice contravenes Section 3, Rule 10 in conjunction with Sections 4,5 and 6 of Rule 15 of the Revised Rules of Court. The motion was filed on June 22,1970. The hearing was requested to be set on June 24, 1970. This is one day short of the three [31 day notice rule provided under Section 4, Rule 15 of the Revised Rules of Court which provides that notice of a motion shall be served by the applicant to all parties concerned, at least three [3] days before the hearing thereof, together with a copy of the motion, and of any affidavits and other papers accompanying it. The court, however, for good cause may hear a motion on shorter notice, specially on matters which the court may dispose of on its own motion. Records show that petitioner received a copy of the motion on June 26,1970 while the motion was set for hearing and heard on June 24, 1970. To this motion, petitioner filed an opposition on July 7, 1970 and a motion for reconsideration upon its denial. In resolving this error, We consider the judicial policy on rules of procedure. Amendments to pleadings are generally favored and should be liberally allowed in furtherance of justice in order that every case may so far as possible be determined on its real facts and in order to speed the trial of causes or prevent the circuity of action and unnecessary expense, unless there are circumstances such as inexcusable delay or the taking of the adverse party by surprise or the like, which might justify a refusal of permission to amend. 14 These circumstances do not obtain in the case at bar. As aforementioned, petitioner filed an opposition to the assailed motion stating petitioner's legal grounds therefor and subsequently a motion for reconsideration of the denial of aforesaid opposition. This eliminates the element of surprise and denial of due process sought to be avoided in instances where amendments to pleadings are snowed. In E.L. Mercantile, Inc. et al. v. Intermediate Appellate Court 15 We ruled: Procedural due process is not based solely on a mechanistic and literal application of a rule such that any deviation is inexorably fatal. Rules of procedure, and this includes the three-day notice requirement, are liberally construed to promote their object and to assist the parties in obtaining just, speedy and inexpensive determination of every action and proceeding [Section 2, Rule 1, Rules of Court]. ... Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the adverse party and have not deprived the court of its authority. 16 Thus, in line with the liberal judicial policy on rules of procedure, We find no reversible error committed by the trial court in admitting private respondents spouses Medina and Lopez' Motion to Admit Answer with Amended Counterclaim.

55

Finally, petitioner questions the dismissal of Civil Case No. 4507 by the lower court as affirmed by the respondent appellate court contending that the same was done without basis in law and in fact. Respondent appellate court ruled there is no complete evidence to show that the sale of real property and dwelling house was executed to defraud petitioner bank but there is evidence that the latter knew of the impending sale between private respondents themselves. It was shown that the purpose of the sale was to enable private respondent Napoleon C. Navarro to pay the petitioner the amount that private respondent Navarro defalcated These pronouncements in the assailed decision of respondent appellate court for the dismissal of Civil Case No. 4507 hinges on a determination of pertinent facts the resultant findings of which when supported by substantial evidence are beyond Our power of review. Absent the recognized exceptions, finding of facts of the Court of Appeals are conclusive on the parties and the Supreme Court 17 on the tenet that this Court decides appeals which only involve questions of law and that it is not the function of the Supreme Court to analyze and to weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court. 18 WHEREFORE, except for the deletion of the award of moral and exemplary damages as well as attorney's fees to private respondents spouses Vicente E. Medina and Leticia Lopez, the decision of the Court of Appeals in CAG.R. No. 48720 is hereby affirmed in all other respects. No costs. SO ORDERED. G.R. No. L-20081 February 27, 1968

MELQUIADES RAAGAS and ADELA LAUDIANO RAAGAS, plaintiffs-appellees, vs. OCTAVIO TRAYA, MRS. OCTAVIO TRAYA and BIENVENIDO CANCILLER, defendants-appellants. Miguel V. Tiausas for plaintiff-appellee. Victoriano M. Realino for defendants-appellants. CASTRO, J.: The complaint filed on April 1, 1960 with the Court of First Instance of Leyte (civil case 2749) by the spouses Melquiades Raagas and Adela Laudiano Raagas against Octavio Traya, his wife, and Bienvenido Canciller, alleges in essence that on or about April 9, 1958, while the latter was "recklessly" driving a truck owned by his co-defendants, along the public highway in MacArthur, Leyte, the said vehicle ran over the plaintiffs' three-year old son Regino causing his instantaneous death. The plaintiffs ask for actual damages in the sum of P10,000, moral, nominal and corrective damages in a sum to be determined by the court, P1,000 as attorney's fees, P1,000 for expenses of litigation, plus costs. In their answer with counterclaim for moral and actual damages and attorney's fees, filed on April 22, the defendants specifically deny that Canciller was "driving recklessly" at the time of the mishap, and assert that the truck "was fully loaded and was running at a very low speed and on the right side of the road"; that it was the child who "rushed from an unseen position and bumped the truck so that he was hit by the left rear tire of the said truck and died", and consequently the defendants are not to blame for the accident which was "entirely attributable to an unforeseen event" or due to the fault of the child and negligence of his parents; that the defendant-spouses have exercised due diligence in the selection and supervision of their driver Canciller, whom they hired in 1946 only after a thorough study of his background as a truck driver; and that each time they allowed him to drive it was only after a check of his physical condition and the mechanical fitness of the truck assigned to him. On May 4 the plaintiffs' moved for a judgment on the pleadings, upon the claim that the defendants' answer not only "failed to tender an issue" but as well "admitted material allegations" of the complaint. This motion was set for hearing on June 18. On the previous day, however, the clerk of court received a telegram from the defendants' counsel requesting for postponement of the hearing to July 2 on the ground that he was sick of influenza. The lower court denied the request for lack of "proper notice to the adverse party", and considered the case submitted for decision upon the filing of the plaintiffs' memorandum. On June 24 it rendered a judgment on the pleadings, condemning the defendants, jointly and severally, to pay "to the plaintiffs the sum of P10,000 for the death of their child Regino Laudiano Raagas, P2,000 for moral damages, P1,000 actual damages, P1,000 for attorney's fees, and the costs." The court reasoned that the denial in the answer of the charge of reckless driving "did not affect the plaintiffs' positive allegation in their complaint that the truck . . . did not have a current year registration plate . . . for the year 1958 when the accident occurred that "this failure . . . has the effect of admitting hypothetically that they operated ... the said truck without proper license . . . when the accident occurred," and 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 (article 2185, new Civil Code)." The court went on to conclude that under the circumstances a judgment on the pleadings was "irremediably proper and fitting." The defendants appealed to the Court of Appeals, which certified the case to this Court because the issues raised are purely of law. Section 10 of Rule 35 of the old Rules of Court 1 authorized a judgment on the pleadings "where an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading." 56

The vital issue, therefore, to which the other issues are subsidiary or intestinal, is whether the court a quo acted correctly when it rendered judgment on the pleadings. It is our view that the court erred. The plaintiffs' claim for actual, moral, nominal and corrective damages, was controverted by the averment in the answer to the effect that the defendants "have no knowledge or information sufficient to form a belief as to the truth of the allegations" as to such damages, "the truth of the matter being that the death of Regino Raagas was occasioned by an unforeseen event and/or by the fault of the small boy Regino Raagas or his parents." Such averment has the effect of tendering a valid issue. We so held in Philippine National Bank vs. Lacson, L-9419, May 29, 1957 and in Benavides vs. Alabastro, L-19762, Dec. 23, 1964. In Abubakar Tan vs. Tian Ho, L-18820, December 29, 1962 and Lim Giok vs. Bataan Cigar and Cigarette Factory, L-15861, April 16, 1960, we held that even if the allegations regarding the amount of damages in the complaint are not specifically denied in the answer, such damages are not deemed admitted. In Tomassi vs. Villa-Abrille, L-7047, August 21, 1968, Suntay Tanjangco vs. Jovellanos, et al., L-12332, June 30, 1960, and Delfin vs. Court of Agrarian Relations, et al., L-23348, March 14, 1967, 1967 A PHILD 453, we declared in no uncertain terms that actual damages must be proved, and that a court cannot rely on "speculation, conjecture or guesswork" as to the fact and amount of damages, but must depend on actual proof that damage had been suffered and on evidence of the actual amount. Finally, in Malonzo vs. Galang et. al., L-13851, July 27, 1960, we reaffirmed the rule that although an allegation is not necessary in order that moral damages may be awarded, "it is, nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the damage and its causal relation to defendant's acts." The preceding disquisition points up the inescapable need of a full-blown trial on the merits at which the parties will be afforded every opportunity to present evidence in support of their respective contentions and defenses. ACCORDINGLY, the judgment on the pleadings of June 24, 1960 is set aside, and this case is hereby remanded to the court of origin for trial on the merits. No pronouncement as to costs. G.R. No. L-21879 September 29, 1967

SAN MIGUEL BREWERY, INC., plaintiff-appellant, vs. FRANCISCO MAGNO, defendant-appellee. Lichauco, Picazo and Agcaoili for plaintiff-appellant. Jose V. Rosales and Jose R. Villanueva for defendant-appellee. ANGELES, J.: An appeal from a decision of the Court of First Instance of Manila, in civil case No. 46039, dismissing the complaint filed by the San Miguel Brewery, Inc., and ordering it to pay to the defendant P2,000.00 in damages, P1,000.00 as attorney's fees, and costs. The appeal was originally lodged with the Court of Appeals which certified the case to this Court, the issue involved being purely one of law. From the stipulation of facts submitted by the parties in the lower court and the various annexes referred to therein, the facts of the case that gave rise to the controversy are as follows: On December 14, 1950, the Municipal Board of Butuan City passed Ordinance No. 11 amending Ordinance No. 7 of said City, imposing a tax of two per cent (2%) on the gross sales or receipts of those engaged in the sale, trading in, or disposal of all alcoholic or malt beverages, wines and mixed or fermented liquors, including tuba, basi and tapuy. (Sec. 1 [e], Annex A.) On June 6, 1960, the same Municipal Board passed Ordinance No. 110 amending Ordinance No. 11, fixing instead a tax on the sale of beer at the rate of P.25 per case of twenty-four bottles, and on the sales of soft drinks at the rate of P.10 per case of twenty-four bottles of Coca-Cola, Pepsi-Cola, Tru-Orange, Seven-Up, Bireley, Soda Water, and any other kind of soft drinks or carbonated drinks. (Sec. 2 [e] and Sec. 3, respectively, Annex B.) The San Miguel Brewery, Inc., a corporation organized and existing under the laws of the Philippines with principal offices at Manila, maintains a warehouse or branch office in the City of Butuan and is engaged in the sale of beer and soft drinks in said City. Although it appears to have paid the required taxes under Ordinance No. 11 promptly and religiously upon the effectivity of the ordinance, the company stopped paying the taxes thereafter (Annex D), and thereby incurred in back taxes. Verbal demands were made by the City Treasurer of Butuan on the representative of the San Miguel Brewery, Inc. at Butuan City with warnings that a warrant of distraint and levy will be issued against its properties unless it settles its tax liability under the ordinance aforesaid. On September 23, 1960, counsel for the company wrote a letter to the City Treasurer of Butuan questioning the power of the city government of Butuan to levy upon its properties pointing out, "that the power of distraint and levy as embodied in your Charter (Republic Act No. 523, as amended), can only be exercised by your goodselves in respect to delinquencies in the payment of real estate taxes". To this, the City Treasurer of Butuan, in a letter dated September 29, 1960, promptly answered and explained that he may issue warrants of distraint and levy upon properties of delinquent taxpayers under Ordinance No. 26 of the City of Butuan. Thereafter, the San Miguel Brewery, Inc. received a formal letter of demand for payment of its tax liability from the City Treasurer of Butuan, to which the Branch Manager of the company at Cagayan de Oro City who has supervision of the company's warehouse at Butuan City, answered on October 10, 1960, requesting more time "within which to act on said demand and in order to refer the matter to its Manila Office". Several other written demands were thereafter made by the City Treasurer of Butuan to officials of plaintiff's branch office in said city, but failed to yield any concrete result. Accordingly, on January 6, 1961, the city treasurer, with the approval of the Mayor of Butuan City issued a warrant of distraint and levy against the properties of the San Miguel Brewery, Inc. at its branch office in that city to enforce the collection of the taxes 57

assessed against it, i.e., under Ordinance Nos. 11 and 110, amounting to P9,129.42, including penalties corresponding to the period from May, 1957 to August 15, 1960, and under Ordinance No. 110, the amount of P15,618.96, including penalty, for the period corresponding to June 6 up to October 30, 1960, or a total of P24,747.32. On January 9, 1961, at about 9 o'clock in the morning, a notice of seizure by virtue of the warrant of distraint and levy was served on the company's Branch Manager at Butuan City who, upon previous arrangement with the representative of the City Treasurer of Butuan, voluntarily surrendered the two (2) delivery trucks of the company seized under the warrant to the said City Treasurer at about 5 o'clock in the afternoon of the same day. On January 12, 1961, the San Miguel Brewery, Inc. instituted the present action in the Court of First Instance of Manila, praying for an order directing the defendant Francisco Magno to release the delivery trucks seized and impounded by the City Government of Butuan allegedly "without authority and for reasons unknown to the company", and to order the defendant to pay to the plaintiff damages in the amount of P6,000.00 corresponding to the period from January 9, 1961 to January 10, 1961, and P3,000.00 for each day thereafter that the trucks remain impounded and unused by the plaintiff, plus the costs of the suit. Parenthetically, the action was brought against the defendant Francisco Magno in his individual capacity, as disclosed in the allegations in the complaint, and as expressly admitted in the appellant's brief, thus "As a matter of fact, plaintiff filed this action against Francisco Magno, not in his official capacity, but in his individual capacity, . . . ." (p. 13). In his answer, defendant Francisco Marco interposed, among others, the defense that in seizing the delivery trucks of the San Miguel Brewery, Inc., he was acting, and was in the performance of his official duty, as Treasurer of Butuan City, and, can not be hold liable to pay to the company any damages. He set up a counterclaim of P40,000.00 and P10,000.00 as moral and exemplary damages, respectively, allegedly sustained by him and the members of his family on account of the shock, fright, wounded feelings, mental anguish, besmirched reputation, and social humiliation they suffered by reason of the filing of the case against him by the plaintiff, plus attorney's fees in the amount of P2,000.00. During the pendency of the action, the San Miguel Brewery, Inc. paid under protest the taxes assessed against it by the City Treasurer of Butuan, and forthwith the impounded trucks were released. The parties submitted no testimonial evidence. Instead, they submitted a stipulation of facts along with documentary evidence on the basis of which the court a quo, on April 2, 1962, rendered the decision appealed from. A motion for reconsideration of the decision having been denied, the plaintiff interposed the instant appeal. Under the first assignment of error, appellant assails the conclusion of the court that "the allegation in the complaint (par. 5) that the seizure of plaintiff's trucks was made for reasons unknown to the plaintiff, is false", because it is not sustained by the evidence; said appellant claiming that it was only at the time that the stipulation of facts was being prepared that the defendant-appellee made mention for the first time of his alleged authority to issue a warrant of distraint and levy against properties of tax delinquents under Ordinance No. 26 of the City of Butuan. The contention is untenable. In paragraph 8 of the stipulation of facts, it is admitted that on September 29, 1960, in a letter of the City Treasurer of Butuan to Attys. Ponce Enrile, Siguion Reyna, Montecillo & Belo, counsel for the plaintiff, said counsel was informed that the city government was exercising its power of levy and distraint against properties of taxpayers under Ordinance No. 26 of the city. Appellant, therefore, may not now feign ignorance of such notice which appears in the records. To the charge that Ordinance No. 26 of the City of Butuan is ultra vires, suffice it to say that the same may not be considered in this appeal. An examination of the complaint filed in this case, reveals that except for the general averment therein that its delivery trucks were seized and impounded by order of the defendant Francisco Magno "without authority of law and for reasons unknown to the plaintiff", which is without factual basis as pointed out above, no mention was made in the stipulation of facts nor any evidence ever introduced during the trial of the case in the lower court, to show that it was the intention of the appellant to place in issue the validity of the ordinance aforesaid. In cases where the constitutionality of statutes are directly put in issue, the general rule is, that the question of constitutionality must be raised at the earliest opportunity, so that if not raised by the pleadings, ordinarily it may not be raised at the trial, and if not raised in the trial court, it will not be considered on appeal (People and Hongkong & Shanghai Banking Corporation vs. Vera and Cu Unjieng. 37 O.G., 164 citing 12 C. J. p. 786). (See also Cadwallader-Gibson Lumber Co. vs. Del Rosario, 26 Phil. 192; Robb and Hilscher vs. People of the Philippines, 68 Phil., 320; Macondray & Co. vs. Benito and Ocampo, 62 Phil., 137; Sofronio L. Quimson vs. P. L. de Guzman, L-18240, January 31, 1963.) The exceptions are, as stated in Hongkong etc. vs. Cu Unjieng, supra, in criminal cases, where the question may be raised at any stage of the proceedings, either in the trial court or on appeal; in civil cases, it has been held that it is the duty of the court to pass on the constitutional question, though raised for the first time on appeal, if it appears that a determination of the question is necessary to a decision of the case; and it has been held that a constitutional question will be considered by an appellate court at any time, where it involves the jurisdiction of the court below. The same rule should apply where the validity of a municipal ordinance is questioned. We do not find any of the exceptions aforementioned applicable to this case to justify a conclusion that the validity of Ordinance No. 26 of the City of Butuan may be properly passed upon in this appeal.1awphl.nt Moreover, Francisco Magno is sued in this case not in his capacity as City Treasurer of Butuan but in his individual capacity. He is not the proper party against whom the alleged invalidity of the ordinance in question should be pleaded, nor is this the proper proceeding wherein the alleged infirmity of the said ordinance may be raised. A municipal ordinance is not subject to collateral attack. Public policy forbids collateral impeachment of legislative acts (43 C. J., 555-556).

58

Under the second assignment of error, it is contended that the trial court fell into error in not ordering the defendant-appellee to pay to the appellant in damages the amount of P2,160.00, notwithstanding the admission of the defendant in the stipulation of facts that the San Miguel Brewery, Inc. incurred damages in that amount, representing the hire of two (2) trucks at the rate of P80.00 per day which the plaintiff was compelled to secure and use for the period from January 9, 1961 to February 8, 1961, during which time the two delivery trucks of the plaintiff were impounded by the appellee. The argument is based on a wrong premise. It erroneously assumes that the defendant is personally liable for damages to the appellant, disregarding the established fact that the defendant had issued the warrant of distraint and levy against plaintiff's properties in his capacity as City Treasurer of Butuan who, under the law, is empowered to issue the warrant. Ordinance No. 26 of the City of Butuan provides, among others, as follows: Sec. 1. Upon the failure of any person owing any delinquent tax or delinquent revenue to pay the same, at the time required under existing ordinance, the City Treasurer, his deputy, or any of his clerks duly authorized in writing by the City Treasurer may seize or distraint any goods, chattels or effects, and other personal property, including stocks and other securities, debts, credits, bank accounts and any interest in and rights to personal property, of such person in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to delinquency, and the expenses of the distraint. Since there is no dispute that the appellee issued the warrant of distraint and levy against the delivery trucks of the appellant on January 9, 1961, in his capacity as City Treasurer of Butuan, and as there is no disagreement that defendant-appellee issued said warrant by virtue of Ordinance No. 26 of the City of Butuan above-quoted (Par. 15, Stipulation of Facts), and not having been shown that the defendant, either as a private citizen or as City Treasurer of Butuan, had acted in bad faith, there can be no question that appellee Francisco Magno, who was merely performing a duty enjoined by law to be performed when he issued the warrant of distraint and levy, cannot be made to answer personally for damages to the appellant. Finally, under the third assignment of error, appellant maintains that the trial court should not have awarded damages in favor of the appellee under the counterclaim of the latter, for the reason that no evidence was introduced by the appellee in support of the moral and exemplary damages he and his family allegedly suffered. It argues further that attorney's fees should not have been assessed against it. In respect of the appellee's counterclaim for moral and exemplary damages, the trial court said: With respect to the counterclaim of defendant, it appears that defendant introduced no evidence to support his claim for P40,000.00 moral damages, P10,000 exemplary damages and P2,000.00 attorney's fees. Nevertheless, the trial court sentenced the plaintiff to pay to the defendant, damages in the sum of P2,000.00, and costs. In order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental anguish, fright and the like (Darang vs. Belizar, L-19487, January 31, 1967). While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court (Article 2216), it is, nevertheless, essential that the claimant should satisfactorily prove the existence of the factual basis of the damages (Article 2217) and its causal connection to defendant's acts. This is so, because moral damages, though incapable of pecuniary estimation, are in the category of an award, designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrong-doer (Algarra vs. Sandejas, 27 Phil. 284; Malonzo vs. Galang, L-13851, July 27, 1960). Neither may we consider the award as exemplary damages, because the mere findings that certain allegations in the complaint are not true, and the plaintiff committed a mistake in instituting the action against the wrong party, do not justify the award of this kind of damages. It infringes upon the right of a citizen to have access to the courts. The portals of the courts of justice should not be closed to litigants who ask for the protection of their rights. Penalty in the concept of damages should not be imposed simply because a complaint is found unmeritorious by the courts. The amount of attorney's fees, on the other hand, is addressed to the sound discretion of the court. It may be awarded along with expenses of litigation, other than judicial costs, in cases where the court deems it just and equitable under the circumstances of the case. And when as in this case, the defendant public officer was sued in his private capacity for acts done in the performance of official duty required by law, and was forced to employ the services of private counsel to defend his rights, it is but proper that attorney's fees be charged against the plaintiff. Nominal damages may also be adjudicated. We believe the award of P2,000.00 attorney's fees and P100.00 nominal damages, is just and equitable in the premises. WHEREFORE, the decision appealed from is modified, setting aside the award of P2,000.00 to the defendant in concept of damages, but increasing the attorney's fees to P2,000.00, and ordering the plaintiff to pay to the defendant P100.00 as nominal damages. Judgment is affirmed in all other respects. Costs against plaintiff-appellant. d. When awardable; when not G.R. No. 161032 September 16, 2008

ERWIN TULFO, Petitioner versus PEOPLE OF THE PHILIPPINES and ATTY. CARLOS T. SO, Respondents. x-------------------------------------------x G.R. No. 161176 September 16, 2008 59

SUSAN CAMBRI, REY SALAO, JOCELYN BARLIZO, and PHILIP PICHAY, Petitioners, - versus - COURT OF APPEALS, PEOPLE OF THE PHILIPPINES, and CARLOS SO, Respondents. x-----------------------------------------------------------------------------------------x VELASCO, JR., J.: The freedom of the press is one of the cherished hallmarks of our democracy; but even as we strive to protect and respect the fourth estate, the freedom it enjoys must be balanced with responsibility. There is a fine line between freedom of expression and libel, and it falls on the courts to determine whether or not that line has been crossed. The Facts On the complaint of Atty. Carlos Ding So of the Bureau of Customs, four (4) separate informations were filed on September 8, 1999 with the Regional Trial Court in (RTC) Pasay City. These were assigned to Branch 112 and docketed as Criminal Case Nos. 99-1597 to 99-1600, and charged petitioners Erwin Tulfo, as author/writer, Susan Cambri, as managing editor, Rey Salao, as national editor, Jocelyn Barlizo, as city editor, and Philip Pichay, as president of the Carlo Publishing House, Inc., of the daily tabloid Remate, with the crime of libel in connection with the publication of the articles in the column Direct Hit in the issues of May 11, 1999; May 12, 1999; May 19, 1999; and June 25, 1999.[1] The four informations read as follows: Criminal Case No. 99-1598 That on or about the 11th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping one another, being then the columnist, publisher and managing editor, respectively of REMATE, a tabloid published daily and of general circulation in the Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS DING SO, and with the malicious intent of injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in the regular issue of said publication on May 11, 1999, its daily column DIRECT HIT, quoted hereunder, to wit: PINAKAMAYAMAN SA CUSTOMS Ito palang si Atty. Ding So ng Intelligence Division ng Bureau of Customs and [sic] pinakamayaman na yata na government official sa buong bansa sa pangungurakot lamang diyan sa South Harbor. Hindi matibag ang gagong attorney dahil malakas daw ito sa Iglesia ni Kristo. Hoy, So! . . nakakahiya ka sa mga INC, ikaw na yata ang pinakagago at magnanakaw na miyembro nito. Balita ko, malapit ka nang itiwalag ng nasabing simbahan dahil sa mga kalokohan mo. Abangan bukas ang mga raket ni So sa BOC. WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and ridiculing him before the bar of public opinion.[2] Criminal Case No. 99-1599 That on or about the 12th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping one another, being then the columnist, publisher and managing editor, respectively of REMATE, a tabloid published daily and of general circulation in the Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS DING SO, and with the malicious intent of injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in the regular issue of said publication on May 12, 1999, in daily column DIRECT HIT, quoted hereunder, to wit: SI ATTY. SO NG BOC LINTEK din sa pangungurakot itong Ding So ng Bureau of Customs Intelligence Unit sa South Harbor. 60

Daan-daang libong piso ang kinikita ng masiba at matakaw na si So sa mga importer na ayaw ideklara ang totoong laman ng mga container para makaiwas sa pagbayad ng malaking customs duties at taxes. Si So ang nagpapadrino sa mga pag-inspection ng mga container na ito. Siyempre-binibigyan din niya ng salapi yung ibang mga ahensiya para pumikit na lang at itikom ang kanilang nga [sic] bibig diyan sa mga buwayang taga BOC. Awang-awa ako sa ating gobyerno. Bankrupt na nga, ninanakawan pa ng mga kawatan tulad ni So. Ewan ko ba rito kay Atty. So, bakit hindi na lang tumayo ng sarili niyang robbery-hold-up gang para kumita ng mas mabilis. Hoy So.. hindi bagay sa iyo ang pagiging attorney . . . Mas bagay sa iyo ang pagiging buwayang naka korbata at holdaper. Magnanakaw ka So!! WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and ridiculing him before the bar of public opinion.[3] Criminal Case No. 99-1600 That on or about 19th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping one another, being then the columnist, publisher and managing editor, respectively of REMATE, a tabloid published daily and of general circulation in the Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS DING SO, and with the malicious intent of injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in the regular issue of said publication on May 19, 1999, in daily column DIRECT HIT, quoted hereunder, to wit: xxxx Tulad ni Atty. Ding So ng Bureau of Customs Intelligence Division, saksakan din ng lakas itong si Daniel Aquino ng Presidential Anti-Smuggling Unit na nakatalaga sa South Harbor. Tulad ni So, magnanakaw na tunay itong si Aquino. Panghihingi ng pera sa mga brokers, ang lakad nito. Pag hindi nagbigay ng pera ang mga brokers, maiipit ang pagre-release ng kanilang kargamento. WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and ridiculing him before the bar of public opinion.[4] Criminal Case No. 99-1597 That on or about 25th day of June, 1999 in Pasay City, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping one another, being then the columnist, publisher and managing editor, respectively of REMATE, a tabloid published daily and of general circulation in the Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to discredit or dishonor complainant, ATTY. CARLOS DING T. SO, and with the malicious intent of injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in the regular issue of said publication on June 25, 1999, its daily column DIRECT HIT, quoted hereunder, to wit: xxxx Nagfile ng P10 M na libel suit itong si Atty. Carlos So ng Bureau of Customs laban sa inyong lingkod at ilang opisyales ng Remate sa Pasay City Court. Nagalit itong tarantadong si Atty. So dahil binanatan ko siya at inexpose ang kagaguhan niya sa BOC. Hoy, So . . . dagdagan mo pa ang pagnanakaw mo dahil hindi kita tatantanan. Buhay ka pa sinusunog na ang iyong kaluluwa sa impyerno. WHEREIN said complainant was indicated as an extortionist, a corrupt public official, smuggler and having illegally acquired wealth, all as already stated, with the object of destroying his reputation, discrediting and ridiculing him before the bar of public opinion.[5] On November 3, 1999, Tulfo, Salao, and Cambri were arraigned, while Barlizo and Pichay were arraigned on December 15, 1999. They all pleaded not guilty to the offenses charged.

61

At pre-trial, the following were admitted by petitioners: (1) that during the four dates of the publication of the questioned articles, the complaining witness was not assigned at South Harbor; (2) that the accused and complaining witness did not know each other during all the time material to the four dates of publication; (3) that Remate is a newspaper/tabloid of general circulation in the Philippines; (4) the existence and genuineness of the Remate newspaper; (5) the column therein and its authorship and the alleged libelous statement as well as the editorial post containing the designated positions of the other accused; and (6) the prosecutions qualified admission that it is the duty of media persons to expose corruption.[6] The prosecution presented four witnesses, namely: Oscar M. Ablan, Atty. James Fortes, Jr., Gladys Fontanilla, and complainant Atty. So. The prosecution presented documentary evidence as well. Ablan testified that he had read the four columns written by Tulfo, and that the articles were untrue because he had known Atty. So since 1992 and had worked with him in the Customs Intelligence and Investigation Service Division of the Bureau of Customs. He further testified that upon reading the articles written by Tulfo, he concluded that they referred to Atty. So because the subject articles identified Atty. Carlos as Atty. Ding So of the Customs Intelligence and Investigation Service Division, Bureau of Customs and there was only one Atty. Carlos Ding So of the Bureau of Customs.[7] Fontanilla, Records Officer I of the Bureau of Customs, testified that she issued a certification in connection with these cases upon the request of Atty. So.[8] This certification stated that as per records available in her office, there was only one employee by the name of Atty. Carlos T. So who was also known as Atty. Ding So in the Intelligence Division of the Customs Intelligence and Investigation Service or in the entire Bureau of Customs. [9] Atty. Fortes testified that he knew Atty. So as a fellow member of the Iglesia Ni Kristo and as a lawyer, and that having read the articles of Tulfo, he believed that these were untrue, as he knew Atty. Carlos Ding So.[10] Atty. So testified that he was the private complainant in these consolidated cases. He further testified that he is also known as Atty. Ding So, that he had been connected with the Bureau of Customs since October 1981, and that he was assigned as Officer-in-Charge (OIC) of the Customs Intelligence and Investigation Service Division at the Manila International Container Port since December 27, 1999. He executed two complaint-affidavits, one dated June 4, 1999 and the other dated July 5, 1999, for Criminal Case Nos. 99-1598 to 99-1600. Prior to this, he also filed 14 cases of libel against Raffy Tulfo, brother of petitioner Erwin Tulfo. He testified that petitioner Tulfos act of imputing upon him criminality, assailing his honesty and integrity, caused him dishonor, discredit, and contempt among his co-members in the legal profession, co-officers of the Armed Forces of the Philippines, co-members and peers in the Iglesia ni Kristo, his co-officers and employees and superior officers in the Bureau of Customs, and among ordinary persons who had read said articles. He said it also caused him and his family sleepless nights, mental anguish, wounded feelings, intrigues, and embarrassment. He further testified that he included in his complaint for libel the officers of Remate such as the publisher, managing editor, city editor, and national editor because under Article 360 of the Revised Penal Code (RPC), they are equally responsible and liable to the same extent as if they were the author of the articles. He also testified that Ding is his nickname and that he is the only person in the entire Bureau of Customs who goes by the name of Atty. Carlos T. So or Atty. Carlos Ding So.[11] In his defense, petitioner Tulfo testified that he did not write the subject articles with malice, that he neither knew Atty. So nor met him before the publication of the articles. He testified that his criticism of a certain Atty. So of the South Harbor was not directed against the complainant, but against a person by the name of Atty. Ding So at the South Harbor. Tulfo claimed that it was the practice of certain people to use other peoples names to advance their corrupt practices. He also claimed that his articles had neither discredited nor dishonored the complainant because as per his source in the Bureau of Customs, Atty. So had been promoted. He further testified that he did not do any research on Atty. So before the subject articles, because as a columnist, he had to rely on his source, and that he had several sources in the Bureau of Customs, particularly in the South Harbor.[12] Petitioner Salao testified that he came to know Atty. Carlos Ding So when the latter filed a case against them. He testified that he is an employee of Carlo Publishing House, Inc.; that he was designated as the national editor of the newspaper Remate since December 1999; that the duties of the position are to edit, evaluate, encode, and supervise layout of the news from the provinces; and that Tulfo was under the supervision of Rey Briones, Vice President for Editorial and Head of the Editorial Division. Salao further testified that he had no participation in the subject articles of Tulfo, nor had he anything to do with the latters column.[13] Petitioner Cambri, managing editor of Remate, testified that she classifies the news articles written by the reporters, and that in the Editorial Division, the officers are herself; Briones, her supervisor; Lydia Bueno, as news and city editor; and Salao as national editor. She testified that petitioner Barlizo is her subordinate, whose duties and responsibilities are the typesetting, editing, and layout of the page assigned to her, the Metro page. She further testified that she had no participation in the writing, editing, or publication of the column of Tulfo because the column was not edited. She claimed that none among her co-accused from the Remate newspaper edited the columns of Tulfo, that the publication and editing of the subject articles were the responsibility of Tulfo, and that he was given blanket authority to write what he wanted to write. She also testified that the page wherein Tulfos column appeared was supervised by Bueno as news editor.[14] Petitioner Pichay testified that he had been the president of Carlo Publishing House, Inc. since December 1998. He testified that the company practice was to have the columnists report directly to the vice-president of 62

editorials, that the columnists were given autonomy on their columns, and that the vice-president for editorials is the one who would decide what articles are to be published and what are not. He further testified that Tulfo was already a regular contributor.[15] The Ruling of the RTC In a Decision dated November 17, 2000, the RTC found petitioners guilty of the crime of Libel. The dispositive portion reads as follows: WHEREFORE, the Court finds the accused ERWIN TULFO, SUSAN CAMBRI, REY SALAO, JOCELYN BARLIZO and PHILIP PICHAY guilty beyond reasonable doubt of four (4) counts of the crime of LIBEL, as defined in Article 353 of the Revised Penal Code, and penalized by prision correccional in its minimum and medium periods, or a fine ranging from P200.00 Pesos to P6,000.00 Pesos or both, under Article 355 of the same Code. Applying the Indeterminate Sentence Law, the Court hereby sentences EACH of the accused to suffer imprisonment of SIX (6) MONTHS of arresto mayor, as minimum, to FOUR (4) YEARS and TWO (2) MONTHS of prision correccional, as maximum, for EACH count with accessory penalties provided by law. Considering that the accused Erwin Tulfo, Susan Cambri, Rey Salao, Jocelyn Barlizo and Philip Pichay wrote and published the four (4) defamatory articles with reckless disregard, being, in the mind of the Court, of whether it was false or not, the said articles libelous per se, they are hereby ordered to pay, jointly and severally, the sum of EIGHT HUNDRED THOUSAND (P800,000.00) PESOS, as actual damages, the sum of ONE MILLION PESOS (P1,000,000.00), as moral damages, and an additional amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00), by way of exemplary damages, all with subsidiary imprisonment, in case of insolvency, and to pay the costs. SO ORDERED.[16]

The Ruling of the Court of Appeals Before the Court of Appeals (CA), Tulfo assigned the following errors: 1. THE LOWER COURT ERRED IN IGNORING THE UNREBUTTED TESTIMONY OF THE APPELLANT THAT HE DID NOT CRITICIZE THE PRIVATE COMPLAINANT WORKING AT THE NAIA. HE CRITICIZED ANOTHER PERSON WORKING AT THE SOUTH HARBOR. HENCE, THE ELEMENT OF IDENTITY IS LACKING. THE LOWER COURT ERRED IN IGNORING THE LACK OF THE ESSENTIAL ELEMENT OF DISCREDIT OR DISHONOR, AS DEFINED BY JURISPRUDENCE. THERE WAS NO MALICE AGAINST THE PRIVATE COMPLAINANT ATTY. CARLOS DING SO. [17]

2. 3.

His co-accused assigned the following errors: A The trial court seriously erred in holding accused Susan Cambri, Rey Salao, Jocelyn Barlizo and Philip Pichay liable for the defamations contained in the questioned articles despite the fact that the trial court did not have any finding as to their participation in the writing, editing and/or publication of the questioned articles. B The trial court seriously erred in concluding that libel was committed by all of the accused on the basis of its finding that the elements of libel have been satisfactorily established by evidence on record. C The trial court seriously erred in considering complainant to be the one referred to by Erwin Tulfo in his articles in question.[18] In a Decision[19] dated June 17, 2003, the Eighth Division of the CA dismissed the appeal and affirmed the judgment of the trial court. A motion for reconsideration dated June 30, 2003 was filed by Tulfo, while the rest of his co-accused filed a motion for reconsideration dated July 2, 2003. In a Resolution dated December 11, 2003, both motions were denied for lack of merit.[20] Petitions for Review on Certiorari under Rule 45 Tulfo brought this petition docketed as G.R. No. 161032, seeking to reverse the Decision of the CA in CA-G.R. CR No. 25318 which affirmed the decision of the RTC. Petitioners Cambri, Salao, Barlizo, and Pichay brought a similar petition docketed as G.R. No. 161176, seeking the nullification of the same CA decision. 63

In a Resolution dated March 15, 2004, the two cases were consolidated since both cases arise from the same set of facts, involve the same parties, assail the same decision of the CA, and seek identical reliefs.[21] Assignment of Errors Petitioner Tulfo submitted the following assignment of errors: I Assuming that the Prosecution presented credible and relevant evidence, the Honorable CA erred in not declaring the assailed articles as privileged; the CA erred in concluding that malice in law exists by the courts having incorrectly reasoned out that malice was presumed in the instant case. II Even assuming arguendo that the articles complained of are not privileged, the lower court, nonetheless, committed gross error as defined by the provisions of Section 6 of Rule 45 by its misappreciation of the evidence presented on matters substantial and material to the guilt or innocence of the petitioner.[22] Petitioners Cambri, Salao, Barlizo, and Pichay submitted their own assignment of errors, as follows: A -The Court of Appeals Seriously Erred In Its Application of Article 360 Of The Revised Penal Code By Holding Cambri, Salao And Barlizo Liable For The Defamatory Articles In The May 11, 12, 19 And June 25, 1999 Issues Of Remate Simply Because They Were Managing Editor, National Editor And City Editor Respectively Of Remate And By Holding Pichay Also Liable For Libel Merely Because He Was The President Of Carlo Publishing House, Inc. Without Taking Into Account The Unrebutted Evidence That Petitioners Had No Participation In The Editing Or Publication Of The Defamatory Articles In Question. B -The Court Of Appeals Committed Grave Abuse Of Discretion In Manifestly Disregarding The Unrebutted Evidence That Petitioners Had No Participation In The Editing Or Publication Of The Defamatory Articles In Question. C -The Court Of Appeals Seriously Misappreciated The Evidence In Holding That The Person Referred To In The Published Articles Was Private Complainant Atty. Carlos So.[23] Our Ruling The petitions must be dismissed. The assignment of errors of petitioner Tulfo shall be discussed first. In his appeal, Tulfo claims that the CA erred in not applying the ruling in Borjal v. Court of Appeals.[24] In essence, he argues that the subject articles fall under qualifiedly privileged communication under Borjal and that the presumption of malice in Art. 354 of the RPC does not apply. He argues that it is the burden of the prosecution to prove malice in fact. This case must be distinguished from Borjal on several points, the first being that Borjal stemmed from a civil action for damages based on libel, and was not a criminal case. Second, the ruling in Borjal was that there was no sufficient identification of the complainant, which shall be differentiated from the present case in discussing the second assignment of error of Tulfo. Third, the subject in Borjal was a private citizen, whereas in the present case, the subject is a public official. Finally, it was held in Borjal that the articles written by Art Borjal were fair commentaries on matters of public interest.[25] It shall be discussed and has yet to be determined whether or not the articles fall under the category of fair commentaries. In passing, it must be noted that the defense of Tulfos articles being qualifiedly privileged communication is raised for the first time in the present petition, and this particular issue was never brought before either the RTC or the CA. Thus, neither the RTC nor the CA had a chance to properly consider and evaluate this defense. Tulfo now draws parallels between his case and that of Art Borjal, and argues that the prosecution should have proved malice in fact, and it was error on the part of the trial and appellate courts to use the presumption of malice in law in Art. 354 of the RPC. This lays an unusual burden on the part of the prosecution, the RTC, and the CA to refute a defense that Tulfo had never raised before them. Whether or not the subject articles are privileged communications must first be established by the defense, which it failed to do at the level of the RTC and the CA. Even so, it shall be dealt with now, considering that an appeal in a criminal proceeding throws the whole case open for review. There is no question of the status of Atty. So as a public official, who served as the OIC of the Bureau of Customs Intelligence and Investigation Service at the Ninoy Aquino International Airport (NAIA) at the time of the printing of the allegedly libelous articles. Likewise, it cannot be refuted that the goings-on at the Bureau of Customs, a government agency, are matters of public interest. It is now a matter of establishing whether the articles of Tulfo are protected as qualified privileged communication or are defamatory and written with malice, for which he would be liable. 64

Freedom of the Press v. Responsibility of the Press The Court has long respected the freedom of the press, and upheld the same when it came to commentaries made on public figures and matters of public interest. Even in cases wherein the freedom of the press was given greater weight over the rights of individuals, the Court, however, has stressed that such freedom is not absolute and unbounded. The exercise of this right or any right enshrined in the Bill of Rights, indeed, comes with an equal burden of responsible exercise of that right. The recognition of a right is not free license for the one claiming it to run roughshod over the rights of others. The Journalists Code of Ethics adopted by the National Union of Journalists of the Philippines shows that the press recognizes that it has standards to follow in the exercise of press freedom; that this freedom carries duties and responsibilities. Art. I of said code states that journalists recognize the duty to air the other side and the duty to correct substantive errors promptly. Art. VIII states that journalists shall presume persons accused of crime of being innocent until proven otherwise. In the present case, it cannot be said that Tulfo followed the Journalists Code of Ethics and exercised his journalistic freedom responsibly. In his series of articles, he targeted one Atty. Ding So of the Bureau of Customs as being involved in criminal activities, and was using his public position for personal gain. He went even further than that, and called Atty. So an embarrassment to his religion, saying ikaw na yata ang pinakagago at magnanakaw sa miyembro nito. [26] He accused Atty. So of stealing from the government with his alleged corrupt activities.[27] And when Atty. So filed a libel suit against him, Tulfo wrote another article, challenging Atty. So, saying, Nagalit itong tarantadong si Atty. So dahil binabantayan ko siya at in-expose ang kagaguhan niya sa [Bureau of Customs]. [28] In his testimony, Tulfo admitted that he did not personally know Atty. So, and had neither met nor known him prior to the publication of the subject articles. He also admitted that he did not conduct a more in-depth research of his allegations before he published them, and relied only on his source at the Bureau of Customs. In his defense before the trial court, Tulfo claimed knowledge of people using the names of others for personal gain, and even stated that he had been the victim of such a practice. He argued then that it may have been someone else using the name of Atty. So for corrupt practices at the South Harbor, and this person was the target of his articles. This argument weakens his case further, for even with the knowledge that he may be in error, even knowing of the possibility that someone else may have used Atty. Sos name, as Tulfo surmised, he made no effort to verify the information given by his source or even to ascertain the identity of the person he was accusing. The trial court found Tulfos accusations against Atty. So to be false, but Tulfo argues that the falsity of contents of articles does not affect their privileged character. It may be that the falsity of the articles does not prove malice. Neither did Borjal give journalists carte blanche with regard to their publications. It cannot be said that a false article accusing a public figure would always be covered by the mantle of qualified privileged communication. The portion of Borjal cited by Tulfo must be scrutinized further: Even assuming that the contents of the articles are false, mere error, inaccuracy or even falsity alone does not prove actual malice. Errors or misstatements are inevitable in any scheme of truly free expression and debate. Consistent with good faith and reasonable care, the press should not be held to account, to a point of suppression, for honest mistakes or imperfections in the choice of language. There must be some room for misstatement of fact as well as for misjudgment. Only by giving them much leeway and tolerance can they courageously and effectively function as critical agencies in our democracy. In Bulletin Publishing Corp. v. Noel we held A newspaper especially one national in reach and coverage, should be free to report on events and developments in which the public has a legitimate interest with minimum fear of being hauled to court by one group or another on criminal or civil charges for libel, so long as the newspaper respects and keeps within the standards of morality and civility prevailing within the general community. To avoid the self-censorship that would necessarily accompany strict liability for erroneous statements, rules governing liability for injury to reputation are required to allow an adequate margin of error by protecting some inaccuracies. It is for the same reason that the New York Times doctrine requires that liability for defamation of a public official or public figure may not be imposed in the absence of proof of actual malice on the part of the person making the libelous statement.[29] (Emphasis supplied.) Reading more deeply into the case, the exercise of press freedom must be done consistent with good faith and reasonable care. This was clearly abandoned by Tulfo when he wrote the subject articles. This is no case of mere error or honest mistake, but a case of a journalist abdicating his responsibility to verify his story and instead misinforming the public. Journalists may be allowed an adequate margin of error in the exercise of their profession, but this margin does not expand to cover every defamatory or injurious statement they may make in the furtherance of their profession, nor does this margin cover total abandonment of responsibility. 65

Borjal may have expanded the protection of qualified privileged communication beyond the instances given in Art. 354 of the RPC, but this expansion does not cover Tulfo. The addition to the instances of qualified privileged communications is reproduced as follows: To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.[30] (Emphasis supplied.) The expansion speaks of fair commentaries on matters of public interest. While Borjal places fair commentaries within the scope of qualified privileged communication, the mere fact that the subject of the article is a public figure or a matter of public interest does not automatically exclude the author from liability. Borjal allows that for a discreditable imputation to a public official to be actionable, it must be a false allegation of fact or a comment based on a false supposition. As previously mentioned, the trial court found that the allegations against Atty. So were false and that Tulfo did not exert effort to verify the information before publishing his articles. Tulfo offered no proof for his accusations. He claimed to have a source in the Bureau of Customs and relied only on this source for his columns, but did no further research on his story. The records of the case are bereft of any showing that Atty. So was indeed the villain Tulfo pictured him to be. Tulfos articles related no specific details or acts committed to prove Atty. So was indeed a corrupt public official. These columns were unsubstantiated attacks on Atty. So, and cannot be countenanced as being privileged simply because the target was a public official. Although wider latitude is given to defamatory utterances against public officials in connection with or relevant to their performance of official duties, or against public officials in relation to matters of public interest involving them, such defamatory utterances do not automatically fall within the ambit of constitutionally protected speech.[31] Journalists still bear the burden of writing responsibly when practicing their profession, even when writing about public figures or matters of public interest. As held in In Re: Emil P. Jurado: Surely it cannot be postulated that the law protects a journalist who deliberately prints lies or distorts the truth; or that a newsman may ecape liability who publishes derogatory or defamatory allegations against a person or entity, but recognizes no obligation bona fide to establish beforehand the factual basis of such imputations and refuses to submit proof thereof when challenged to do so. It outrages all notions of fair play and due process, and reduces to uselessness all the injunctions of the Journalists Code of Ethics to allow a newsman, with all the potential of his profession to influence popular belief and shape public opinion, to make shameful and offensive charges destructive of personal or institutional honor and repute, and when called upon to justify the same, cavalierly beg off by claiming that to do so would compromise his sources and demanding acceptance of his word for the reliability of those sources.[32] The prosecution showed that Tulfo could present no proof of his allegations against Atty. So, only citing his one unnamed source. It is not demanded of him that he name his source. The confidentiality of sources and their importance to journalists are accepted and respected. What cannot be accepted are journalists making no efforts to verify the information given by a source, and using that unverified information to throw wild accusations and besmirch the name of possibly an innocent person. Journalists have a responsibility to report the truth, and in doing so must at least investigate their stories before publication, and be able to back up their stories with proof. The rumors and gossips spread by unnamed sources are not truth. Journalists are not storytellers or novelists who may just spin tales out of fevered imaginings, and pass them off as reality. There must be some foundation to their reports; these reports must be warranted by facts. Jurado also established that the journalist should exercise some degree of care even when writing about public officials. The case stated: Clearly, the public interest involved in freedom of speech and the individual interest of judges (and for that matter, all other public officials) in the maintenance of private honor and reputation need to be accommodated one to the other. And the point of adjustment or accommodation between these two legitimate interests is precisely found in the norm which requires those who, invoking freedom of speech, publish statements which are clearly defamatory to identifiable judges or other public officials to exercise bona fide care in ascertaining the truth of the statements they publish. The norm does not require that a journalist guarantee the truth of what he says or publishes. But the norm does prohibit the reckless disregard of private reputation by publishing or circulating defamatory statements without any bona fide effort to ascertain the truth thereof. That this norm represents the generally accepted point of balance or adjustment between the two interests involved is clear from a consideration of both the pertinent civil law norms and the Code of Ethics adopted by the journalism profession in the Philippines.[33] 66

Tulfo has clearly failed in this regard. His articles cannot even be considered as qualified privileged communication under the second paragraph of Art. 354 of the RPC which exempts from the presumption of malice a fair and true report, made in good faith, without any comments or remarks, of any judicial, legislative, or other official proceedings which are not of confidential nature, or any statement, report, or speech delivered in said proceedings, or of any other act performed by public officers in the exercise of their functions. This particular provision has several elements which must be present in order for the report to be exempt from the presumption of malice. The provision can be dissected as follows: In order that the publication of a report of an official proceeding may be considered privileged, the following conditions must exist: (a) That it is a fair and true report of a judicial, legislative, or other official proceedings which are not of confidential nature, or of a statement, report or speech delivered in said proceedings, or of any other act performed by a public officer in the exercise of his functions; (b) That it is made in good faith; and (c) That it is without any comments or remarks.[34] The articles clearly are not the fair and true reports contemplated by the provision. They provide no details of the acts committed by the subject, Atty. So. They are plain and simple baseless accusations, backed up by the word of one unnamed source. Good faith is lacking, as Tulfo failed to substantiate or even attempt to verify his story before publication. Tulfo goes even further to attack the character of the subject, Atty. So, even calling him a disgrace to his religion and the legal profession. As none of the elements of the second paragraph of Art. 354 of the RPC is present in Tulfos articles, it cannot thus be argued that they are qualified privileged communications under the RPC. Breaking down the provision further, looking at the terms fair and true, Tulfos articles do not meet the standard. Fair is defined as having the qualities of impartiality and honesty.[35] True is defined as conformable to fact; correct; exact; actual; genuine; honest.[36] Tulfo failed to satisfy these requirements, as he did not do research before making his allegations, and it has been shown that these allegations were baseless. The articles are not fair and true reports, but merely wild accusations. Even assuming arguendo that the subject articles are covered by the shield of qualified privileged communication, this would still not protect Tulfo. In claiming that his articles were covered by qualified privileged communication, Tulfo argues that the presumption of malice in law under Art. 354 of the RPC is no longer present, placing upon the prosecution the burden of proving malice in fact. He then argues that for him to be liable, there should have been evidence that he was motivated by ill will or spite in writing the subject articles. The test to be followed is that laid down in New York Times Co. v. Sullivan,[37] and reiterated in Flor v. People, which should be to determine whether the defamatory statement was made with actual malice, that is, with knowledge that it was false or with reckless disregard of whether it was false or not.[38] The trial court found that Tulfo had in fact written and published the subject articles with reckless disregard of whether the same were false or not, as proven by the prosecution. There was the finding that Tulfo failed to verify the information on which he based his writings, and that the defense presented no evidence to show that the accusations against Atty. So were true. Tulfo cannot argue that because he did not know the subject, Atty. So, personally, there was no malice attendant in his articles. The test laid down is the reckless disregard test, and Tulfo has failed to meet that test. The fact that Tulfo published another article lambasting respondent Atty. So can be considered as further evidence of malice, as held in U.S. vs. Montalvo,[39] wherein publication after the commencement of an action was taken as further evidence of a malicious design to injure the victim. Tulfo did not relent nor did he pause to consider his actions, but went on to continue defaming respondent Atty. So. This is a clear indication of his intent to malign Atty. So, no matter the cost, and is proof of malice. Leaving the discussion of qualified privileged communication, Tulfo also argues that the lower court misappreciated the evidence presented as to the identity of the complainant: that Tulfo wrote about Atty. Ding So, an official of the Bureau of Customs who worked at the South Harbor, whereas the complainant was Atty. Carlos So who worked at the NAIA. He claims that there has arisen a cloud of doubt as to the identity of the real party referred to in the articles. This argument is patently without merit. The prosecution was able to present the testimonies of two other witnesses who identified Atty. So from Tulfos articles. There is the certification that there is only one Atty. So in the Bureau of Customs. And most damning to Tulfos case is the last column he wrote on the matter, referring to the libel suit against him by Atty. So of the Bureau of Customs. In this article, Tulfo launched further attacks against Atty. So, stating that the libel case was due to the exposs Tulfo had written on the corrupt acts committed by Atty. So in the Bureau of Customs. This last article is an admission on the part of Tulfo that Atty. So was in fact the target of his attacks. He cannot now point to a putative Atty. Ding So at South Harbor, or someone else using the name of Atty. So as the real subject of his attacks, when he did not investigate the existence or non-existence of an Atty. So at South 67

Harbor, nor investigate the alleged corrupt acts of Atty. So of the Bureau of Customs. Tulfo cannot say that there is doubt as to the identity of the Atty. So referred to in his articles, when all the evidence points to one Atty. So, the complainant in the present case. Having discussed the issue of qualified privileged communication and the matter of the identity of the person referred to in the subject articles, there remains the petition of the editors and president of Remate, the paper on which the subject articles appeared. In sum, petitioners Cambri, Salao, Barlizo, and Pichay all claim that they had no participation in the editing or writing of the subject articles, and are thus not liable. The argument must fail. The language of Art. 360 of the RPC is plain. It lists the persons responsible for libel: Art. 360. Persons responsible.Any person who shall publish, exhibit, or cause the publication or exhibition of any defamation in writing or by similar means, shall be responsible for the same. The author or editor of a book or pamphlet, or the editor or business manager of a daily newspaper, magazine or serial publication, shall be responsible for the defamations contained therein to the same extent as if he were the author thereof. The claim that they had no participation does not shield them from liability. The provision in the RPC does not provide absence of participation as a defense, but rather plainly and specifically states the responsibility of those involved in publishing newspapers and other periodicals. It is not a matter of whether or not they conspired in preparing and publishing the subject articles, because the law simply so states that they are liable as they were the author. Neither the publisher nor the editors can disclaim liability for libelous articles that appear on their paper by simply saying they had no participation in the preparation of the same. They cannot say that Tulfo was all alone in the publication of Remate, on which the subject articles appeared, when they themselves clearly hold positions of authority in the newspaper, or in the case of Pichay, as the president in the publishing company. As Tulfo cannot simply say that he is not liable because he did not fulfill his responsibility as a journalist, the other petitioners cannot simply say that they are not liable because they did not fulfill their responsibilities as editors and publishers. An editor or manager of a newspaper, who has active charge and control of its management, conduct, and policy, generally is held to be equally liable with the owner for the publication therein of a libelous article.[40] On the theory that it is the duty of the editor or manager to know and control the contents of the paper,[41] it is held that said person cannot evade responsibility by abandoning the duties to employees,[42] so that it is immaterial whether or not the editor or manager knew the contents of the publication.[43] In Fermin v. People of the Philippines,[44] the Court held that the publisher could not escape liability by claiming lack of participation in the preparation and publication of a libelous article. The Court cited U.S. v. Ocampo, stating the rationale for holding the persons enumerated in Art. 360 of the RPC criminally liable, and it is worth reiterating: According to the legal doctrines and jurisprudence of the United States, the printer of a publication containing libelous matter is liable for the same by reason of his direct connection therewith and his cognizance of the contents thereof. With regard to a publication in which a libel is printed, not only is the publisher but also all other persons who in any way participate in or have any connection with its publication are liable as publishers. xxxx In the case of State vs. Mason (26 L.R.A., 779; 26 Oreg., 273, 46 Am. St. Rep., 629), the question of the responsibility of the manager or proprietor of a newspaper was discussed. The court said, among other things (pp. 782, 783): The question then recurs as to whether the manager or proprietor of a newspaper can escape criminal responsibility solely on the ground that the libelous article was published without his knowledge or consent. When a libel is published in a newspaper, such fact alone is sufficient evidence prima facie to charge the manager or proprietor with the guilt of its publication. The manager and proprietor of a newspaper, we think ought to be held prima facie criminally for whatever appears in his paper; and it should be no defense that the publication was made without his knowledge or consent, x x x. One who furnishes the means for carrying on the publication of a newspaper and entrusts its management to servants or employees whom he selects and controls may be said to cause to be published what actually appears, and should be held responsible therefore, whether he was individually concerned in the publication or not, x x x. Criminal responsibility for the acts of an agent or servant in the course of his employment necessarily implies some degree of guilt or delinquency on the part of the publisher; x x x. 68

We think, therefore, the mere fact that the libelous article was published in the newspaper without the knowledge or consent of its proprietor or manager is no defense to a criminal prosecution against such proprietor or manager. In the case of Commonwealth vs. Morgan (107 Mass., 197), this same question was considered and the court held that in the criminal prosecution of a publisher of a newspaper in which a libel appears, he is prima facie presumed to have published the libel, and that the exclusion of an offer by the defendant to prove that he never saw the libel and was not aware of its publication until it was pointed out to him and that an apology and retraction were afterwards published in the same paper, gave him no ground for exception. In this same case, Mr. Justice Colt, speaking for the court, said: It is the duty of the proprietor of a public paper, which may be used for the publication of improper communications, to use reasonable caution in the conduct of his business that no libels be published. (Whartons Criminal Law, secs. 1627, 1649; 1 Bishops Criminal Law, secs. 219, 221; People vs. Wilson, 64 Ill., 195; Commonwealth vs. Damon, 136 Mass., 441.) The above doctrine is also the doctrine established by the English courts. In the case of Rex vs. Walter (3 Esp., 21) Lord Kenyon said that he was clearly of the opinion that the proprietor of a newspaper was answerable criminally as well as civilly for the acts of his servants or agents for misconduct in the management of the paper. This was also the opinion of Lord Hale, Mr. Justice Powell, and Mr. Justice Foster. Lofft, an English author, in his work on Libel and Slander, said: An information for libel will lie against the publisher of a papers, although he did not know of its being put into the paper and stopped the sale as soon as he discovered it. In the case of People vs. Clay (86 Ill., 147) the court held that A person who makes a defamatory statement to the agent of a newspaper for publication, is liable both civilly and criminally, and his liability is shared by the agent and all others who aid in publishing it.[45] Under Art. 360 of the RPC, as Tulfo, the author of the subject articles, has been found guilty of libel, so too must Cambri, Salao, Barlizo, and Pichay. Though we find petitioners guilty of the crime charged, the punishment must still be tempered with justice. Petitioners are to be punished for libel for the first time. They did not apply for probation to avoid service of sentence possibly in the belief that they have not committed any crime. In Buatis, Jr. v. People,[46] the Court, in a criminal case for libel, removed the penalty of imprisonment and instead imposed a fine as penalty. In Sazon v. Court of Appeals,[47] the accused was merely fined in lieu of the original penalty of imprisonment and fine. Freedom of expression as well as freedom of the press may not be unrestrained, but neither must it be reined in too harshly. In light of this, considering the necessity of a free press balanced with the necessity of a responsible press, the penalty of a fine of PhP 6,000 for each count of libel, with subsidiary imprisonment in case of insolvency, should suffice.[48] Lastly, the responsibilities of the members of the press notwithstanding, the difficulties and hazards they encounter in their line of work must also be taken into consideration. The award of damages by the lower court must be modified. Art. 2199 of the Civil Code provides, 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. Such compensation is referred to as actual or compensatory damages. There was no showing of any pecuniary loss suffered by the complainant Atty. So. Without proof of actual loss that can be measured, the award of actual damages cannot stand. In Del Mundo v. Court of Appeals, it was held, as regards actual and moral damages: A party is entitled to an adequate compensation for such pecuniary loss actually suffered by him as he has duly proved. Such damages, to be recoverable, must not only be capable of proof, but must actually be proved with a reasonable degree of certainty. We have emphasized that these damages cannot be presumed, and courts, in making an award must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. Moral damages, upon the other hand, may be awarded to compensate one for manifold injuries such as physical suffering, mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation. These damages must be understood to be in the concept of grants, not punitive or corrective in nature, calculated to compensate the claimant for the injury suffered. Although incapable of exactness and no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the sound discretion of the court, it is imperative, nevertheless, that (1) injury must have been suffered by the claimant, and (2) such injury must have sprung from any of the cases expressed in Article 2219 and Article 2220 of the Civil Code. A causal relation, in fine, must exist between the act or omission referred to in the Code which underlies, or gives rise to, the 69

case or proceeding on the one hand, and the resulting injury, on the other hand; i.e. the first must be the proximate cause and the latter the direct consequence thereof.[49] It was the articles of Tulfo that caused injury to Atty. So, and for that Atty. So deserves the award of moral damages. Justification for the award of moral damages is found in Art. 2219(7) of the Civil Code, which states that moral damages may be recovered in cases of libel, slander, or any other form of defamation. As the cases involved are criminal cases of libel, they fall squarely within the ambit of Art. 2219(7). Moral damages can be awarded even in the absence of actual or compensatory damages. The fact that no actual or compensatory damage was proven before the trial court does not adversely affect the offended partys right to recover moral damages.[50] And while on the subject of moral damages, it may not be amiss to state at this juncture that Tulfos libelous articles are abhorrent not only because of its vilifying and demeaning effect on Atty. So himself, but also because of their impact on members of his family, especially on the children and possibly even the childrens children. The Court can perhaps take judicial notice that the sense of kinship runs deeply in a typical Filipino family, such that the whole family usually suffers or rejoices at the misfortune or good fortune, as the case may be, of any of its member. Accordingly, any attempt to dishonor or besmirch the name and reputation of the head of the family, as here, invariably puts the other members in a state of disrepute, distress, or anxiety. This reality adds an imperative dimension to the award of moral damages to the defamed party. The award of exemplary damages, however, cannot be justified. Under Art. 2230 of the Civil Code, In criminal offenses, exemplary damages as a part of the civil liability may be imposed when the crime was committed with one or more aggravating circumstances. Such damages are separate and distinct from fines and shall be paid to the offended party. No aggravating circumstances accompanied the commission of the libelous acts; thus, no exemplary damages can be awarded. Conclusion The press wields enormous power. Through its widespread reach and the information it imparts, it can mold and shape thoughts and opinions of the people. It can turn the tide of public opinion for or against someone, it can build up heroes or create villains. It is in the interest of society to have a free press, to have liberal discussion and dissemination of ideas, and to encourage people to engage in healthy debate. It is through this that society can progress and develop. Those who would publish under the aegis of freedom of the press must also acknowledge the corollary duty to publish responsibly. To show that they have exercised their freedom responsibly, they must go beyond merely relying on unfounded rumors or shadowy anonymous sources. There must be further investigation conducted, some shred of proof found to support allegations of misconduct or even criminal activity. It is in fact too easy for journalists to destroy the reputation and honor of public officials, if they are not required to make the slightest effort to verify their accusations. Journalists are supposed to be reporters of facts, not fiction, and must be able to back up their stories with solid research. The power of the press and the corresponding duty to exercise that power judiciously cannot be understated. But even with the need for a free press, the necessity that it be free does not mean that it be totally unfettered. It is still acknowledged that the freedom can be abused, and for the abuse of the freedom, there must be a corresponding sanction. It falls on the press to wield such enormous power responsibly. It may be a clich that the pen is mightier than the sword, but in this particular case, the lesson to be learned is that such a mighty weapon should not be wielded recklessly or thoughtlessly, but always guided by conscience and careful thought. A robust and independently free press is doubtless one of the most effective checks on government power and abuses. Hence, it behooves government functionaries to respect the value of openness and refrain from concealing from media corruption and other anomalous practices occurring within their backyard. On the other hand, public officials also deserve respect and protection against false innuendoes and unfounded accusation of official wrongdoing from an abusive press. As it were, the law and jurisprudence on libel heavily tilt in favor of press freedom. The common but most unkind perception is that government institutions and their officers and employees are fair game to official and personal attacks and even ridicule. And the practice on the ground is just as disconcerting. Reports and accusation of official misconduct often times merit front page or primetime treatment, while defenses set up, retraction issued, or acquittal rendered get no more, if ever, perfunctory coverage. The unfairness needs no belaboring. The balm of clear conscience is sometimes not enough. Perhaps lost in the traditional press freedom versus government impasse is the fact that a maliciously false imputation of corruption and dishonesty against a public official, as here, leaves a stigmatizing mark not only on the person but also the office to which he belongs. In the ultimate analysis, public service also unduly suffers.

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WHEREFORE, in view of the foregoing, the petitions in G.R. Nos. 161032 and 161176 are DISMISSED. The CA Decision dated June 17, 2003 in CA-G.R. CR No. 25318 is hereby AFFIRMED with the MODIFICATIONS that in lieu of imprisonment, the penalty to be imposed upon petitioners shall be a fine of six thousand pesos (PhP 6,000) for each count of libel, with subsidiary imprisonment in case of insolvency, while the award of actual damages and exemplary damages is DELETED. The Decision dated November 17, 2000 of the RTC, Branch 112 in Pasay City in Criminal Case Nos. 99-1597 to 99-1600 is modified to read as follows: WHEREFORE, the Court finds the accused ERWIN TULFO, SUSAN CAMBRI, REY SALAO, JOCELYN BARLIZO, and PHILIP PICHAY guilty beyond reasonable doubt of four (4) counts of the crime of LIBEL, as defined in Article 353 of the Revised Penal Code, and sentences EACH of the accused to pay a fine of SIX THOUSAND PESOS (PhP 6,000) per count of libel with subsidiary imprisonment, in case of insolvency. Considering that the accused Erwin Tulfo, Susan Cambri, Rey Salao, Jocelyn Barlizo, and Philip Pichay wrote and published the four (4) defamatory articles with reckless disregard whether it was false or not, the said articles being libelous per se, they are hereby ordered to pay complainant Atty. Carlos T. So, jointly and severally, the sum of ONE MILLION PESOS (PhP 1,000,000) as moral damages. The claim of actual and exemplary damages is denied for lack of merit. Costs against petitioners. SO ORDERED. G.R. No. 61516 March 21, 1989 FLORENTINA A. GUILATCO, Petitioner, vs. CITY OF DAGUPAN, and the HONORABLE COURT OF APPEALS, Respondents. SARMIENTO, J.: In a civil action 1 for recovery of damages filed by the petitioner Florentina A. Guilatco, the following judgment was rendered against the respondent City of Dagupan: xxx (1) Ordering defendant City of Dagupan to pay plaintiff actual damages in the amount of P 15,924 (namely P8,054.00 as hospital, medical and other expenses [Exhs. H to H-60], P 7,420.00 as lost income for one (1) year [Exh. F] and P 450.00 as bonus). P 150,000.00 as moral damages, P 50,000.00 as exemplary damages, and P 3,000.00 as attorney's fees, and litigation expenses, plus costs and to appropriate through its Sangguniang Panglunsod (City Council) said amounts for said purpose; (2) Dismissing plaintiffs complaint as against defendant City Engr. Alfredo G. Tangco; and (3) Dismissing the counterclaims of defendant City of Dagupan and defendant City Engr. Alfredo G. Tangco, for lack of merit. 2 The facts found by the trial court are as follows: 3 It would appear from the evidences that on July 25, 1978, herein plaintiff, a Court Interpreter of Branch III, CFI--Dagupan City, while she was about to board a motorized tricycle at a sidewalk located at Perez Blvd. (a National Road, under the control and supervision of the City of Dagupan) accidentally fell into a manhole located on said sidewalk, thereby causing her right leg to be fractured. As a result thereof, she had to be hospitalized, operated on, confined, at first at the Pangasinan Provincial Hospital, from July 25 to August 3, 1978 (or for a period of 16 days). She also incurred hospitalization, medication and other expenses to the tune of P 8,053.65 (Exh. H to H-60) or a total of P 10,000.00 in all, as other receipts were either lost or misplaced; during the period of her confinement in said two hospitals, plaintiff suffered severe or excruciating pain not only on her right leg which was fractured but also on all parts of her body; the pain has persisted even after her discharge from the Medical City General Hospital on October 9, 1978, to the present. Despite her discharge from the Hospital plaintiff is presently still wearing crutches and the Court has actually observed that she has difficulty in locomotion. From the time of the mishap on July 25, 1978 up to the present, plaintiff has not yet reported for duty as court interpreter, as she has difficulty of locomotion in going up the stairs of her office, located near the city hall in Dagupan City. She earns at least P 720.00 a month consisting of her monthly salary and other means of income, but since July 25, 1978 up to the present she has been deprived of said income as she has already consumed her accrued leaves in the government service. She has lost several pounds as a result of the accident and she is no longer her former jovial self, she has been unable to perform her religious, social, and other activities which she used to do prior to the incident.

71

Dr. Norberto Felix and Dr. Dominado Manzano of the Provincial Hospital, as well as Dr. Antonio Sison of the Medical City General Hospital in Mandaluyong Rizal (Exh. I; see also Exhs. F, G, G-1 to G-19) have confirmed beyond shadow of any doubt the extent of the fracture and injuries sustained by the plaintiff as a result of the mishap. On the other hand, Patrolman Claveria, De Asis and Cerezo corroborated the testimony of the plaintiff regarding the mishap and they have confirmed the existence of the manhole (Exhs. A, B, C and subexhibits) on the sidewalk along Perez Blvd., at the time of the incident on July 25, 1978 which was partially covered by a concrete flower pot by leaving gaping hole about 2 ft. long by 1 1/2 feet wide or 42 cms. wide by 75 cms. long by 150 cms. deep (see Exhs. D and D-1). Defendant Alfredo Tangco, City Engineer of Dagupan City and admittedly ex-officio Highway Engineer, City Engineer of the Public Works and Building Official for Dagupan City, admitted the existence of said manhole along the sidewalk in Perez Blvd., admittedly a National Road in front of the Luzon Colleges. He also admitted that said manhole (there are at least 11 in all in Perez Blvd.) is owned by the National Government and the sidewalk on which they are found along Perez Blvd. are also owned by the National Government. But as City Engineer of Dagupan City, he supervises the maintenance of said manholes or drainage system and sees to it that they are properly covered, and the job is specifically done by his subordinates, Mr. Santiago de Vera (Maintenance Foreman) and Engr. Ernesto Solermo also a maintenance Engineer. In his answer defendant Tangco expressly admitted in par. 7-1 thereof, that in his capacity as ex-officio Highway Engineer for Dagupan City he exercises supervision and control over National roads, including the Perez Blvd. where the incident happened. On appeal by the respondent City of Dagupan, the appellate court 4 reversed the lower court findings on the ground that no evidence was presented by the plaintiff- appellee to prove that the City of Dagupan had "control or supervision" over Perez Boulevard. 5 The city contends that Perez Boulevard, where the fatal drainage hole is located, is a national road that is not under the control or supervision of the City of Dagupan. Hence, no liability should attach to the city. It submits that it is actually the Ministry of Public Highways that has control or supervision through the Highway Engineer which, by mere coincidence, is held concurrently by the same person who is also the City Engineer of Dagupan. After examination of the findings and conclusions of the trial court and those of the appellate court, as well as the arguments presented by the parties, we agree with those of the trial court and of the petitioner. Hence, we grant the petition. In this review on certiorari, we have simplified the errors assigned by the petitioner to a single issue: whether or not control or supervision over a national road by the City of Dagupan exists, in effect binding the city to answer for damages in accordance with article 2189 of the Civil Code. The liability of public corporations for damages arising from injuries suffered by pedestrians from the defective condition of roads is expressed in the Civil Code as follows: Article 2189. Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by, any person by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under their control or supervision. It is not even necessary for the defective road or street to belong to the province, city or municipality for liability to attach. The article only requires that either control or supervision is exercised over the defective road or street. In the case at bar, this control or supervision is provided for in the charter of Dagupan and is exercised through the City Engineer who has the following duties: Sec. 22. The City Engineer--His powers, duties and compensation-There shall be a city engineer, who shall be in charge of the department of Engineering and Public Works. He shall receive a salary of not exceeding three thousand pesos per annum. He shall have the following duties: xxx (j) He shall have the care and custody of the public system of waterworks and sewers, and all sources of water supply, and shall control, maintain and regulate the use of the same, in accordance with the ordinance relating thereto; shall inspect and regulate the use of all private systems for supplying water to the city and its inhabitants, and all private sewers, and their connection with the public sewer system. xxx The same charter of Dagupan also provides that the laying out, construction and improvement of streets, avenues and alleys and sidewalks, and regulation of the use thereof, may be legislated by the Municipal Board . 72

7 Thus the charter clearly indicates that the city indeed has supervision and control over the sidewalk where the open drainage hole is located. The express provision in the charter holding the city not liable for damages or injuries sustained by persons or property due to the failure of any city officer to enforce the provisions of the charter, can not be used to exempt the city, as in the case at bar.8 The charter only lays down general rules regulating the liability of the city. On the other hand article 2189 applies in particular to the liability arising from "defective streets, public buildings and other public works." 9 The City Engineer, Mr. Alfredo G. Tangco, admits that he exercises control or supervision over the said road. But the city can not be excused from liability by the argument that the duty of the City Engineer to supervise or control the said provincial road belongs more to his functions as an ex-officio Highway Engineer of the Ministry of Public Highway than as a city officer. This is because while he is entitled to an honorarium from the Ministry of Public Highways, his salary from the city government substantially exceeds the honorarium. We do not agree. Alfredo G. Tangco "(i)n his official capacity as City Engineer of Dagupan, as Ex- Officio Highway Engineer, as ExOfficio City Engineer of the Bureau of Public Works, and, last but not the least, as Building Official for Dagupan City, receives the following monthly compensation: P 1,810.66 from Dagupan City; P 200.00 from the Ministry of Public Highways; P 100.00 from the Bureau of Public Works and P 500.00 by virtue of P.D. 1096, respectively." 10 This function of supervision over streets, public buildings, and other public works pertaining to the City Engineer is coursed through a Maintenance Foreman and a Maintenance Engineer.11 Although these last two officials are employees of the National Government, they are detailed with the City of Dagupan and hence receive instruction and supervision from the city through the City Engineer. There is, therefore, no doubt that the City Engineer exercises control or supervision over the public works in question. Hence, the liability of the city to the petitioner under article 2198 of the Civil Code is clear. Be all that as it may, the actual damages awarded to the petitioner in the amount of P 10,000.00 should be reduced to the proven expenses of P 8,053.65 only. The trial court should not have rounded off the amount. In determining actual damages, the court can not rely on "speculation, conjecture or guess work" as to the amount. Without the actual proof of loss, the award of actual damages becomes erroneous. 12 On the other hand, moral damages may be awarded even without proof of pecuniary loss, inasmuch as the determination of the amount is discretionary on the court.13 Though incapable of pecuniary estimation, moral damages are in the nature of an award to compensate the claimant for actual injury suffered but which for some reason can not be proven. However, in awarding moral damages, the following should be taken into consideration: (1) First, the proximate cause of the injury must be the claimee's acts.14 (2) Second, there must be compensatory or actual damages as satisfactory proof of the factual basis for damages.15 (3) Third, the award of moral damages must be predicated on any of the cases enumerated in the Civil Code. 16 In the case at bar, the physical suffering and mental anguish suffered by the petitioner were proven. Witnesses from the petitioner's place of work testified to the degeneration in her disposition-from being jovial to depressed. She refrained from attending social and civic activities.17 Nevertheless the award of moral damages at P 150,000.00 is excessive. Her handicap was not permanent and disabled her only during her treatment which lasted for one year. Though evidence of moral loss and anguish existed to warrant the award of damages,18 the moderating hand of the law is called for. The Court has time and again called attention to the reprehensible propensity of trial judges to award damages without basis,19 resulting in exhorbitant amounts.20 Although the assessment of the amount is better left to the discretion of the trial court 21 under preceding jurisprudence, the amount of moral damages should be reduced to P 20,000.00. As for the award of exemplary damages, the trial court correctly pointed out the basis: To serve as an example for the public good, it is high time that the Court, through this case, should serve warning to the city or cities concerned to be more conscious of their duty and responsibility to their constituents, especially when they are engaged in construction work or when there are manholes on their sidewalks or streets which are uncovered, to immediately cover the same, in order to minimize or prevent accidents to the poor pedestrians. 73

Too often in the zeal to put up "public impact" projects such as beautification drives, the end is more important than the manner in which the work is carried out. Because of this obsession for showing off, such trivial details as misplaced flower pots betray the careless execution of the projects, causing public inconvenience and inviting accidents. Pending appeal by the respondent City of Dagupan from the trial court to the appellate court, the petitioner was able to secure an order for garnishment of the funds of the City deposited with the Philippine National Bank, from the then presiding judge, Hon. Willelmo Fortun. This order for garnishment was revoked subsequently by the succeeding presiding judge, Hon. Romeo D. Magat, and became the basis for the petitioner's motion for reconsideration which was also denied. We rule that the execution of the judgment of the trial court pending appeal was premature. We do not find any good reason to justify the issuance of an order of execution even before the expiration of the time to appeal. WHEREFORE, the petition is GRANTED. The assailed decision and resolution of the respondent Court of Appeals are hereby REVERSED and SET ASIDE and the decision of the trial court, dated March 12, 1979 and amended on March 13, 1979, is hereby REINSTATED with the indicated modifications as regards the amounts awarded: (1) Ordering the defendant City of Dagupan to pay the plaintiff actual damages in the amount of P 15,924 (namely P 8,054.00 as hospital, medical and other expenses; P 7,420.00 as lost income for one (1) year and P 450.00 as bonus); P 20,000.00 as moral damages and P 10,000.00 as exemplary damages. The attorney's fees of P 3,000.00 remain the same. SO ORDERED. Filinvest Credit Corporation vs. Ivan Mendez, G.R. No. L-66419, July 31, 1987 URL NOT FOUND G.R. No. L-22415 March 30, 1966

FERNANDO LOPEZ, ET AL., plaintiffs-appellants, vs. PAN AMERICAN WORLD AIRWAYS, defendant-appellant. Ross, Selph and Carrascoso for the defendant-appellant. Vicente J. Francisco for the plaintiffs-appellants. BENGZON, J.P., J.: Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal. Since the value in controversy exceeds P200,000 the appeals were taken directly to this Court upon all questions involved (Sec. 17, par. 3[5], Judiciary Act). Stated briefly the facts not in dispute are as follows: Reservations for first class accommodations in Flight No. 2 of Pan American World Airways hereinafter otherwise called PAN-AM from Tokyo to San Francisco on May 24, 1960 were made with PAN-AM on March 29, 1960, by "Your Travel Guide" agency, specifically, by Delfin Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo Montelibano, Jr., and his daughter, Mrs. Alfredo Montelibano, Jr., (Milagros Lopez Montelibano). PAN-AM's San Francisco head office confirmed the reservations on March 31, 1960. First class tickets for the abovementioned flight were subsequently issued by PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid before the tickets were issued. As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the Philippine Embassy to contact PAN-AM's Tokyo office regarding their first class accommodations for that evening's flight. For the given reason that the first class seats therein were all booked up, however, PAN-AM's Tokyo office informed Minister Busuego that PAN-AM could not accommodate Senator Lopez and party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to Minister Busuego for him to show the same to PAN-AM's Tokyo office, but the latter firmly reiterated that there was no accommodation for them in the first class, stating that they could not go in that flight unless they took the tourist class therein. Due to pressing engagements awaiting Senator Lopez and his wife, in the United States he had to attend a business conference in San Francisco the next day and she had to undergo a medical check-up in Mayo Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before that in San Francisco Senator Lopez and party were constrained to take PAN-AM's flight from Tokyo to San Francisco as tourist passengers. Senator Lopez however made it clear, as indicated in his letter to PAN-AM's Tokyo office on that date (Exh. A), that they did so "under protest" and without prejudice to further action against the airline.1wph1.t Suit for damages was thereafter filed by Senator Lopez and party against PAN-AM on June 2, 1960 in the Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs asked for P500,000 actual and moral damages, P100,000 exemplary damages, P25,000 attorney's fees plus costs. PAN-AM filed its 74

answer on June 22, 1960, asserting that its failure to provide first class accommodations to plaintiffs was due to honest error of its employees. It also interposed a counterclaim for attorney's fees of P25,000. Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25, 1960; plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's supplemental answer, on March 8, 1962; plaintiffs' reply to supplemental answer, on March 10, 1962; and defendant's amended supplemental answer, on July 10, 1962. After trial which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963 the Court of First Instance rendered its decision on November 13, 1963, the dispositive portion stating: In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a) P100,000.00 as moral damages; (b) P20,000.00 as exemplary damages; (c) P25,000.00 as attorney's fees, and the costs of this action. So ordered. Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment, asking that moral damages be increased to P400,000 and that six per cent (6%) interest per annum on the amount of the award be granted. And defendant opposed the same. Acting thereon the trial court issued an order on December 14, 1963, reconsidering the dispositive part of its decision to read as follows: In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a) P150,000.00 as moral damages; (b) P25,000.00 as exemplary damages; with legal interest on both from the date of the filing of the complaint until paid; and (c) P25,000.00 as attorney's fees; and the costs of this action. So ordered. It is from said judgment, as thus reconsidered, that both parties have appealed. Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to provide them with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In its appeal, however, it takes issue with the finding of the court a quo that it acted in bad faith in the branch of said contracts. Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their favor, seeking that the same be increased to a total of P650,000. Anent the issue of bad faith the records show the respective contentions of the parties as follows. According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And in support of its contention that what was done to plaintiffs is an oftrepeated practice of defendant, evidence was adduced relating to two previous instances of alleged racial discrimination by defendant against Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to (1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife. And from plaintiffs' evidence this is what allegedly happened; Jalbuena bought a first class ticket from PAN-AM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20, 1960; PAN-AM similarly confirmed it on April 20, 1960. At the airport he and another Oriental Mr. Tung were asked to step aside while other passengers - including "white" passengers boarded PAN-AM's plane. Then PAN-AM officials told them that one of them had to stay behind. Since Mr. Tung was going all the way to London, Jalbuena was chosen to be left behind. PAN-AM's officials could only explain by saying there was "some mistake". Jalbuena thereafter wrote PAN-AM to protest the incident (Exh. B). As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-AM on September 29, 1958 from Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class tickets, which they had previously confirmed, because their seats in first class were given to "passengers from London." Against the foregoing, however, defendant's evidence would seek to establish its theory of honest mistake, thus: The first class reservations of Senator Lopez and party were made on March 29, 1960 together with those of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint reservation card (Exh. 1). Subsequently on March 30, 1960, two other Rufinos secured reservations and were given a separate reservation card (Exh. 2). A new reservation card consisting of two pages (Exhs. 3 and 4) was then made for the original of eight passengers, namely, Senator Lopez and party and four members of the Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1 Rufino and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your Travel Guide" agency cancelled the reservations of the Rufinos. A telex message was thereupon sent on that date to PAN-AM's head office at San Francisco by Mariano Herranz, PANAM's reservations employee at its office in Escolta, Manila. (Annex A-Acker's to Exh. 6.) In said message, however, Herranz mistakenly cancelled all the seats that had been reserved, that is, including those of Senator Lopez and party. The next day April 1960 Herranz discovered his mistake, upon seeing the reservation card newly prepared by his co-employee Pedro Asensi for Sen. Lopez and party to the exclusion of the Rufinos (Exh. 5). It was then that Herranz sent another telex wire to the San Francisco head office, stating his error and asking for the reinstatement of the four (4) first class seats reserved for Senator Lopez and party (Annex A-Velasco's to Exh. 75

6). San Francisco head office replied on April 22, 1960 that Senator Lopez and party are waitlisted and that said office is unable to reinstate them (Annex B-Velasco's to Exh. 6). Since the flight involved was still more than a month away and confident that reinstatement would be made, Herranz forgot the matter and told no one about it except his co-employee, either Armando Davila or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961). Subsequently, on April 27, 1960, Armando Davila, PAN-AM's reservations employee working in the same Escolta office as Herranz, phoned PAN-AM's ticket sellers at its other office in the Manila Hotel, and confirmed the reservations of Senator Lopez and party. PAN-AM's reservations supervisor Alberto Jose, discovered Herranz's mistake after "Your Travel Guide" phone on May 18, 1960 to state that Senator Lopez and party were going to depart as scheduled. Accordingly, Jose sent a telex wire on that date to PAN-AM's head office at San Francisco to report the error and asked said office to continue holding the reservations of Senator Lopez and party (Annex B-Acker's to Exh. 6). Said message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-Acker's to Exh. 6). San Francisco head office replied on May 19, 1960 that it regrets being unable to confirm Senator Lopez and party for the reason that the flight was solidly booked (Exh. 7). Jose sent a third telex wire on May 20, 1960 addressed to PAN-AM's offices at San Francisco, New York (Idlewild Airport), Tokyo and Hongkong, asking all-out assistance towards restoring the cancelled spaces and for report of cancellations at their end (Annex D-Acker's to Exh. 6). San Francisco head office reiterated on May 20, 1960 that it could not reinstate the spaces and referred Jose to the Tokyo and Hongkong offices (Exh. 8). Also on May 20, the Tokyo office of PAN-AM wired Jose stating it will do everything possible (Exh. 9). Expecting that some cancellations of bookings would be made before the flight time, Jose decided to withhold from Senator Lopez and party, or their agent, the information that their reservations had been cancelled. Armando Davila having previously confirmed Senator Lopez and party's first class reservations to PAN-AM's ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the corresponding first class tickets on the 21st and 23rd of May, 1960. From the foregoing evidence of defendant it is in effect admitted that defendant through its agents first cancelled plaintiffs, reservations by mistake and thereafter deliberately and intentionally withheld from plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first class reservations stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in the conviction that they had confirmed reservations for the same, when in fact they had none, defendant wilfully and knowingly placed itself into the position of having to breach its a foresaid contracts with plaintiffs should there be no last-minute cancellation by other passengers before flight time, as it turned out in this case. Such actuation of defendant may indeed have been prompted by nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as passengers in its flight and foreclosing on their chances to seek the services of other airlines that may have been able to afford them first class accommodations. All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through some motive of interest or ill-will (Spiegel vs. Beacon Participations, 8 NE 2d 895, 907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: "Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is malice nevertheless." As of May 18, 1960 defendant's reservations supervisor, Alberto Jose knew that plaintiffs' reservations had been cancelled. As of May 20 he knew that the San Francisco head office stated with finality that it could not reinstate plaintiffs' cancelled reservations. And yet said reservations supervisor made the "decision" to use his own, word to withhold the information from the plaintiffs. Said Alberto Jose in his testimony: Q Why did you not notify them? A Well, you see, sir, in my fifteen (15) years of service with the air lines business my experience is that even if the flights are solidly booked months in advance, usually the flight departs with plenty of empty seats both on the first class and tourist class. This is due to late cancellation of passengers, or because passengers do not show up in the airport, and it was our hope others come in from another flight and, therefore, are delayed and, therefore, missed their connections. This experience of mine, coupled with that wire from Tokyo that they would do everything possible prompted me to withhold the information, but unfortunately, instead of the first class seat that I was hoping for and which I anticipated only the tourists class was open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were accommodated. Well, I fully realize now the gravity of my decision in not advising Senator and Mrs. Lopez, Mr. and Mrs. Montelibano nor their agents about the erroneous cancellation and for which I would like them to know that I am very sorry. xxx xxx xxx

Q So it was not your duty to notify Sen. Lopez and parties that their reservations had been cancelled since May 18, 1960? A As I said before it was my duty. It was my duty but as I said again with respect to that duty I have the power to make a decision or use my discretion and judgment whether I should go ahead and tell the passenger about the cancellation. (Tsn., pp. 17-19, 28-29, March 15, 1962.) At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made plaintiffs believe that their reservation had not been cancelled. An additional indication of this is the fact that upon the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on May 21, 1960 (Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the reservation status is stated as "OK". Such willful-non-disclosure of the cancellation or pretense that the reservations for plaintiffs stood and 76

not simply the erroneous cancellation itself is the factor to which is attributable the breach of the resulting contracts. And, as above-stated, in this respect defendant clearly acted in bad faith. As if to further emphasize its bad faith on the matter, defendant subsequently promoted the employee who cancelled plaintiffs' reservations and told them nothing about it. The record shows that said employee Mariano Herranz was not subjected to investigation and suspension by defendant but instead was given a reward in the form of an increase of salary in June of the following year (Tsn., 86-88, Nov. 20, 1961). At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so gross and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4, 1959; Necesito v. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding the entries in the reservation cards (Exhs. 1 & 3) that the reservations cancelled are those of the Rufinos only, Herranz made the mistake, after reading said entries, of sending a wire cancelling all the reservations, including those of Senator Lopez and party (Tsn., pp. 108-109, Nov. 17, 1961). Secondly, after sending a wire to San Francisco head office on April 19, 1960 stating his error and asking for reinstatement, Herranz simply forgot about the matter. Notwithstanding the reply of San Francisco head Office on April 22, 1960 that it cannot reinstate Senator Lopez and party (Annex B-Velasco's to Exh. 6), it was assumed and taken for granted that reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in a phone call on April 27, 1960 to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card (Exh. 5) that they were only waitlisted passengers. Fourthly, defendant's ticket sellers issued plaintiffs' tickets on May 21 and 23, 1960, without first checking their reservations just before issuing said tickets. And, finally, no one among defendant's agents notified Senator Lopez and party that their reservations had been cancelled, a precaution that could have averted their entering with defendant into contracts that the latter had already placed beyond its power to perform. Accordingly, there being a clear admission in defendant's evidence of facts amounting to a bad faith on its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course of the trial does not need to be proved (Sec. 2, Rule 129, Rules of Court). Addressing ourselves now to the question of damages, it is well to state at the outset those rules and principles. First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages, exemplary or corrective damages may be imposed by way of example or correction for the public good, in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner (Articles 2229, 2232, New Civil Code). And, third, a written contract for an attorney's services shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable (Sec. 24, Rule 138, Rules of Court). First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they were given only the tourist class. At stop-overs, they were expected to be among the first-class passengers by those awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating to travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully to be expected from the contractual undertaking. Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know the prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but the nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office Senator Lopez was in a position to preside in impeachment cases should the Senate sit as Impeachment Tribunal. And he was former VicePresident of the Philippines. Senator Lopez was going to the United States to attend a private business conference of the Binalbagan-Isabela Sugar Company; but his aforesaid rank and position were by no means left behind, and in fact he had a second engagement awaiting him in the United States: a banquet tendered by Filipino friends in his honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov. 25, 1960). For the moral damages sustained by him, therefore, an award of P100,000.00 is appropriate. Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In addition she suffered physical discomfort during the 13-hour trip,(5 hours from Tokyo to Honolulu and 8 hours from Honolulu to San Francisco). Although Senator Lopez stated that "she was quite well" (Tsn., p. 22, Nov. 25, 1960) he obviously meant relatively well, since the rest of his statement is that two months before, she was attackedby severe flu and lost 10 pounds of weight and that she was advised by Dr. Sison to go to the United States as soon as possible for medical check-up and relaxation, (Ibid). In fact, Senator Lopez stated, as shown a few pages after in the transcript of his testimony, that Mrs. Lopez was sick when she left the Philippines: A. Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the first place, she was sick when we left the Philippines, and then with that discomfort which she [experienced] or suffered during that evening, it was her worst experience. I myself, who was not sick, could not sleep because of the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960). It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may well be considered a physical suffering. And even without regard to the noise and trepidation inside the plane which defendant contends, upon the strengh of expert testimony, to be practically the same in first class and tourist class the fact that the seating spaces in the tourist class are quite narrower than in first class, there beingsix seats to a row in the former as against four to a row in the latter, and that in tourist class there is very little space for reclining in view of the closer distance between rows (Tsn., p. 24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed experienced physical suffering during the trip. Added to this, of course, was the painfull thought that she was deprived by defendant after having paid for and expected the same of the most suitable, place for her, the first class, where evidently the best of everything would have been given her, the best seat, service, food and treatment. Such difference in comfort between first class and tourist 77

class is too obvious to be recounted, is in fact the reason for the former's existence, and is recognized by the airline in charging a higher fare for it and by the passengers in paying said higher rate Accordingly, considering the totality of her suffering and humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable. Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of Senator Lopez. They formed part of the Senator's party as shown also by the reservation cards of PAN-AM. As such they likewise shared his prestige and humiliation. Although defendant contends that a few weeks before the flight they had asked their reservations to be charged from first class to tourist class which did not materialize due to alleged full booking in the tourist class the same does not mean they suffered no shared in having to take tourist class during the flight. For by that time they had already been made to pay for first class seats and therefore to expect first class accommodations. As stated, it is one thing to take the tourist class by free choice; a far different thing to be compelled to take it notwithstanding having paid for first class seats. Plaintiffsappellants now ask P37,500.00 each for the two but we note that in their motion for reconsideration filed in the court a quo, they were satisfied with P25,000.00 each for said persons. (Record on Appeal, p. 102). For their social humiliation, therefore, the award to them of P25,000.00 each is reasonable. The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or correction for public good. Defendant having breached its contracts in bad faith, the court, as stated earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil Code). In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to award P75,000.00 as exemplary or corrective damages. Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960 (Exh. F) whereunder plaintiffs-appellants engaged the services of their counsel Atty. Vicente J. Francisco and agreedto pay the sum of P25,000.00 as attorney's fees upon the termination of the case in the Court of First Instance, and an additional sum of P25,000.00 in the event the case is appealed to the Supreme Court. As said earlier, a written contract for attorney's services shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable. A consideration of the subject matter of the present controversy, of the professional standing of the attorney for plaintiffs-appellants, and of the extent of the service rendered by him, shows that said amount provided for in the written agreement is reasonable. Said lawyer whose prominence in the legal profession is well known studied the case, prepared and filed the complaint, conferred with witnesses, analyzed documentary evidence, personally appeared at the trial of the case in twenty-two days, during a period of three years, prepared four sets of cross-interrogatories for deposition taking, prepared several memoranda and the motion for reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages. And we are further convinced of its reasonableness because defendant's counsel likewise valued at P50,000.00 the proper compensation for his services rendered to defendant in the trial court and on appeal. In concluding, let it be stressed that the amount of damages awarded in this appeal has been determined by adequately considering the official, political, social, and financial standing of the offended parties on one hand, and the business and financial position of the offender on the other (Domingding v. Ng, 55 O.G. 10). And further considering the present rate of exchange and the terms at which the amount of damages awarded would approximately be in U.S. dollars, this Court is all the more of the view that said award is proper and reasonable. Wherefore, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and against defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus: P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez; P25,000.00 for his sonin-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the legal rate of 6% per annum on the moral and exemplary damages aforestated, from December 14, 1963, the date of the amended decision of the court a quo, until said damages are fully paid; (4) P50,000.00 as attorney's fees; and (5) the costs. Counterclaim dismissed. So ordered. G.R. No. 82808 July 11, 1991 DENNIS L. LAO, petitioner, vs. HON. COURT OF APPEALS, JUDGE FLORENTINO FLOR, Regional Trial Court, Branch 89 of Morong, Rizal, BENJAMIN L. ESPIRITU, MANUEL QUERUBIN and CHAN TONG, respondents. F. Sumulong & Associates Law Offices for petitioner. Manuel LL. Querubin for and in his own behalf. Enrique M. Basa for private respondent. GRIO-AQUINO, J.:p For being a witness in an unsuccessful estafa case which his employer filed against a debtor who had defaulted in paying his just obligation, the petitioner was sued, together with his employer, for damages for malicious prosecution. The issue in this case is whether the damages awarded to the defaulting debtor may be satisfied by execution against the employee's property since his employer's business has already folded up.

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Petitioner Dennis Lao was an employee of the New St. Joseph Lumber & Hardware Supply, hereinafter called St. Joseph Lumber, owned by the private respondent, Chan Tong. In January 1981, St. Joseph Lumber filed a collection suit against a customer, the private respondent, Benjamin Espiritu, for unpaid purchases of construction materials from St. Joseph Lumber. In November 1981, upon the advice of its lawyer, St. Joseph Lumber filed a criminal complaint for estafa against Espiritu, based on the same transaction. Since the petitioner was the employee who transacted business with Espiritu, he was directed by his employer, the firm's owner, Chan Tong, to sign the affidavit or complaint prepared by the firm's, lawyer, Attorney Manuel Querubin. Finding probable cause after conducting a preliminary investigation of the charge, the investigating fiscal filed an information for estafa in the Court of First Instance of Quezon City against Espiritu. The case was however later dismissed because the court believed that Espiritu's liability was only civil, not criminal. On April 12, 1984, Espiritu filed a complaint for malicious prosecution against the petitioner and St. Joseph Lumber, praying that the defendants be ordered to pay him P500,000 as moral damages, P10,000 as actual damages, and P100,000 as attorney's fees. In his answer to the complaint, the petitioner alleged that he acted only as agent or employee of St. Joseph Lumber when he executed the affidavit which his employer submitted to the investigating fiscal who conducted the preliminary investigation of his employer's estafa charge against Espiritu. The pre-trial of the case was set on October 30, 1984. Since the defendants and their counsel failed to appear in court, they were declared in default. On November 11, 1984, the defendants filed a motion for reconsideration of the order of default. On November 13, 1984, the motion was granted, and the order of default was set aside. On January 16, 1985, the defendants, including herein petition petitioner Lao, and their counsel, again failed to attend the pretrial despite due notice to the latter who, however, failed to notify Lao. They were once more declared in default. The private respondent was allowed to present his evidence ex parte. On January 22, 1985, a decision was rendered by the trial court in favor of Espiritu ordering the defendants Lao and St. Joseph Lumber to pay jointly and severally to Espiritu the sums of P100,000 as moral damages, P5,000 as attorney's fees, and costs. Petitioner's motion for reconsideration of the decision was denied by the trial court. On February 25, 1985, Lao filed a motion for new trial on the ground of accident and insufficiency of evidence, but it was denied by the trial court. He appealed to the Court of Appeals (CA-G.R. CV No. 06796, "Benjamin L. Espiritu, plaintiff-appellee vs. Dennis Lao and New St. Joseph Lumber and Hardware Supply, defendants-appellant"). The appellate court dismissed his appeal on May 21, 1987. He filed this special civil action of certiorari and prohibition to partially annul the appellate court's decision and to enjoin the execution of said decision against him. The petitioner avers that the Court of Appeals erred: 1. in not holding that he (petitioner Lao) has a valid defense to the action for malicious prosecution in Civil Case No. 84-M; 2. in not holding that he was deprived of a day in court due to the gross ignorance, negligence and dereliction of duty of the lawyer whom his employer hired as his and the company's counsel, but who failed to protect his interest and even acted in a manner inimical to him; and 3. in not partially annulling the decision of the trial court dated January 22, 1985 insofar as he is concerned. The petition is meritorious. Lao had a valid defense to the action for malicious prosecution (Civil Case No. 84-M) because it was his employer, St. Joseph Lumber, not himself, that was the complainant in the estafa case against Espiritu. It was Chan Tong, the owner of the St. Joseph Lumber, who, upon advice of his counsel, filed the criminal complaint against Espiritu. Lao was only a witness in the case. He had no personal interest in the prosecution of Espiritu for he was not the party defrauded by Espiritu. He executed the affidavit which was used as basis of the criminal charge against Espiritu because he was the salesman who sold the construction materials to Espiritu. He was only an agent of St. Joseph Lumber, hence, not personally liable to the party with whom he contracted (Art. 1897, Civil Code; Philippine Products Co. vs. Primateria Societe Anonyme, 122 Phil. 698). To maintain an action for damages based on malicious prosecution, three elements must be present: First, the fact of the prosecution and the further fact that the defendant was himself the prosecutor, and that the action was finally terminated with an acquittal; second, that in bringing the action, the prosecutor acted without probable cause; and third, the prosecutor was actuated or impelled by legal malice (Ferrer vs. Vergara, 52 O.G. 291). Lao was only a witness, not the prosecutor in the estafa case. The prosecutor was his employer, Chan Tong or the St. Joseph Lumber.

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There was probable cause for the charge of estafa against Espiritu, as found and certified by the investigating fiscal himself. Lao was not motivated by malice in making the affidavit upon which the fiscal based the filing of the information against Espiritu. He executed it as an employee, a salesman of the St. Joseph Lumber from whom Espiritu made his purchases of construction materials and who, therefore, had personal knowledge of the transaction. Although the prosecution of Espiritu for estafa did not prosper, the unsuccessful prosecution may not be labelled as malicious. "Sound principles of justice and public policy dictate that persons shall have free resort to the courts for redress of wrongs and vindication of their rights without later having to stand trial for instituting prosecutions in good faith" (Buenaventura vs. Sto. Domingo, 103 Phil. 239). There is merit in petitioner's contention that he was deprived of his day in court in the damage suit filed by Espiritu, due to the gross ignorance, negligence, and dereliction of duty of Attorney Manuel Querubin whom his employer had hired to act as counsel for him and the St. Joseph Lumber. However, Attorney Querubin neglected to defend Lao. He concentrated on the defense of the company and completely forgot his duty to defend Lao as well. He never informed Lao about the pre-trial conferences. In fact, he (Attorney Querubin) neglected to attend other pre-trial conferences set by the court. When adverse judgment was entered by the court against Lao and the lumber company, Attorney Querubin did not file a motion for reconsideration of the decision. He allowed it to become final, because anyway Espiritu would not be able to satisfy his judgment against Chan Tong who had informed his lawyer that the St. Joseph Lumber was insolvent, had gone out of business, and did not have any leviable assets. As a result, Espiritu levied on the petitioner's car to satisfy the judgment in his favor since the company itself had no more assets that he could seize. In view of the foregoing circumstances, the judgment against Lao was a nullity and should be set aside. Its execution against the petitioner cannot be allowed to proceed. WHEREFORE, judgment is hereby rendered partially setting aside the decision of the Court of Appeals dated May 21, 1987, insofar as it declared the petitioner, Dennis Lao, solidarily liable with St. Joseph Lumber to pay the damages awarded to the private respondent Benjamin Espiritu. Said petitioner is hereby absolved from any liability to the private respondent arising from the unsuccessful prosecution of Criminal Case No. Q-20086 for estafa against said private respondent. Costs against the private respondent. SO ORDERED. G.R. No. L-17117 July 31, 1963

ADELA SANTOS GUTIERREZ, plaintiff-appellant, vs. JOSE D. VILLEGAS and RIZALINA SANTOS RIVERA, defendants-appellants. Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellant. Delgado, Flores, Macapagal and Dizon for defendants-appellants. REYES, J.B.L., J.: Direct appeal by both the plaintiff and the defendants from a decision of the Court of First Instance of Rizal, Pasig, Rizal, in its Civil Case No. 3726. The facts, about which the parties are not in controversy, are as follows: That the plaintiff and the defendants are the only legal heirs of the late Irene Santos of Malabon, Rizal, who died intestate on 11 November 1954. The defendant, Jose D. Villegas, is the surviving spouse, while the plaintiff, Adela Santos Gutierrez, and the other defendant, Rizalina Santos Rivera, are the nieces of the said decedent. A few days after the death of Irene Santos, a petition for the administration of her estate was filed with the Court of First Instance of Rizal, Pasay City Branch, and docketed therein as Special Proceeding No. 2100. The probate court granted the petition on 5 January 1955, and thereafter Jose D. Villegas qualified as the administrator of the estate. On 12 January 1955, Adela Santos Gutierrez signed a four-page document (Exhibit "A"), written in Tagalog, entitled "Kasulatan Ng Bilihan At Salinan", purporting to be a sale of her share and participation in the estate in favor of Rizalina Santos Rivera, in consideration of P50,000.00, payable in installments: the first in the sum of P10,000.00 upon signing, and the balance of P40,000.00 in one (1) year, and with the plaintiff assuming to pay her share in the estate and inheritance taxes. This deed was notarized by Severo Jovellanos on 13 January 1955. On this day also, the plaintiff signed a "Manifestation" (Exhibit "B") purporting to inform the probate court that the plaintiff had sold all her rights, interests, and participation in the estate to Rizalina Santos Rivera, and that she, the plaintiff, is no longer entitled to the service of any pleading, motion, order, or decision filed or promulgated in the probate court. On 27 July 1955, the plaintiff filed the present case to annul the aforesaid deed of sale on grounds of fraud and mistake. The defendants answered denying the charges, and counterclaimed for P200,000.00 moral and exemplary damages and P50,000.00 attorneys' fees, because of the allegedly malicious charges and filing of the suit. The plaintiff, alone and in her own behalf, testified that on 7 December 1954 she asked Jose D. Villegas for a loan of P2,000.00 by way of advance payment on her share in the estate of her deceased aunt, but Villegas, answered her that as his lawyer advised him that he had no authority to give such an advance he would ask Rizalina Santos Rivera if she could lend him the money, which, in turn, he would give to the plaintiff; that at about Christmas time, Villegas counter-offered to give the plaintiff a loan of P10,000,00, to be evidenced in writing, instead of the P2,000.00 originally asked, to which proposition the plaintiff agreed because she was planning a business venture; that in the afternoon of 12 January 1955, the defendants invited the plaintiff to go with them to Manila without informing her of the purpose of the trip; to her surprise, they went to the law office 80

of Attorney Modesto Flores; that while they were waiting for the lawyer, who had not yet arrived, they were told to sit in the reception room, and the plaintiff and Rizalina were given copies of a document which the former was not able to read on account of her poor eyesight and her failure to bring her eyeglasses with her; that when Attorney Flores arrived, the plaintiff asked both the said lawyer and Villegas what the document was all about, but neither of them answered her; that when she was asked to sign the document on the space indicated to her, she simply obeyed; that she had no residence certificate at the time and she was asked to secure one; that she did secure one the following day, 13 January 1955, in Malabon, Rizal, and brought it to the said law office; that while there she, was again asked to sign another document, a manifestation, which she did sign, after which Attorney Flores translated to her in Tagalog this second document, which turned out to be a manifestation for the court, and what she signed the day before was a sale of her share in the inheritance; that she upbraided Villegas but she did not inform Flores of the deception; that Villegas pacified her by telling her that they would talk it over in the house; that on their way home, Villegas admitted that he and Rizalina wanted the document to be a sale instead of a loan; that on 14 January 1955, Villegas gave the plaintiff the sum of P4,800.00, with the explanation that the plaintiff's son-in-law's debt of P2,000.00 would be deducted from the amount of P10,000.00, while the balance would be paid by check that same evening; that that same evening, the plaintiff called on Attorney Alfonso Ponce Enrile, who advised her to deposit in court the amount that she waived, which she did. The plaintiff claims, furthermore, that in signing the deed of sale, her consent was vitiated by gross mistake because the defendants misled and deceived her as to the actual and real value of the estate of Irene Santos because the inventory, which was filed in Special Proceeding 2100 of the probate court, failed to include certain properties, or which, if at all listed, were either undervalued or stated to be conjugal when, in fact, they are paraphernal properties of the deceased. Plaintiff also asked that certain withdrawals made by Rizalina Santos Rivera from the bank overdraft account of the deceased should be brought to collation.1wph1.t The foregoing facts are disputed by the defendants. Their evidence varies from that of the plaintiff's in the following particulars: That the plaintiff did not ask for a loan but offered to sell her share in the inheritance to Villegas for the purpose of investing the proceeds in business, but Villegas, after consulting, and being advised by his lawyer that he could not buy property under his administration suggested to the plaintiff to ask Rizalina instead; that when the plaintiff mentioned her proposition to Rizalina, the latter was at first reluctant to agree to the price of P50,000.00, but later on they agreed on said price, with the stipulation that it be paid in two installments, the first, in the sum of P10,000.00, upon signing of the contract, and the balance, within one year therefrom, provided the plaintiff paid her share in the estate and inheritance taxes; that the latter read and signed the deed, Exhibit "A", with her eyeglasses on; that she was an avid reader of Tagalog literature; that the plaintiff's daughter, Jovita, was with her during the signing of the deed of sale on 12 January 1955, and also during the notarization of the same and the signing again of the "Manifestation" on 13 January 1955; that said pleading was first translated and explained to the plaintiff before she signed it; that a year thereafter, or more particularly on 5 January 1956, Rizalina Santos Rivera, through her lawyer, forwarded to the plaintiff a cashier's check drawn on the Prudential Bank and Trust Company payable to the plaintiff in the sum of P40,000.00 in full payment of the purchase price, which was, however, refuse acceptance by the plaintiff. The trial court rejected the pretensions of both parties, dismissing the complaint as well on the counterclaim. Whereupon, plaintiffs and defendants regularly appealed to this Court directly, the amounts involved being in excess of P200,000.00. The plaintiffs assignments of error recite: 1. The lower court erred in rejecting plaintiff-appellant's claim that on account of the fraud practiced upon her by the defendants-appellants, she consented to the execution of Exhibits "A" and "B" under the mistaken notion that those documents related to the loan agreement she and the defendants-appellants had previously agreed upon. 2. The lower court erred in refusing to find the price of P50,000.00 as a grossly inadequate consideration for the alleged sale and assignment of plaintiff-appellant's share in the estate of the late Irene Santos. 3. The lower court erred in relying upon the appraisal made by the Bureau of Internal Revenue Examiner Bernardo Tamese for the purpose of determining the true and fair market value of the estate of Irene Santos and the share of the plaintiff-appellant in such estate. 4. The lower court erred in disregarding plaintiff-appellant's contention that under Article 1082 of the Civil Code of the Philippines, Exhibit "A" should be deemed as a partition and as such it is rescindible on account of lesion since the amount to be received by the plaintiff-appellant under that instrument is less by more than one-fourth (1/4) of the true value of the share of which she is entitled. 5. The lower court erred in dismissing plaintiff-appellant's complaint. The plaintiff depicts herself as an unschooled simpleton that attained only the third grade, while picturing the defendants as intelligent and clever persons; that she has poor eye-sight, low degree of intelligence, and that there was no impelling need for her to sell the property. These circumstances, the plaintiff reasons out, coupled with the inadequacy of consideration, are badges of fraud that contributed to her being an easy victim of her opponents' deceit. Moreover, continues the plaintiff, in view of the relationship of trust and confidence between the parties, the presumption of fraud arises. The facts, as shown by the record, do not support the plaintiff's conclusions. The alleged indicia of fraud upon which she rests her case are backed only by her own uncorroborated testimony, which is contradicted by that of defendants and their witnesses. Plaintiff's lack of formal education was no handicap to her ability to read and write the Tagalog dialect, in which Exhibit "A" was couched, and, as the lower court stated, "she is a woman of average intelligence capable of understanding the consequences of a signature affixed to a document". Her 81

alleged poor eye-sight has not been shown with convincing evidence, but, on the contrary, during the trial, she readily identified a letter from the Bureau of Internal Revenue, even without eyeglasses. Plaintiff has herself testified that she needed money to engage in business in Mindoro. The defendants, on the other hand, proved in convincing detail the circumstances surrounding the execution of the questioned deed through their own testimony, that of the instrumental witnesses, and the notary public. The lawyer, who dictated the draft of the deed, first in English, and then finalized it in Tagalog, fully acquitted himself on the witness stand of the possible stigma of being a party to the alleged fraud. The alleged existence of a relationship of trust and confidence which was supposedly taken advantage of by the defendants is belied by the plaintiffs own assertion that her defendant uncle-in-law and her deceased aunt had treated her as the underdog since childhood, and her sister, Rizalina, as the favorite; yet the plaintiff allegedly came to live with the defendants only to provide company to her uncle-in-law during his bereavement on the death o her aunt. With the unfavorable treatment that the plaintiff claims to have received at the hands of the defendant Villegas since childhood, it cannot be expected that the plaintiff would be unwary of whatever he would ask her to do, let along her signing a four-page document. Under the present situation, the careful preparation of the document cannot be taken against the defendants as an indication of fraud, in the absence of other evidence manifesting a scheme to commit it and which would link the lawyer who caused its preparation. All the foregoing circumstances pointed to by the plaintiff as badges of fraud do not stand unexplained, while, on the other hand, there are certain questions which have not been satisfactorily explained by the plaintiff. What motive had Villegas, a man 80 years of age, for committing the alleged fraud against the plaintiff? Why did not the plaintiff present her daughter, Lolita, to at least corroborate her testimony? She was present during the signing of Exhibits "A" and "C". How could the plaintiff have simply obeyed and signed the deed, Exhibit "A", without having noted the word "LIMAMPUNG LIBONG PISO" written in bold capital letters in the four-page deed of sale? How could she claim ignorance of the contents and import of the deed which she signed on 12 January 1955 when she even secured a residence certificate and turned to the same law office with it on the following day, 13 January 1955? Why did she accept the first installment payment on 14 January 1955 when, according to her, she had already learned of the fraud when Atty. Flores explained to her the "manifestation", Exhibit "B", on 13 January 1955? Why is it that during the trial she readily identified Exhibit "Q" (a letter from the Bureau of Internal Revenue) without wearing eyeglasses but could not identify Exhibit "A" without wearing them, when a comparison of the type of print between these exhibits shows no appreciable difference at all? The lack of a satisfactory explanation to these questions impels affirmance of the lower court's finding that no fraud or mistake vitiated the consent of the plaintiff in affixing her signature to the deed. One striking feature of plaintiff's story is that the success of defendants' alleged machinations wholly rested on the most fortuitous circumstance of plaintiff's not bringing her eyeglasses when she signed the deed conveying her interest to her sister. It is undeniable that had she been able to read the deed, according to her version of what transpired, plaintiff would have flatly refused to sign; yet it is not shown that the defendants took any steps to prevent her from bringing her eyeglasses. If fraud there was, it must be admitted that there was no preparation to insure its success, and such carelessness renders the whole charge of deceit absurd and incredible. . The claim of grossly inadequate consideration for the sale is predicted by the plaintiff upon a double theme:(a) that the inventory of the estate of Irene Santos did not include certain properties in Rizal (a one-sixth undivided interest in an estate in Montalban, Rizal, of 1010.9999 has.), and (b) an alleged gross under valuation of the estate properties. As to the first, the court below rejected the plaintiff-appellant's evidence consisting in a simple copy of a purported decision of the pre-war Court of Appeals, in case CA-G.R. No. 654, "San Pedro, et al. vs. Director of Forestry" (Exhibit G-2). We are not prepared to declare the rejection of this exhibit to be erroneous, since it bears no signatures or certification by the Clerk of the Court of Appeals that purportedly rendered it, nor any signature attesting its authenticity. The destruction of the pre-war records of that Court should undoubtedly impose caution before accepting at face value this sort of copies, not supported by reliable evidence of genuineness and authenticity. As to the averred undervaluation, we note that the trial court preferred to adopt the appraisal of the examiner of the Bureau of Internal Revenue, Bernardo Tamese, made in assessing the inheritance taxes due on the estate of Irene Santos, and approved by the superior officers of the Bureau, over that of witness Santiago presented by the appellant. In this respect, the trial court made the following cogent observations in its decision: It is a fact that Irene Santos owned real properties situated in the City of Manila, and in the provinces of Laguna, Rizal, Bulacan, and Pampanga, some of which are paraphernal (Exhibits "H" to "H-3") and the rest are conjugal. These real properties were appraised by the Bureau of Internal Revenue for purposes of fixing the amount of estate and inheritance taxes to be paid, and their fair market value was determined by the examiner, Bernardo Tamese, after an ocular inspection of the properties and investigation of the deeds of title and tax declarations covering the same. The findings of Mr. Tamese as noted down by him in his worksheet, Exhibit "7" and which is reproduced in page 15 hereof, were submitted to his superior officers (Exhibit "B") and the same were approved by the Superintendent and Senior Revenue Examiners and confirmed by the Commissioner of Internal Revenue, the latter acting through Deputy Commissioner Misael P. Vera (Exhs. "27" to "28-A"), and this Court sees no ground for disturbing the findings of these public officials in the absence of proof of any irregularity in their actuations. It is to be observed that in his report Mr. Tamese valued the property in Famy, Laguna, at P2,502.00 although in the inventory of defendant Villegas each parcel was valued only at P1.00. It is also to be noted that in said Report the paraphernal properties of Irene Santos were included, appraised and considered in determining the total value of the estate of the old woman. These facts belie the claim of plaintiff that there was undervaluation of the properties of the deceased. Moreover the official appraisal made by the Government deserves more credit than the testimony of the witness Bernardo Santiago who pretended to be in a position to pay P3,000.00 for every hectare of fishpond of Irene Santos and yet was found to have no properties to his name in the provinces of Bulacan and Pampanga, (Exhibits "22" and "22-A") and was worth only P15,000.00 after his death (Exhibits "23" to "23-B"). The deeds of sale, Exhibit "L" to "L-4" which were also submitted by the plaintiff to prove the market value of the properties in Bulacan and 82

Pampanga are worthless as evidence in that matter, in the absence of proof that the properties covered by said documents are of the same kind and class and are similarly situated as those of the deceased. We find no reversible error in these conclusion of the court a quo, which had ample opportunity to estimate the credibility of the contrasting witnesses and evidence. Hence, the claim of gross inadequacy of the price must be rejected as unproved. To sustain the claim of deliberate undervaluation would necessarily imply that the Internal Revenue examiner Tamese and his superiors deliberately betrayed their official duty, and there is no evidence to justify such conclusion. Neither do we find merit in the charge that plaintiff's sister, Rizalina Santos Rivera, had siphoned off money and properties from her aunt's overdraft account. The checks (Exhibits 3 to 3-F) and deposit slips (Exhibits 4 to 4-F) evidence that the amounts drawn were duly returned. The trial court found the fair value of the conjugal estate to be P147,194.00, from which the expenses and claims amounting to P138,931.00 should be deducted, having a net conjugal estate of P8,263.00, of which onehalf (P4,131.50) pertained to the deceased. Adding to that half the net paraphernal estate, valued at P212.513.00, gives a partible estate of P216,664.50 to be divided (in the absence of ascendants and descendants) half to the surviving spouse and half to the two nieces, as nearest collateral relatives (Civil Code, Art. 1001). The one-fourth share of the plaintiff-appellant, as niece of the deceased, amounts to P54,161.00, for which the P50,000,00 payable under Exhibit "A" is certainly not an inadequate price, considering that appellant was to obtain it free from the troubles, delays, and vicissitudes attendant to the judicial liquidation and settlement of the estate. While fraud may be proved entirely by circumstantial evidence, it is not to be lightly inferred. Our review of the evidence discloses that the evidence for appellant does not suffice to overcome the presumption of good faith and regularity in human affairs. The next question is whether the contract of sale and assignment, Exhibit "A", being valid and binding, is, nonetheless, rescissible on the ground of lesion. The theory of the plaintiff is that the contract should be deemed a partition, on the strength of Article 1082 of the Civil Code, which provides: ART. 1082. Every act which is intended to put an end to indivision among co-heirs and legatees or devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction."; and she contends that inasmuch as the net hereditary estate of the deceased is, according to the plaintiff, over one million pesos, to which she is entitled to an aliquot one-fourth (1/4) as an heir, and, having received only P50,000.00 under the contract, suffering, therefore, a lesion of more than one-fourth (1/4), she is entitled to a rescission thereof, under Article 1098. This article reads: ART. 1098. A partition, judicial or extrajudicial, may also be rescinded on account of lesion, when any one of the co-heirs received things whose value is less, by at least one-fourth, than the share to which he is entitled, considering the value of the things at the time they were adjudicated. The evidenced values of the properties in the estate of Irene Santos, and of plaintiff's share therein, render unnecessary any extended discussion of her alternative claim that the contract, Exhibit "A", should be regarded as a partition, rescindible on account of lesion of one fourth. Granting, arguendo, that the assignment of her hereditary share in favor of her sister, Rizalina, should be deemed a partition under Article 1082 of the Civil Code of the Philippines (notwithstanding the fact that it did not totally terminate the indivision among the coheirs of Irene Santos, since the undivided share of the widower Villegas remained unchanged), still the lesion, if any, suffered by plaintiff from her sale of P50,000.00 of an individed heredity interest worth P54,000.00 is certainly less than the one-fourth (1/4) required by Article 1098 of the Code. Turning now to the defendant's appeal, we are not disposed to vary the lower court's refusal to award them damages and attorney's fees. Such awards are primarily in the discretion of the trial court, and it has found no facts upon which such award can be made. Not only were the allegations of fraud in plaintiff's complaint privileged in character, but her failure to seek an amicable settlement before filing suit, as required of relatives by Article 222 of the Civil Code, has not been pleaded either by answer or motion to dismiss. As to moral damages, the record shows no proof of mental suffering on the part of defendants upon which the award can be based. In addition, the absence of actual damages, moral, temperate, or compensatory, blocks the grant of exemplary damages (Civil Code, Article 2234). We find no reason for disturbing the decision appealed from, and, therefore, the same is hereby affirmed. No costs in this instance. G.R. No. L-19872 December 3, 1974 EMILIANO B. RAMOS, ET AL., plaintiffs-appellants, vs. GREGORIA T. RAMOS, ET AL., defendants-appellants. Humberto V. Quisumbing and Maximino M. San Diego for plaintiffs-appellants. 83

Hilado and Hilado for defendants-appellants. AQUINO, J.:p The parties appealed from the decision of the Court of First Instance of Negros Occidental, dismissing plaintiffs' complaint and holding that the intestate estate of Martin Ramos was settled in Civil Case No. 217, which was terminated on March 4,1914, and that the judgment therein is res judicata and bars any litigation regarding the same estate (Civil Case no. 4522). The documentary evidence reveals the following facts: The spouses Martin Ramos and Candida Tanate died on October 4, 1906 and October 26, 1888, respectively. They were survived by their three legitimate children named Jose, Agustin and Granada. Martin Ramos was also survived by his seven natural children named Atanacia, Timoteo, Modesto, Manuel, Emiliano, Maria and Federico. On December 10, 1906 a special proceeding was instituted in the Court of First Instance of Negros Occidental for the settlement of the intestate estate of the said spouses. The case was docketed as Civil Case No. 217 (its expediente is still existing). Rafael O. Ramos, a brother of Martin, was appointed administrator. The estate was administered for more than six years (Exh. F, G, H, I and J). A project of partition dated April 25, 1913 was submitted. It was signed by the three legitimate children, Jose, Agustin and Granada; by the two natural children, Atanacia and Timoteo, and by Timoteo Zayco in representation of the other five natural children who were minors. It was sworn to before the justice of the peace (Exh. 3). In the project of partition the conjugal hereditary estate was appraised at P74,984.93. It consisted of eighteen parcels of land, some head of cattle and the advances to the legitimate children(Exh. 3). Under that project of partition, the following adjudications were made to the heirs: Legitimate children: Value 1. To Jose Ramos: (a) Hacienda Calaza with an area of 328 hectares, (b) a one-hectare town lot, (c) a 23-hectare lot in Sitio Bingig, and (d) some head of cattle P25,291.66 2. To Granada Ramos: (a) a parcel of riceland with a capacity of 16 cavans of seedlings, located in Barrio Binicuel, Kabankalan, Negros Occidental and (b) some head of cattle 1,891.66 3. To Agustin Ramos: (a) the remaining fourteen (14) lots out of the eighteen lots described in the inventory, which included the Hacienda Ylaya with an area of 185 hectares and (b) some head of cattle 36,291.68 Natural children: 4. To each of the seven (7) natural children named Atanacia, Modesto, Timoteo, Federico, Manuel, Emiliano and Maria, were adjudicated personal properties valued at P1,785.35 consisting of (a) cash amounting to P1,760.35 and (b) P25, representing a one-seventh (1/7) of a one-sixth (1/6) portion in certain head of cattle allegedly representing one-third of the free portion of the estate of Martin Ramos, with an aggregate value of 12,497.51 Total adjudications P75,972.51 It was agreed in the project of partition that Jose Ramos would pay the cash adjudications to Atanacia, Timoteo and Manuel, while Agustin Ramos would pay the cash adjudications to Modesto, Federico, Emiliano and Maria. It was further agreed that Jose Ramos and Agustin Ramos would pay their sister, Granada, the sums of P3,302.36 and P14,273.78, respectively (Exh. 3). The record does not show whether assessed or market values were used in appraising the eighteen parcels of land. By way of explanation, it may be stated that, inasmuch as the ganancial estate had an appraised value of P74,984.93, one-half thereof or the sum of P37,492.46 represented the estate of Martin Ramos. One-third thereof was the free portion or P12,497.48. The shares of the seven natural children were to be taken from that one-third free portion. Dividing P12,497.48 by seven gives a result of P1,783.35 which represented the oneseventh share of each natural child in the free portion of the estate of their putative father, Martin Ramos. The partition was made in accordance with the old Civil Code which provides: ART. 840. When the testator leaves legitimate children or descendants, and also natural children, legally acknowledged, each of the latter shall be entitled to one-half of the portion pertaining to each of the legitimate children not bettered, provided that it can be included within the third for free disposal, from which it must betaken, after deducting the burial and funeral expenses.

84

The legitimate children may satisfy the portion pertaining to the natural children in cash, or in other property of the estate, at a fair valuation. The sum of P1,785.35, as the legal share of each natural child, was the amount which was indicated in the project of partition(Exh. 3) and which was to be satisfied in cash. The second paragraph of article 840 gives the legitimate children the right to satisfy in cash the hereditary portions of the natural children. (Article 840 was applied in the project of partition when it stated that each natural child had "una septima partede un sexto de semovientes" but the statement in the project of partition that each legitimate child was entitled to "un tercio delos cinco quintos de los semovientes" is erroneous. It should be "un tercii de los cinco sextos de los semovientes"). Judge Richard Campbell, in his "decision" dated April 28,1913, approved the project of partition as well as the intervention of Timoteo Zayco as guardian of the five heirs, who were minors. The court declared that the proceeding would be considered closed and the record should be archived as soon as proof was submitted that each heir had received the portion adjudicated to him (Exh. 4). In an order dated February 3, 1914 Judge V. Nepomuceno asked the administrator to submit a report, complete with the supporting evidence, showing that the shared of the heirs had been delivered to them as required in the decision of April 28,1913 (Exh. 5). In a manifestation dated February 24, 1914, which was signed by Jose, Agustin, Granada, Atanacia and Timoteo all surnamed Ramos, and by Timoteo Zayco, the guardian, and which was sworn to before the justice of the peace on March 2 (not 4), 1914 and filed in court on March 5,1914, they acknowledged: ... hemos recibido del Administrador Judicial Rafael O. Ramostodas y cada una de las participaciones a que respectivamente tenemos derecho en los bienes relictor de los finados esposos Martin Ramos y Candida Tanate, completo acuerto y conformidad con elproyecto de reparticion que nosotros mismo sometemos al Juzgado en 25 de Abril de 1913 ... . (Exh. 6). Note that Granada Ramos and the natural children were assumed to have received their shares from the administrator although according to the object of partition, Jose Ramos and Agustin Ramos (not the administrator) were supposed to pay the cash adjudications to each of them. No receipts were attached to the manifestation, Exhibit 6. Apparently, the manifestation was not in strict conformity with the terms of judge Nepomuceno's order and with the project of partition itself. Lots Nos. 1370, 1371, 1372, 1375, 2158, 2159, 2161 and 2163(eight lots) of the Himamaylan cadastre (page 8 of the Record on Appeal does not mention Lot 1370), which are involved in this case were registered (as of 1958) in equal shares in the names of Gregoria Ramos and her daughter, Granada Ramos, as shown below (Exh. 8): Original Lot No 1370 1371 1372 1375 2158 2159 2161 2163 Registration Aug. 29, 1923 do do do Sept. 10, 1923 do do do Present title TCT No. RT-2238 TCT No. RT-2235 TCT No. RT-2237 TCT No. RT-2236 TCT No. RT-2230 TCT No. RT-2233 TCT No. RT-2232 TCT No. RT-2231 Date Dec. 1, 1933 do do do do do do do

Plaintiffs' version of the case. A summary of plaintiffs' oral evidence is found in pages 4 to 13 of their wellwritten brief. It is reproduced below (omitting the citations of the transcript): Martin Ramos, who died in 1906 in the municipality of Himamaylan, Negros Occidental, left considerable real estate, the most valuable of which were the Hacienda Calaza and Hacienda Ylaya, both located in Himamaylay, Negros Occidental. Hacienda Calaza consists of sugar land, palay land and nipa groves with an area of 400 hectares and with a sugar quota allotment of 10,000 piculs, more or less, and having as its present actual value P500,000 more or less. "All the children of martin Ramos, whether legitimate or acknowledged natural, lived together in Hacienda Ylaya during his lifetime and were under his care. Even defendant Gregoria Ramos, widow of Jose Ramos, admitted that she dealt with plaintiffs as family relations, especially seeing them during Sundays in church as they lived with their father, and maintained close and harmonious relations with them even after the death of their father. All said children continued to live in said house of their father for years even after his death. "Upon their father's death, his properties were left under the administration of Rafael Ramos, the younger brother of their father and their uncle, Rafael Ramos continued to administer those properties of their father, giving plaintiffs money as their shares of the produce of said properties but plaintiffs not receiving any property or piece of land however, until 1913 when Rafael Ramos gathered all the heirs, including plaintiffs, in the house of their father, saying he would return the administration of the properties. He turned over Hacienda Ylaya to Agustin Ramos and Hacienda Calaza to Jose Ramos. "All said children, defendants and plaintiffs alike, continued to live in the same house of their father in Hacienda Ylaya, now under the support of Agustin Ramos. Plaintiff Modesto Ramos who 'could understand Spanish a little', only left said house in 1911; plaintiff Manuel stayed there for one year and lived later with Jose Ramos for four years. Plaintiff Maria Ramos, who herself testified that she has 'a very low educational attainment', lived there until 1916 when she got married. Plaintiff Emiliano lived there with Agustin, helping him supervise the 85

work in Hacienda Ylaya, until he transferred to Hacienda Calaza where he helped Jose Ramos supervise the work in said hacienda. "Agustin Ramos supported plaintiffs, getting the money from the produce of Hacienda Ylaya, the only source of income of Agustin coming from said hacienda. Plaintiffs asked money from Agustin pertaining to their share in the produce of Hacienda Ylaya and received varied amounts, sometimes around P50 at a time, getting more when needed, and receiving P90 or P100 more or less a year. "Jose Ramos gave plaintiffs also money as their shares from the products of Hacienda Calaza. Even Maria Ramos who upon her marriage in 1916 lived in La Cartota with her husband was given money whenever she went to Himamaylan. Plaintiffs received varied amounts or sums of money from Jose as their shares in the produce of Hacienda Ylaya more or less about P100 a year, mostly during the milling season every year while he was alive up to his death in 1930. Emiliano Ramos, now deceased and substituted by his widow, Rosario Tragico, moreover, received P300 from Jose Ramos in 1918 taken from the products of Hacienda Calaza when he went to the United States to study. "Upon Jose Ramos death his widow Gregoria Ramos, herself, his first cousin, their father and mother, respectively being brother and sister, continued to give plaintiffs money pertaining to their shares in the products of Hacienda Calaza. She however stopped doing so in 1951, telling them that the lessee Estanislao Lacson was not able to pay the lease rental. "There was never any accounting made to plaintiffs by Jose Ramos, plaintiffs reposing confidence in their elder brother, Nor was any accounting made by his widow, defendant Gregoria Ramos, upon his death, plaintiff Manuel Ramos moreover having confidence in her. "Before the survey of these properties by the Cadastral Court, plaintiff Modesto Ramos was informed by the Surveying Department that they were going to survey these properties. Plaintiffs then went to see their elder brother Jose to inform him that there was a card issued to them regarding the survey and gave him 'a free hand to do something as an administrator'. They therefore did not intervene in the said cadastral proceedings because they were promised that they(defendants Jose and Agustin) would 'be the ones responsible to have it registered in the names of the heirs'. Plaintiffs did not file and cadastral answer because defendants Jose and Agustin told them 'not to worry about it as they have to answer for all the heirs'. Plaintiffs were 'assured' by defendants brothers. "Plaintiffs did not know that intestate proceedings were instituted for the distribution of the estate of their father. Neither did plaintiffs Modesto, Manuel, Emiliano and Maria know (that) Timoteo Zayco, their uncle and brother-in-law of defendant widow Gregoria was appointed their guardian. There was an express admission by defendant Gregoria Ramos that Timoteo Zayco was her brother-in-law. "Plaintiffs did not know of any proceedings of Civil Case No. 217. They never received any sum of money in cash the alleged insignificant sum of P1,785.35 each from said alleged guardian as their supposed share in the estate of their father under any alleged project of partition. "Neither did Atanacia Ramos nor her husband, Nestor Olmedo, sign any project of partition or any receipt of share in(the) inheritance of Martin Ramos in cash. Nestor Olmedo did not sign any receipt allegedly containing the signatures of Atanacia assisted by himself as husband, Timoteo Ramos, and Timoteo Zayco as guardian adlitem of the minors Modesto, Manual, Federico, Emiliano and Maria. As a matter of fact, plaintiffs Modesto and Manuel were in 1913 no longer minors at the time of the alleged project of partition of the estate being approved, both being of age at that time. No guardian could in law act on their behalf. "Plaintiffs only discovered later on that the property administered by their elder brother Jose had a Torrens Title in the name of his widow, Gregoria, and daughter, Candida, when plaintiff Modesto's children insisted and inquired from the Register of Deeds sometime in 1956 or 1957. Plaintiffs did not intervene in the intestate proceedings for (the) settlement of the estate of their brother Jose as they did not know of it. "Plaintiffs were thus constrained to bring the present suit before the Court of First Instance of Negros Occidental on September 5, 1957 seeking for the reconveyance in their favor by defendants Gregoria and daughter Candida and husband Jose Bayot of their corresponding participations in said parcels of land in accordance with article 840 of the old Civil Code and attorney's fees in the sum of P10,000 plus costs and expenses of this litigation". (4-13 Brief). Proceedings in the lower court. The instant action was filed on September 5, 1957 against defendants Agustin Ramos, Granada Ramos and the heirs of Jose Ramos for the purpose of securing a reconveyance of the supposed participations of plaintiffs Atanacia, Emiliano, Manuel, Maria and Modesto, all surnamed Ramos, in the aforementioned eight (8) lots which apparently form part of Hacienda Calaza. (The plaintiffs did not specify that the said shares would amount to one-sixth of the said eight cadastral lots. One-sixth represented the one-third free portion of Martin Ramos' one-half shares in the said lots. And the said one-sixth portion was the share of his seven legally acknowledged natural children under article 840 of the old Civil Code). The action is really directed against the heirs of Jose Ramos, namely, his wife Gregoria and his daughter Candida in whose names the said eight lots are now registered as shown in Exhibit 8 and in page 4 hereof. It is predicated on the theory that plaintiffs' shares were held in trust by the defendants. No deed of trust was alleged and proven. The defendants denied the existence of a trust. They pleaded the defenses of (a) release of claim as shown in the project of partition, the decision and the receipt of shares forming part of the expediente of Civil Case No. 217 (Exh. 3, 4 and 6), (b) lack of cause of action, (c) res judicata and (d) prescription. 86

Timoteo Ramos, who was joined as a co-plaintiff, manifested that he had already received his own share of the inheritance, that he did not authorized anyone to include him as a plaintiff and that he did not want to be a party in this case. He moved that his name be stricken out of the complaint (44-45 Rec. or Appeal; Exh. 7). Emiliano Ramos, who died in 1958, was substituted by his widow and their ten children (Exh. E, 61-64 Rec. on Appeal).The complaint is silent as to the fate of Federico Ramos, the seventh natural child of Martin Ramos. As already noted, after trial, the lower court dismissed the complaint on the ground of res judicata. The plaintiffs as well as the defendants appealed. Plaintiffs' appeal. The plaintiffs contend that the trial court erred (1) in dismissing their complaint, (2) in denying their right to share in their father's estate and (3) in holding that the action was barred by res judicata or the prior judgment in the special proceeding for the settlement of Martin Ramos' intestate estate, Civil Case No. 217 of the Court of First Instance of Negros Occidental, Abintesdado de los finados esposos Martin Ramos y Candida Tanate (Exh. F to J and 1 to 6). The plaintiffs vigorously press on this Court their theory that the plaintiffs, as acknowledged natural children, were grievously prejudiced by the partition and that the doctrine of res judicata should not bar their action. A preliminary issue, which should first be resolved, is the correctness of the trial court's "inexorable conclusion" that the plaintiffs were the legally acknowledged natural children of Martin Ramos. Plaintiffs' action is anchored on that premise. The defendants failed to impugn that conclusion in their appellants' brief. Not having done so, it may be regarded as conclusive against them. That is the proposition advanced by the plaintiffs in their reply-brief. The defendants in their appellees' brief assail that conclusion. It is true that an appellee may make an assignment of error in his brief but that rule refers to an appellee who is not an appellant (Saenz vs. Mitchell, 60 Phil. 69, 80). However, since an appellee is allowed to point out the errors committed by the trial court against him (Relativo vs. Castro, 76 Phil. 563; Lucero vs. De Guzman, 45 Phil. 852), defendants' contention that the plaintiffs were not legally acknowledged natural children may just as well be passed upon. The defendants, in contesting the lower court's finding that the plaintiffs were legally acknowledged children, assume that the legitimate children committed a mistake in conferring successional rights on the plaintiffs. We hold that the trial court's conclusion is correct. It is true that the acknowledgment of the plaintiffs is not evidenced by a record of birth, will or other public document (Art. 131, Old Civil Code). But the record of Civil Case No. 217, which is relied upon by the defendants to support their defense of res judicata, indubitably shows that the plaintiffs were treated as acknowledged natural children of Martin Ramos. The reasonable inference is that they were in the continuous possession of the status of natural children of Martin Ramos, as evidenced by his direct acts and the acts of his family (Art. 135, Old Civil Code). Unacknowledged natural children have no rights whatsoever(Buenaventura vs. Urbano, 5 Phil. 1; Siguiong vs. Siguiong, 8 Phil. 5, 11; Infante vs. Figueras, 4 Phil. 738; Crisolo vs. Macadaeg, 94 Phil. 862). The fact that the plaintiffs, as natural children of Martin Ramos, received shares in his estate implies that they were acknowledged. Obviously, defendants Agustin Ramos and Granada Ramos and the late Jose Ramos accorded successional rights to the plaintiffs because martin Ramos and members of his family had treated them as his children. Presumably, that fact was well-known in the community. Under the circumstances, Agustin Ramos and Granada Ramos and the heirs of Jose Ramos are estopped from attacking plaintiffs' status as acknowledged natural children (See Arts. 283[4] and 2266[3], New Civil Code). Even the lower court, after treating the plaintiffs in 1913 in the intestate proceeding as acknowledged natural children, had no choice but to reaffirm that same holding in its 1961 decision in this case. The crucial issue is prescription. With it the question of res judicata and the existence of a trust are inextricably interwoven. Inasmuch as trust is the main thrust of plaintiffs' action, it will be useful to make a brief disgression of the nature of trusts (fideicomisos) and on the availability of prescription and laches to bar the action for reconveyance of property allegedly held in trust. "In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another, but the words 'trust' is frequently employed to indicate duties, relations, and responsibilities which are not strictly technical trusts." (89 C.J.S. 712). "A person who establishes a trust is called the trust or; one in whom confidence is reposed is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee and the cestui que trust as regards certain property, real, personal, money or choses inaction (Pacheco vs. Arro, 85 Phil. 505). "Trusts are either express or implied. Express trusts are created by the intention of the trust or of the parties. Implied trusts come into being by operation of law." (Art. 1144, Civil Code). "No express trusts concerning an immovable or any interest therein may be proven by oral evidence. An implied trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457). "No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust" (89 C.J.S. 722). 87

"Implied trust are those which, without being expressed, are deducible from the nature of the transaction as matters of intent, or which are super induced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722). "A resulting trust is broadly defined as a trust which is raised or created by the act or construction of law, but in its more restricted sense it is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance" (89 C.J.S. 725). Examples of resulting trusts are found in article 1448 to 1455 of the Civil Code. See Padilla vs. Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168,179). On the other hand, a constructive trust is a trust "raised by construction of law, or arising by operation of law". In a more restricted sense and as contra distinguished from a resulting trust, a constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct intention to create a trust, but by the construction of equity in order to satisfy the demands of justice. It does not arise by agreement or intention but by operation of law." (89 C.J.S. 7260727). "If a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded party." A constructive trust is not a trust in the technical sense(Gayondato vs. Treasurer of the P.I., 49 Phil. 244; See Art. 1456, Civil Code). There is a rule that a trustee cannot acquire by prescription the ownership of property entrusted to him (Palma vs. Cristobal, 77 Phil. 712), or that an action to compel a trustee to convey property registered in his name in trust for the benefit of the cestui qui trust does not prescribed (Manalang vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810), or that the defense of prescription cannot be set up in an action to recover property held by a person in trust for the benefit of another(Sevilla vs. De los Angeles, 97 Phil. 875), or that property held in trust can be recovered by the beneficiary regardless of the lapse of time (Marabilles vs. Quito, 100 Phil. 64; Bancairen vs. Diones, 98 Phil. 122, 126 Juan vs. Zuniga, 62 O.g. 1351; 4 SCRA 1221; Jacinto, L-17957, May 31, 1962. See Tamayo vs. Callejo, 147 Phil. 31, 37). That rule applies squarely to express trusts. The basis of the rule is that the possession of a trustee is not adverse. Not being adverse, he does not acquire by prescription the property held in trust. Thus, section 38 of Act 190 provides that the law of prescription does not apply "in the case of a continuing and subsisting trust" (Diaz vs. Gorricho and Aguado, 103 Phil. 261,266; Laguna vs. Levantino, 71 Phil. 566; Sumira vs. Vistan, 74 Phil. 138; Golfeo vs. Court of Appeals, 63 O.G. 4895, 12 SCRA 199; Caladiao vs. Santos, 63 O.G. 1956, 10 SCRA 691). The rule of imprescriptibility of the action to recover property held in trust may possibly apply to resulting trusts as long as the trustee has not repudiated the trust (Heirs of Candelaria vs. Romero, 109 Phil. 500, 502-3; Martinez vs. Grano, 42 Phil. 35; Buencamino vs. Matias, 63 O. G. 11033, 16 SCRA 849). The rule of imprescriptibility was misapplied to constructive trusts (Geronimo and Isidoro vs. Nava and Aquino, 105 Phil. 145, 153. Compare with Cuison vs. Fernandez and Bengzon, 105 Phil. 135, 139; De Pasion vs. De Pasion, 112 Phil. 403, 407). Acquisitive prescription may bar the action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust where (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui qui trust; (b) such positive acts of repudiation have been made known to the cestui qui trust and(c) the evidence thereon is clear and conclusive (Laguna vs. Levantino, supra; Salinas vs. Tuason, 55 Phil. 729. Compare with the rule regarding co-owners found in the last paragraph of article 494, Civil Code; Casanas vs. Rosello, 50 Phil. 97; Gerona vs. De Guzman, L-19060, May 29, 1964, 11 SCRA 153,157). With respect to constructive trusts, the rule is different. The prescriptibility of an action for reconveyance based on constructive trust is now settled (Alzona vs. Capunitan, L-10228, February 28, 1962, 4 SCRA 450; Gerona vs. De Guzman, supra; Claridad vs. Henares, 97 Phil. 973; Gonzales vs. Jimenez, L-19073, January 30, 1965, 13 SCRA 80; Bonaga vs. Soler, 112 Phil. 651; J. M. Tuason & Co., vs. Magdangal, L-15539, January 30, 1962, 4 SCRA 84). Prescription may supervene in an implied trust (Bueno vs. Reyes, L-22587, April 28, 1969, 27 SCRA 1179; Fabian vs. Fabian, L-20449, January 29, 1968; Jacinto vs. Jacinto, L-17957, May 31, 1962, 5 SCRA 371). And whether the trust is resulting or constructive, its enforcement may be barred by laches (90 C.J.S. 887-889; 54 Am Jur. 449-450; Diaz vs. Gorricho and Aguado, supra. Compare with Mejia vs. Gampona, 100 Phil. 277). The plaintiffs did not prove any express trust in this case. The expediente of the intestate proceeding, Civil Case No. 217, particularly the project of partition, the decision and the manifestation as to the receipt of shares (Exh. 3, 4 and 6)negatives the existence of an express trust. Those public documents prove that the estate of Martin Ramos was settled in that proceeding and that adjudications were made to his seven natural children. A trust must be proven by clear, satisfactory, and convincing evidence. It cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite declarations (De Leon vs. Peckson, 62 O. G. 994). As already noted, an express trust cannot be proven by parol evidence(Pascual vs. Meneses, L-18838, May 25, 1967, 20 SCRA 219, 228; Cuaycong vs. Cuaycong, L-21616, December 11, 1967, 21 SCRA 1192). Neither have the plaintiffs specified the kind of implied trust contemplated in their action. We have stated that whether it is a resulting or constructive trust, its enforcement may be barred by laches. In the cadastral proceedings, which supervened after the closure of the intestate proceeding, the eight lots involved herein were claimed by the spouses Jose Ramos and Gregoria T. Ramos to the exclusion of the plaintiffs (Exh. 8 to 19). After the death of Jose Ramos, the said lots were adjudicated to his widow and daughter (Exh. 8). In 1932 Gregoria T. Ramos and Candida Ramos leased the said lots to Felix Yulo (Exh. 88

20).Yulo in 1934 transferred his lease rights over Hacienda Calazato Juan S. Bonin and Nestor Olmedo, the husband of plaintiff Atanacia Ramos (Exh. 22). Bonin and Olmedo in 1935 sold their lease rights over Hacienda Calaza to Jesus S. Consing (Exh. 23). Those transactions prove that the heirs of Jose Ramos had repudiated any trust which was supposedly constituted over Hacienda Calaza in favor of the plaintiffs. Under Act 190, whose statute of limitations applies to this case (Art. 116, Civil Code), the longest period of extinctive prescription was only ten years Diaz vs. Gorricho and Aguado, supra.). Atanacia, Modesto and Manuel, all surnamed Ramos, were already of age in 1914 (Exh. A to D). From that year, they could have brought the action to annul the partition. Maria Ramos and Emiliano Ramos were both born in 1896. They reached the age of twenty-one years in 1917. They could have brought the action from that year. The instant action was filed only in 1957. As to Atanacia, Modesto and Manuel, the action was filed forty-three years after it accrued and, as to Maria and Emiliano, the action was filed forty years after it accrued. The delay was inexcusable. The instant action is unquestionably barred by prescription and res judicata. This case is similar to Go Chi Gun vs. Co, 96 Phil. 622, where a partition judicially approved in 1916 was sought to be annulled in 1948 on the ground of fraud. it was contended that there was fraud because the real properties of the decedent were all adjudicated to the eldest son, while the two daughters, who were minors, were given only cash and shares of stocks. This Court, in upholding the petition, said: "In any case, the partition was given the stamp of judicial approval, and as a matter of principle and policy we should sustain its regularity, in the absence of such cause or reason that the law itself fixes as a ground for invalidity" (on page 634). "As the administration proceedings ended in the year 1916, the guardianship proceedings in 1931, and the action was brought only in the year 1948, more than 32 years from the time of the distribution and 27 years from the termination of guardianship proceedings", the action was barred by laches (on page 637). See Lopez vs. Gonzaga, L-18788, January 31, 1964, 10 SCRA 167; Cuaycong vs. Cuaycong, supra). The leading case of Severino vs. Severino, 44 Phil. 343, repeatedly cited by the plaintiffs, does not involve any issue of prescription or laches. In that case, the action for reconveyance was seasonably brought. The alleged trustee was an overseer who secured title in his name for the land of his brother which was under his administration. He could not have acquired it by prescription because his possession was not adverse. On certain occasions, he had admitted that he was merely the administrator of the land and not its true owner. More in point is the Cuaycong case, supra, where the action for the reconveyance of property held in trust accrued in 1936 and it was filed only in 1961 or after the lapse of twenty-five years. That action was barred. On its face, the partition agreement was theoretically correct since the seven natural children were given their full legitime, which under article 942 of the old Civil Code was their share as legal heirs. But is was possible that the lands were undervalued or were not properly appraised at their fair market value and, therefore, the natural children were short-changed in the computation of the value of their shares which the legitimate children could pay in case as allowed in article 840 of the old Civil Code. It is of common knowledge that anyone who received lands in the partition of a decedent's estate would ultimately have an advantage over the one who received cash because lands increase in value as time goes by while money is easily spent. As pointed out in the statement if facts, it was anomalous that the manifestation, evidencing the alleged receipt by the natural children of their shares, should recite that they received their shares from the administrator, when in the project of partition itself, as approved by the probate court (Exh. 3 to 6),it was stipulated that Jose Ramos and Agustin Ramos would be the ones to pay the cash settlement for their shares. No receipts were submitted to the court to prove that Jose Ramos and Agustin Ramos paid to the plaintiffs the cash adjudicated to them in the project of partition. The plaintiffs pinpoint certain alleged irregularities in the intestate proceeding. The aver that Modesto Ramos and Manuel Ramos were already of age in 1913 and could not therefore have been represented by Timoteo Zayco as guardian ad litem and that, consequently, the two were denied due process. The plaintiffs accused Zayco of not having competently protected the interests of the minors, Maria Ramos and Emiliano Ramos. The allege that Atanacia Ramos signed the project of partition and the "receipt" of share (Exh. 3 and 6)without understanding those documents which were in Spanish. They assert that the lopsided and defective partition was not implemented. In short, the plaintiffs contend that the partition was not binding on them (Note that their brother, Timoteo, considered himself bound by that partition). They ask that the case be remanded to the lower court for the determination and adjudication of their rightful shares. All those contentions would have a semblance of cogency and would deserve serious consideration if the plaintiffs had not slept on their rights. They allowed more than forty years to elapse before they woke up and complained that they were much aggrieved by the partition. Under the circumstances, their claims can hardly evoke judicial compassion. Vigilantibus et non dormientibus jura subveniunt. "If eternal vigilance is the price of safety, one cannot sleep on one's right for more than a tenth of a century and except it to be preserved in its pristine purity" (Ozaeta, J. in Association Cooperativa de Credito Agricola de Miagao vs. Monteclaro, 74 Phil. 281, 283). The plaintiffs have only themselves to blame if the courts at this late hour can no longer afford them relief against the inequities allegedly vitiating the partition of their father's estate. 89

In connection with the res judicata aspect of the case, it maybe clarified that in the settlement of a decedent's estate it is not de rigueur for the heirs to sign a partition agreement. "It is the judicial decree of distribution, once final, that vests title in the distributees" (Reyes vs. Barretto-Datu, L-17818, January 25,1967, 19 SCRA 85, 91) which in this case was Judge Campbell's decision (Exh. 4). A judgment in an intestate proceeding may be considered asa judgment in rem (Varela vs. Villanueva, 95 Phil. 248, 267. See Sec. 49[a], Rule 39, Rules of Court). There is a ruling that "if that decree of distribution was erroneous or not in conformity with law or the testament, the same should have been corrected by opportune appeal; but once it had become final; its binding effect is like that of any other judgment in rem, unless properly set aside for lack of jurisdiction or fraud". A partition approved by the court in 1939 could no longer be contested in 1956 on the ground of fraud. The action had already prescribed. "The fact that one of the distributees was a minor at the time the court issued the decree of distribution does not imply that the court had no jurisdiction to enter the decree of distribution." (Reyes vs. Barretto-Datu, supra, citing Ramos vs. Ortuzar, 89 Phil. 742). "A final order of distribution of the estate of a deceased person vests the title to the land of the estate in the distributes" (Syllabus, Santos vs. Roman Catholic Bishop of Nueva Caceres, 45 Phil. 895, 900). Parenthetically, it may be noted that the filing of the instant case long after the death of Jose Ramos and other persons involved in the intestate proceeding renders it difficult to determine with certitude whether the plaintiffs had really been defrauded. What Justice Street said in Sinco vs. Longa, 51 Phil. 507, 518-9 is relevant to this case. In passing upon controversies of this character experience teaches the danger of accepting lightly charged of fraud made many years after the transaction in question was accomplished, when death may have sealed the lips of the principal actors and changes effected by time may have given a totally different color to the cause of controversy. In the case before us the guardia, Emilio Tevez, is dead. The same is true of Trinidad Diago, mother of the defendant Agueda Longa; while Agapito Longa is now living in Spain. It will be borne in mind also that, insofar as oral proof is concerned, the charge of fraud rests principally on the testimony of a single witness who, if fraud was committed, was a participant therein and who naturally would now be anxious, so far as practicable, to put the blame on others. In this connection it is well to bear in mind the following impressive language of Mr. Justice Story: ... But length of time necessarily obscures all human evidence; and as it thus removed from the parties all the immediate means to verify the nature of the original transactions, it operates by way of presumption, in favor of innocence, and against imputation of fraud. It would be unreasonable, after a great length of time, to require exact proof of all the minute circumstances of any transaction, or to expect a satisfactory explanation of every difficulty, real or apparent with which it may be incumbered. The most that can fairly be expected, in such cases, if the parties are living, from the frailty of memory, and human infirmity, is, that the material facts can be given with certainty to a common intent; and, if the parties are dead, and the cases rest in confidence, and in parol agreements, the most that we can hope is to arrive at probable conjectures, and to substitute general presumption of law, for exact knowledge. Fraud, or breach of trust, ought not lightly to be imputed to the living, for, the legal presumption is the other way; as to the dead, are not here to answer for themselves, it would be the height of injustice and cruelty, to disturb their ashes, and violate the sanctity of the grave, unless the evidence of fraud be clear, beyond a reasonable doubt (Prevost vs. Gratz, 6 Wheat. [U.S.],481, 498). Defendants' appeal. Defendants Granada Ramos, Gregoria T. Ramos, Candida Ramos, Jose Bayor and Agustin Ramos appealed from the lower court's decision insofar as it ignored their counterclaim for P50,000 as moral damages and P10,000 as attorney's fees. In their brief the claim for attorney's fees was increased to P20,000. They prayed for exemplary damages. The defendants argue that plaintiffs' action was baseless and was filed in gross and evident bad faith. It is alleged that the action caused defendants mental anguish, wounded feelings, moral shock and serious anxiety and compelled them to hire the service of counsel and incur litigation expenses. Articles 2219 and 2220 (also 1764 and 2206) of the Civil Code indicate the cases where morel damages may be recovered. The instant litigation does not fall within any of the enumerated cases. Nor can it be regarded as analogous to any of the cases mentioned in those articles. Hence, defendants' claim for moral damages cannot be sustained (Ventanilla vs. Centeno, 110 Phil. 811, 814). The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not the moral damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965, 14 SCRA 887). "The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate, such right is so precious that moral damages may not be charged on those who may exercise it erroneously." (Barretto vs. Arevalo, 99 Phil. 771, 779). On the other hand, the award of reasonable attorney's fees is governed by article 2208 of the Civil Code which lays down the general rule that, in the absence of stipulation, attorney's fees and litigation expenses cannot be recovered. Article 2208 specifies eleven instances where attorney's fees may be recovered. The defendants did not point out the specific provision of article 2208 on which their counterclaim may be predicated. What may possibly apply to defendants' counterclaim are paragraphs four and eleven which respectively provide that attorney's fees may be recovered "in case of a clearly unfounded civil action or proceeding against the plaintiff"(defendant is a plaintiff in his counterclaim) or "in any other cases where the court deems it just and equitable" that attorney's fees should be awarded. We hold that, notwithstanding the dismissal of the action, no attorney's fees should be granted to the defendants. Under the facts of the case, it cannot be asseverated with dogmatic finality that plaintiffs' action 90

was manifestly unfounded or was maliciously filed to harass and embarrass the defendants. All indications point to the fact that the plaintiffs honestly thought that they had a good cause of action. They acted in evident good faith. (See Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Rizal Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61). Inasmuch as some of the plaintiffs were minors when the partition of their father's landed estate was made, and considering that they were not allotted even a few square meters out of the hundreds of hectares of lands, which belonged to him, they had reason to feel aggrieved and to seek redress for their grievances. Those circumstances as well as the marked contrast between their indigence and the affluence of the heirs of their half-brother, Jose Ramos, might have impelled them to ask the courts to reexamine the partition of their father's estate. It is not sound public policy to set a premium on the right to litigate. An adverse decision does not ipso facto justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim, supra; Heirs of Justiva vs. Gustilo, 61 O. G. 6959. Cf. Lazatin vs. Twano and Castro, 112 Phil. 733, 741). Since no compensatory and moral damages have been awarded in this case, defendants' claim for exemplary damages, which was ventilated for the first time in their appellants' brief, may be as an afterthought, cannot be granted(Art. 2229, Civil Code). WHEREFORE, the trial court's judgment is affirmed with the clarification that defendants' counterclaim is dismissed. No costs. SO ORDERED. G.R. No. 76221 July 29, 1991 SPOUSES RUBEN AND LUZ GALANG, petitioners, vs. COURT OF APPEALS AND LEONARDO DE LEON, respondents. Joanes G. Caacbay for petitioners. Almoradie-Lee & Associates for private respondent. FERNAN, C.J.:p In an ejectment suit filed by private respondent Leonardo de Leon, owner of a 6-door apartment at 1177 Quiricada Extension, Tondo, Manila, against petitioners spouses Ruben and Luz Galang, lessee of one of the units, the Metropolitan Trial Court of Manila, Branch V, rendered a decision on February 27, 1986 1 ordering petitioners herein to vacate the premises in question, to pay P130 per month from September 1985 until the premises are vacated, and P1,000 attorney's fees. On appeal by petitioners herein, the Regional Trial Court of Manila, Branch XL, affirmed on July 22, 1986 the decision of the Metropolitan Trial Court of Manila. 2 Dissatisfied, petitioners elevated the case to the Court of Appeals in a petition for review. After therein respondents' comment was filed, the petition was given due course in a resolution dated September 1, 1986, which also required petitioners to deposit the amount of P80.40 for costs within three (3) days from notice thereof, failure of which, the petition shall be dismissed. Respondents were required to answer the petition which shall take the place of respondents' brief within 10 days from receipt of the resolution and copy of the petition. Within five (5) days from receipt of the respondents' answer, petitioners may reply thereto. 3 Petitioners' counsel, Atty. Cirilo Doronila of the Citizens Legal Assistance Office (now Public Assistance Office) received said resolution on September 5, 1986. On September 9, 1986, or four (4) days from receipt, he filed a motion for extension of 30 days from September 8, 1986 within which to pay costs. On September 16, 1986, the Court of Appeals promulgated a resolution dismissing the petition for review for failure of petitioners to pay the costs of P80.40 within three (3) days from notice of the resolution of September 1, 1986. The motion of petitioners for an extention of time to pay costs was likewise denied in the same resolution for having been filed one (1) day after due date, hence out of time. 4 Petitioners filed a motion for reconsideration contending that their counsel was not able to notify them of the order to pay costs within three (3) days from September 5, 1986. In a resolution dated October 9, 1986, the Court of Appeals denied said motion for reconsideration. 5 Meanwhile, on the same date, or on October 9, 1986, petitioners filed a supplemental motion for reconsideration, followed by a memorandum in support of the motion and supplemental motion for reconsideration with prayer for the acceptance of the deposit of P80.40 and for the issuance of a restraining order. Acting on the pleadings filed by petitioners as wen as private respondent's opposition to said motion for reconsideration, the Court of Appeals promulgated a resolution on October 27, 1986 finding no reason to disturb its resolution of October 9, 1986 denying the motion for reconsideration. 6 Petitioners are now before this Court seeking to set aside the questioned resolutions of the respondent Court of Appeals dated September 16, 1986 and October 9, 1986 and praying that judgment be rendered ordering respondent appellate court to admit petitioners' payment of P80.40 as costs in C.A.-G.R. No. SP-09717 and to decide the case on the merits. 91

Imputing error and grave abuse of discretion on the Court of Appeals in dismissing the petition for review for non-payment of P80.40 as costs within three (3) days from notice and in denying the motion for extension of time to pay costs for being filed one (1) day late, petitioners claim that there is nothing in the Rules of Court governing the procedure in the Court of Appeals (Rule 46 to Rule 55) that requires payment of costs within three (3) days from notice of the order; that the period of three (3) days from notice for a party-litigant to perform an act is too short a time for counsel to contact petitioners who were not themselves duly furnished with a copy of the resolution of September 1, 1986; that under the Rules of Court, Batas Pambansa Blg. 129, and the Interim Rules and Guidelines, ten (10) days is the shortest period within which a party-litigant in the Court of Appeals should perform a required act. While it is true that litigation is not a game of technicalities and that the rules of procedure should not be strictly enforced at the cost of substantial justice, this does not mean that the Rules of Court may be ignored at will and at random to the prejudice of the orderly presentation and assessment of the issues and their just resolution. Justice eschews anarchy. 7 The Court in said case stated, thus: Rules of procedure are intended to ensure the orderly administration of justice and the protection of substantive rights in judicial and extrajudicial proceedings. It is a mistake to purpose (sic) that substantive law and adjective law are contradictory to each other or, as has often been suggested, that enforcement of procedural rules should never be permitted if it will result in prejudice to the substantive rights of litigants. This is not exactly true; the to give effect to both kinds of law, as complementing each other, in the just and speedy resolution of the dispute between the parties. Observance of both substantive rights is equally guaranteed by due process whatever the source of such rights, be it the Constitution itself or only a statute or a rule of court. It is not entirely correct for petitioners to claim that the dismissal of the petition for review of the decision of the RTC in cases falling under the original exclusive jurisdiction of municipal and city courts on the ground of nonpayment of costs within three (3) days from notice is without authority and legal basis. The Court of Appeals, pursuant to its rule- making power under Rule 54 of the Rules of Court, promulgated an en banc Resolution on August 12, 1971 governing the practice to be observed in elevating to the Court of Appeals for review decisions of CFIs (now RTCs) in cases falling under the original exclusive jurisdiction of municipal and city courts. Section 2 of said en banc Resolution provides, thus: SECTION 2. Upon filing of the petition, the petitioner shall pay to the Clerk of the Court of Appeals the docketing fee. If the Court finds that, from the allegations of the petition, the same is not prima facie meritorious or is intended manifestly for delay, the Court may outright dismiss the petition, otherwise, the same shall be given due course, in which case, the petitioner shall deposit the amount of eighty pesos (P80.00) for cost within three (3) days from notice of the resolution gluing due course to the petition. Upon the failure of the petitioner to deposit the amount for costs within the said period of three (3) days, the petition shall be dismissed. 8 Section 22 par. (2) of the Interim or Transitory Rules and Guidelines Relative to the Implementation of the Judiciary Reorganization Act of 1981 adopted the Resolution dated August 12, 1971 of the Court of Appeals as the governing rules of procedure in the review of appealed cases from the Regional Trial Courts. As quoted above, the rule is clear that upon failure of the petitioner to deposit the amount for costs within the said period of three (3) days, the petition shall be dismissed. Records show that petitioners filed on September 9, 1986, or one (1) day after expiration of the three (3) day period, a motion for a 30-day extension of time to deposit costs. Yet even if said motion were granted by the Court of Appeals, the purchase and payment by petitioner of Money Order No. 6618804 On October 13, 1986 for costs was five (5) days late from the expiration of the supposed 30 day extension on October 8, 1986. Manifestly, there was no serious intention on the part of petitioners to comply in good faith with the order of the Court of Appeals. Procedural rules are not to be belittled or dismissed simply because their non-observance may have resulted in prejudice to a party's substantive rights. Like all rules, they are required to be followed except only for the most persuasive of reasons when they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed. 9 In the instant case, petitioners have not pleaded the most persuasive of reasons which would make this Court relax the cited rule of procedure embodied in the August 21, 1971 Resolution of the Court of Appeals. The attendant circumstances in cases where a liberal interpretation of the Rules was adopted by the Court are absent in the instant case. What is obviously clear is that while the case was on appeal before the Regional Trial Court, petitioners ignored the order dated May 14, 1986 of the said RTC to file their memorandum within ten (10) days from notice. The case was thus decided on July 22, 1986 without petitioners' memorandum. 10 Even that early stage of the case, petitioner's had already chosen to ignore the order of the Regional Trial Court. The Court cannot now stamp with approval the second defiance of the rule of procedure before the Court of Appeals. The reason cited that petitioners were not themselves furnished with a copy of the resolution of September 1, 1986 does not call for a liberal application of the Rules. It is basic that notice to counsel is notice to the client. Under Section 2 of Rule 13 of the Rules of Court, if any of the parties in a case has appeared by an attorney or attorneys, service upon him shall be made upon his attorney or one of them, unless service upon the party himself is ordered by the court. No such order to serve copy of the orders, notices, etc. upon petitioners herein was given by the court. Even if the deposit of costs were to be allowed by the Court on the ground of liberal application of the rules, still, the Court in the exercise of its discretionary power, instead of remanding the case to the Court of Appeals, finds that the instant petition lacks merit. The legitimate need of the owner/lessor to repossess his property for use of any immediate member of his family is a valid ground to eject petitioners from the questioned premises under Section 5 par. (c) of Batas 92

Pambansa Blg. 25. The factual question of whether or not all the requisites provided under Section 5 par. (c) of Batas Pambansa are present in the instant case was properly addressed and resolved by the trial court. Records show that private respondent's sister Consuelo De Leon is staying with their parents in a rented apartment of only about 48 square meters at 1111 Quiricada Extension, Tondo, Manila. 11 The intended use of the questioned premises by his parents and sister is a legitimate need under Section 5 par. (c) of B.P. 25 as private respondent is the one paying for their monthly rentals. The desire of private respondent to repossess the questioned premises in order to provide his parents and sister with a decent place to stay must be given the traditional respect and recognition. Besides, it was not clearly proven that private respondent is an owner of any other property in Manila. It is settled that a lease on a month to month basis is a lease contract with a definite period. 12 As this Court ruled in Baens vs. Court of Appeals, 13 even if the month to month arrangement is on a verbal basis, if it is shown that the lessor needs the property for his own use or for the use of any immediate member of the family or for any of the other statutory grounds to eject under Section 5 of Batas Pambansa Blg. 25, which happens to be applicable, then the lease is considered terminated as of the end of the month, after proper notice or demand to vacate has been given. 14 As early as June 7, 1985, private respondents had demanded that petitioners vacate the premises in question on September 15, 1985. The ejectment case was filed on October 7, 1985 after a lapse of more than three (3) months from receipt of said notice. While the sympathies of the Court are with the lessees, who must now face displacement and relocation with all their attendant inconvenience and expense, but the law, as the Court aptly observed in Pascua vs. Court of Appeals, 15 is on the side of the lessors, who and so must be upheld. That law, let it be stressed, is not less humane because it favors the landlord, for social justice is for fairness to all or it is no justice at all. WHEREFORE, in view of the foregoing, the petition is DISMISSED for lack of merit. This decision is immediately executory. Costs against petitioners. SO ORDERED. G.R. Nos. L-13328-29 September 29, 1961

GONZALO MERCADO, ET AL., petitioners, vs. RAMON LIRA and JUANA C. DE LIRA, respondents. -----------------------------G.R. No. L-13358 September 29, 1961

NITA LIRA, petitioner, vs. GONZALO MERCADO, ET AL., respondents. Juan Nabong for petitioners. Mariano H. de Joya And Maximo A. Savellano, Jr. for respondents. PAREDES, J.: Gonzalo Mercado and others were the owners and operators of the Laguna Transportation Company. In the afternoon of April 21, 1951, while its passenger bus No. 39 was making the trip from Batangas to Manila on the concrete highway at barrio Tulo, Calamba, Laguna, the left front tire of the bus blew out and sent it swerving gradually toward the left side of the road, over the shoulder and into a ravine some 270 meters away. From the wreckage, the bodies of the passengers, several dead, others injured, were recovered, and among the fatalities was Ramon Lira, Jr. (24), son of Mr. and Mrs. Ramon Lira, Sr. and injured Nita Lira. Two cases for recovery of damages were commenced against the owners and operators in the Court of First Instance of Batangas: No. 104 (now G.R. Nos. L-13326-29, in this Court) by the parents of deceased Ramon Lira, Jr. and No. 107 (now G.R. No. L-13358, in this Court) by Nita Lira. After a joint-trial, defendants, Mercado and others were sentenced to pay the following sums: In Civil Case No. 104: For the death of Ramon Lira, Jr. including funeral and church expenses P10,000.00 For loss of earning capacity of Ramon Lira, Jr. for ten (10) years at P1,800.00 per annum 18,000.00 Moral damages for mental anguish 4,000.00 For expenses of litigation and attorney's fees 4,000.00 TOTAL P36,000.00 In Civil Case No. 107: For hospitalization and medical treatment of Nita Lira For the impairment of earning capacity Moral damages for her physical and mental suffering For expenses of litigation and attorney's fees 970.20 1,000.00 2,000.00 1,000.00 P4,970.20

TOTAL

Defendants appealed in both cases and plaintiff Nita Lira appealed in No. 107 (being cases CA-G.R. No. 15422 and CA-G.R. No. 15423-R). The Court of Appeals render judgment as follows: As far as the other items are concerned, we find them to be reasonable and fully supported by the evidence. Wherefore, the judgment appealed from is hereby modified by reducing the amount awarded for the death of Ramon Lira, Jr. including funeral and church services from P10,000.00 to P5,062.50; reducing the 93

amount awarded for loss of earning capacity from P18,000.00 to P2,000.00 and increasing the amount awarded to plaintiff-appellant Nita Lira for moral damages from P2,000.00 to P5,000.00. In Civil Case No. 104 (CA-G.R. No. 15422-R), therefore, defendant should pay a total of P25,032.56; and in civil case No. 107 (CA-G.R. No. 15422-R), they should pay a total of P7,970.20. In all other respects the said judgment is affirmed, without pronouncement as to costs this instance. On December 19, 1957, and in pursuance of a motion for reconsideration, the Court of Appeals issued the following resolution: In view of the foregoing considerations, the judgment heretofore rendered is hereby modified by eliminating therefrom the award of P5,000.00 by way of moral damages to plaintiff Nita Lira in case CA-G.R. No. 15422-R, maintaining said judgment in all other respects. In other words, in the case CA-G.R. No. 15422-R, involving the death of Ramon Lira, Jr., the Court of Appeals granted moral damages, and in the case of CA-G.R. No. 15422-R, involving physical injuries caused upon Nita Lira, moral damages of P5,000.00 awarded her, were eliminated. Hence, a petition for certiorari to review the decision of the Court of Appeals was filed by Gonzalo Mercado, et al., petitioners, against Ramon Lira, et al., (G.R. No. L-13328-29), and another similar petition was filed by Nita Lira, petitioner vs. Gonzalo Mercado, et al., respondents (G.R. No. L-13358). Counsel for the Mercados, defined their position as follows: Article 2206 of the Civil Code fixes the amount of damages for death at only P3,000.00. The heirs of the deceased may also claim for moral damages, although awarding it is not obligatory like the damages for loss of earning capacity. Paragraph 3 of Art. 2206 states that the heirs may demand for moral damages for mental anguish by reason of the death of the deceased. The amount of moral damages, therefore, should be made only nominal if the heirs have already been compensated very substantially for the death of the deceased, which in this case has been set by the Court of Appeals at P5,052.50 and loss of earning at P12,000.00 and the attorney's fees at P4,000.00 which already amount to P21,052.50. We respectfully submit, therefore, that, even if granting that the respondents are entitled to moral damages, yet the same should not be fixed in such an amount as to kill the entire business of the respondents who are public service operators, by the enormous amounts they have to pay on account of the negligence of one driver. In this case, we respectfully submit that the amount of P500.00 is a reasonable moral damage considering that the other damages already awarded are excessive. In the same way that the attorney's fees should also be reduced to only P1,500.00. and ended with a prayer that "the decision of the Court of Appeals be modified so that the respondents should pay only the sum of P500.00 as moral damages and P1,500.00 for attorney's fees. The pertinent provisions of the new Civil Code state: Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Art. 2206. The amount of damages for death caused by a crime or quasi delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: . . . (3) The spouses, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. It is thus seen that Article 2206 of the new Civil Code, expressly provides that the amount of damages for death shall be "at least three thousand pesos, even though there may have been mitigating circumstances." In other words, the amount of damages to be awarded for the death of a passenger may be more than P3,000.00. It is argued that the award for moral damages for mental anguish caused by the death of a passenger is not obligatory, and that the amount should only be nominal if the heirs have already been compensated substantially for the death of the deceased. Article 2206 states further that "In addition" to the amount of at least P3,000.00 to be awarded for the death of a passenger, the spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages as a consequence of the death of their deceased kin, which simply means that once the above-mentioned heirs of the deceased claim compensation for moral damages and are able to prove that they are entitled to such award, it becomes the duty of the court to award moral damages to the claimant in an amount commensurate with the mental anguish suffered by them. In the Civil Code, nominal damages are treated separately from moral damages. Any amount that should be awarded as nominal damages, should not be confused or interlinked with moral damages which, by itself, is a distinct class of damages. Of course, the amount of moral damages to be awarded, should be such as may be reasonable and just under the circumstances in a given case. Petitioners' claim that as the other damages awarded to said respondents are already excessive, the award for moral damages should be reduced to P500.00. But the Court of Appeals found the other damages not to be excessive, and as far as this factual finding is concerned, we are not authorized to rule otherwise. Moreover, petitioners never assailed in their motion for reconsideration of the decision of the Court of Appeals, dated July 11, 1957, as well as in their instant petition for certiorari, the reasonableness of the amount of the other damages awarded to herein respondents. In fact, the petition limits the issues only to the reasonableness of the P4,000.00 awarded by the Court of Appeals as moral damages and the other amount of P4,000.00 as attorney's fees. Considering the mental anguish and sorrow that must accompany and overwhelm the parents upon the tragic death of a son, and considering the nature and extent of the services rendered by counsel for respondents and other circumstances of the case, we believe the awards given by the Court of Appeals to respondents in the sum of P4,000.00 as moral damages for the death of Ramon Lira, Jr. and the amount of 94

P4,000.00 for attorney's fees and other expenses of litigation, fair and reasonable (par. 11, Art. 2208, N.C.C.).1awphl.nt With respect to G.R. No. L-13358, it is alleged that the respondent Court of Appeals erred in its resolution dated December 19, 1957, in not awarding moral damages to petitioner Nita Lira for physical injuries and mental suffering sustained by her, resulting from breach of the special contract of carriage caused by the negligence of the respondents, contending that her case is analogous to cases of "quasi delicts causing physical injuries" for which the new Civil Code authorizes indemnification for moral damages in favor of the injured party (par. 2, Art. 2219 N.C.C.). Petitioner contends that in the case of Cachero v. Manila Yellow Taxicab Co., G.R. No. L-5721, May 23, 1957; (54 Off. Gaz. No. 26, p. 6599), this Court had not expressly declared or impliedly stated that the award of moral damages to a passenger who has sustained physical injuries is not an "analogous case". And Cachero in said case, did not invoke the analogous applicability of said provision of law, (par. 2, Art. 2219) to his case. Much space was allotted by petitioner in her brief, in support of her theme, stating that the issue raised by her was of first impression. Since the submission of her brief on February 21, 1958, however, several cases have reached this Court raising the same question, among them is the case of Paz Fores v. Irene Miranda, G.R. No. L12163, March 4, 1959 the facts of which are identical to those of the present one. This Court, speaking thru Mr. Justice J.B.L. Reyes, said . . . .. Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have repeatedly ruled (Cachero v. Manila Yellow Taxicab Co. Inc., G.R. No. L-8721, May 23, 1957; Necesito, et al. v. Paras, G.R. Nos. L-10605-10606, June 30, 1958), that moral damages are not recoverable in damage actions predicated on a breach of the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code, which provide as follows: "Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; xxx xxx xxx

"Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith." By contrasting the provisions of these two articles it immediately becomes apparent that: (a) In cases of breach of contract (including one transportation) proof of bad faith or fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and (b) That a breach of contract can not be considered included in the descriptive term 'analogous cases used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused by contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where there is a 'preexisting contractual relation between the parties.' 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 preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.' The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a passenger, in which case Art. 1764 makes the common carrier expressly subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the deceased passenger to 'demand moral damages for mental anguish by reason of the death of the deceased' (Necesito v. Paras, G.R. No. L-10605, Resolution on motion to reconsider, Sept. 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does not die, moral damages are not recoverable unless it is proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith on the part of the carrier; and in the case at bar there is no other evidence of such malice to support the award of moral damages by the Court of Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art. 2220 would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation. The Court of Appeals has invoked our rulings in Castro v. Acro Taxicab Co., G.R. No. L-49155, Dec. 14, 1948 and Layda v. Court of Appeals, G.R. No. L-4487, Jan. 29, 1952, but these doctrines were predicated upon our former law of damages, before judicial discretion in fixing them became limited by the express provisions of the new Civil Code (previously quoted). Hence, the aforesaid rulings are now inapplicable. Upon the other hand, the advantageous position of a party suing a carrier for breach of the contract of transportation explains, to some extent, the limitations imposed by the new Code on the amount of the recovery. The action for the breach of contract imposes on the defendant carrier a presumption of liability upon mere proof of injury to the passenger; the latter is relieved from the duty to establish the fault of the carrier or of his employees; and the burden is placed on the carrier to prove that it was due to an unforeseen event or to force majeure (Cangco v. Manila Railroad Co., 38 Phil. 768, 777). Moreover, the carrier, unlike in suits for quasidelict, may not escape liability by proving that it has exercised due diligence in the selection and supervision of 95

its employees (Art. 1759, new Civ. Code; Cangco v. Manila Railroad Co., supra; Prado v. Manila Elec. Co., 51 Phil. 900). The difference in conditions, defenses and proof, as well as the codal concept of quasi-delict as essentially extra-contractual negligence, compel us to differentiate between actions excontractu, and actions quasi ex delicto, and, prevent us from viewing the action for breach of contract as simultaneously embodying an action on tort. Neither can this action be taken as one to enforce on employer's liability under Art. 103 of the Rev. Penal Code, since the responsibility is not alleged to be subsidiary, nor is there on record any averment or proof that the driver of appellant was insolvent. In fact, he is not even made a party to the suit. It is also suggested that a carrier's violation of its engagement to safely transport the passenger involves a breach of the passenger's confidence, and therefore should be regarded as a breach of contract in bad faith, justifying recovery of moral damages under Art. 2220. This theory is untenable, for under it the carrier would always be deemed in bad faith, in every case its obligation to the passenger is infringed, and it would never be accountable for simple negligence; while under the law (Art. 1756), the presumption is that common carriers acted negligently (and not maliciously), and Art. 1762 speaks of negligence of the common carrier. xxx xxx xxx

"Art. 1756. In case of death of 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." "Art. 1762. The contributory negligence of the passenger does not bar recovery of damages for his death or injuries, if the proximate cause thereof is the negligence of the common carrier, but the amount of damages shall be equitably reduced." The distinction between fraud, bad faith or malice (in the sense of deliberate or wanton wrongdoing) and negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code. "Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation." It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract in bad faith. It is true that negligence may be occasionally so gross as to amount to malice; but that fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was breached through negligence of the carrier's employees. (See also Tamayo v. Aquino, L-12634 & L-12720, May 29, 1959; (56 O.G. #36, p. 5617); Cariaga v. L.T. Bus, L-11037, Dec. 29, 1960; Versoza v. Baytan L-14092, Apr. 29, 1960; Rex Taxicab Inc. v. Bautista, L-15392, Sept. 30, 1960). We gleaned, therefore, from the above mentioned decisions, (1) that the case of a passenger of a carrier who suffered physical injuries "because of the carrier's negligence (culpa contractual), cannot be considered in the descriptive expression 'analogous cases', used in Art. 2219"; and (2) that in cases of breach of contract (including one of transportation) proof of bad faith or fraud (dolus) i.e., wanton or deliberate injurious conduct is essential to justify an award of moral damages. There being no evidence of fraud, malice or bad faith, contemplated by law, on the part of the respondents, because the cause of the accident was merely the bursting of a tire while the bus was overspeeding, the cause of petitioner Nita Lira should fail, as far as moral damages is concerned. Moral damages was, therefore, correctly eliminated by the Court of Appeals. IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision of the Court of Appeals in G.R. Nos. L13328-29 and L-13358 (Court of Appeals resolution dated December 19, 1957), hereby is affirmed, without costs in this instance. G.R. No. 125031 January 24, 2000

PERMEX INC. and/or JANE (JEAN) PUNZALAN, PERSONNEL MANAGER and EDGAR LIM, MANAGER, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and EMMANUEL FILOTEO, respondents. QUISUMBING, J.: This special civil action for certiorari impugns the Resolution of the National Labor Relations Commission, Fifth Division, dated March 14, 1996, which reversed the decision of the Labor Arbiter in NLRC Case No. RAB-0900259-94, as well as its Resolution, dated April 17, 1996, denying the motion for reconsideration. Petitioner, Permex Producer and Exporter Corporation (hereinafter Permex), is a company engaged in the business of canning tuna and sardines, both for export and domestic consumption. Its office and factory are both located in Zamboanga City. 96

Co-petitioners Edgar Lim and Jean Punzalan1 are its Manager and Personnel Manager, respectively. Private respondent Emmanuel Filoteo, an employee of Permex, was terminated by petitioners allegedly for flagrantly and deliberately violating company rules and regulations. More specifically, he was dismissed allegedly for falsifying his daily time record. The pertinent facts, as found by both the NLRC and the Labor Arbiter, are as follows: Permex initially hired Emmanuel Filoteo on October 1, 1990, as a mechanic. Eventually, Filoteo was promoted to water treatment operator, a position he held until his termination on August 29, 1994. As water treatment operator, Filoteo did not have a fixed working schedule. His hours of work were dependent upon the company's shifting production schedules. On July 31, 1994, Filoteo was scheduled for the night shift from 7:00 p.m. to 7:00 a.m. the following day. That night he reported for work together with his co-workers, Felix Pelayo and Manuel Manzan. They logged in at the main gate and guardhouse of the petitioner's factory. Filoteo entered his time-in at 8:45 p.m. and since he was scheduled to work until 7:00 a.m. the next day, he wrote 7:00 a.m. in his scheduled time-out. This practice of indicating the time out at the moment they time in, was customarily done by most workers for convenience and practicality since at the end of their work shift, they were often tired and in a hurry to catch the available service vehicle for their trip home, so they often forgot to log out. There were times also when the Log Book was brought to the Office of the Personnel Manager and they could not enter their time out. The company had tolerated the practice.1wphi1.nt On the evening of July 31, 1994, at around 9:20 p.m., Filoteo, together with Pelayo, went to see the Assistant Production Manager to inquire if "butchering" of fish would be done that evening so they could start operating the boiler. They were advised to wait from 9:30 p.m. to 10:00 p.m. for confirmation. At or about 10:00 p.m., Filoteo and Pelayo went back to the Assistant Production Manager's office. There they were informed that there would be no "butchering" of tuna that night. Filoteo then sought permission to go home, which was granted. Filoteo then hurriedly got his things and dashed off to the exit gate to catch the service jeep provided by Permex. The next day, August 1, 1994, Filoteo reported for work as usual. He then remembered that he had to make a re-entry in his daily time record for the previous day. He proceeded to the Office of the Personnel Manager to retime his DTR entry. Later, he received a memorandum from the Assistant Personnel Officer asking him to explain, in writing, the entry he made in his DTR. Filoteo complied and submitted his written explanation that same evening. On August 8, 1994, Filoteo was suspended indefinitely. His explanation was found unsatisfactory. He was dismissed from employment on August 23, 1994. The dismissal arose from Filoteo's alleged violation of Article 2 of the company rules and regulations. The offense charged was entering in his DTR that he had worked from 8:45 p.m. of July 31, 1994 to 7:00 a.m. of August 1, 1994, when in fact he had worked only up to 10:00 p.m. On September 5, 1994, Filoteo filed a complaint for illegal dismissal with claims for separation pay, damages, and attorney's fees with the Labor Arbiter. His complaint was docketed as NLRC Case No. RAB 09-09-00259-94. On June 9, 1995, the Labor Arbiter dismissed the complaint for lack of merit. The decretal portion of the decision reads: WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing the complaint for lack of merit. However, for violation of compliance of (sic) procedural due process, the respondent is hereby ordered thru its Authorized Officer to pay complainant P1,000.00 by way of indemnity pay. Furthermore, complainant's claims for damages and attorney's fees be dismissed for lack of merit. SO ORDERED.2 Filoteo appealed to the NLRC. Finding merit therein, the Commission's Fifth Division promulgated its resolution, reversing and setting aside the Labor Arbiter's decision, by disposing as follows: WHEREFORE, the decision appealed from, is Vacated and Set Aside and a new one entered declaring the complainant to have been illegally dismissed by respondent company. Accordingly, respondent Permex, Inc., through its corporate officers, is hereby ordered and directed to pay complainant, Emmanuel Filoteo, separation pay at the rate of one (1) month salary for every year of service or in the equivalent of four (4) months separation pay and backwages effective August 23, 1994 up to the promulgation of this decision, inclusive of fringe benefits, if any. Further, respondent company is ordered to pay complainant moral and exemplary damages in the sum of P10,000.00 and P5,000.00, respectively, as well as attorney's fees equivalent to ten (10%) percent of the total monetary award after computation thereof at the execution stage. SO ORDERED.3 On April 3, 1996, petitioners filed a motion for reconsideration. It was denied for lack of merit by the NLRC in a resolution dated April 17, 1996. Hence, the present petition, assigning the following errors: I 97

PUBLIC RESPONDENT'S RESOLUTIONS ARE CONTRARY TO THE EVIDENCE ON RECORD AND ADMITTED FACTS. II PUBLIC RESPONDENT ERRED WHEN IT RULED THAT PRIVATE RESPONDENT WAS ILLEGALLY DISMISSED. III PUBLIC RESPONDENT ERRED WHEN IT AWARDED PRIVATE RESPONDENT SEPARATION PAY, BACKWAGES, DAMAGES AND ATTORNEY'S FEES SANS FACTUAL AND LEGAL BASIS. We will now consider these assigned errors to resolve the principal issue of whether or not private respondent was illegally terminated from his employment. Note that, firstly, petitioners seek a reversal of the public respondent's findings of the facts. But as the Court has repeatedly ruled the findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive upon the Court.4 For the Court is not a trier of facts.5 Second, resort to judicial review of the decisions of the NLRC in a special civil action for certiorari under Rule 65 of the Rules of Court, is limited only to the question generally of grave abuse of discretion amounting to lack or excess of jurisdiction.6 Thirdly, in this case, the NLRC's factual findings are supported by the evidence on record. We are therefore constrained not to disturb said findings of fact. Whether private respondent was illegally dismissed or not is governed by Article 282 of the Labor Code.7 To constitute a valid dismissal from employment, two requisites must concur: (a) the dismissal must be for any of the causes provided for in Article 282 of the Labor Code; and (b) the employee must be afforded an opportunity to be heard and defend himself.8 This means that an employer can terminate the services of an employee for just and valid causes, which must be supported by clear and convincing evidence.9 It also means that, procedurally, the employee must be given notice, with adequate opportunity to be heard,10 before he is notified of his actual dismissal for cause. In the present case, the NLRC found that the two-fold requirements for a valid dismissal were not satisfied by the petitioners. First, petitioner's charge of serious misconduct of falsification or deliberate misrepresentation was not supported by the evidence on the record contrary to Art. 277 of the Labor Code which provides that: Art. 277. Miscellaneous provisions. xxx xxx xxx

(b) Subject to the constitutional right of workers to security of tenure and their right to be protected against dismissal except for a just and authorized cause. . . The burden of proving that the termination was for a valid or authorized cause shall rest on the employer. . . Second, the private respondent was not afforded an opportunity to be heard. As found by the NLRC: . . . Aside from the fact that there was no valid and justifiable cause for his outright dismissal from the service, complainant's dismissal as correctly held by the Labor Arbiter was tainted with arbitrariness for failure of respondent company (petitioner herein) to observe procedural due process in effecting his dismissal. Admittedly, complainant was suspended indefinitely on August 8, 1994 and subsequently dismissed on August 23, 1994 without any formal investigation to enable complainant to defend himself.11 Such dismissal, in our view, was too harsh a penalty for an unintentional infraction, not to mention that it was his first offense committed without malice, and committed also by others who were not equally penalized.12 It is clear that the alleged false entry in private respondent's DTR was actually the result of having logged his scheduled time-out in advance on July 31, 1994. But it appears that when he timed in, he had no idea that his work schedule (night shift) would be cancelled. When it was confirmed at 10:00 p.m. that there was no "butchering" of tuna to be done, those who reported for work were allowed to go home, including private respondent. In fact, Filoteo even obtained permission to leave from the Assistant Production Manager. Considering the factory practice which management tolerated, we are persuaded that Filoteo, in his rush to catch the service vehicle, merely forgot to correct his initial time-out entry. Nothing is shown to prove he deliberately falsified his daily time record to deceive the company. The NLRC found that even management's own evidence reflected that a certain Felix Pelayo, a co-worker of private respondent, was also allowed to go home that night and like private respondent logged in advance 7:00 a.m. as his time-out. This supports Filoteo's claim that it was common practice among night-shift workers to log in their usual time-out in advance in the daily time record. Moreover, as early as Tide Water Associated Oil Co. v. Victory Employees and Laborers' Association, 85 Phil. 166 (1949), we ruled that, where a violation of company policy or breach of company rules and regulations was found to have been tolerated by management, then the same could not serve as a basis for termination. All told we see no reason to find that the NLRC gravely abused its discretion when it ruled that private respondent was illegally dismissed. Hence we concur in that ruling. Nonetheless, we find that the award of moral and exemplary damages by the public respondent is not in order and must be deleted. Moral damages are recoverable only where the dismissal of the employee was tainted by bad faith or fraud, or where it constituted an act oppressive to labor, and done in a manner contrary to morals, good customs, or public policy.13 Exemplary damages may be awarded only if the dismissal was done in a wanton, oppressive, or malevolent manner.14 None of these circumstances exist in the present case. 98

WHEREFORE, the petition is DENIED. The assailed resolutions of the National Labor Relations Commission dated March 14, 1996 and April 17, 1996 in NLRC CA No. M-002808-95 are AFFIRMED with MODIFICATION. Petitioner Permex, through its corporate officers, is ORDERED to pay jointly and solidarily the private respondent separation pay at the rate of one (1) month salary for every year of service as well as backwages effective August 23, 1994, inclusive of fringe benefits if any, with legal interest until fully paid, and attorney's fees equivalent to ten (10%) percent of the total monetary award computed at the execution stage hereof. The award of moral and exemplary damages, however, is DELETED. Costs against petitioners. SO ORDERED.

G.R. No. 156339

October 6, 2004

MS. VIOLETA YASOA, personally and as heir of deceased sister defendant PELAGIA YASOA and as attorneyinfact of her brothers ALEJANDRO and EUSTAQUIO, both YASOA and sisters: TERESITA YASOA BALLESTERO and ERLINDA YASOA TUGADI, and mother AUREA VDA. DE YASOA, petitioners, vs. RODENCIO and JOVENCIO, both surnamed DE RAMOS, respondents. CORONA, J.: Before this Court is a petition for review on certiorari seeking the reversal of the decision1 of the Court of Appeals dated June 14, 2002 and its resolution dated December 12, 2002 in CA-G.R. SP No. 69300. The records disclose that in November 1971, Aurea Yasoa and her son, Saturnino, went to the house of Jovencio de Ramos to ask for financial assistance in paying their loans to Philippine National Bank (PNB), otherwise their residential house and lot, covered by TCT No. T-32810, would be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the request. They agreed that, upon payment by Jovencio of the loan to PNB, half of Yasoas subject property would be sold to him. On December 29, 1971, Jovencio paid Aureas bank loan. As agreed upon, Aurea executed a deed of absolute sale in favor of Jovencio over half of the lot consisting of 123 square meters. Thereafter, the lot was surveyed and separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in the names of Aurea (TCT No. 73252) and Jovencio (TCT No. 73251). Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers Jovencio and Rodencio de Ramos on the ground that she was deceived by them when she asked for their assistance in 1971 concerning her mortgaged property. In her complaint, Aurea alleged that Rodencio asked her to sign a blank paper on the pretext that it would be used in the redemption of the mortgaged property. Aurea signed the blank paper without further inquiry because she trusted her nephew, Rodencio. Thereafter, they heard nothing from Rodencio and this prompted Nimpha Yasoa Bondoc to confront Rodencio but she was told that the title was still with the Register of Deeds. However, when Nimpha inquired from the Register of Deeds, she was shocked to find out that the lot had been divided into two, pursuant to a deed of sale apparently executed by Aurea in favor of Jovencio. Aurea averred that she never sold any portion of her property to Jovencio and never executed a deed of sale. Aurea was thus forced to seek the advice of Judge Enrique Almario, another relative, who suggested filing a complaint for estafa. On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the criminal complaint for estafa for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for damages on the ground of malicious prosecution with the Regional Trial Court of Sta. Cruz, Laguna, Branch 91,2 which was docketed as Civil Case No. SC-3230. They alleged that the filing of the estafa complaint against them was done with malice and it caused irreparable injury to their reputation, as Aurea knew fully well that she had already sold half of the property to Jovencio. On October 5, 2000, the trial court rendered a decision in favor of Jovencio and Rodencio. The dispositive portion stated: WHEREFORE, premises considered, finding that plaintiffs have established their case by preponderance of evidence, judgment is hereby rendered in their favor and against the defendants ordering the latter to pay the former as follows: A) P150,000.00 by way of moral damages; B) P30,000.00 as exemplary damages; C) P10,000.00 as attorneys fees incurred in defending themselves from the criminal complaint for estafa; D) P10,000.00 as attorneys fees and cost of litigation, and to pay the costs. There being no sufficient evidence established to prove the claim for actual damages the same is hereby dismissed. SO ORDERED.3 Petitioner Violeta Yasoa, personally and on behalf of her brothers and sisters and mother Aurea, filed a petition for certiorari under Rule 65 with the Court of Appeals which dismissed the same on June 14, 2002 on 99

the ground that petitioners availed of the wrong remedy. Their subsequent motion for reconsideration was likewise denied on December 12, 2000. Hence, the instant petition. We agree with the appellate court that the remedy availed of by petitioners was inappropriate as Rule 65 of the Rules of Court cannot be a substitute for a lost appeal,4 and that, in any event, petitioners are liable for malicious prosecution. The principal question to be resolved is whether the filing of the criminal complaint for estafa by petitioners against respondents constituted malicious prosecution. In this jurisdiction, the term "malicious prosecution" has been defined as "an action for damages brought by one against whom a criminal prosecution, civil suit, or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such prosecution, suit, or other proceeding in favor of the defendant therein." To constitute "malicious prosecution," there must be proof that the prosecution was prompted by a sinister design to vex or humiliate a person, and that it was initiated deliberately by the defendant knowing that his charges were false and groundless.5 Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution.6 In this case, however, there is reason to believe that a malicious intent was behind the filing of the complaint for estafa against respondents. The records show that the sale of the property was evidenced by a deed of sale duly notarized and registered with the local Register of Deeds. After the execution of the deed of sale, the property was surveyed and divided into two portions. Separate titles were then issued in the names of Aurea Yasoa (TCT No. 73252) and Jovencio de Ramos (TCT No. 73251). Since 1973, Jovencio had been paying the realty taxes of the portion registered in his name. In 1974, Aurea even requested Jovencio to use his portion as bond for the temporary release of her son who was charged with malicious mischief. Also, when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion covered by TCT No. 73252 was mortgaged. All these pieces of evidence indicate that Aurea had long acknowledged Jovencios ownership of half of the property. Furthermore, it was only in 1993 when petitioners decided to file the estafa complaint against respondents. If petitioners had honestly believed that they still owned the entire property, it would not have taken them 22 years to question Jovencios ownership of half of the property. The only conclusion that can be drawn from the circumstances is that Aurea knew all along that she was no longer the owner of Jovencios portion after having sold it to him way back in 1971. Likewise, other than petitioners bare allegations, no other evidence was presented by them to substantiate their claim. Malicious prosecution, both in criminal and civil cases, requires the elements of (1) malice and (2) absence of probable cause.7 These two elements are present in the present controversy. Petitioners were completely aware that Jovencio was the rightful owner of the lot covered by TCT No. 73251, clearly signifying that they were impelled by malice and avarice in bringing the unfounded action. That there was no probable cause at all for the filing of the estafa case against respondents led to the dismissal of the charges filed by petitioners with the Provincial Prosecutors Office in Siniloan, Laguna. Petitioners reliance on Drilon vs. Court of Appeals8 is misplaced. It must be noted that in Drilon, the investigating panel found that there was probable cause to hold private respondent Homobono Adaza for trial for the crime of rebellion with murder and frustrated murder. Thus, petitioner (now Senate President) Franklin Drilon could not be held liable for malicious prosecution as there existed probable cause for the criminal case. Here, the complaint for estafa was dismissed outright as the prosecutor did not find any probable cause against respondents. A suit for malicious prosecution will prosper where legal prosecution is carried out without probable cause. In sum, we find no reversible error on the part of the appellate court in dismissing the petition and in effect affirming the trial courts decision holding petitioners liable for damages for the malicious prosecution of respondents. WHEREFORE, the decision declaring petitioners liable for malicious prosecution is hereby AFFIRMED in toto. SO ORDERED. G.R. No. 156168 December 14, 2004

EQUITABLE BANKING CORPORATION, petitioner, vs. JOSE T. CALDERON, respondent. GARCIA, J.: Thru this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Equitable Banking Corporation (EBC), seeks the reversal and setting aside of the decision dated November 25, 20021 of the Court of Appeals in CA-G.R. CV No. 60016, which partially affirmed an earlier decision of the Regional Trial Court at Makati City, Branch 61, insofar as it grants moral damages and costs of suit to herein respondent, Jose T. Calderon. The decision under review recites the factual background of the case, as follows: Plaintiff-appellee [now respondent] Jose T. Calderon (Calderon for brevity), is a businessman engaged in several business activities here and abroad, either in his capacity as President or Chairman of the Board thereon. In 100

addition thereto, he is a stockholder of PLDT and a member of the Manila Polo Club, among others. He is a seasoned traveler, who travels at least seven times a year in the U.S., Europe and Asia. On the other hand, the defendant-appellant [now petitioner] Equitable Banking Corporation (EBC for brevity), is one of the leading commercial banking institutions in the Philippines, engaged in commercial banking, such as acceptance of deposits, extension of loans and credit card facilities, among others. xxx xxx xxx

Sometime in September 1984, Calderon applied and was issued an Equitable International Visa card (Visa card for brevity). The said Visa card can be used for both peso and dollar transactions within and outside the Philippines. The credit limit for the peso transaction is TWENTY THOUSAND (P20,000.00) PESOS; while in the dollar transactions, Calderon is required to maintain a dollar account with a minimum deposit of $3,000.00, the balance of dollar account shall serve as the credit limit. In April 1986, Calderon together with some reputable business friends and associates, went to Hongkong for business and pleasure trips. Specifically on 30 April 1986, Calderon accompanied by his friend, Ed De Leon went to Gucci Department Store located at the basement of the Peninsula Hotel (Hongkong). There and then, Calderon purchased several Gucci items (t-shirts, jackets, a pair of shoes, etc.). The cost of his total purchase amounted to HK$4,030.00 or equivalent to US$523.00. Instead of paying the said items in cash, he used his Visa card (No. 4921 6400 0001 9373) to effect payment thereof on credit. He then presented and gave his credit card to the saleslady who promptly referred it to the store cashier for verification. Shortly thereafter, the saleslady, in the presence of his friend, Ed De Leon and other shoppers of different nationalities, informed him that his Visa card was blacklisted. Calderon sought the reconfirmation of the status of his Visa card from the saleslady, but the latter simply did not honor it and even threatened to cut it into pieces with the use of a pair of scissors. Deeply embarrassed and humiliated, and in order to avoid further indignities, Calderon paid cash for the Gucci goods and items that he bought. Upon his return to the Philippines, and claiming that he suffered much torment and embarrassment on account of EBCs wrongful act of blacklisting/suspending his VISA credit card while at the Gucci store in Hongkong, Calderon filed with the Regional Trial Court at Makati City a complaint for damages2 against EBC. In its Answer,3 EBC denied any liability to Calderon, alleging that the latters credit card privileges for dollar transactions were earlier placed under suspension on account of Calderons prior use of the same card in excess of his credit limit, adding that Calderon failed to settle said prior credit purchase on due date, thereby causing his obligation to become past due. Corollarily, EBC asserts that Calderon also failed to maintain the required minimum deposit of $3,000.00. To expedite the direct examination of witnesses, the trial court required the parties to submit affidavits, in question-and-answer form, of their respective witnesses, to be sworn to in court, with cross examination to be made in open court. Eventually, in a decision dated October 10, 1997,4 the trial court, concluding that "defendant bank was negligent if not in bad faith, in suspending, or blacklisting plaintiffs credit card without notice or basis", rendered judgment in favor of Calderon, thus: WHEREFORE PREMISES ABOVE CONSIDERED, judgment is hereby rendered in favor of plaintiff as against defendant EQUITABLE BANKING CORPORATION, which is hereby ORDERED to pay plaintiff as follows: 1. the sum of US$150.00 as actual damages; 2. the sum of P200,000.00 as and by way of moral damages; 3. the amount of P100,000.00 as exemplary damages; 4. the sum of P100,000.00 as attorneys fees plus P500.00 per court hearing and 5. costs of suit. SO ORDERED. Therefrom, EBC went to the Court of Appeals (CA), whereat its recourse was docketed as CA G.R. CV No. 60016. After due proceedings, the CA, in a decision dated November 25, 2002,5 affirmed that of the trial court but only insofar as the awards of moral damages, the amount of which was even reduced, and the costs of suits are concerned. More specifically, the CA decision dispositively reads:6 WHEREFORE, in consideration of the foregoing disquisitions, the decision of the court a quo dated 10 October 1997 is AFFIRMED insofar as the awards of moral damages and costs of suit are concerned. However, anent the award of moral damages, the same is reduced to One Hundred Thousand (P100,000.00) Pesos. The rest of the awards are deleted. SO ORDERED. Evidently unwilling to accept a judgment short of complete exemption from any liability to Calderon, EBC is now with us via the instant petition on its lone submission that "THE COURT OF APPEALS ERRED IN HOLDING THAT 101

THE RESPONDENT IS ENTITLED TO MORAL DAMAGES NOTWITHSTANDING ITS FINDING THAT PETITIONERS ACTIONS HAVE NOT BEEN ATTENDED WITH ANY MALICE OR BAD FAITH."7 The petition is impressed with merit. In law, moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury.8 However, to be entitled to the award thereof, it is not enough that one merely suffered sleepless nights, mental anguish or serious anxiety as a result of the actuations of the other party.9 In Philippine Telegraph & Telephone Corporation vs. Court of Appeals,10 we have had the occasion to reiterate the conditions to be met in order that moral damages may be recovered, viz: An award of moral damages would require, 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 the damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned by Articles 2219 and 2220 of the Civil Code. Particularly, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith,11 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations.12 Verily, the breach must be wanton, reckless, malicious or in bad faith, oppressive or abusive.13 Here, the CA ruled, and rightly so, that no malice or bad faith attended petitioners dishonor of respondents credit card. For, as found no less by the same court, petitioner was justified in doing so under the provisions of its Credit Card Agreement14 with respondent, paragraph 3 of which states: xxx the CARDHOLDER agrees not to exceed his/her approved credit limit, otherwise, all charges incurred including charges incurred through the use of the extension CARD/S, if any in excess of credit limit shall become due and demandable and the credit privileges shall be automatically suspended without notice to the CARDHOLDER in accordance with Section 11 hereof. We are thus at a loss to understand why, despite its very own finding of absence of bad faith or malice on the part of the petitioner, the CA nonetheless adjudged it liable for moral damages to respondent. Quite evidently, in holding petitioner liable for moral damages, the CA justified the award on its assessment that EBC was negligent in not informing Calderon that his credit card was already suspended even before he left for Hongkong, ratiocinating that petitioners right to automatically suspend a cardholders privileges without notice should not have been indiscriminately used in the case of respondent because the latter has already paid his past obligations and has an existing dollar deposit in an amount more than the required minimum for credit card at the time he made his purchases in Hongkong. But, as explained by the petitioner in the memorandum it filed with this Court,15 which explanations were never controverted by respondent: "xxx prior to the incident in question (i.e., April 30, 1986 when the purchases at the Gucci store in Hongkong were made), respondent made credit purchases in Japan and Hongkong from August to September 1985 amounting to US$14,226.12, while only having a deposit of US$3,639.00 in his dollar account as evidenced by the pertinent monthly statement of respondents credit card transactions and his bank passbook, thus exceeding his credit limit; these purchases were accommodated by the petitioner on the condition that the amount needed to cover the same will be deposited in a few days as represented by respondents secretary and his companys general manager a certain Mrs. Zamora and Mr. F.R. Oliquiano; respondent however failed to make good on his commitment; later, respondent likewise failed to make the required deposit on the due date of the purchases as stated in the pertinent monthly statement of account; as a consequence thereof, his card privileges for dollar transactions were suspended; it was only four months later on 31 January 1986, that respondent deposited the sum of P14,501.89 in his dollar account to cover his purchases; the said amount however was not sufficient to maintain the required minimum dollar deposit of $3,000.00 as the respondents dollar deposit stood at only US$2,704.94 after satisfaction of his outstanding accounts; a day before he left for Hongkong, respondent made another deposit of US$14,000.00 in his dollar account but did not bother to request the petitioner for the reinstatement of his credit card privileges for dollar transactions, thus the same remained under suspension."16 The foregoing are based on the sworn affidavit of petitioners Collection Manager, a certain Lourdes Canlas, who was never cross examined by the respondent nor did the latter present any evidence to refute its veracity. Given the above, and with the express provision on automatic suspension without notice under paragraph 3, supra, of the parties Credit Card Agreement, there is simply no basis for holding petitioner negligent for not notifying respondent of the suspended status of his credit card privileges. It may be so that respondent, a day before he left for Hongkong, made a deposit of US$14,000.00 to his dollar account with petitioner. The sad reality, however, is that he never verified the status of his card before departing for Hongkong, much less requested petitioner to reinstate the same.17 And, certainly, respondent could not have justifiably assumed that petitioner must have reinstated his card by reason alone of his having deposited US$14,000.00 a day before he left for Hongkong. As issuer of the card, petitioner has the option to decide whether to reinstate or altogether terminate a credit card previously suspended on considerations which the petitioner deemed proper, not the least of which are the cardholders payment record, capacity to pay and compliance with any additional requirements imposed by it. That option, after all, is expressly embodied in the same Credit Card Agreement, paragraph 12 of which unmistakably states: 102

The issuer shall likewise have the option of reinstating the card holders privileges which have been terminated for any reason whatsoever upon submission of a new accomplished application form if required by the issuer and upon payment of an additional processing fee equivalent to annual fee.18 Even on the aspect of negligence, therefore, petitioner could not have been properly adjudged liable for moral damages. Unquestionably, respondent suffered damages as a result of the dishonor of his card. There is, however, a material distinction between damages and injury. To quote from our decision in BPI Express Card Corporation vs. Court of Appeals:19 Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria. In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff- a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the injury. (Emphasis supplied). In the situation in which respondent finds himself, his is a case of damnum absque injuria. We do not take issue with the appellate court in its observation that the Credit Card Agreement herein involved is a contract of adhesion, with the stipulations therein contained unilaterally prepared and imposed by the petitioner to prospective credit card holders on a take-it-or-leave-it basis. As said by us in Polotan, Sr. vs. Court of Appeals:20 A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his adhesion thereto giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. On the same breath, however, we have equally ruled that such a contract is "as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely."21 Moreover, the provision on automatic suspension without notice embodied in the same Credit Card Agreement is couched in clear and unambiguous term, not to say that the agreement itself was entered into by respondent who, by his own account, is a reputable businessman engaged in business activities here and abroad. On a final note, we emphasize that "moral damages are in the category of an award designed to compensate the claim for actual injury suffered and not to impose a penalty on the wrongdoer."22 WHEREFORE, the instant petition is hereby GRANTED and the decision under review REVERSED and SET ASIDE. SO ORDERED. G.R. No. 151783 July 8, 2003

VICTORINO SAVELLANO, VIRGINIA B. SAVELLANO and DEOGRACIAS B. SAVELLANO, petitioners, vs. NORTHWEST AIRLINES, respondent. PANGANIBAN, J.: When, as a result of engine malfunction, a commercial airline is unable to ferry its passengers on the original contracted route, it nonetheless has the duty of fulfilling its responsibility of carrying them to their contracted destination on the most convenient route possible. Failing in this, it cannot just unilaterally shuttle them, without their consent, to other routes or stopping places outside of the contracted sectors. However, moral damages cannot be awarded without proof of the carrier's bad faith, ill will, malice or wanton conduct. Neither will actual damages be granted in the absence of convincing and timely proof of loss. But nominal damages may be allowed under the circumstances in the case herein. The Case Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the June 29, 2001 Decision1 of the Court of Appeals2 (CA) in CA-GR CV No. 47165. The dispositive part of the Decision reads: "WHEREFORE, the judgment of July 29, 1994 is hereby REVERSED and SET ASIDE and another rendered DISMISSING [petitioners'] Complaint. No pronouncement as to costs."3 On the other hand, the dispositive portion of the Regional Trial Court (RTC) Decision4 that was reversed by the CA disposed thus: 103

"WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiffs and against the defendant, sentencing the latter to pay to the former, the following amounts: 1. P500,000.00 as actual damages; 2. P3,000,000.00 as moral damages; 3. P500,000.00 as exemplary damages; and 4. P500,000.00 as attorney's fees; "All such sums shall bear legal interest, i.e., 6% per annum pursuant to Article 2209 of the Civil Code (Reformina vs. Tomol, 139 SCRA 260) from the date of the filing of the complaint until fully paid. Costs against the x x x Northwest Airlines, Inc. "[Respondent's] counterclaim is ordered dismissed, for lack of merit."5 The Facts The facts of the case are summarized by the CA as follows: "[Petitioner] Victorino Savellano (Savellano) was a Cabugao, Ilocos Sur mayor for many terms, former Chairman of the Commission on Elections and Regional Trial Court (RTC) judge. His wife, [Petitioner] Virginia is a businesswoman and operates several rural banks in Ilocos Sur. The couple's x x x son [Petitioner] Deogracias was, at the time [of] the incident subject of the case, the Vice-Governor of Ilocos Sur. "On October 27, 1991, at around 1:45 p.m., [petitioners] departed from San Francisco, USA on board Northwest Airlines (NW) Flight 27, Business Class, bound for Manila, Philippines using the NW round-trip tickets which were issued at [respondent's] Manila ticketing office. "[Petitioners] were expected to arrive at the Ninoy Aquino International Airport (NAIA), Manila on October 29, 1991 (Manila time) or after twelve (12) hours of travel. "After being airborne for approximately two and one-half (2) hours or at about 4:15 p.m. of the same day, October 27, 1991 (Seattle, USA time), NW Flight 27's pilot made an emergency landing in Seattle after announcing that a fire had started in one of the plane's engines. "[Petitioners] and the other passengers proceeded to Gate 8 of the Seattle Airport where they were instructed to go home to Manila the next day, 'using the same boarding passes with the same seating arrangements'. "[Respondent's] shuttle bus thereafter brought all passengers to the Seattle Red Lion Hotel where they were billeted by, and at the expense of [respondent]. "[Petitioners] who were travelling as a family were assigned one room at the hotel. At around 12:00 midnight, they were awakened by a phone call from [respondent's] personnel who advised them to be at the Seattle Airport by 7:00 a.m. (Seattle time) the following day, October 28, 1991, for departure. To reach the airport on time, the NW shuttle bus fetched them early, making them skip the 6:30 a.m. hotel breakfast. "Prior to leaving the hotel, however, [petitioners] met at the lobby Col. Roberto Delfin, a Filipino co-passenger who was also travelling Business Class, who informed them that he and some passengers were leaving the next day, October 29, 1991, on board the same plane with the same itinerary. "On account of the 'engine failure' of the plane, [petitioner] Virginia developed nervousness. On getting wind of information that they were 'bumped off', she took 'valium' to calm her nerves and 'cough syrup' for the fever and colds she had developed during the trip. "When [petitioners] reached the Seattle Airport, [respondent's] ground stewardess belatedly advised them that instead of flying to Manila they would have to board NW Flight 94, a DC-10 plane, bound for a 3-hour flight to Los Angeles for a connecting flight to Manila. When [Petitioner] Savellano insisted theirs was a direct flight to Manila, the female ground stewardess just told them to hurry up as they were the last passengers to board. "In Los Angeles, [petitioners] and the other passengers became confused for while 'there was a sort of a board' which announced a Seoul-Bangkok flight, none was posted for a Manila flight. It was only after they complained to the NW personnel that the latter 'finally changed the board to include Manila.' "Before boarding NW Flight 23 for Manila via Seoul, [petitioners] encountered another problem. Their three small handcarried items which were not padlocked as they were merely closed by zippers were 'not allowed' to be placed inside the passengers' baggage compartments of the plane by an arrogant NW ground stewardess. "On [petitioners'] arrival at the NAIA, Manila where they saw Col. Delfin and his wife as well as the other passengers of the distressed flight who unlike them [petitioners] who left Seattle on October 28, 1991, left Seattle on October 29, 1991, they were teased for taking the longer and tiresome route to the Philippines. "When [petitioners] claimed their luggage at the baggage carousel, they discovered that the would-have-been handcarried items which were not allowed to be placed inside the passengers' baggage compartment had been ransacked and the contents thereof stolen. Virginia was later to claim having lost her diamond earrings costing P300,000.00, two (2) Perry Gan shoes worth US$250.00, four (4) watches costing US$40.00 each, two (2) 104

pieces of Tag Heuer watch and three (3) boxes of Elizabeth Arden [perfumes]. Deogracias, on the other hand, claimed to have lost two (2) pairs of Cole Haan shoes which he bought for his wife, and the clothes, camera, personal computer, and jeans he bought for his children. "By letter of November 22, 1991, [petitioners] through counsel demanded from [respondent] the amount of P3,000,000.00 as damages for what they claimed to be the humiliation and inconvenience they suffered in the hands of its personnel. [Respondent] did not accede to the demand, however, impelling [petitioners] to file a case for damages at the RTC of Cabugao, Ilocos Sur subject of the present appeal. "[Petitioners] concede that they were not downgraded in any of the flights on their way home to Manila. Their only complaint is that they suffered inconvenience, embarrassment, and humiliation for taking a longer route. "During the trial, the [RTC], on motion of [petitioners], issued on October 29, 1993 a subpoena duces tecum directing [respondent] to submit the passengers' manifest of the distressed flight from San Francisco to Tokyo on October 27, 1991, the passengers' manifest of the same distressed plane from Seattle to Tokyo which took off on October 29, 1991, and the passenger manifest of the substitute plane from Seattle to Los Angeles and Los Angeles to Seoul enroute to Manila which took off on October 28, 1991. "The subpoena duces tecum was served on December 1, 1993 but was not complied with, however, by [respondent], it proffering that its Minneapolis head office retains documents only for one year after which they are destroyed. " x x x Branch 24 of the RTC of Cabugao, Ilocos Sur rendered judgment in favor of [petitioners] x x x. "In granting moral and actual damages to [petitioners], the [RTC] credited [petitioners'] claim that they were excluded from the Seattle-Tokyo-Manila flight to accommodate several Japanese passengers bound for Japan. And as basis of its award of actual damages arising from the allegedly lost articles contained in the would-havebeen handcarried [luggage], the [RTC], passing on the lack of receipts covering the same, took judicial notice of the Filipinos' practice of often bringing home pasalubong for friends and relatives."6 Ruling of the Court of Appeals The CA ruled that petitioners had failed to show respondent's bad faith, negligence or malice in transporting them via the Seattle-Los Angeles-Seoul-Manila route. Hence, it held that there was no basis for the RTC's award of moral and exemplary damages. Neither did it find any reason to grant attorney's fees. It further ruled: "[Petitioners'] testimonial claim of losses is unsupported by any other evidence at all. It is odd and even contrary to human experience for [petitioner] Virginia not to have taken out a P300,000.00 pair of diamond earrings from an unlocked small luggage after such luggage was not allowed to be placed inside the passenger's baggage compartment, given the ease with which it could have been done as the small luggage was merely closed by zipper. Just as it is odd why no receipts for alleged purchases for valuable pasalubongs including Tag Huer watches, camera and personal computer were presented x x x "7 Thus, even the trial court's award of actual damages was reversed by the appellate court. Hence this Petition.8 Issues In their appeal, petitioners ask this Court to rule on these issues: " x x x [W]hether or not petitioners' discriminatory bump-off from NW Flight No. 0027 on 28 October 1991 (not the diversion of the distressed plane to Seattle the day before, i.e. NW Flight 27 on 27 October 1991) constitutes breach by respondent airline of its air-carriage contract? "And if so, whether or not petitioners are entitled to actual, moral and exemplary damages including attorney's fees as a consequence?"9 The Court's Ruling The Petition is partly meritorious. First Issue: Breach of Contract Petitioners' contract of carriage with Northwest was for the San Francisco-Tokyo (Narita)-Manila flights scheduled for October 27, 1991. This itinerary was not followed when the aircraft used for the first segment of the journey developed engine trouble. Petitioners stress that they are questioning, not the cancellation of the original itinerary, but its substitution, which they allegedly had not contracted for or agreed to. They insist that, like the other passengers of the distressed flight, they had the right to be placed on Flight 27, which had a connecting flight from Japan to Manila. They add that in being treated differently and shabbily, they were being discriminated against. A contract is the law between the parties.10 Thus, in determining whether petitioners' rights were violated, we must look into its provisions, which are printed on the airline ticket. Condition 9 in the agreement states that a " 105

x x x [c]arrier may without notice substitute alternate carriers or aircraft, and may alter or omit stopping places shown on the ticket in case of necessity. x x x ."11 The basis of the Complaint was the way respondent allegedly treated petitioners like puppets that could be shuttled to Manila via Los Angeles and Seoul without their consent.12 Undeniably, it did not take the time to explain how it would be meeting its contractual obligation to transport them to their final destination. Its employees merely hustled the confused petitioners into boarding one plane after another without giving the latter a choice from other courses of action that were available. It unilaterally decided on the most expedient way for them to reach their final destination. Passengers' Consent After an examination of the conditions printed on the airline ticket, we find nothing there authorizing Northwest to decide unilaterally, after the distressed flight landed in Seattle, what other stopping places petitioners should take and when they should fly. True, Condition 9 on the ticket allowed respondent to substitute alternate carriers or aircraft without notice. However, nothing there permits shuttling passengers without so much as a by your-leave to stopping places that they have not been previously notified of, much less agreed to or been prepared for. Substituting aircrafts or carriers without notice is entirely different from changing stopping places or connecting cities without notice. The ambiguities in the contract, being one of adhesion, should be construed against the party that caused its preparation in this case, respondent.13 Since the conditions enumerated on the ticket do not specifically allow it to change stopping places or to fly the passengers to alternate connecting cities without consulting them, then it must be construed to mean that such unilateral change was not permitted. Proof of Necessity of Alteration Furthermore, the change in petitioners' flight itinerary does not fall under the situation covered by the phrase "may alter or omit stopping places shown on the ticket in case of necessity."14 A case of necessity must first be proven. The burden of proving it necessarily fell on respondent. This responsibility it failed to discharge. Petitioners do not question the stop in Seattle, so we will not delve into this matter. The airplane engine trouble that developed during the flight bound for Tokyo from San Francisco definitely merited the "necessity" of landing the plane at some place for repair in this case, Seattle but not that of shuttling petitioners to other connecting points thereafter without their consent. Northwest failed to show a "case of necessity" for changing the stopping place from Tokyo to Los Angeles and Seoul. It is a fact that some of the passengers on the distressed flight continued on to the Tokyo (Narita) connecting place. No explanation whatsoever was given to petitioners as to why they were not similarly allowed to do so. It may be that the Northwest connecting flight from Seattle to Tokyo to Manila could no longer accommodate them. Yet it may also be that there were other carriers that could have accommodated them for these sectors of their journey, and whose route they might have preferred to the more circuitous one unilaterally chosen for them by respondent. In the absence of evidence as to the actual situation, the Court is hard pressed to determine if there was a "case of necessity" sanctioning the alteration of the Tokyo stopping place in the case of petitioners. Thus, we hold that in the absence of a demonstrated necessity thereof and their rerouting to Los Angeles and Seoul as stopping places without their consent, respondent committed a breach of the contract of carriage. Second Issue: Damages Being guilty of a breach of their contract, respondent may be held liable for damages suffered by petitioners in accordance with Articles 1170 and 2201 of the Civil Code, which state: "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." (Emphasis supplied) "Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted." "In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation." As a general rule, the factual findings of the CA when supported by substantial evidence on record are final and conclusive and may not be reviewed on appeal.15 An exception to this rule is when the lower court and the CA arrive at different factual findings.16 In this case, the trial court found the presence of bad faith and hence awarded moral and exemplary damages; while the CA found none and hence deleted the award of damages. Thus, the Court is now behooved to review the basis for sustaining the award or deletion of damages. Petitioners impute oppression, discrimination, recklessness and malevolence to respondent. We are not convinced. There is no persuasive evidence that they were maliciously singled out to fly the Seattle-Los Angeles-Seoul-Manila route. It appears that the passengers of the distressed flight were randomly divided into two groups. One group was made to take the Tokyo-Manila flight; and the other, the Los Angeles-Seoul-Manila flight. The selection of who was to take which flight was handled via the computer reservation system, which took into account only the passengers' final destination.17 106

The records show that respondent was impelled by sincere motives to get petitioners to their final destination by whatever was the most expeditious course in its judgment, if not in theirs. Though they claim that they were not accommodated on Flight 27 from Seattle to Tokyo because respondent had taken on Japanese passengers, petitioners failed to present convincing evidence to back this allegation. In the absence of convincing evidence, we cannot find respondent guilty of bad faith. Lopez, Zulueta and Ortigas Rulings Not Applicable Petitioners cite the cases of Lopez v. Pan American World Airways,18 Zulueta v. Pan American World Airways, Inc.19 and Ortigas Jr. v. Lufthansa German Airlines20 to support their claim for moral and exemplary damages. In Lopez, Honorable Fernando Lopez, then an incumbent senator and former Vice President of the Philippines together with his wife, his daughter and his son-in-law made first-class reservations with the Pan American World Airways on its Tokyo-San Francisco flight. The reservation having been confirmed, first-class tickets were subsequently issued in their favor. Mistakenly, however, defendant's agent cancelled the reservation. But expecting other cancellations before the flight scheduled a month later, the reservations supervisor decided to withhold the information from them, with the result that upon arrival in Tokyo, the Lopezes discovered they had no first-class accommodations. Thus, they were compelled to take the tourist class, just so the senator could be on time for his pressing engagements in the United States. In the light of these facts, the Court held there was a breach of the contract of carriage. The failure of the defendant to inform the plaintiffs on time that their reservations for the first class had long been cancelled was considered as the element of bad faith entitling them to moral damages for the contractual breach. According to the Court, such omission had placed them in a predicament that enabled the company to keep them as their passengers in the tourist class. Thus, the defendant was able to retain the business and to promote its self-interest at the expense of embarrassment, discomfort and humiliation on their part. In Zulueta, the passenger was coming home to Manila from Honolulu via a Pan-American flight. The plane had a stopover at Wake Island, where Rafael Zulueta went down to relieve himself. At flight time, he could not be located immediately. Upon being found, an altercation ensued between him and the Pan-Am employees. One of them remonstrated: "What in the hell do you think you are? Get on that plane." An exchange of angry words followed, and the pilot went to the extent of referring to the Zuluetas as "those monkeys." Subsequently, for his "belligerent" attitude, Rafael Zulueta was intentionally off-loaded and left at Wake Island with the prospect of being stranded there for a week, with malice aforethought. The Court awarded to the Zuluetas P500,000.00 as moral damages, P200,000.00 as exemplary damages and P75,000.00 as attorney's fees, apart from the actual damages of P5,502.85. In Ortigas, Francisco Ortigas Jr. had a confirmed and validated first-class ticket for Lufthansa's Flight No. 646. His reserved first class seat was, however, given to a Belgian. As a result, he was forced to take economy class on the same flight. Lufthansa succeeded in keeping him as a passenger by assuring him that he would be given first-class accommodation at the next stop. The proper arrangements therefor had supposedly been made already, when in truth such was not the case. In justifying the award of moral and exemplary damages, the Court explained. " x x x [W]hen it comes to contracts of common carriage, inattention and lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud which entitles the passenger to the award of moral damages in accordance with Article 2220 of the Civil Code. But in the instant case, the breach appears to be of graver nature, since the preference given to the Belgian passenger over plaintiff was done willfully and in wanton disregard of plaintiff's rights and his dignity as a human being and as a Filipino, who may not be discriminated against with impunity." To summarize, in Loipez despite sufficient time one month to inform the passengers of what had happened to their booking, the airline agent intentionally withheld that information from them. In Zulueta, the passenger was deliberately off-loaded after being gravely insulted during an altercation. And in Ortigas, the passenger was intentionally downgraded in favor of a European. These cases are different from and inapplicable to the present case. Here, there is no showing that the breach of contract was done with the same entrepreneurial motive or self-interest as in Lopez or with ill will as in Zulueta and Ortigas. Petitioners have failed to show convincingly that they were rerouted by respondent to Los Angeles and Seoul because of malice, profit motive or self-interest. Good faith is presumed, while bad faith is a matter of fact that needs to be proved21 by the party alleging it. In the absence of bad faith, ill will, malice or wanton conduct, respondent cannot be held liable for moral damages. Article 2219 of the Civil Code22 enumerates the instances in which moral damages may be awarded. In a breach of contract, such damages are not awarded if the defendant is not shown to have acted fraudulently or with malice or bad faith.23 Insufficient to warrant the award of moral damages is the fact that complainants suffered economic hardship, or that they worried and experienced mental anxiety.24 Neither are exemplary damages proper in the present case. The Civil Code provides that "[i]n contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner."25 Respondent has not been proven to have acted in that manner. At most, it can only be found guilty of having acted without first considering and weighing all other possible courses of actions it could have taken, and without consulting petitioners and securing their consent to the new stopping places. The unexpected and sudden requirement of having to arrange the connecting flights of every single person in the distressed plane in just a few hours, in addition to the Northwest employees' normal workload, was difficult 107

to satisfy perfectly. We cannot find respondent liable for exemplary damages for its imperfection of neglecting to consult with the passengers beforehand. Nevertheless, herein petitioners will not be totally deprived of compensation. Nominal damages may be awarded as provided by the Civil Code, from which we quote: "Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." "Art. 2222. The court may award nominal damages in every obligation arising from any source enumerated in article 1157, or in every case where any property right has been invaded." Nominal damages are recoverable if no actual, substantial or specific damages were shown to have resulted from the breach.26 The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances.27 In the present case, we must consider that petitioners suffered the inconvenience of having to wake up early after a bad night and having to miss breakfast; as well as the fact that they were business class passengers. They paid more for better service; thus, rushing them and making them miss their small comforts was not a trivial thing. We also consider their social and official status. Victorino Savellano was a former mayor, regional trial court judge and chairman of the Commission on Elections. Virginia B. Savellano was the president of five rural banks, and Deogracias Savellano was then the incumbent vice governor of Ilocos Sur. Hence, it will be proper to grant one hundred fifty thousand pesos (P150,000) as nominal damages28 to each of them, in order to vindicate and recognize their right29 to be notified and consulted before their contracted stopping place was changed. A claim for the alleged lost items from the baggage of petitioners cannot prosper, because they failed to give timely notice of the loss to respondent. The Conditions printed on the airline ticket plainly read: "2. Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw Convention unless such carriage is not `International carriage' as defined by that Convention. xxx xxx xxx

"7. Checked baggage will be delivered to bearer of the baggage check. In case of damage to baggage moving in international transportation complaint must be made in writing to carrier forthwith after discovery of damage, and at the latest, within 7 days from receipt; in case of delay, complaint must be made within 21 days from date the baggage was delivered. x x x ."30 The pertinent provisions of the Rules Relating to International Carriage by Air (Warsaw Convention) state: "Article 26 1. Receipt by the person entitled to delivery of luggage or goods without complaint is prima facie evidence that the same have been delivered in good condition and in accordance with the document of carriage. 2. In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within three days from the date of receipt in the case of luggage and seven days from date of receipt in the case of goods. In the case of delay the complaint must be made at the latest within fourteen days from the date on which the luggage or goods have been placed at his disposal. 3. Every complaint must be made in writing upon the document of carriage or by separate notice in writing dispatched within the times aforesaid. 4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part." After allegedly finding that their luggage had been ransacked, petitioners never lodged a complaint with any Northwest airport personnel. Neither did they mention the alleged loss of their valuables in their November 22, 1991 demand letter.31 Hence, in accordance with the parties' contract of carriage, no claim can be heard or admitted against respondent with respect to alleged damage to or loss of petitioners' baggage. WHEREFORE, the Petition is hereby PARTIALLY GRANTED, and the assailed Decision MODIFIED. Respondent is ORDERED to pay one hundred fifty thousand pesos (P150,000) to each of the three petitioners as nominal damages. No. pronouncement as to costs. SO ORDERED. G.R. No. 152122 July 30, 2003

CHINA AIRLINES, petitioner, vs. DANIEL CHIOK, respondent. PANGANIBAN, J.: A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For reasons of public interest and policy, the ticket-issuing airline acts as principal in a contract of carriage and is thus liable 108

for the acts and the omissions of any errant carrier to which it may have endorsed any sector of the entire, continuous trip. The Case Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to reverse the August 7, 2001 Decision2 and the February 7, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 45832. The challenged Decision disposed as follows: "WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31, Regional Trial Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is hereby MODIFIED by deleting that portion regarding defendants-appellants liabilities for the payment of the actual damages amounting to HK$14,128.80 and US$2,000.00 while all other respects are AFFIRMED. Costs against defendants-appellants."4 The assailed Resolution denied Petitioners Motion for Partial Reconsideration. The Facts The facts are narrated by the CA5 as follows: "On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China Airlines, Ltd. (CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air transportation covering Manila-TaipeiHongkong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL for brevity). "Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the] CAL ticket. Before he left for said trip, the trips covered by the ticket were pre-scheduled and confirmed by the former. When he arrived in Taipei, he went to the CAL office and confirmed his Hongkong to Manila trip on board PAL Flight No. PR 311. The CAL office attached a yellow sticker appropriately indicating that his flight status was OK. "When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight back to Manila. The PAL office confirmed his return trip on board Flight No. PR 311 and attached its own sticker. On November 24, 1981, Chiok proceeded to Hongkong International Airport for his return trip to Manila. However, upon reaching the PAL counter, Chiok saw a poster stating that PAL Flight No. PR 311 was cancelled because of a typhoon in Manila. He was then informed that all the confirmed ticket holders of PAL Flight No. PR 311 were automatically booked for its next flight, which was to leave the next day. He then informed PAL personnel that, being the founding director of the Philippine Polysterene Paper Corporation, he ha[d] to reach Manila on November 25, 1981 because of a business option which he ha[d] to execute on said date. "On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan (hereafter referred to as Lok) ha[d] taken and received Chioks plane ticket and his luggage. Lok called the attention of Carmen Chan (hereafter referred to as Carmen), PALs terminal supervisor, and informed the latter that Chioks name was not in the computer list of passengers. Subsequently, Carmen informed Chiok that his name did not appear in PALs computer list of passengers and therefore could not be permitted to board PAL Flight No. PR 307. "Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not allowed to take his flight. The latter then wrote the following, to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C KENNY AT 1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter sought to recover his luggage but found only 2 which were placed at the end of the passengers line. Realizing that his new Samsonite luggage was missing, which contained cosmetics worth HK$14,128.80, he complained to Carmen. "Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation officer, Carie Chao (hereafter referred to as Chao), who previously confirmed his flight back to Manila. Chao told Chiok that his name was on the list and pointed to the latter his computer number listed on the PAL confirmation sticker attached to his plane ticket, which number was R/MN62. "Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if this ticket could be used to book him for the said flight. The latter, once again, booked and confirmed the formers trip, this time on board PAL Flight No. PR 311 scheduled to depart that evening. Later, Chiok went to the PAL check-in counter and it was Carmen who attended to him. As this juncture, Chiok had already placed his travel documents, including his clutch bag, on top of the PAL check-in counter. "Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing commotion, Chiok lost his clutch bag containing the following, to wit: (a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-piece set of gold (18 carats) cross pens valued at P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with a garnet birthstone and diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading glasses. Subsequently, he was placed on stand-by and at around 7:30 p.m., PAL personnel informed him that he could now check-in. "Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for damages, against PAL and CAL, as defendants, docketed as Civil Case No. 82-13690, with Branch 31, Regional Trial Court, National Capital Judicial Region, Manila. "He alleged therein that despite several confirmations of his flight, defendant PAL refused to accommodate him in Flight No. 307, for which reason he lost the business option aforementioned. He also alleged that PALs personnel, specifically Carmen, ridiculed and humiliated him in the presence of so many people. Further, he alleged that defendants are solidarily liable for the damages he suffered, since one is the agent of the other."6

109

The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to respondent. It did not, however, rule on their respective cross-claims. It disposed as follows: "WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to jointly and severally pay: 1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the time of the loss of the luggage consisting of cosmetic products; 2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money; 3. P200,000.00 by way of moral damages; 4. P50,000.00 by way of exemplary damages or corrective damages; 5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and awarded in favor of the plaintiff; and 6. The costs of this proceedings."7 The two carriers appealed the RTC Decision to the CA. Ruling of the Court of Appeals Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely acted as an issuing agent for the ticket covering the Hong Kong-Manila leg of respondents journey. In support of its Decision, the CA quoted a purported ruling of this Court in KLM Royal Dutch Airlines v. Court of Appeals8 as follows: "Article 30 of the Warsaw providing that in case of transportation to be performed by various successive carriers, the passenger can take action only against the carrier who performed the transportation during which the accident or the delay occurred presupposes the occurrence of either an accident or delay in the course of the air trip, and does not apply if the damage is caused by the willful misconduct on the part of the carriers employee or agent acting within the scope of his employment. "It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of a condition which purportedly would excuse the carrier from liability, where the notice is written at the back of the ticket in letters so small that one has to use a magnifying glass to read the words. To preclude any doubt that the contract was fairly and freely agreed upon when the passenger accepted the passage ticket, the carrier who issued the ticket must inform the passenger of the conditions prescribed in the ticket or, in the very least, ascertain that the passenger read them before he accepted the passage ticket. Absent any showing that the carriers officials or employees discharged this responsibility to the passenger, the latter cannot be bound by the conditions by which the carrier assumed the role of a mere ticket-issuing agent for other airlines and limited its liability only to untoward occurrences in its own lines. "Where the passage tickets provide that the carriage to be performed thereunder by several successive carriers is to be regarded as a single operation, the carrier which issued the tickets for the entire trip in effect guaranteed to the passenger that the latter shall have sure space in the various carriers which would ferry him through the various segments of the trip, and the ticket-issuing carrier assumes full responsibility for the entire trip and shall be held accountable for the breach of that guaranty whether the breach occurred in its own lines or in those of the other carriers."9 On PALs appeal, the appellate court held that the carrier had reneged on its obligation to transport respondent when, in spite of the confirmations he had secured for Flight PR 311, his name did not appear in the computerized list of passengers. Ruling that the airlines negligence was the proximate cause of his excoriating experience, the appellate court sustained the award of moral and exemplary damages. The CA, however, deleted the RTCs award of actual damages amounting to HK$14,128.80 and US$2,000.00, because the lost piece of luggage and clutch bag had not actually been "checked in" or delivered to PAL for transportation to Manila. On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the appellate court had erroneously relied on a mere syllabus of KLM v. CA, not on the actual ruling therein. Moreover, it argued that respondent was fully aware that the booking for the PAL sector had been made only upon his request; and that only PAL, not CAL, was liable for the actual carriage of that segment. Petitioner likewise prayed for a ruling on its cross-claim against PAL, inasmuch as the latters employees had acted negligently, as found by the trial court. Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter or issue that would warrant a modification or a reversal of the Decision. As to the alleged misquotation, the CA held that while the portion it had cited appeared to be different from the wording of the actual ruling, the variance was "more apparent than real since the difference [was] only in form and not in substance."10 CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution, this Court denied PALs appeal, docketed as GR No. 149544, for failure to serve the CA a copy of the Petition as required by Section 3, Rule 45, in relation to Section 5(d) of Rule 56 and paragraph 2 of Revised Circular No. 1-88 of this Court. PALs Motion for Reconsideration was denied with finality on January 21, 2002. Only the appeal of CAL11 remains in this Court. 110

Issues In its Memorandum, petitioner raises the following issues for the Courts consideration: "1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner on the basis of a misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in magnifying its misconduct by denying the petitioners Motion for Reconsideration on a mere syllabus, unofficial at that. "2. The Court of Appeals committed an error of law when it did not apply applicable precedents on the case before it. "3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the petitioner."12 The Courts Ruling The Petition is not meritorious. First Issue: Alleged Judicial Misconduct Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against the two airlines on an unofficial syllabus of this Courts ruling in KLM v. CA. Moreover, such misconduct was allegedly aggravated when the CA, in an attempt to justify its action, held that the difference between the actual ruling and the syllabus was "more apparent than real."13 We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of our ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court accurately.14 By the same token, judges should do no less by strictly abiding by this rule when they quote cases that support their judgments and decisions. Canon 3 of the Code of Judicial Conduct enjoins them to perform official duties diligently by being faithful to the law and maintaining their professional competence. However, since this case is not administrative in nature, we cannot rule on the CA justices administrative liability, if any, for this lapse. First, due process requires that in administrative proceedings, the respondents must first be given an opportunity to be heard before sanctions can be imposed. Second, the present action is an appeal from the CAs Decision, not an administrative case against the magistrates concerned. These two suits are independent of and separate from each other and cannot be mixed in the same proceedings. By merely including the lapse as an assigned error here without any adequate and proper administrative case therefor, petitioner cannot expect the imposition of an administrative sanction. In the case at bar, we can only determine whether the error in quotation would be sufficient to reverse or modify the CA Decision. Applicability of KLM v. CA In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour included a Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus. At the KLM office in Frankfurt, Germany, they obtained a confirmation from Aer Lingus of their seat reservations on its Flight 861. On the day of their departure, however, the airline rudely off-loaded them. When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by arguing that its liability for damages was limited only to occurrences on its own sectors. To support its argument, it cited Article 30 of the Warsaw Convention, stating that when transportation was to be performed by various successive carriers, the passenger could take action only against the carrier that had performed the transportation when the accident or delay occurred. In holding KLM liable for damages, we ruled as follows: "1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be sustained. That article presupposes the occurrence of either an accident or a delay, neither of which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its manager there, refused to transport the respondents to their planned and contracted destination. "2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals that condition was printed in letters so small that one would have to use a magnifying glass to read the words. Under the circumstances, it would be unfair and inequitable to charge the respondents with automatic knowledge or notice of the said condition so as to preclude any doubt that it was fairly and freely agreed upon by the respondents when they accepted the passage tickets issued to them by the KLM. As the airline which issued those tickets with the knowledge that the respondents would be flown on the various legs of their journey by different air carriers, the KLM was chargeable with the duty and responsibility of specifically informing the respondents of conditions prescribed in their tickets or, in the very least, to ascertain that the respondents read them before they accepted their passage tickets. A thorough search of the record, however, inexplicably fails to show that any effort was exerted by the KLM officials or employees to discharge in a proper manner this responsibility to the respondents. Consequently, we hold that the respondents cannot be bound by the provision in question by 111

which KLM unilaterally assumed the role of a mere ticket-issuing agent for other airlines and limited its liability only to untoward occurrences on its own lines. "3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the respondents provide that the carriage to be performed thereunder by several successive carriers is to be regarded as a single operation, which is diametrically incompatible with the theory of the KLM that the respondents entered into a series of independent contracts with the carriers which took them on the various segments of their trip. This position of KLM we reject. The respondents dealt exclusively with the KLM which issued them tickets for their entire trip and which in effect guaranteed to them that they would have sure space in Aer Lingus flight 861. The respondents, under that assurance of the internationally prestigious KLM, naturally had the right to expect that their tickets would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed and in effect guaranteed the performance of its principal engagement to carry out the respondents' scheduled itinerary previously and mutually agreed upon between the parties. "4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an official of the Aer Lingus which the KLM had engaged to transport the respondents on the Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for the protection of a contracting party who occupies an inferior position with respect to the other contracting party, that the KLM should be held responsible for the abuse, injury and embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer Lingus."15 In the instant case, the CA ruled that under the contract of transportation, petitioner -- as the ticket-issuing carrier (like KLM) -- was liable regardless of the fact that PAL was to perform or had performed the actual carriage. It elucidated on this point as follows: "By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract of carriage with [respondent] and remains to be so, regardless of those instances when actual carriage was to be performed by another carrier. The issuance of a confirmed CAL ticket in favor of [respondent] covering his entire trip abroad concretely attests to this. This also serves as proof that defendant-appellant CAL, in effect guaranteed that the carrier, such as defendant-appellant PAL would honor his ticket, assure him of a space therein and transport him on a particular segment of his trip."16 Notwithstanding the errant quotation, we have found after careful deliberation that the assailed Decision is supported in substance by KLM v. CA. The misquotation by the CA cannot serve as basis for the reversal of its ruling. Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and the bench to refer to and quote from the official repository of our decisions, the Philippine Reports, whenever practicable.17 In the absence of this primary source, which is still being updated, they may resort to unofficial sources like the SCRA.18 We remind them that the Courts ponencia, when used to support a judgment or ruling, should be quoted accurately.19 Second Issue: Liability of the Ticket-Issuing Airline We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA Decision must be annulled, not only because it was rooted on an erroneous quotation, but also because it disregarded jurisprudence, notably China Airlines v. Intermediate Appellate Court20 and China Airlines v. Court of Appeals.21 Jurisprudence Supports CA Decision It is significant to note that the contract of air transportation was between petitioner and respondent, with the former endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage has always been treated in this jurisdiction as a single operation. This jurisprudential rule is supported by the Warsaw Convention,22 to which the Philippines is a party, and by the existing practices of the International Air Transport Association (IATA). Article 1, Section 3 of the Warsaw Convention states: "Transportation to be performed by several successive air carriers shall be deemed, for the purposes of this Convention, to be one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a single contract or of a series of contracts, and it shall not lose its international character merely because one contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty, suzerainty, mandate, or authority of the same High Contracting Party."23 Article 15 of IATA-Recommended Practice similarly provides: "Carriage to be performed by several successive carriers under one ticket, or under a ticket and any conjunction ticket issued therewith, is regarded as a single operation." In American Airlines v. Court of Appeals,24 we have noted that under a general pool partnership agreement, the ticket-issuing airline is the principal in a contract of carriage, while the endorsee-airline is the agent. "x x x Members of the IATA are under a general pool partnership agreement wherein they act as agent of each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the same time 112

provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world. Booking and reservation among airline members are allowed even by telephone and it has become an accepted practice among them. A member airline which enters into a contract of carriage consisting of a series of trips to be performed by different carriers is authorized to receive the fare for the whole trip and through the required process of interline settlement of accounts by way of the IATA clearing house an airline is duly compensated for the segment of the trip serviced. Thus, when the petitioner accepted the unused portion of the conjunction tickets, entered it in the IATA clearing house and undertook to transport the private respondent over the route covered by the unused portion of the conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its commitment under the IATA pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the segment of the trip the petitioner agreed to undertake. As such, the petitioner thereby assumed the obligation to take the place of the carrier originally designated in the original conjunction ticket. The petitioners argument that it is not a designated carrier in the original conjunction tickets and that it issued its own ticket is not decisive of its liability. The new ticket was simply a replacement for the unused portion of the conjunction ticket, both tickets being for the same amount of US$ 2,760 and having the same points of departure and destination. By constituting itself as an agent of the principal carrier the petitioners undertaking should be taken as part of a single operation under the contract of carriage executed by the private respondent and Singapore Airlines in Manila."25 Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of Appeals26 was held liable, even when the breach of contract had occurred, not on its own flight, but on that of another airline. The Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals,27 in which we had held that the obligation of the ticket-issuing airline remained and did not cease, regardless of the fact that another airline had undertaken to carry the passengers to one of their destinations. In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of CAL. In the same way that we ruled against British Airways and Lufthansa in the aforementioned cases, we also rule that CAL cannot evade liability to respondent, even though it may have been only a ticket issuer for the Hong KongManila sector. Moral and Exemplary Damages Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of the factual basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of the CA affirming those of the RTC will not be disturbed by this Court.28 Indeed, the Supreme Court is not a trier of facts. As a rule also, only questions of law -- as in the present recourse -- may be raised in petitions for review under Rule 45. Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances contemplated in Articles 1764 and 2220 of the Civil Code, which we quote: "Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. xxx xxx xxx

"Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith." (Italics supplied) There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or its agent (PAL) is guilty of bad faith that would entitle respondent to moral damages. In Lopez v. Pan American World Airways,29 we defined bad faith as a breach of a known duty through some motive of interest or ill will. In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong to Manila. That duty arose when its agent confirmed his reservation for Flight PR 311,30 and it became demandable when he presented himself for the trip on November 24, 1981. It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on November 24, 1981. This fact, however, did not terminate the carriers responsibility to its passengers. PAL voluntarily obligated itself to automatically transfer all confirmed passengers of PR 311 to the next available flight, PR 307, on the following day.31 That responsibility was subsisting when respondent, holding a confirmed ticket for the former flight, presented himself for the latter. The records amply establish that he secured repeated confirmations of his PR 311 flight on November 24, 1981. Hence, he had every reason to expect that he would be put on the replacement flight as a confirmed passenger. Instead, he was harangued and prevented from boarding the original and the replacement flights. Thus, PAL breached its duty to transport him. After he had been directed to pay the terminal fee, his pieces of luggage were removed from the weighing-in counter despite his protestations.32 It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in Manila on November 25, 1981, and to the likelihood that his business affairs in the city would be jeopardized because of a mistake on their part. It was that mistake that had caused the omission of his name from the passenger list despite his confirmed flight ticket. By merely looking at his ticket and validation sticker, it is evident that the glitch was the airlines fault. However, no serious attempt was made by PAL to secure the all-important 113

transportation of respondent to Manila on the following day. To make matters worse, PAL allowed a group of non-revenue passengers, who had no confirmed tickets or reservations, to board Flight PR 307.33 Time and time again, this Court has stressed that the business of common carriers is imbued with public interest and duty; therefore, the law governing them imposes an exacting standard.34 In Singson v. Court of Appeals,35 we said: "x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly constitutive of gross negligence, recklessness and wanton disregard of the rights of the latter, [are] acts evidently indistinguishable or no different from fraud, malice and bad faith. As the rule now stands, where in breaching the contract of carriage the defendant airline is shown to have acted fraudulently, with malice or in bad faith, the award of moral and exemplary damages, in addition to actual damages, is proper."36 (Italics supplied) In Saludo v. Court of Appeals,37 the Court reminded airline companies that due to the nature of their business, they must not merely give cursory instructions to their personnel to be more accommodating towards customers, passengers and the general public; they must require them to be so. The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary standard of care that the law requires of common carriers.38 As narrated in Chans oral deposition,39 the manner in which the airline discharged its responsibility to respondent and its other passengers manifested a lack of the requisite diligence and due regard for their welfare. The pertinent portions of the Oral Deposition are reproduced as follows: "Q Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon and naturally the passengers on said flight had to be accommodated on the first flight the following day or the first flight subsequently. [W]ill you tell the Honorable Deposition Officer the procedure followed by Philippine Airlines in the handling of passengers of cancelled flight[s] like that of PR 311 which was cancelled due to [a] typhoon? A The procedure will be: all the confirmed passengers from [PR] 311 24th November [are] automatically transfer[red] to [PR] 307, 25th November[,] as a protection for all disconfirmed passengers. Q Aside from this procedure[,] what do you do with the passengers on the cancelled flight who are expected to check-in on the flights if this flight is cancelled or not operating due to typhoon or other reasons[?] In other words, are they not notified of the cancellation? A I think all these passengers were not notified because of a typhoon and Philippine Airlines Reservation were [sic] not able to call every passenger by phone. Atty. Fruto: Q A Did you say were not notified? I believe they were not, but believe me, I was on day-off.

Atty. Calica: Q Per procedure, what should have been done by Reservations Office when a flight is cancelled for one reason or another? A If there is enough time, of course, Reservations Office x x x call[s] up all the passengers and tell[s] them the reason. But if there [is] no time[,] then the Reservations Office will not be able to do that."40 xxx xxx xxx

"Q I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A and A-1. Will you please go over this ticket and tell the court whether this is the ticket that was used precisely by Mr. Chiok when he checked-in at [F]light 307, 25 November 81? A Q A [Are you] now asking me whether he used this ticket with this sticker? No, no, no. That was the ticket he used. Yes, [are you] asking me whether I saw this ticket?

Atty. Fruto: Yes. A I believe I saw it.

Q You saw it, O.K. Now of course you will agree with me Miss Chan that this yellow stub here which has been marked as Exh. A-1-A, show[s] that the status on flight 311, 24th November, is O.K., correct? A Yes.

Q You agree with me. And you will also agree with me that in this ticket of flight 311, on this, another sticker Exh. A-1-B for 24 November is O.K.? A Q May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation. O.K. Miss Chan what do you understand by these entries here R bar M N 6 V?41 114

This is what we call a computer reference.

Q I see. This is a computer reference showing that the name of Mr. Chiok has been entered in Philippine Airlines computer, and this is his computer number. A Yes.

Q Now you stated in your answer to the procedure taken, that all confirmed passengers on flight 311, 24 November[,] were automatically transferred to 307 as a protection for the passengers, correct? A Correct.

Q So that since following the O.K. status of Mr. Chioks reservation [on] flight 311, [he] was also automatically transferred to flight 307 the following day? A Should be.

Q Should be. O.K. Now do you remember how many passengers x x x were transferred from flight 311, 24 November to flight 307, 25 November 81? A I can only give you a very brief idea because that was supposed to be air bus so it should be able to accommodate 246 people; but how many [exactly], I dont know."42 xxx xxx xxx

"Q So, between six and eight oclock in the evening of 25 November 81, Mr. Chiok already told you that he just [came] from the Swire Building where Philippine Airlines had [its] offices and that he told you that his space for 311 25 November 81 was confirmed? A Q A Q there? Yes. That is what he told you. He insisted on that flight? Yes. And did you not try to call up Swire Building-- Philippine Airlines and verify indeed if Mr. Chiok was

A Swire House building is not directly under Philippine Airlines. it is just an agency for selling Philippine Airlines ticket. And besides around six o clock theyre close[d] in Central. Q So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for and on behalf of Philippine Airlines and also... A Q A Yes. And also to confirm spaces for and on behalf of Philippine Airlines. Yes."43

Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate Appellate Court,44 which petitioner urges us to adopt. In that case, the breach of contract and the negligence of the carrier in effecting the immediate flight connection for therein private respondent was incurred in good faith.45 Having found no gross negligence or recklessness, we thereby deleted the award of moral and exemplary damages against it.46 This Courts 1992 ruling in China Airlines v. Court of Appeals47 is likewise inapplicable. In that case, we found no bad faith or malice in the airlines breach of its contractual obligation.48 We held that, as shown by the flow of telexes from one of the airlines offices to the others, petitioner therein had exercised diligent efforts in assisting the private respondent change his flight schedule. In the instant case, petitioner failed to exhibit the same care and sensitivity to respondents needs. In Singson v. Court of Appeals,49 we said: "x x x Although the rule is that moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in the death of a passenger, or where the carrier is guilty of fraud or bad faith, there are situations where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith, in which case, the passenger likewise becomes entitled to recover moral damages." In the present case, we stress that respondent had repeatedly secured confirmations of his PR 311 flight on November 24, 1981 -- initially from CAL and subsequently from the PAL office in Hong Kong. The status of this flight was marked "OK" on a validating sticker placed on his ticket. That sticker also contained the entry "RMN6V." Ms Chan explicitly acknowledged that such entry was a computer reference that meant that respondents name had been entered in PALs computer.

115

Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by PALs witness, he should have been automatically transferred to and allowed to board Flight 307 the following day. Clearly resulting from negligence on the part of PAL was its claim that his name was not included in its list of passengers for the November 24, 1981 PR 311 flight and, consequently, in the list of the replacement flight PR 307. Since he had secured confirmation of his flight -- not only once, but twice -- by personally going to the carriers offices where he was consistently assured of a seat thereon -- PALs negligence was so gross and reckless that it amounted to bad faith. In view of the foregoing, we rule that moral and exemplary50 damages were properly awarded by the lower courts.51 Third Issue: Propriety of the Cross-Claim We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner submits that the CA should have ruled on the cross-claim, considering that the RTC had found that it was PALs employees who had acted negligently. Section 8 of Rule 6 of the Rules of Court reads: "Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein. Such crossclaim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant." For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v. CA,52 the Court stated: "x x x. An indispensable party is one whose interest will be affected by the courts action in the litigation, and without whom no final determination of the case can be had. The partys interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties that his legal presence as a party to the proceeding is an absolute necessity. In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable. xxx xxx xxx

"Without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot attain real finality." PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it is imperative and in accordance with due process and fair play that PAL should have been impleaded as a party in the present proceedings, before this Court can make a final ruling on this matter. Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner failed to include the airline in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to make any ruling on the cross-claim in the present Petition would not be legally feasible because PAL, not being a party in the present case, cannot be bound thereby.53 WHEREFORE, the Petition is DENIED. Costs against petitioner. SO ORDERED. e. Latest rule on corporations G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees. Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant. Tomas Besa and Jose B. Galang for defendants-appellees. ANGELES, J.: An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs of suit. In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated as follows: 1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more 116

than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels unlawful; 2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of P298.54 as expenses of the foreclosure sale; 3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already settled its indebtedness to the PNB at the time the sale was effected, but also for the reason that the said sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage contract; 4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and 5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees. The antecedent facts of the case, as found by the trial court, are as follows: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant PNB and the former offered real estate, machinery, logging and transportation equipments as collaterals. The application, however, was approved for a loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the aforementioned municipality. On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which would be on July 31, 1961. On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the plaintiff and so on the said date, the latter executed another promissory note wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961. The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958. On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the parcel of land, together with the improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground floor of the Court House in Daet, Camarines Norte. On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated. On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban, Province of Camarines Norte. On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts, should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and the plaintiff would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an important negotiation was then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate said obligation. 117

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the plaintiff for its information and guidance. The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof was sent to the plaintiff. In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila. In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December 14, 1961. On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging the remittance of P738.59 with the advice, however, that as of that date the balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did not include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon and guarding fees, would be made. On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo. In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff giving it priority to repurchase the chattels acquired by the former at public auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of redemption and that it apply for the condonation of the attorney's fees. The plaintiff did not follow the advice but on the contrary it made known of its intention to file appropriate action or actions for the protection of its interests. On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was at first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk that he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound two truckloads of equipment. In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the "chattels" without court order, with the information that the company was then filing an action for damages against the PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok. Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal. We shall discuss the various points raised in appellant's brief in seriatim. The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is contended that its obligation under the terms of the two promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real property was effected, and not P58,213.51 as found by the trial court. There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as 118

per promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum from the respective date of said notes "until paid". In the statement of account of the appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of these compounded amounts charged additional delinquency interest on them up to September 22, 1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from the time the various amortizations of the loan became due until the real estate mortgage executed to secure the loan was extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of the new Civil Code which provides that interest due shall earn legal interest only from the time it is judicially demanded, and of Article 1959 of the same code which ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell into error when it awarded interest on accrued interests, without any agreement to that effect and before they had been judicially demanded. Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains that the same has no basis, factual or legal, and should not have been awarded. It likewise decries the award of attorney's fees which, according to the appellant, should not be deducted from the proceeds of the sale of the real property, not only because there is no express agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the said extrajudicial foreclosure under consideration. There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court said: The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence how much was the expenses of the foreclosure sale although from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54. There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as expenses of the extra-judicial foreclosure sale. The court below committed error in applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the absence of evidence on record to support it. 1 It is true, as pointed out by the appellee bank, that courts should take judicial notice of the fees provided for by law which need not be proved; but in the absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection with the extrajudicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for two day's work one for the preparation of the necessary notices of sale, and the other for conducting the auction sale and issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be set aside. But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily be revealed by an examination of the pertinent provision of the mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia: . . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all documents and to perform all acts requisite and necessary to accomplish said purpose and to appoint its substitute as such attorney-in-fact with the same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold possession of the same and the rents, benefits and profits derived from the mortgaged property before the sale, less the costs and expenses of the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00 exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized as rents and profits derived from the mortgaged property or from the proceeds realized from the sale of the said property and this mortgage shall likewise stand as security therefor. ... We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of the second sentence, a reading of the whole context of the stipulation would readily show that it logically refers to 119

extra-judicial foreclosure found in the first sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and pointed out by the appellant by reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the agreement. It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the extra-judicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNB did not actually spend anything by way of attorney's fees in connection with the sale. In support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither paid nor incurred any obligation to pay an attorney in connection with the foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not be allowed when the attorney conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary for all the legal services performed by him for the corporation. 3 These authorities are indeed enlightening; but they should not be applied in this case. The very same authority first cited suggests that said principle is not absolute, for there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone, considering the express agreement between the parties in the mortgage contract under which appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable, considering that all that the branch attorney of the said bank did in connection with the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte requesting the latter to sell the same in accordance with the provisions of Act 3135. The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection to it. Thus, this Court has explained: But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the terms, no matter how injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the amount due him under his contract without a deduction of the expenses caused by the delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source of speculative profit at the expense of the debtor. Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the payment of compensation for any other services. By express provision of section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his services; and even when an express contract is made the court can ignore it and limit the recovery to reasonable compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule from that announced in section 1091 of the Civil Code with reference to the obligation of contracts in general, where it is said that such obligation has the force of law between the contracting parties. Had the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note here in suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is obviously far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable. In order to enable the court to ignore an express contract for an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or unconscionable. 4 Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the court in administering impartial justice between the parties, and hence, the fees should be subject to judicial control. Nor should it be ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is between the debtor and the creditor, and not between attorney and client. As court have power to fix the fee as between attorney and client, it must necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6 In determining the compensation of an attorney, the following circumstances should be considered: the amount and character of the services rendered; the responsibility imposed; the amount of money or the value of the property affected by the controversy, or involved in the employment; the skill and experience called for in the performance of the service; the professional standing of the attorney; the results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that an attorney may properly charge a much larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the work aforementioned. The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to 120

herein appellee bank. Again, we find merit in this claim. From the foregoing discussion of the first two errors assigned, and for purposes of determining the total obligation of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the following illustration in support of this conclusion: A. I. Principal Loan (a) Promissory note dated August 2, 1956 P27,500.00 (1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78 (b) Promissory note dated October 19, 1956 P15,500.00 (1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08 II. Sheriff's fees [for two (2) day's work] 10.00 III. Attorney's fee 1,000.00 Total obligation as of Nov. 21, 1961 P57,495.86 B. I. II. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 Additional amount remitted to the PNB on Dec. 18, 1961 P57,646.59 P56,908.00 738.59

Total amount of Payment made to PNB as of Dec. 18, 1961 Deduct: Total obligation to the PNB P57,495.86 Excess Payment to the PNB P 150.73 ========

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we take into consideration the fact that the PNB must have been led to believe that the stipulated 10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on other grounds. That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date. These letters were followed by another letter to the appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage which provides as follows: (i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto agree that the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of Manila, as the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and fees allowed by law and of other expenses incurred in connection with the said foreclosure. [Emphasis supplied] Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the decision appealed from in the following rationale: While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila, nevertheless, the effect thereof was merely to provide another place where the mortgage chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should be held, hence, in the case under consideration, the PNB had three places from which to select, namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels were situated; and (3) the place stipulated in the contract. The PNB selected the second and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and valid. To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell the mortgaged property at a public place in the municipality where the mortgagor resides or where the property is situated, 8 this Court has held that the sale of a mortgaged chattel may be made in a place other than that where it is found, provided that the owner thereof consents thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to select from among the places provided for in the law and the place designated in their agreement over the objection of the mortgagor. In providing that the mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated, at the option of the mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They may validly be waived. So, when herein 121

mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be, they waived their corresponding rights under the law. The correlative obligation arising from that agreement have the force of law between them and should be complied with in good faith. 10 By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it, was merely a personal privilege they waived, which is not contrary, to public policy or to the prejudice of third persons. It is a general principle that a person may renounce any right which the law gives unless such renunciation is expressly prohibited or the right conferred is of such nature that its renunciation would be against public policy. 11 On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to such sale. 12 Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his doings which shall particularly describe the articles sold and the amount received from each article. From this, it is clear that the law requires that sale be made article by article, otherwise, it would be impossible for him to state the amount received for each item. This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that the mortgagor had agreed or consented to such sale in gross, the same should be set aside. It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the requirement of the law to sell the same article by article. The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by force, as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the premises in jail to deprive herein appellant of its possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to believe that it was the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still the PNB cannot escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels, improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess the chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time they were illegally sold by them. To this effect was the holding of this Court in a similar situation. 16 The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the burden is on the defendant to prove the damage to which he was thus subjected. . . . This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The trial court did not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of the appellant to recover the same. We find enough evidence of record, however, which may be used as a guide to ascertain their value. The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in question were mortgaged as part of the security therefore, herein appellant submitted a list of the chattels together with its application for the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the same year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the report of which he gave all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and re-inspections testified in court that in giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is to be expected of an official of the appellee bank. And it appears that the values were considerably reduced in all the re-inspection reports for the reason that when he went to herein appellant's premises at the time, he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they were no longer in use at the time, they were kept in a proper place and not exposed to the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the mortgaged chattels were worth no 122

less than P14,000.00. He likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and bearing in mind the current cost of equipments these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation, although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels; and that the real value thereof, although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set by the marked increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the sale should be fixed at the original appraised value of P42,850.00. Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract. But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant. WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees. Compare with G.R. No. 128690 January 21, 1999 ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents. DAVIDE, JR., CJ.: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996. The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that . 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted: 123

6 January 1992 Dear Vic, This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the three film packages you are offering ABS-CBN. From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in out very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures. In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our nonprimetime slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the unaired titles in the first contract. 1. Kontra Persa [sic]. 2. Raider Platoon. 3. Underground guerillas 4. Tiger Command 5. Boy de Sabog 6. Lady Commando 7. Batang Matadero 8. Rebelyon I hope you will consider this request of mine. The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes. As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year. I have quite an attractive offer to make. Thanking you and with my warmest regards. (Signed) Charo Santos-Concio On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva). On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABSCRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN). On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN. On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less 124

than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio. On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. "7A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the present case. 4 On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309. On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date. On 17 June 1992, after appropriate proceedings, the RTC issued an order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put up a counterbound. 9 In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a crossclaim against VIVA.. On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond. At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that no settlement would be reached. As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC approved in its Order of 15 October 1992. 13 On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which RBS opposed. 15 On 29 October 1992, the RTC conducted a pre-trial. 16 Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17 challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300. On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting, and televising of any or all of the films involved in the controversy. On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363. In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows: WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of defendants and against the plaintiff. (1) The complaint is hereby dismissed; (2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following: a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction; b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers; c) Attorney's fees in the amount of P1 million; d) P5 million as and by way of moral damages; e) P5 million as and by way of exemplary damages; (3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees. 125

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed. (5) Plaintiff to pay the costs. According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract. On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April 1993. Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABSCBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows: As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides: 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14). [H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing. Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties. In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films. The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABSCBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already expired. 22 Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABSCBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN." Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in I . . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY. II 126

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. III . . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. IV . . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS. ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc. 26 Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film. ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does no injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social humiliation. 31 As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33 On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks. RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste. As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant. In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBS cited People v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus: 127

There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to happen. The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award. The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and times specified. The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from the competition. 36 For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS. The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABSCBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error. I. The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds himself to give something or to render some service to another 37 for a consideration. there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established. 38 A contract undergoes three stages: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 39 Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. 40 When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer. ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds." On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co. 44 that "a vendor's change in a phrase of the offer to purchase, which change does 128

not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45 However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer. In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive: A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill. FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously agreed upon? SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object which is its subject matter (Art. 1318, NCC). THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states: We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16, 050,000.00. which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00). On cross-examination Mr. Lopez testified: Q. What was written in this napkin? A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos. Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim. FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning. Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . . As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto. FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified:

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Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what happened? A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors. Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper? A. Yes, sir. Q. So, he was going to forward that to the board of Directors for approval? A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992) Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval? A. Yes, sir. (Tsn, p. 69, June 8, 1992). The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556). The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film package for 140 films be maintained (Exh. "7-1" - Viva ). 49 The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus: [T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50 II However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. 53 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, whether or not such damages has been foreseen or could have reasonably been foreseen by the defendant. 54 Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55 The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges: 12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56 Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows: 130

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same. Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond. Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond. As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58 The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. 59 They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61 As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads: (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 64 The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation. The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; 69 in quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71 It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction; while 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, and (3) and it is done with intent to injure. 72

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Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74 There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. 75 WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc. No pronouncement as to costs. SO ORDERED. Compare with G.R. No. 126204 November 20, 2001

NATIONAL POWER CORPORATION, petitioner, vs. PHILIPP BROTHERS OCEANIC, INC., respondent. SANDOVAL-GUTIERREZ, J.: Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that damages are thereby suffered by another will not make him liable.1 This principle finds useful application to the present case. Before us is a petition for review of the Decision2 dated August 27, 1996 of the Court of Appeals affirming in toto the Decision3 dated January 16, 1992 of the Regional Trial Court, Branch 57, Makati City. The facts are: On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding was conducted, PHIBRO's bid was accepted. NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987.The "Bidding Terms and Specifications"4 provide for the manner of shipment of coals, thus: "SECTION V SHIPMENT The winning TENDERER who then becomes the SELLER shall arrange and provide gearless bulk carrier for the shipment of coal to arrive at discharging port on or before thirty (30) calendar days after receipt of the Letter of Credit by the SELLER or its nominee as per Section XIV hereof to meet the vessel arrival schedules at Calaca, Batangas, Philippines as follows: 60,000 +/ - 10 % July 20, 1987 60,000 +/ - 10% September 4, 1987"5 On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipment's point of origin, which could seriously hamper PHIBRO's ability to supply the needed coal.6 From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly informing the latter that the ship owners therein are not willing to load cargo unless a "strike-free" clause is incorporated in the charter party or the contract of carriage.7 In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a "strike-free" clause. NAPOCOR refused. On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBRO's application for pre-qualification to bid for not meeting the minimum requirements.8 Upon further inquiry, PHIBRO found that the real reason for the disapproval was its purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first coal shipment. This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR with the Regional Trial Court, Branch 57, Makati City.9 In its complaint, PHIBRO alleged that NAPOCOR's act of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual, moral and exemplary damages and attorney's fees. In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. And, 132

even assuming that the strikes were still ongoing, PHIBRO should have shouldered the burden of a "strike-free" clause because their contract was "C and F Calaca, Batangas, Philippines," meaning, the cost and freight from the point of origin until the point of destination would be for the account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for actual damages in the amount of P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as litigation expenses.10 Thereafter, trial on the merits ensued. On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic Inc. (PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering the said defendant NAPOCOR: 1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power Corporation's list of accredited bidders and allow PHIBRO to participate in any and all future tenders of National Power Corporation for the supply and delivery of imported steam coal; 2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO); a. The peso equivalent at the time of payment of $864,000 as actual damages, b. The peso equivalent at the time of payment of $100,000 as moral damages; c. The peso equivalent at the time of payment of $50,000 as exemplary damages; d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees; 3. To pay the costs of suit; 4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit. SO ORDERED."11 Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of Appeals. On August 27, 1996, the Court of Appeals rendered a Decision affirming in toto the Decision of the Regional Trial Court. It ratiocinated that: "There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was delayed, the delay was in fact caused by a) Napocor's own delay in opening a workable letter of credit; and b) the strikes which plaqued the Australian coal industry from the first week of July to the third week of September 1987. Strikes are included in the definition of force majeure in Section XVII of the Bidding Terms and Specifications, (supra), so Phibro is not liable for any delay caused thereby. Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected thirty (30) days from Napocor's opening of a confirmed and workable letter of credit. Napocor was only able to do so on August 6, 1987. By that time, Australia's coal industry was in the middle of a seething controversy and unrest, occasioned by strikes, overtime bans, mine stoppages. The origin, the scope and the effects of this industrial unrest are lucidly described in the uncontroverted testimony of James Archibald, an employee of Phibro and member of the Export Committee of the Australian Coal Association during the time these events transpired. xxx xxx xxx

The records also attest that Phibro periodically informed Napocor of these developments as early as July 1, 1987, even before the bid was approved. Yet, Napocor did not forthwith open the letter of credit in order to avoid delay which might be caused by the strikes and their after-effects. "Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines force majeure as "an event which takes place by accident and could not have been foreseen." (Civil Code of the Philippines, Volume IV, Obligations and Contracts, 126, [1991]) He further states: "Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In order that acts of man such as a strike, may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted. He cites a parallel example in the case of Philippine National Bank v. Court of Appeals, 94 SCRA 357 (1979), wherein the Supreme Court said that the outbreak of war which prevents performance exempts a party from liability.

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Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first week of July to the third week of September, 1987, exempted Phibro from the effects of delay of the delivery of the shipment of coal."12 Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of Appeals the following errors: I "Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO's delay in the delivery of imported coal was due to NAPOCOR's alleged delay in opening a letter of credit and to force majeure, and not to PHIBRO's own deliberate acts and faults."13 II "Respondent Court of Appeals gravely and seriously erred in concluding and so holding that NAPOCOR acted maliciously and unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and future biddings for the supply of imported coal despite the existence of valid grounds therefor such as serious impairment of its track record."14 III "Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO was entitled to injunctive relief, to actual or compensatory, moral and exemplary damages, attorney's fees and litigation expenses despite the clear absence of legal and factual bases for such award."15 IV "Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any liability for damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated period."16 V "Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCOR's counterclaims for damages and litigation expenses."17 It is axiomatic that only questions of law, not questions of fact, may be raised before this Court in a petition for review under Rule 45 of the Rules of Court.18 The findings of facts of the Court of Appeals are conclusive and binding on this Court19 and they carry even more weight when the said court affirms the factual findings of the trial court.20 Stated differently, the findings of the Court of .Appeals, by itself, which are supported by substantial evidence, are almost beyond the power of review by this Court.21 With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the factual issues raised by petitioner. The existence of strikes in Australia having been duly established in the lower courts, we are left only with the burden of determining whether or not NAPOCOR acted wrongfully or with bad faith in disqualifying PHIBRO from participating in the subsequent public bidding. Let us consider the case in its proper perspective. The Court of Appeals is justified in sustaining the Regional Trial Court's decision exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly established from the evidence, testimonial and documentary, that what prevented PHIBRO from complying with its obligation under the July 1987 contract was the industrial disputes which besieged Australia during that time. Extant in our Civil Code is the rule that no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.22 This means that when an obligor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages for non-performance.23 In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed in Section XVII of the "Bidding Terms and Specifications"24 that "neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than the payment of money due, if any such delay or failure is due to Force Majeure." Specifically, they defined force majeure as "any disabling cause beyond the control of and without fault or negligence of the party, which causes may include but are not restricted to Acts of God or of the public enemy; acts of the Government in either its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions." The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no reason to rule otherwise. However, proceeding from the premise that PHIBRO was prevented by force majeure from complying with its obligation, does it necessarily follow that NAPOCOR acted unjustly, capriciously, and unfairly in disapproving PHIBRO's application for pre-qualification to bid? First, it must be stressed that NAPOCOR was not bound under any contract to approve PHIBRO's prequalification requirements. In fact, NAPOCOR had expressly reserved its right to reject bids. The Instruction to Bidders found in the "Post-Qualification Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas Philippines,"25 is explicit, thus: 134

"IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the bids received. The right is also reserved to reject the bids of any bidder who has previously failed to properly perform or complete on time any and all contracts for delivery of coal or any supply undertaken by a bidder."26 (Emphasis supplied) This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality.27 And where the government as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that choice unless an unfairness or injustice is shown. Accordingly, a bidder has no ground of action to compel the Government to award the contract in his favor, nor to compel it to accept his bid. Even the lowest bid or any bid may be rejected.28 In Celeste v. Court of Appeals,29 we had the occasion to rule: "Moreover, paragraph 15 of the Instructions to Bidders states that 'the Government hereby reserves the right to reject any or all bids submitted.' In the case of A.C. Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held: 'x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect that the bidders shall be subject to the right of the government to reject any and all bids subject to its discretion. Here the government has made its choice, and unless an unfairness or injustice is shown, the losing bidders have no cause to complain, nor right to dispute that choice.' Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in evaluating the bids, we rule that the private respondents are not entitled to damages representing lost profits." (Emphasis supplied) Verily, a reservation of the government of its right to reject any bid, generally vests in the authorities a wide discretion as to who is the best and most advantageous bidder. The exercise of such discretion involves inquiry, investigation, comparison, deliberation and decision, which are quasi-judicial functions, and when honestly exercised, may not be reviewed by the court.30 In Bureau Veritas v. Office of the President,31 we decreed: "The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]) x x x. The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best be discharged by the Government agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgresses its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy decision-making. x x x." (Emphasis supplied) Owing to the discretionary character of the right involved in this case, the propriety of NAPOCOR's act should therefore be judged on the basis of the general principles regulating human relations, the forefront provision of which is Article 19 of the Civil Code which provides 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."32 Accordingly, a person will be protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or abuse.33 Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public bidding? We rule in the negative. In practice, courts, in the sound exercise of their discretion, will have to determine under all the facts and circumstances when the exercise of a right is unjust, or when there has been an abuse of right.34 We went over the record of the case with painstaking solicitude and we are convinced that NAPOCOR's act of disapproving PHIBRO's application for pre-qualification to bid was without any intent to injure or a purposive motive to perpetrate damage. Apparently, NAPOCOR acted on the strong conviction that PHIBRO had a "seriously-impaired" track record. NAPOCOR cannot be faulted from believing so. At this juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation to Bid, i.e., October 1987, PHIBRO had not yet delivered the first shipment of coal under the July 1987 contract, which was due on or before September 5, 1987. Naturally, NAPOCOR is justified in entertaining doubts on PHIBRO's qualification or capability to assume an obligation under a new contract. Moreover, PHIBRO's actuation in 1987 raised doubts as to the real situation of the coal industry in Australia. It appears from the records that when NAPOCOR was constrained to consider an offer from another coal supplier (ASEA) at a price of US$33.44 per metric ton, PHIBRO unexpectedly offered the immediate delivery of 60,000 metric tons of Ulan steam coal at US$31.00 per metric ton for arrival at Calaca, Batangas on September 20-21, 1987."35 Of course, NAPOCOR had reason to ponder how come PHIBRO could assure the immediate delivery of 60,000 metric tons of coal from the same source to arrive at Calaca not later than September 20/21, 1987 but it could not deliver the coal it had undertaken under its contract? Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to contracts, is that "the concurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner."36 Faced with the above circumstance, NAPOCOR is justified in assuming that, may be, there was really no fortuitous event or force majeure which could render it impossible for PHIBRO to effect the delivery of coal. Correspondingly, it is also justified in treating PHIBRO's failure to deliver a serious impairment 135

of its track record. That the trial court, thereafter, found PHIBRO's unexpected offer actually a result of its desire to minimize losses on the part of NAPOCOR is inconsequential. In determining the existence of good faith, the yardstick is the frame of mind of the actor at the time he committed the act, disregarding actualities or facts outside his knowledge. We cannot fault NAPOCOR if it mistook PHIBRO's unexpected offer a mere attempt on the latter's part to undercut ASEA or an indication of PHIBRO's inconsistency. The circumstances warrant such contemplation. That NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded is manifest from its letters37 reminding PHIBRO that it was bound to deliver the coal within 30 days from its (PHIBRO's) receipt of the Letter of Credit, otherwise it would be constrained to take legal action. The same honest belief can be deduced from NAPOCOR's Board Resolution, thus: "On the legal aspect, Management stressed that failure of PBO to deliver under the contract makes them liable for damages, considering that the reasons invoked were not valid. The measure of the damages will be limited to actual and compensatory damages. However, it was reported that Philipp Brothers advised they would like to have continuous business relation with NPC so they are willing to sit down or even proposed that the case be submitted to the Department of Justice as to avoid a court action or arbitration. xxx xxx xxx

On the technical-economic aspect, Management claims that if PBO delivers in November 1987 and January 1988, there are some advantages. If PBO reacts to any legal action and fails to deliver, the options are: one, to use 100% Semirara and second, to go into urgent coal order. The first option will result in a 75 MW derating and oil will be needed as supplement. We will stand to lose around P30 M. On the other hand, if NPC goes into an urgent coal order, there will be an additional expense of $786,000 or P16.11 M, considering the price of the latest purchase with ASEA. On both points, reliability is decreased."38 The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification documents is to ensure that only those "responsible" and "qualified" bidders could bid and be awarded with government contracts. It bears stressing that the award of a contract is measured not solely by the smallest amount of bid for its performance, but also by the "responsibility" of the bidder. Consequently, the integrity, honesty, and trustworthiness of the bidder is to be considered. An awarding official is justified in considering a bidder not qualified or not responsible if he has previously defrauded the public in such contracts or if, on the evidence before him, the official bona fide believes the bidder has committed such fraud, despite the fact that there is yet no judicial determination to that effect.39 Otherwise stated, if the awarding body bona fide believes that a bidder has seriously impaired its track record because of a particular conduct, it is justified in disqualifying the bidder. This policy is necessary to protect the interest of the awarding body against irresponsible bidders. Thus, one who acted pursuant to the sincere belief that another willfully committed an act prejudicial to the interest of the government cannot be considered to have acted in bad faith. Bad faith has always been a question of intention. It is that corrupt motive that operates in the mind. As understood in law, it contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest or ill-will or for ulterior purpose.40 While confined in the realm of thought, its presence may be ascertained through the party's actuation or through circumstantial evidence.41 The circumstances under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention to cause damage to the latter. The measure it adopted was one of self-protection. Consequently, we cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be made liable for actual, moral and exemplary damages. Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court computed what could have been the profits of PHIBRO had NAPOCOR allowed it to participate in the subsequent public bidding. It ruled that "PHIBRO would have won the tenders for the supply of about 960,000 metric tons out of at least 1,200,000 metric tons" from the public bidding of December 1987 to 1990. We quote the trial court's ruling, thus: ". . . PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning December 1987 to 1990, for the supply and delivery of imported coal with a total volume of about 1,200,000 metric tons valued at no less than US$32 Million. (Exhs. "AA," "AA-1-1," to "AA-2"). The price of imported coal for delivery in 1988 was quoted in June 1988 by bidders at US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in September 1988 at US$41.50 to US$49.50 per metric ton (Exh. "J-1"); in November 1988 at US$39.00 to US$48.50 per metric ton (Exh. "J-2") and for the 1989 deliveries, at US$44.35 to US$47.35 per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September 1990 (Exh. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery of about 960,000 metric tons of coal out of at least 1,200,000 metric tons awarded during said period based on its proven track record of 80%. The Court, therefore finds that as a result of its disqualification, PHIBRO suffered damages equivalent to its standard 3% margin in 960,000 metric tons of coal at the most conservative price of US$30,000 per metric ton, or the total of US$864,000 which PHIBRO would have earned had it been allowed to participate in biddings in which it was disqualified and in subsequent tenders for supply and delivery of imported coal." We find this to be erroneous. Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.42 A court cannot merely rely on speculations, conjectures, or guesswork as to the fact and amount of damages. Thus, while indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain,43 it is imperative that the basis of the alleged unearned profits is not too speculative and conjectural as to show the actual damages which may be suffered on a future period. 136

In Pantranco North Express, Inc. v. Court of Appeals,44 this Court denied the plaintiff's claim for actual damages which was premised on a contract he was about to negotiate on the ground that there was still the requisite public bidding to be complied with, thus: "As to the alleged contract he was about to negotiate with Minister Hipolito, there is no showing that the same has been awarded to him. If Tandoc was about to negotiate a contract with Minister Hipolito, there was no assurance that the former would get it or that the latter would award the contract to him since there was the requisite public bidding. The claimed loss of profit arising out of that alleged contract which was still to be negotiated is a mere expectancy. Tandoc's claim that he could have earned P2 million in profits is highly speculative and no concrete evidence was presented to prove the same. The only unearned income to which Tandoc is entitled to from the evidence presented is that for the one-month period, during which his business was interrupted, which is P6,125.00, considering that his annual net income was P73,500.00." In Lufthansa German Airlines v. Court of Appeals,45 this Court likewise disallowed the trial court's award of actual damages for unrealized profits in the amount of US$75,000.00 for being highly speculative. It was held that "the realization of profits by respondent . . . was not a certainty, but depended on a number of factors, foremost of which was his ability to invite investors and to win the bid." This Court went further saying that actual or compensatory damages cannot be presumed, but must be duly proved, and proved with reasonable degree of certainty. And in National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's claim for unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's) claims for unrealized commissions, and that these claims have been transmuted into judicial admissions, these admissions cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which necessarily and inherently include the reservation by the NAPOCOR of its right to reject any or all bids. The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith. Moreover, moral damages are not, as a general rule, granted to a corporation.47 While it is true that besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish.48 In LBC Express, Inc. v. Court of Appeals,49 we ruled: "Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank as an artificial person." Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court may consider the question of whether or not exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatory damages. NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding PHIBRO the amount of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees. We agree with NAPOCOR. This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith.50 This cannot be said of the case at bar. NAPOCOR is justified in resisting PHIBRO's claim for damages. As a matter of fact, we partially grant the prayer of NAPOCOR as we find that it did not act in bad faith in disapproving PHIBRO's pre-qualification to bid. Trial courts must be reminded that attorney's fees may not be awarded to a party simply because the judgment is favorable to him, for it may amount to imposing a premium on the right to redress grievances in court. We adopt the same policy with respect to the expenses of litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently, the facts of this case do not warrant the granting of such litigation expenses to PHIBRO. At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO another opportunity to participate in future public bidding. As earlier mentioned, the delay on its part was due to a fortuitous event. But before we dispose of this case, we take this occasion to remind PHIBRO of the indispensability of coal to a coal-fired thermal plant. With households and businesses being entirely dependent on the electricity supplied by NAPOCOR, the delivery of coal cannot be venturesome. Indeed, public interest demands that one who offers to deliver coal at an appointed time must give a reasonable assurance that it can carry through. With the deleterious possible consequences that may result from failure to deliver the needed coal, we believe there is greater strain of commitment in this kind of obligation. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August 27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and exemplary damages, reimbursement for expenses, cost of litigation and attorney's fees, and costs of suit, is DELETED. SO ORDERED. G.R. No. 141994 January 17, 2005 137

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents. CARPIO, J.: The Case This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit. The Antecedents "Expos" is a radio documentary4 program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun Alegre ("Alegre").5 Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas.6 In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMECs College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: JUN ALEGRE: Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same? xxx Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx Third: Students are required to take and pay for the subject even if the subject does not have an instructor such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor. xxx It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.8 xxx On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her. xxx MEL RIMA: 138

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as teachers. May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean. xxx xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status are even more burdened with false regulations. xxx9 (Emphasis supplied) The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest." Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit. On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas statement within the "bounds of freedom of speech, expression, and of the press." The dispositive portion of the decision reads: WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit. SO ORDERED. 13 (Emphasis supplied) Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. SO ORDERED.14 FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI filed this petition.15 The Ruling of the Court of Appeals 139

The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks. Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were "impelled by their moral and social duty to inform the public about the students gripes." The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations."16 The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.1awphi1.nt Issues FBNI raises the following issues for resolution: I. WHETHER THE BROADCASTS ARE LIBELOUS; II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT. The Courts Ruling We deny the petition. This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 3018 authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article 3319 particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily liable with Rima and Alegre. I. Whether the broadcasts are libelous A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.24 There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as "greed for money on the part of AMECs administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and AMEC students who graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound. However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel. FBNIs contentions are untenable. Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues "free from inaccurate and misleading information."26 Hearing the students alleged complaints a month before the expos,27 they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported 140

irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students "because they were many and not because there is proof that what they are saying is true."28 This plainly shows Rima and Alegres reckless disregard of whether their report was true or not. Contrary to FBNIs claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy makes the defamatory statement.30 However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel. FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus: [F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.32 (Emphasis supplied) True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public interest." The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of the trial court: xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests. Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith. Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering. The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist. Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith. As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective.l^vvphi1.net So is plaintiffs counsel. 141

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile. The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible professionals.33 Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se. The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code provides: B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES 1. x x x 4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x. xxx 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the provisions and standards of this code. 8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the presentation of public affairs and public issues.36 (Emphasis supplied) The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions. The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as required by Article 1937 of the Civil Code. A professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under Article 2138 of the Civil Code. II. Whether AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39 A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the Courts statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum.42 Nevertheless, AMECs claim for moral damages falls under item 7 of Article 221943 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.44 Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages.47 In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000. III. Whether the award of attorneys fees is proper FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article 220848 of the Civil Code. 142

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees.49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held that: [I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorneys fees.51 (Emphasis supplied) While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court and depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award. IV. Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program." FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them." Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation. FBNIs arguments do not persuade us. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.53 Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory statements."54 An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters. FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs "regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,56 which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre. WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner. SO ORDERED. G.R. No. 148246 February 16, 2007 143

REPUBLIC OF THE PHILIPPINES, Petitioner, vs. JUAN C. TUVERA, VICTOR P. TUVERA and TWIN PEAKS DEVELOPMENT CORPORATION, Respondents. TINGA, J.: The long-term campaign for the recovery of ill-gotten wealth of former President Ferdinand E. Marcos, his wife Imelda, and their associates, has been met with many impediments, some of which are featured in this case, that have led to doubts whether there is still promise in that enterprise. Yet even as the prosecution of those cases have drudged on and on, the era of their final reckoning is just beginning before this Court. The heavy hammer of the law is just starting to fall. The instant action originated from a civil complaint for restitution and damages filed by the Republic of the Philippines against Marcos and his longtime aide Juan Tuvera, as well as Tuvera's son Victor and a corporation the younger Tuvera had controlled. Trial on the case against the Tuveras proceeded separately before the Sandiganbayan. After the Republic had presented its evidence, the Tuveras successfully moved for the dismissal of the case on demurrer to evidence. The demurrer was sustained, and it falls upon this Court to ascertain the absence or existence of sufficient proof to support the relief sought by the Republic against the Tuveras. I. We begin with the facts. Twin Peaks Development Corporation (Twin Peaks) was organized on 5 March 1984 as a corporation with a principal purpose of engaging in the real estate business. There were five incorporating stockholders, including respondent Victor Tuvera (Victor)1 who owned 48% of the shares of the fledgling corporation. Victor was the son of respondent Juan Tuvera, who was then Presidential Executive Assistant of President Marcos. Acting on a letter dated 31 May 1984 of Twin Peaks Vice-President and Treasurer Evelyn Fontanilla in behalf of the corporation, President Marcos granted the award of a Timber License Agreement (TLA), more specifically TLA No. 356, in favor of Twin Peaks to operate on 26,000 hectares of forest land with an annual allowable cut of 60,000 cubic meters of timber and to export 10,000 cubic meters of mahogany of the narra species.2 As a result, Twin Peaks was able to engage in logging operations. On 25 February 1986, President Marcos was ousted, and Corazon C. Aquino assumed the presidency. Among her first acts as President was to establish the Philippine Commission on Good Government (PCGG), tasked with tracking down the ill-gotten wealth procured by Marcos, his family, and associates during his 20-year rule. Among the powers granted to the PCGG was the power to issue writs of sequestration.3 On 13 June 1988, the PCGG issued a Writ of Sequestration on all assets, properties, records, documents, and shares of stock of Twin Peaks on the ground that all the assets of the corporation are ill-gotten wealth for having been acquired directly or indirectly through fraudulent and illegal means.4 This was followed two days later by Mission Order No. MER-88 (Mission Order), also issued by the PCGG, implementing the aforementioned Writ of Sequestration.5 On 9 December 1988, the PCGG, in behalf of the Republic, filed the Complaint now subject of this Petition.6 Impleaded as defendants in the Complaint7 were Juan and Victor Tuvera, as well as the then-exiled President Marcos. Through the Complaint, the Republic sought to recover funds allegedly acquired by said parties in flagrant breach of trust and fiduciary obligations with grave abuse of right and power in violation of the Constitution and the laws of the Republic of the Philippines.8 In particular, the Complaint alleged that Juan Tuvera, as Presidential Executive Assistant of President Marcos, took advantage of his relationship to influence upon and connection with the President by engaging in a scheme to unjustly enrich himself at the expense of the Republic and of the Filipino people. This was allegedly accomplished on his part by securing TLA No. 356 on behalf of Twin Peaks despite existing laws expressly prohibiting the exportation of mahogany of the narra species9 and Twin Peaks lack of qualification to be a grantee thereof for lack of sufficient logging equipment to engage in the logging business.10 The Complaint further alleged that Twin Peaks exploited the countrys natural resources by engaging in large-scale logging and the export of its produce through its Chinese operators whereby respondents obtained a revenue of approximately P45 million. The Complaint prayed that (1) TLA No. 356 be reverted to the State or cancelled; (2) respondents be jointly and severally ordered to pay P48 million11 as actual damages; and (3) respondents pay moral, temperate and exemplary damages, litigation expenses, and treble judicial costs.12 It cited as grounds for relief, gross abuse of official position and authority, breach of public trust and fiduciary obligations, brazen abuse of right and power, unjust enrichment, and violation of the Constitution.13 In their Answer,14 respondents Victor Tuvera and Twin Peaks claimed that Twin Peaks was awarded TLA No. 356 only after its articles of incorporation had been amended enabling it to engage in logging operations,15 that the Republics reference to Chinese operations and revenue of approximately P45 million were merely imagined,16 and that the PCGG has no statutory authority to institute the action.17 By way of counterclaim, respondents asked that the Republic be ordered to pay Victor Tuvera moral damages and to pay both Victor Tuvera and Twin Peaks exemplary damages, and to reimburse their attorneys fees.18 Anent the allegation that Twin Peaks sold about P3 million worth of lumber despite the Writ of Sequestration issued by the PCGG, respondents stressed that the Director of Forest Development acted within the scope of his authority and the courts have no supervising power over the actions of the Director of Forest Development 144

and the Secretary of the Department of Environment and Natural Resources (DENR) in the performance of their official duties.19 As an affirmative and special defense, respondents Victor Tuvera and Twin Peaks alleged that after Twin Peaks was granted TLA No. 356 in 24 August 1984, Felipe Ysmael, Jr. and Co., Inc. had filed a motion for the cancellation of the same with the DENR Secretary. When respondents submitted their Answer, the denial by the DENR of the Ysmael motion was under review before the Court.20 Juan Tuvera, who was abroad when the case was filed on 9 December 1988, later submitted his own Answer on 6 December 1989.21 He also denied the allegations of the Republic and alleged that as Presidential Executive Assistant of then President Marcos, he acted within the confines of his duties and had perpetrated no unlawful acts. He merely transmitted communications of approval in the course of his duties and had nothing to do with the decisions of then President Marcos.22 He denied having anything to do with Twin Peaks. Juan Tuvera filed a compulsory counterclaim on the ground that the instant action had besmirched his reputation and caused serious anxiety and mental anguish thus entitling him to moral and exemplary damages and litigation expenses.23 On 3 May 1989, respondents filed an Omnibus Motion to Nullify Writ of Sequestration and/or the Mission Order.24 The Sandiganbayan issued a Temporary Restraining Order against the PCGG requiring it to cease, refrain and desist from further implementing the Writ of Sequestration and the Mission Order.25 Subsequently, on motion of respondents, the Sandiganbayan granted a Writ of Preliminary Injunction covering the Mission Order. The Sandiganbayan deferred its resolution on the Motion to Lift the Writ of Sequestration.26 From 1988 to 1993, the proceedings before the Sandiganbayan were delayed owing to the difficulty of acquiring jurisdiction over the person of President Marcos, who was by then already in exile. Thus, upon motion by respondents, the Sandiganbayan granted them a separate pre-trial/trial from President Marcos.27 Respondents submitted their documentary evidence in the Pre-Trial Conference while the Republic reserved to present the same during trial. After the pre-trial conference, the Sandiganbayan issued a Pre-Trial Order28 dated 3 November 1993, which presented the issues for litigation as follows: Whether or not defendant Juan C. Tuvera who was a Presidential Executive Assistant at the time material to this case, by himself and in concert with his co-defendants Ferdinand E. Marcos and Victor Tuvera, took advantage of his relation and connection with the late Marcos, secure (sic) a timber concession for Twin Peaks Development Corporation and, engage (sic) in a scheme to unjustly enrich himself at the expense of the Republic and the Filipino People.29 The Pre-Trial Order also indicated that the Republic admitted the exhibits by respondents, subject to the presentation of certified true copies thereof. Respondents exhibits were as follows:30 Exhibit Nos. Description 1 Amended Articles of Incorporation dated 31 July 1984 2 TLA No. 356 3 Order, Minister Ernesto M. Maceda, 22 July 1986 3-A Order, Minister Ernesto M. Maceda, 10 October 1986 3-B Order, Minister Ernesto M. Maceda, 26 November 1986, O.P. Case No. 3521 3-C Resolution, Office of the President, 6 July 1987, O.P. Case No. 3521 3-D Order, Office of the President, 14 August 1987, I.S. No. 66 3-E Complaint, PCGG, dated 20 July 1988 3-E-1, 3-E-2, 3-E-3 I.S. No. 66 Affidavit, PCGG, Almario F. Mendoza, Ltv. Ramon F. Mendoza and Affidavit, Isidro Santiago 3-F Counter-Affidavit, Juan C. Tuvera, 17 August 1989 3-F-1 PCGG, Motion to Withdraw, Jose Restituto F. Mendoza, 10 May 1989 3-F-2 Decision, Supreme Court, 18 October 1990 3-G Resolution, Supreme Court, 5 June 1991 4 Complaint, DENR, Almario F, Mendoza, 9 March 1990 4-A Answer/Comment, DENR, Almario F. Mendoza, dated 20 April 1990 4-B Decision, DENR, dated 28 August 1990 5 Complaint, Ombudsman, etc., Case No. 0-90-0708, 9 March 1990 6, 6-A Answer/Counter-Affidavit, etc. 6-B Decision, Ombudsman Case No. 0-90-0708, dated 8 August 1990 The Republic presented three (3) witnesses during the trial. The first witness was Joveniana M. Galicia, Chief of the National Forest Management Division of the Forest Management Bureau. She identified TLA No. 356 of Twin Peaks dated 20 August 1984 and a Memorandum dated 18 July 1984. She testified that TLA No. 356 covers 26,000 hectares of forest land located in the Municipality of Isabela, Province of Quirino.31 The Memorandum dated 18 July 1984 addressed to Director Edmundo Cortez recited then President Marcos grant of the timber concession to Twin Peaks. Identified and marked in the same memorandum were the name and signature of Juan Tuvera.32 Upon cross-examination, Galicia stated that she was not yet the chief of the Division when the documents she identified were submitted to the Bureau. She further stated it was her first time to see the aforementioned documents when she was asked to bring the same before the trial court.33 The next witness was Fortunato S. Arcangel, Regional Technical Director III of the DENR. He testified that he is a Technical Director under the Forest Management Services of the DENR.34 He identified Forestry Administration Order (FAO) No. 11 dated 1 September 1970. He said he was aware of TLA No. 356 of Twin Peaks35 because at the time it was issued, he was the chief of the Forestry Second Division and his duties included the evaluation 145

and processing of applications for licenses and permits for the disposition and distribution of timber and other forest products.36 Consequently, he was aware of the process by which TLA No. 356 was issued to Twin Peaks.37 According to him, they processed the application insofar as they evaluated the location of the area concerned and its present vegetative state, examined the records, and determined the annual allowable land. After the examination, the license agreement was prepared and submitted for approval.38 He continued that under FAO No. 11, a public bidding is required before any license agreement or permit for the utilization of timber within the forestry land is issued39 but no public bidding was conducted for TLA No. 356.40 He explained that no such bidding was conducted because of a Presidential Instruction not to accept any application for timber licensing as a consequence of which bidding procedures were stopped.41 Upon cross-examination, Arcangel said that at the time TLA No. 356 was issued, the Revised Forestry Code of the Philippines42 was already in effect but there were still provisions in FAO No. 11 that remained applicable such as the terms and conditions of granting a license. He also stated that the issuance of the license to Twin Peaks emanated from the President of the Philippines.43 The Republics third and last witness was Teresita M. Zuiga, employee of the Bureau of Internal Revenue. She identified the 1986 Income Tax Returns of Victor P. Tuvera, Evelyn Fontanilla and Feliciano O. Salvana, stockholders of Twin Peaks.44 On 24 June 1994, the Republic rested its case after its formal offer of evidence, as follows:45 Exhibits Documents Purpose A Timber License Agreement No. 356 of Twin Peaks Realty Development Corp. dated 20 August 1984 To prove that the Timber License Agreement was executed prior to the amendment of the Articles of Incorporation of Twin Peaks Realty Development Corp. B Memorandum dated 18 July 1984 of Juan C. Tuvera, Presidential Executive Secretary To prove the participation of Juan C. Tuvera in the grant of the timber concession of Twin Peaks Realty Development Corp. C Forestry Administrative Order No. 11 (Revised) To prove that Twin Peaks Realty Development Corp. was granted a timber license agreement without following the procedure outlined in the forestry rules and regulation and in violation of law. D Income Tax Return of Victor Tuvera To prove that Victor Tuvera was not a legitimate stockholder of Twin Peaks Realty Development Corp. E Income Tax Return of Evelyn Fontanilla To prove that Evelyn Fontanilla was not a legitimate stockholder of Twin Peaks Realty Development Corp. F Income Tax Return of Feliciano Salvana To prove that Feliciano Salvana was not a legitimate stockholder of Twin Peaks Realty Development Corp. G Articles of Incorporation of Twin Peaks Realty Development Corp. (original) To prove that Twin Peaks Realty Development Corp. was organized to engage in the real estate business and not in the logging industry. H Timber Manifestation Report of [Twin Peaks Realty Development Corp.] consigned to Scala Sawmill46 To show that Twin Peaks Realty Development Corp. lacks equipment to process logs. I Timber Manifestation Report of Twin Peaks consigned to La Pea Sawmill47 To show that Twin Peaks Realty Development Corp. lacks equipment to process logs. Respondents subsequently submitted certified true copies of the exhibits they had presented during the pretrial conference.48 With leave of court, respondents filed a Demurrer to Evidence. Respondents argued that the Republic failed to present sufficient legal affirmative evidence to prove its claim. In particular, respondents demurrer contends that the memorandum (Exh. B) and TLA No. 356 are not "legal evidence" because "legal evidence" is not meant to raise a mere suspicion or doubt. Respondents also claim that income tax returns are not sufficient to show ones holding in a corporation. Respondents also cited the factual antecedents culminating with the Courts decision in Felipe Ysmael, Jr. & Corp., Inc. v. Sec. of Environment and Natural Resources.49 The Republic filed a Manifestation, contending that the demurrer is not based on the insufficiency of its evidence but on the strength of the evidence of respondents as shown by their own exhibits. The Republic claimed that the Revised Forestry Code of the Philippines does not dispense with the requirement of public bidding. The Republic added that Sec. 5 of said law clearly provides that all applications for a timber license agreement must be filed before the Bureau of Forest Development and that respondents still have to prove compliance with the requirements for service contracts.50 Respondents opposed the Manifestation, maintaining that since the Republic admitted the exhibits of respondents during the pre-trial, it is bound by its own admission. Further, these same exhibits contain uncontroverted facts and laws that only magnify the conclusion that the Republic has no right to relief.51 In its Resolution dated 23 May 2001,52 the Sandiganbayan sustained the demurrer to evidence and referred to the decision of this Court in Ysmael in holding that res judicata applies. The Anti-Graft Court also did not give credence to the Republics allegations concerning respondents abuse of power and/or public trust and consequent liability for damages in view of its failure to establish any violation of Arts. 19, 20 and 21 of the Civil Code. In essence, the Sandiganbayan held that the validity of TLA No. 356 was already fully adjudicated in a Resolution/Order issued by the Office of the President on 14 August 1987, which had become final and executory with the failure of the aggrieved party to seek a review thereof. The Sandiganbayan continued that the above pronouncement is supported by this Court in Ysmael. Consequently, the Sandiganbayan concluded, the Republic is barred from questioning the validity of TLA No. 356 in consonance with the principle of res judicata. 146

The Republic now questions the correctness of the Sandiganbayans decision to grant the demurrer to evidence because it was not based solely on the insufficiency of its evidence but also on the evidence of respondent mentioned during the pre-trial conference. The Republic also challenges the applicability of res judicata. II. Preliminarily, we observe that respondents had filed before the Sandiganbayan a pleading captioned Motion to Dismiss or Demurrer to Evidence, thus evincing that they were seeking the alternative reliefs of either a motion to dismiss or a demurrer to evidence. However, the Sandiganbayan, in resolving this motion, referred to it as Motion to Dismiss on Demurrer to Evidence, a pleading of markedly different character from a Motion to Dismiss or Demurrer to Evidence. Still, a close reading of the Sandiganbayan Resolution reveals clearly that the Sandiganbayan was treating the motion as a demurrer, following Rule 33, Section 1 of the Rules of Court, rather than a motion to dismiss under Rule 16, Section 1. This notwithstanding, the Sandiganbayan justified the grant of demurrer with res judicata as rationale. Res judicata is an inappropriate ground for sustaining a demurrer to evidence, even as it stands as a proper ground for a motion to dismiss. A demurrer may be granted if, after the presentation of plaintiffs evidence, it appears upon the facts and the law that the plaintiff has shown no right to relief. In contrast, the grounds for res judicata present themselves even before the presentation of evidence, and it should be at that stage that the defense of res judicata should be invoked as a ground for dismissal. Properly speaking, the movants for demurral who wish to rely on a controlling value of a settled case as a ground for demurrer should invoke the ground of stare decisis in lieu of res judicata. In Domondon v. Lopez,53 we distinguished a motion to dismiss for failure of the complainant to state a cause of action from a motion to dismiss based on lack of cause of action. The first is governed by Rule 16, Section 1(g),54 while the second by Rule 3355 of the Rules of Court, to wit: x x x The first [situation where the complaint does not alleged cause of action] is raised in a motion to dismiss under Rule 16 before a responsive pleading is filed and can be determined only from the allegations in the initiatory pleading and not from evidentiary or other matter aliunde. The second [situation where the evidence does not sustain the cause of action alleged] is raised in a demurrer to evidence under Rule 33 after the plaintiff has rested his case and can be resolved only on the basis of the evidence he has presented in support of his claim. The first does not concern itself with the truth and falsity of the allegations while the second arises precisely because the judge has determined the truth and falsity of the allegations and has found the evidence wanting. Hence, a motion to dismiss based on lack of cause of action is filed by the defendant after the plaintiff has presented his evidence on the ground that the latter has shown no right to the relief sought. While a motion to dismiss under Rule 16 is based on preliminary objections which can be ventilated before the beginning of the trial, a motion to dismiss under Rule 33 is in the nature of a demurrer to evidence on the ground of insufficiency of evidence and is presented only after the plaintiff has rested his case.56 [Emphasis supplied] III. We shall first discuss the question of whether or not a demurrer to evidence may be granted based on the evidence presented by the opposing parties. An examination of the Sandiganbayans Resolution shows that dismissal of the case on demurrer to evidence was principally anchored on the Republics failure to show its right to relief because of the existence of a prior judgment which consequently barred the relitigation of the same issue. In other words, the Sandiganbayan did not dismiss the case on the insufficiency of the Republics evidence nor on the strength of respondents evidence. Rather, it based its dismissal on the existence of the Ysmael case which, according to it, would render the case barred by res judicata. Prescinding from this procedural miscue, was the Sandiganbayan correct in applying res judicata to the case at bar? To determine whether or not res judicata indeed applies in the instant case, a review of Ysmael is proper. In brief, Felipe Ysmael, Jr. & Co., Inc. was a grantee of a timber license agreement, TLA No. 87. Sometime in August 1983, the Bureau of Forest Development cancelled TLA No. 87 despite the companys letter for the reconsideration of the revocation. Barely one year thereafter, one-half (or 26,000 hectares) of the area formerly covered by TLA No. 87 was re-awarded to Twin Peaks under TLA No. 356. In 1986, Felipe Ysmael, Jr. & Co., Inc. sent separate letters to the Office of the President and the Ministry of Natural Resources primarily seeking the reinstatement of TLA No. 87 and the revocation of TLA No. 356. Both offices denied the relief prayed for. Consequently, Felipe Ysmael, Jr. & Co., Inc. filed a petition for review before this Court. The Court, through the late Justice Irene Cortes, held that Ysmaels letters to the Office of the President and to the Ministry of Natural Resources in 1986 sought the reconsideration of a memorandum order by the Bureau of Forest Development canceling their timber license agreement in 1983 and the revocation of TLA No. 356 subsequently issued by the Bureau in 1984. Ysmael did not attack the administrative actions until after 1986. Since the decision of the Bureau has become final, it has the force and effect of a final judgment within the purview of the doctrine of res judicata. These decisions and orders, therefore, are conclusive upon the rights of the affected parties as though the same had been rendered by a court of general jurisdiction. The Court also denied the petition of Ysmael because it failed to file the special civil action for certiorari under Rule 65 within a reasonable time, as well as in due regard for public policy considerations and the principle of non-interference by the courts in matters which are addressed to the sound discretion of government agencies entrusted with the regulation of activities coming under the special technical knowledge and training of such agencies. 147

In Sarabia and Leido v. Secretary of Agriculture and Natural Resources, et al.,57 the Court discussed the underlying principle for res judicata, to wit: The fundamental principle upon which the doctrine of res judicata rests is that parties ought not to be permitted to litigate the same issue more than once; that, when a right or fact has been judicially tried and determined by a court of competent jurisdiction, or an opportunity for such trial has been given, the judgment of the court, so long as it remains unreversed, should be conclusive upon the parties and those in privity with them in law or estate. For res judicata to serve as an absolute bar to a subsequent action, the following requisites must concur: (1) the former judgment or order must be final; (2) the judgment or order must be on the merits; (3) it must have been rendered by a court having jurisdiction over the subject matter and parties; and (4) there must be between the first and second actions, identity of parties, of subject matter, and of causes of action.58 When there is only identity of issues with no identity of causes of action, there exists res judicata in the concept of conclusiveness of judgment.59 In Ysmael, the case was between Felipe Ysmael Jr. & Co., Inc. and the Deputy Executive Secretary, the Secretary of Environment and Natural Resources, the Director of the Bureau of Forest Development and Twin Peaks Development and Realty Corporation. The present case, on the other hand, was initiated by the Republic of the Philippines represented by the Office of the Solicitor General. No amount of imagination could let us believe that there was an identity of parties between this case and the one formerly filed by Felipe Ysmael Jr. & Co., Inc. The Sandiganbayan held that despite the difference of parties, res judicata nevertheless applies on the basis of the supposed sufficiency of the "substantial identity" between the Republic of the Philippines and Felipe Ysmael, Jr. Co., Inc. We disagree. The Court in a number of cases considered the substantial identity of parties in the application of res judicata in instances where there is privity between the two parties, as between their successors in interest by title60 or where an additional party was simply included in the subsequent case61 or where one of the parties to a previous case was not impleaded in the succeeding case.62 The Court finds no basis to declare the Republic as having substantial interest as that of Felipe Ysmael, Jr. & Co., Inc. In the first place, the Republics cause of action lies in the alleged abuse of power on respondents part in violation of R.A. No. 301963 and breach of public trust, which in turn warrants its claim for restitution and damages. Ysmael, on the other hand, sought the revocation of TLA No. 356 and the reinstatement of its own timber license agreement. Indeed, there is no identity of parties and no identity of causes of action between the two cases. IV. What now is the course of action to take since we cannot affirm the Sandiganbayans grant of the demurrer to evidence? Rule 33, Sec. 1 reads: Sec. 1. Effect of judgment on demurrer to evidence. After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal the order of dismissal is reversed he shall have be deemed to have waived the right to present evidence. The general rule is that upon the dismissal of the demurrer in the appellate court, the defendant loses the right to present his evidence and the appellate court shall then proceed to render judgment on the merits on the basis of plaintiffs evidence. As the Court explained in Generoso Villanueva Transit Co., Inc. v. Javellana:64 The rationale behind the rule and doctrine is simple and logical. The defendant is permitted, without waiving his right to offer evidence in the event that his motion is not granted, to move for a dismissal (i.e., demur to the plaintiffs evidence) on the ground that upon the facts as thus established and the applicable law, the plaintiff has shown no right to relief. If the trial court denies the dismissal motion, i.e., finds that plaintiffs evidence is sufficient for an award of judgment in the absence of contrary evidence, the case still remains before the trial court which should then proceed to hear and receive the defendants evidence so that all the facts and evidence of the contending parties may be properly placed before it for adjudication as well as before the appellate courts, in case of appeal. Nothing is lost. The doctrine is but in line with the established procedural precepts in the conduct of trials that the trial court liberally receive all proffered evidence at the trial to enable it to render its decision with all possibly relevant proofs in the record, thus assuring that the appellate courts upon appeal have all the material before them necessary to make a correct judgment, and avoiding the need of remanding the case for retrial or reception of improperly excluded evidence, with the possibility thereafter of still another appeal, with all the concomitant delays. The rule, however, imposes the condition by the same token that if his demurrer is granted by the trial court, and the order of dismissal is reversed on appeal, the movant loses his right to present evidence in his behalf and he shall have been deemed to have elected to stand on the insufficiency of plaintiffs case and evidence. In such event, the appellate court which reverses the order of dismissal shall proceed to render judgment on the merits on the basis of plaintiffs evidence.65 It thus becomes the Court's duty to rule on the merits of the complaint, duly taking into account the evidence presented by the Republic, and without need to consider whatever evidence the Tuveras have, they having waived their right to present evidence in their behalf. 148

V. Executive Order No. 14-A66 establishes that the degree of proof required in cases such as this instant case is preponderance of evidence. Section 3 thereof reads: SEC. 3. The civil suits to recover unlawfully acquired property under Republic Act No. 1379 or for restitution, reparation of damages, or indemnification for consequential and other damages or any other civil actions under the Civil Code or other existing laws filed with the Sandiganbayan against Ferdinand E. Marcos, Imelda R. Marcos, members of their immediate family, close relatives, subordinates, close and/or business associates, dummies, agents and nominees, may proceed independently of any criminal proceedings and may be proved by a preponderance of evidence. [Emphasis supplied.] Thus, the Court recently held in Yuchengco v. Sandiganbayan,67 that in establishing the quantum of evidence required for civil cases involving the Marcos wealth held by their immediate family, close relatives, subordinates, close and/or business associates, dummies, agents and nominees filed before the Sandiganbayan, that "the Sandiganbayan, x x x was not to look for proof beyond reasonable doubt, but to determine, based on the evidence presented, in light of common human experience, which of the theories proffered by the parties is more worthy of credence." In order that restitution may be proper in this case, it must be first established that the grant of the TLA to Twin Peaks was illegal. With the illegality of the grant established as fact, finding Victor Tuvera, the major stockholder of Twin Peaks, liable in this case should be the ineluctable course. In order that Juan Tuvera may be held answerable as well, his own participation in the illegal grant should also be substantiated. Regarding the first line of inquiry, the Complaint adverted to several provisions of law which ostensibly were violated by the grant of the TLA in favor of Twin Peaks. These include R.A. No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, and Articles 19, 20 and 21 of the Civil Code. Still, the most organic laws that determine the validity or invalidity of the TLA are those that governed the issuance of timber license agreements in 1984. In that regard, the Republic argues that the absence of a bidding process is patent proof of the irregularity of the issuance of the TLA in favor of Twin Peaks. A timber license agreement authorizes a person to utilize forest resources within any forest land with the right of possession and exclusion of others.68 The Forestry Reform Code prohibits any person from utilizing, exploiting, occupying, possessing or conducting any activity within any forest land unless he had been authorized to do so under a license agreement, lease, license or permit.69 The Code also mandates that no timber license agreement shall be issued unless the applicant satisfactorily proves that he has the financial resources and technical capability not only to minimize utilization, but also to practice forest protection, conservation and development measures to insure the perpetuation of said forest in productive condition.70 However, the Code is silent as to the procedure in the acquisition of such timber license agreement. Such procedure is more particularly defined under FAO No. 11, dated 1 September 1970, which provides for the "revised forestry license regulations." FAO No. 11 establishes that it is the Director of Forestry who has the power "to grant timber licenses and permits."71 It also provides as a general policy that timber license agreements shall be granted through no other mode than public bidding.72 However, Section 24 of FAO No. 11 does admit that a timber license agreement may be granted through "negotiation," as well as through "public bidding." 26. When license may be issued.A license under this Regulations may be issued or granted only after an application and an award either through bidding or by negotiation has been made and the Director of Forestry is satisfied that the issuance of such license shall not be inconsistent with existing laws and regulations or prejudicial to public interest, and that the necessary license fee, bond deposit and other requirements of the Bureau of Forestry have been paid and complied with.73 [Emphasis supplied.] However, even a person who is granted a TLA through "negotiation" is still required to submit the same requirements and supporting papers as required for public bidding. The pertinent provisions of FAO No. 11 state: 18. Requirements and supporting papers to be submitted.The following requirements with accompanying supporting papers or documents shall be submitted in addition to the requirements of Section 12: a. With bid application: The applicant shall support his bid application with the required application fee duly paid and proofs of the following: (1) Capitalization.Cash deposits and established credit line by applicant in domestic bank certified to by the bank President or any of its authorized officials, duly attested by depositor as his own to be used exclusively in logging and wood processing operations if awarded the area. The bank certificate shall be accompanied by a written consent by the applicant-depositor for the Director of Forestry or his authorized representative to verify such cash deposit with bank authorities. Capitalization and financial statements. A minimum capitalization of P20.00 per cubit meter in cash and an established credit line of P150.00 per cubic meter based on the allowable annual cut are required. Financial statements certified by the independent and reputable certified public accountants must accompany the application as proof of the necessary capitalization. 149

Additional capitalization, Real Estate. In the event that the capitalization of the applicant is less than the minimum or less than that set by the Director of Forestry for the area, the applicant bidder may be asked to submit an affidavit signifying his readiness, should the area be awarded to him, to convert within a specified time any specified unencumbered and titled real estate into cash for use in operating and developing the area. Presentation of real estate should show location by municipality and province, hectarage, title number, latest land tax declaration, assessed value of land and improvements (stating kind of improvements), and encumbrances if any. (2) Logging machinery and equipment.Evidence of ownership or capacity to acquire the requisite machinery or equipment shall accompany the bid application. The capacity or ability to acquire machineries and equipments shall be determined by the committee on award. Leased equipment or machineries may be considered in the determination by the Committee if expressly authorized in writing by the Director of Forestry. (3) Technical know-how.To assure efficient operation of the area or concession, the applicant shall submit proof of technical competence and know-how and/or his ability to provide hired services of competent personnel. (4) Operation or development plan. An appropriate plan of operation and development of the forest area applied for shall be submitted, including phasing plans and the fund requirements therefor, consistent with selective logging methods and the sustained yield policy of the Bureau of Forestry. This plan must be in general agreement with the working unit plan for the area as contained in Chapter III, Section 6(a) hereinabove. (5) Processing plant.The bidder or applicant shall show evidence of ownership of, or negotiation to acquire, a wood processing plant. The kind and type of plant, such as plywood, veneer, bandmill, etc. shall be specified. The plant should be capable of processing at least 60% of the allowable annual cut. (6) Forestry Department.The applicant shall submit assurance under oath that he shall put a forestry department composed of trained or experienced foresters to carry out forest management activities such as selective logging, planting of denuded or logged-over areas within the concessions as specified by the Director of Forestry and establish a forest nursery for the purpose. (7) Statement on sustained yield operations, reforestation, and protection under management plans. The bidder or applicant shall submit a sworn statement of his agreement and willingness to operate the area under sustained yield to reforest cleared areas and protect the concession or licensed area and under the approved management plan, and to abide with all existing forestry laws, rules and regulations and those that may hereafter be promulgated; and of his agreement that any violation of these conditions shall be sufficient cause for the cancellation of the licenses. (8) Organization plan.Other important statement connected with sound management and operation of the area, such as the submission among others, of the organizational plan and employment of concession guards, shall be submitted. In this connection, the applicant shall submit a sworn statement to the effect no alien shall be employed without prior approval of proper authorities. (9) Unauthorized use of heave equipment.The applicant shall give his assurance that he shall not introduce into his area additional heave equipment and machinery without approval of the Director of Forestry. (10) Such other inducements or considerations to the award as will serve public interest may also be required from time to time. xxxx d) With applications for areas to be negotiated.All the foregoing requirements and supporting papers required for bidding under Section 18(a) hereinabove and of Section 20(b) hereinbelow shall also apply to all areas that may be granted through negotiation. In no case shall an area exceeding 100,000 hectares be granted thru negotiation.74 The rationale underlying the very elaborate procedure that entails prior to the grant of a timber license agreement is to avert the haphazard exploitation of the State's forest resources as it provides that only the most qualified applicants will be allowed to engage in timber activities within the strict limitations of the grant and that cleared forest areas will have to be renewed through reforestation. Since timber is not a readily renewable natural resource, it is essential and appropriate that the State serve and act as a jealous and zealous guardian of our forest lands, with the layers of bureaucracy that encumber the grant of timber license agreements effectively serving as a defensive wall against the thoughtless ravage of our forest resources. There is no doubt that no public bidding occurred in this case. Certainly, respondents did not raise the defense in their respective answers. The absence of such bidding was testified on by prosecution witness Arcangel. Yet even if we consider that Twin Peaks could have acquired the TLA through "negotiation," the prescribed requirements for "negotiation" under the law were still not complied with. It is evident that Twin Peaks was of the frame of mind that it could simply walk up to President Marcos and ask for a timber license agreement without having to comply with the elaborate application procedure under the law. This is indicated by the letter dated 31 May 198475 signed by Twin Peaks Vice President and Treasurer Evelyn Fontanilla, addressed directly to then President Marcos, wherein Twin Peaks expressed that "we would like to request a permit to export 20,000 cubic meters of logs and to cut and process 10,000 cubic meters of the narra species in the same area."76 A marginal note therein signed by Marcos indicates an approval thereof. Neither the Forestry Reform Code nor FAO No. 11 provide for the submission of 150

an application directly to the Office of the President as a proper mode for the issuance of a TLA. Without discounting the breadth and scope of the Presidents powers as Chief Executive, the authority of the President with respect to timber licenses is, by the express terms of the Revised Forestry Code, limited to the amendment, modification, replacement or rescission of any contract, concession, permit, license or any other form of privilege granted by said Code.77 There are several factors that taint this backdoor application for a timber license agreement by Twin Peaks. The forest area covered by the TLA was already the subject of a pre-existing TLA in favor of Ysmael. The Articles of Incorporation of Twin Peaks does not even stipulate that logging was either a principal or secondary purpose of the corporation. Respondents do allege that the Articles was amended prior to the grant in order to accommodate logging as a corporate purpose, yet since respondents have waived their right to present evidence by reason of their resort to demurrer, we cannot consider such allegation as proven. Sec. 18(a)(1) of FAO No. 11 requires that an applicant must have a minimum capitalization of P20.00 per cubic meter in cash and an established credit line of P150.00 per cubic meter based on the allowable annual cut. TLA No. 356 allowed Twin Peaks to operate on 26,000 hectares of forest land with an annual allowable cut of 60,000 cubic meters of timber. With such annual allowable cut, Twin Peaks, therefore, must have at least P1,200,000.00 in cash as its minimum capitalization, following FAO No. 11. An examination of Twin Peaks Articles of Incorporation shows that its paid-up capital was only P312,500.00.78 Clearly, Twin Peaks paid-up capital is way below the minimum capitalization requirement. Moreover, Sec. 18(5) provides that the bidder or applicant shall show evidence of ownership of, or negotiation to acquire, a wood processing plant. However, although TLA No. 356 was issued to Twin Peaks in 1984, it continued to engage the services of at least two sawmills79 as late as 1988. Four (4) years from the issuance of the license, Twin Peaks remained incapable of processing logs. What could have made Twin Peaks feel emboldened to directly request President Marcos for the grant of Timber License Agreement despite the obvious problems relating to its capacity to engage in timber activities? The reasonable assumption is that the official and personal proximity of Juan Tuvera to President Marcos was a key factor, considering that he was the father of Twin Peaks' most substantial stockholder. The causes of action against respondents allegedly arose from Juan Tuveras abuse of his relationship, influence and connection as Presidential Executive Assistant of then President Marcos. Through Juan Tuveras position, the Republic claims that Twin Peaks was able to secure a Timber License Agreement despite its lack of qualification and the absence of a public bidding. On account of the unlawful issuance of a timber license agreement, the natural resources of the country were unlawfully exploited at the expense of the Filipino people. Victor Tuvera, as son of Juan Tuvera and a major stockholder of Twin Peaks, was included as respondent for having substantially benefited from this breach of trust. The circumstance of kinship alone may not be enough to disqualify Victor Tuvera from seeking a timber license agreement. Yet the basic ethical principle of delicadeza should have dissuaded Juan Tuvera from any official or unofficial participation or intervention in behalf of the "request" of Twin Peaks for a timber license. Did Juan Tuvera do the honorable thing and keep his distance from Twin Peaks' "request"? Apparently not. Instead, he penned a Memorandum dated 18 July 1984 in his capacity as Presidential Executive Assistant, directed at the Director of Forestry, the official who, under the law, possessed the legal authority to decide whether to grant the timber license agreements after deliberating on the application and its supporting documents. The Memorandum reads in full: Office of the President of the Philippines Malacanang 18 July 1984 74-84 MEMORANDUM to Director Edmundo Cortes Bureau of Forest Development I wish to inform you that the President has granted the award to the Twin Peaks Realty Development Corporation, of the concession to manage, operate and develop in accordance with existing policies and regulations half of the timber area in the Province of Quirino covered by TLA No. 87, formerly belonging to the Felipe Ysmael, Jr. & Company and comprising 54,920 hectares, and to export half of the requested 20,000 cubic meters of logs to be gathered from the area. Herewith is a copy of the letter concering (sic) this matter of Ms. Evelyn F. Fontanilla, Vice-President and Treasurer of the Twin Peaks Realty Development Corporation, on which the President indicated such approval in his own hand, which I am furnishing you for your information and appropriate action. (signed) JUAN C. TUVERA Presidential Executive Assistant80 The Memorandum establishes at the very least that Tuvera knew about the Twin Peaks "request," and of President Marcos's favorable action on such "request." The Memorandum also indicates that Tuvera was willing to convey those facts to the Director of Forestry, the ostensible authority in deciding whether the Twin Peaks "request" should have been granted. If Juan Tuvera were truly interested in preventing any misconception that 151

his own position had nothing to do with the favorable action on the "request" lodged by the company controlled by his son, he would not have prepared or signed the Memorandum at all. Certainly, there were other officials in Malacaang who could have performed that role had the intent of the Memorandum been merely to inform the Director of Forestry of such Presidential action. Delicadeza is not merely a stentorian term evincing a bygone ethic. It is a legal principle as embodied by certain provisions of the Anti-Graft and Corrupt Practices Act. Section 3 of R.A. No. 3019 states in part: Sec. 3. Corrupt practices of public officers.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: (a) Persuading, inducing or influencing another public officer to perform an act constituting a violation of rules and regulations duly promulgated by competent authority or an offense in connection with the official duties of the latter, or allowing himself to be persuaded, induced or influenced to commit such violation or offense. xxxx (h) Directly or indirectly having financial or pecuniary interest in any business, contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest. The Memorandum signed by Juan Tuvera can be taken as proof that he "persuaded, induced or influenced" the Director of Forestry to accommodate a timber license agreement in favor of Twin Peaks, despite the failure to undergo public bidding, or to comply with the requisites for the grant of such agreement by negotiation, and in favor of a corporation that did not appear legally capacitated to be granted such agreement. The fact that the principal stockholder of Twin Peaks was his own son establishes his indirect pecuniary interest in the transaction he appears to have intervened in. It may have been possible on the part of Juan Tuvera to prove that he did not persuade, induce or influence the Director of Forestry or any other official in behalf of the timber license agreement of Twin Peaks, but then again, he waived his right to present evidence to acquit himself of such suspicion. Certainly, the circumstances presented by the evidence of the prosecution are sufficient to shift the burden of evidence to Tuvera in establishing that he did not violate the provisions of the Anti-Graft and Corrupt Practices Act in relation to the Twin Peaks "request." Unfortunately, having waived his right to present evidence, Juan Tuvera failed to disprove that he failed to act in consonance with his obligations under the AntiGraft and Corrupt Practices Act. In sum, the backdoor recourse for a hugely priced favor from the government by itself, and more in tandem with other brazen relevant damning circumstances, indicates the impudent abuse of power and the detestable misuse of influence that homologously made the acquisition of ill-gotten wealth a reality. Upon the facts borne out by the evidence for the Republic and guideposts supplied by the governing laws, the Republic has a clear right to the reliefs it seeks. VI. If only the Court's outrage were quantifiable in sums of money, respondents are due for significant pecuniary hurt. Instead, the Court is forced to explain in the next few paragraphs why respondents could not be forced to recompensate the Filipino people in appropriate financial terms. The fault lies with those engaged by the government to litigate this case in behalf of the State. It bears to the most primitive of reasons that an action for recovery of sum of money must prove the amount sought to be recovered. In the case at bar, the Republic rested its case without presenting any evidence, documentary or testimonial, to establish the amount that should be restituted to the State by reason of the illegal acts committed by the respondents. There is the bare allegation in the complaint that the State is entitled to P48 million by way of actual damages, but no single proof presented as to why the State is entitled to such amount. Actual damages must be proven, not presumed.81 The Republic failed to prove damages. It is not enough for the Republic to have established, as it did, the legal travesty that led to the wrongful obtention by Twin Peaks of the TLA. It should have established the degree of injury sustained by the State by reason of such wrongful act. We fail to comprehend why the Republic failed to present any proof of actual damages. Was it the inability to obtain the necessary financial documents that would establish the income earned by Twin Peaks during the period it utilized the TLA, despite the presence of the discovery processes? Was it mere indolence or sheer incompetence? Whatever the reason, the lapse is inexcusable, and the injury ultimately conduces to the pain of the Filipino people. If the litigation of this case is indicative of the mindset in the prosecution of ill-gotten wealth cases, it is guaranteed to ensure that those who stole from the people will be laughing on their way to the bank. The claim for moral damages deserves short shrift. The claimant in this case is the Republic of the Philippines, a juridical person. We explained in Filipinas Broadcasting v. Ago Medical & Educational Center-Bicol Christian College of Medicine (AMEC-BCCM):82 A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the Court's statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum. 152

Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.83 As explained, a juridical person is not entitled to moral damages under Article 2217 of the Civil Code. It may avail of moral damages under the analogous cases listed in Article 2219, such as for libel, slander or any other form of defamation. Suffice it to say that the action at bar does not involve any of the analogous cases under Article 2219, and indeed upon an intelligent reading of Article 2219, it is difficult to see how the Republic could sustain any of the injuries contemplated therein. Any lawyer for the Republic who poses a claim for moral damages in behalf of the State stands in risk of serious ridicule. However, there is sufficient basis for an award of temperate damages, also sought by the Republic notwithstanding the fact that a claim for both actual and temperate damages is internally inconsistent. Temperate or moderate damages avail when "the court finds that some pecuniary loss has been suffered but its amount can not from the nature of the case, be proved with certainty."84 The textual language might betray an intent that temperate damages do not avail when the case, by its nature, is susceptible to proof of pecuniary loss; and certainly the Republic could have proved pecuniary loss herein.85 Still, jurisprudence applying Article 2224 is clear that temperate damages may be awarded even in instances where pecuniary loss could theoretically have been proved with certainty.1awphi1.net In a host of criminal cases, the Court has awarded temperate damages to the heirs of the victim in cases where the amount of actual damages was not proven due to the inadequacy of the evidence presented by the prosecution. These cases include People v. Oliano,86 People v. Suplito,87 People v. De la Tongga,[88] People v. Briones,89 and People v. Plazo.90 In Viron Transportation Co., Inc. v. Delos Santos,91 a civil action for damages involving a vehicular collision, temperate damages were awarded for the resulting damage sustained by a cargo truck, after the plaintiff had failed to submit competent proof of actual damages. We cannot discount the heavy influence of common law, and its reliance on judicial precedents, in our law on tort and damages. Notwithstanding the language of Article 2224, a line of jurisprudence has emerged authorizing the award of temperate damages even in cases where the amount of pecuniary loss could have been proven with certainty, if no such adequate proof was presented. The allowance of temperate damages when actual damages were not adequately proven is ultimately a rule drawn from equity, the principle affording relief to those definitely injured who are unable to prove how definite the injury. There is no impediment to apply this doctrine to the case at bar, which involves one of the most daunting and noble undertakings of our young democracythe recovery of ill-gotten wealth salted away during the Marcos years. If the doctrine can be justified to answer for the unlawful damage to a cargo truck, it is a compounded wrath if it cannot answer for the unlawful exploitation of our forests, to the injury of the Filipino people. The amount of P1,000,000.00 as temperate damages is proper. The allowance of temperate damages also paves the way for the award of exemplary damages. Under Article 2234 of the Civil Code, a showing that the plaintiff is entitled to temperate damages allows for the award of exemplary damages. Even as exemplary damages cannot be recovered as a matter of right, the courts are empowered to decide whether or not they should be adjudicated. Ill-gotten wealth cases are hornbook demonstrations where damages by way of example or correction for the public good should be awarded. Fewer causes of action deserve the stigma left by exemplary damages, which "serve as a deterrent against or as a negative incentive to curb socially deleterious actions."92 The obtention of the timber license agreement by Twin Peaks through fraudulent and illegal means was highlighted by Juan Tuveras abuse of his position as Presidential Executive Assistant. The consequent exploitation of 26 hectares of forest land benefiting all respondents is a grave case of unjust enrichment at the expense of the Filipino people and of the environment which should never be countenanced. Considering the expanse of forest land exploited by respondents, the volume of timber that was necessarily cut by virtue of their abuse and the estimated wealth acquired by respondents through grave abuse of trust and public office, it is only reasonable that petitioner be granted the amount of P1,000,000.00 as exemplary damages. The imposition of exemplary damages is a means by which the State, through its judicial arm, can send the clear and unequivocal signal best expressed in the pithy but immutable phrase, "never again." It is severely unfortunate that the Republic did not exert its best efforts in the full recovery of the actual damages caused by the illegal grant of the Twin Peaks TLA. To the best of our ability, through the appropriate vehicle of exemplary damages, the Court will try to fill in that deficiency. For if there is a lesson that should be learned from the national trauma of the rule of Marcos, it is that kleptocracy cannot pay. As those dark years fade into the backburner of the collective memory, and a new generation emerges without proximate knowledge of how bad it was then, it is useful that the Court serves a reminder here and now. WHEREFORE, the petition is GRANTED. The Resolution of the Sandiganbayan dated 23 May 2001 is REVERSED. Respondents Juan C. Tuvera, Victor P. Tuvera and Twin Peaks Development Corporation are hereby ordered to jointly and severally pay to the Republic of the Philippines One Million (P1,000,000.00) Pesos, as and for temperate damages, and One Million (P1,000,000.00) Pesos, as and for exemplary damages, plus costs of suit. SO ORDERED. IV. NOMINAL DAMAGES G.R. No. L-68138 May 13, 1991 AGUSTIN Y. GO and THE CONSOLIDATED BANK AND TRUST CORPORATION (Solidbank), petitioners, vs. 153

HONORABLE INTERMEDIATE APPELLATE COURT and FLOVERTO JAZMIN, respondents. C.M. De los Reyes & Associates for petitioners. Millora & Maningding Law Offices for private respondent. FERNAN, C. J.:p The instant petition for review on certiorari questions the propriety of the respondent appellate court's award of nominal damages and attorney's fees to private respondent whose name was used by a syndicate in encashing two U.S. treasury checks at petitioner bank. Floverto Jazmin is an American citizen and retired employee of the United States Federal Government. He had been a visitor in the Philippines since 1972 residing at 34 Maravilla Street, Mangatarem, Pangasinan. As pensionado of the U.S. government, he received annuity checks in the amounts of $ 67.00 for disability and $ 620.00 for retirement through the Mangatarem post office. He used to encash the checks at the Prudential Bank branch at Clark Air Base, Pampanga. In January, 1975, Jazmin failed to receive one of the checks on time thus prompting him to inquire from the post offices at Mangatarem and Dagupan City. As the result of his inquiries proved unsatisfactory, on March 4, 1975, Jazmin wrote the U.S. Civil Service Commission, Bureau of Retirement at Washington, D.C. complaining about the delay in receiving his check. Thereafter, he received a substitute check which he encashed at the Prudential Bank at Clark Air Base. Meanwhile, on April 22, 1975, Agustin Go, in his capacity as branch manager of the then Solidbank (which later became the Consolidated Bank and Trust Corporation) in Baguio City, allowed a person named "Floverto Jazmin" to open Savings Account No. BG 5206 by depositing two (2) U. S. treasury checks Nos. 5-449-076 and 5-448-890 in the respective amounts of $1810.00 and $913.40 1 equivalent to the total amount of P 20,565.69, both payable to the order of Floverto Jasmin of Maranilla St., Mangatarem, Pangasinan and drawn on the First National City Bank, Manila. The savings account was opened in the ordinary course of business. Thus, the bank, through its manager Go, required the depositor to fill up the information sheet for new accounts to reflect his personal circumstances. The depositor indicated therein that he was Floverto Jazmin with mailing address at Mangatarem, Pangasinan and home address at Maravilla St., Mangatarem, Pangasinan; that he was a Filipino citizen and a security officer of the US Army with the rank of a sergeant bearing AFUS Car No. H-2711659; that he was married to Milagros Bautista; and that his initial deposit was P3,565.35. He wrote CSA No. 138134 under remarks or instructions and left blank the spaces under telephone number, residence certificate/alien certificate of registration/passport, bank and trade performance and as to who introduced him to the bank. 2 The depositor's signature specimens were also taken. Thereafter, the deposited checks were sent to the drawee bank for clearance. Inasmuch as Solidbank did not receive any word from the drawee bank, after three (3) weeks, it allowed the depositor to withdraw the amount indicated in the checks. On June 29, 1976 or more than a year later, the two dollar cheeks were returned to Solidbank with the notation that the amounts were altered. 3 Consequently, Go reported the matter to the Philippine Constabulary in Baguio City. On August 3, 1976, Jazmin received radio messages requiring him to appear before the Philippine Constabulary headquarters in Benguet on September 7, 1976 for investigation regarding the complaint filed by Go against him for estafa by passing altered dollar checks. Initially, Jazmin was investigated by constabulary officers in Lingayen, Pangasinan and later, at Camp Holmes, La Trinidad, Benguet. He was shown xerox copies of U.S. Government checks Nos. 5-449-076 and 5-448-890 payable to the order of Floverto Jasmin in the respective amounts of $1,810.00 and $913.40. The latter amount was actually for only $13.40; while the records do not show the unaltered amount of the other treasury check. Jazmin denied that he was the person whose name appeared on the checks; that he received the same and that the signature on the indorsement was his. He likewise denied that he opened an account with Solidbank or that he deposited and encashed therein the said checks. Eventually, the investigators found that the person named "Floverto Jazmin" who made the deposit and withdrawal with Solidbank was an impostor. On September 24, 1976, Jazmin filed with the then Court of First Instance of Pangasinan, Branch II at Lingayen a complaint against Agustin Y. Go and the Consolidated Bank and Trust Corporation for moral and exemplary damages in the total amount of P90,000 plus attorney's fees of P5,000. He alleged therein that Go allowed the deposit of the dollar checks and the withdrawal of their peso equivalent "without ascertaining the identity of the depositor considering the highly suspicious circumstances under which said deposit was made; that instead of taking steps to establish the correct identity of the depositor, Go "immediately and recklessly filed (the) complaint for estafa through alteration of dollar check" against him; that Go's complaint was "an act of vicious and wanton recklessness and clearly intended for no other purpose than to harass and coerce the plaintiff into paying the peso equivalent of said dollar checks to the CBTC branch office in Baguio City" so that Go would not be "disciplined by his employer;" that by reason of said complaint, he was "compelled to present and submit himself" to investigations by the constabulary authorities; and that he suffered humiliation and embarrassment as a result of the filing of the complaint against him as well as "great inconvenience" on account of his age (he was a septuagenarian) and the distance between his residence and the constabulary headquarters. He averred that his peace of mind and mental and emotional tranquility as a respected citizen of the community would not have suffered had Go exercised "a little prudence" in ascertaining the identity of the depositor and, for the "grossly negligent and reckless act" of its employee, the defendant CBTC should also be held responsible. 4 154

In their answer, the defendants contended that the plaintiff had no cause of action against them because they acted in good faith in seeking the "investigative assistance" of the Philippine Constabulary on the swindling operations against banks by a syndicate which specialized in the theft, alteration and encashment of dollar checks. They contended that contrary to plaintiff s allegations, they verified the signature of the depositor and their tellers conducted an Identity check. As counterclaim, they prayed for the award of P100,000 as compensatory and moral damages; P20,000 as exemplary damages; P20,000 as attorney's fees and P5,000 as litigation, incidental expenses and costs. 5 In its decision of March 27, 1978 6 the lower court found that Go was negligent in failing to exercise "more care, caution and vigilance" in accepting the checks for deposit and encashment. It noted that the checks were payable to the order of Floverto Jasmin, Maranilla St., Mangatarem, Pangasinan and not to Floverto Jazmin, Maravilla St., Mangatarem, Pangasinan and that the differences in name and address should have put Go on guard. It held that more care should have been exercised by Go in the encashment of the U.S. treasury checks as there was no time limit for returning them for clearing unlike in ordinary checks wherein a two to three-week limit is allowed. Emphasizing that the main thrust of the complaint was "the failure of the defendants to take steps to ascertain the identity of the depositor," the court noted that the depositor was allegedly a security officer while the plaintiff was a retiree-pensioner. It considered as "reckless" the defendants' filing of the complaint with the Philippine Constabulary noting that since the article on a fake dollar check ring appeared on July 18, 1976 in the Baguio Midland Courier, it was only on August 24, 1976 or more than a month after the bank had learned of the altered checks that it filed the complaint and therefore, it had sufficient time to ascertain the identity of the depositor. The court also noted that instead of complying with the Central Bank Circular Letter of January 17, 1973 requesting all banking institutions to report to the Central Bank all crimes involving their property within 48 hours from knowledge of the crime, the bank reported the matter to the Philippine Constabulary. Finding that the plaintiff had sufficiently shown that prejudice had been caused to him in the form of mental anguish, moral shock and social humiliation on account of the defendants' gross negligence, the court, invoking Articles 2176, 2217 and 2219 (10) in conjunction with Article 21 of the Civil Code, ruled in favor of the plaintiff. The dispositive portion of the decision states: WHEREFORE, this Court finds for plaintiff and that he is entitled to the reliefs prayed for in the following manner: Defendant Agustin Y. Co and the CONSOLIDATED BANK AND TRUST CORPORATION are hereby ordered to pay, jointly and severally, to the plaintiff the amount of SIX THOUSAND PESOS (P6,000.00) as moral damages; ONE THOUSAND PESOS (P1,000.00) as attorney's fees and costs of litigation and to pay the costs and defendant AGUSTIN Y. Go in addition thereto in his sole and personal capacity to pay the plaintiff the amount of THREE THOUSAND PESOS (P3,000.00) as exemplary damages, all with interest at six (6) percent per annum until fully paid. SO ORDERED. The defendants appealed to the Court of Appeals. On January 24, 1984, said court (then named Intermediate Appellate Court) rendered a decision 7 finding as evident negligence Go's failure to notice the substantial difference in the identity of the depositor and the payee in the check, concluded that Go's negligence in the performance of his duties was "the proximate cause why appellant bank was swindled" and that denouncing the crime to the constabulary authorities "merely aggravated the situation." It ruled that there was a cause of action against the defendants although Jazmin had nothing to do with the alteration of the checks, because he suffered damages due to the negligence of Go. Hence, under Article 2180 of the Civil Code, the bank shall be held liable for its manager's negligence. The appellate court, however, disallowed the award of moral and exemplary damages and granted nominal damages instead. It explained thus: While it is true that denouncing a crime is not negligence under which a claim for moral damages is available, still appellants are liable under the law for nominal damages. The fact that appellee did not suffer from any loss is of no moment for nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, maybe vindicated or recognized and not for the purpose of indemnifying the plaintiff for any loss suffered by him (Article 2221, New Civil Code). These are damages recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown (Elgara vs. Sandijas, 27 Phil. 284). They are not intended for indemnification of loss suffered but for the vindication or recognition of a right violated or invaded (Ventanilla vs. Centeno, L-14333, January 28, 1961). And, where the plaintiff as in the case at bar, the herein appellee has established a cause of action, but was not able to adduce evidence showing actual damages then nominal damages may be recovered (Sia vs. Espenilla CA-G.R. Nos. 45200-45201-R, April 21, 1975). Consequently, since appellee has no right to claim for moral damages, then he may not likewise be entitled to exemplary damages (Estopa vs. Piansay, No. L-14503, September 30, 1960). Considering that he had to defend himself in the criminal charges filed against him, and that he was constrained to file the instant case, the attorney's fees to be amended (sic) to plaintiff should be increased to P3,000.00. Accordingly, the appellate court ordered Go and Consolidated Bank and Trust Corporation to pay jointly and severally Floverto Jazmin only NOMINAL DAMAGES in the sum of Three Thousand Pesos (P 3,000.00) with interest at six (6%) percent per annum until fully paid and One Thousand Pesos (P 1,000.00) as attorney's fees and costs of litigation. 155

Go and the bank filed a motion for the reconsideration of said decision contending that in view of the finding of the appellate court that "denouncing a crime is not negligence under which a claim for moral damages is available," the award of nominal damages is unjustified as they did not violate or invade Jazmin's rights. Corollarily, there being no negligence on the part of Go, his employer may not be held liable for nominal damages. The motion for reconsideration having been denied, Go and the bank interposed the instant petition for review on certiorari arguing primarily that the employer bank may not be held "co-equally liable" to pay nominal damages in the absence of proof that it was negligent in the selection of and supervision over its employee. 8 The facts of this case reveal that damages in the form of mental anguish, moral shock and social humiliation were suffered by private respondent only after the filing of the petitioners' complaint with the Philippine Constabulary. It was only then that he had to bear the inconvenience of travelling to Benguet and Lingayen for the investigations as it was only then that he was subjected to embarrassment for being a suspect in the unauthorized alteration of the treasury checks. Hence, it is understandable why petitioners appear to have overlooked the facts antecedent to the filing of the complaint to the constabulary authorities and to have put undue emphasis on the appellate court's statement that "denouncing a crime is not negligence." Although this Court has consistently held that there should be no penalty on the right to litigate and that error alone in the filing of a case be it before the courts or the proper police authorities, is not a ground for moral damages, 9 we hold that under the peculiar circumstances of this case, private respondent is entitled to an award of damages. Indeed, it would be unjust to overlook the fact that petitioners' negligence was the root of all the inconvenience and embarrassment experienced by the private respondent albeit they happened after the filing of the complaint with the constabulary authorities. Petitioner Go's negligence in fact led to the swindling of his employer. Had Go exercised the diligence expected of him as a bank officer and employee, he would have noticed the glaring disparity between the payee's name and address on the treasury checks involved and the name and address of the depositor appearing in the bank's records. The situation would have been different if the treasury checks were tampered with only as to their amounts because the alteration would have been unnoticeable and hard to detect as the herein altered check bearing the amount of $ 913.40 shows. But the error in the name and address of the payee was very patent and could not have escaped the trained eyes of bank officers and employees. There is therefore, no other conclusion than that the bank through its employees (including the tellers who allegedly conducted an identification check on the depositor) was grossly negligent in handling the business transaction herein involved. While at that stage of events private respondent was still out of the picture, it definitely was the start of his consequent involvement as his name was illegally used in the illicit transaction. Again, knowing that its viability depended on the confidence reposed upon it by the public, the bank through its employees should have exercised the caution expected of it. 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. 10 As Go's negligence was the root cause of the complained inconvenience, humiliation and embarrassment, Go is liable to private respondents for damages. Anent petitioner bank's claim that it is not "co-equally liable" with Go for damages, under the fifth paragraph of Article 2180 of the Civil Code, "(E)mployers shall be liable for the damages caused by their employees . . . acting within the scope of their assigned tasks." Pursuant to this provision, the bank is responsible for the acts of its employee unless there is proof that it exercised the diligence of a good father of a family to prevent the damage. 11 Hence, the burden of proof lies upon the bank and it cannot now disclaim liability in view of its own failure to prove not only that it exercised due diligence to prevent damage but that it was not negligent in the selection and supervision of its employees. WHEREFORE, the decision of the respondent appellate court is hereby affirmed. Costs against the petitioners. SO ORDERED. [G.R. No. L-8194. July 11, 1956.] EMERENCIANA M. VDA. DE MEDINA, ET AL., Plaintiffs-Appellees, vs. GUILLERMO CRESENCIA, ET AL., Defendants. GUILLERMO CRESENCIA, Appellant. REYES, J.B.L., J.: Appeal by Defendant Guillermo Cresencia from the judgment of the Court of First Instance of Manila in its civil case No. 19890, sentencing Appellant, jointly and severally with his co-Defendant Brigido Avorque, to pay Plaintiffs Emerencia M. Vda. de Medina and her minor children damages in the total amount of P56,000, P5,000 attorneys fees, and costs. It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-2232 (Manila), driven by Brigido Avorque, smashed into a Meralco post on Azcarraga Street, resulting in the death of Vicente Medina, one of its passengers. A criminal case for homicide through reckless imprudence was filed against Avorque (criminal case No. 22775 of the Court of First Instance of Manila), to which he pleaded guilty on September 9, 1953. The heirs of the deceased, however, reserved their right to file a separate action for damages, and on June 16, 1953, brought suit against the driver Brigido Avorque and Appellant Guillermo Cresencia, the registered owner and operator of the jeepney in question. Defendant Brigido Avorque did not file any answer; chan roblesvirtualawlibrarywhile Defendant Cresencia answered, disclaiming liability on the ground that he had sold the jeepney in question on October 14, 1950 to one Maria A. Cudiamat; chan roblesvirtualawlibrarythat the jeepney had been repeatedly sold by one buyer after another, until the vehicle was purchased on January 29, 156

1953 by Rosario Avorque, the absolute owner thereof at the time of the accident. In view of Cresencias answer, Plaintiffs filed leave, and was allowed, to amend their complaint making Rosario Avorque a co-Defendant; chan roblesvirtualawlibraryand the latter, by way of answer, admitted having purchased the aforesaid jeepney on May 31, 1953, but alleged in defense that she was never the public utility operator thereof. The case then proceeded to trial, during which, after the Plaintiffs had presented their evidence, Defendants Guillermo Cresencia and Rosario Avorque made manifestations admitting that the former was still the registered operator of the jeepney in question in the records of the Motor Vehicles Office and the Public Service Commission, while the latter was the owner thereof at the time of the accident; chan roblesvirtualawlibraryand submitted the case for the decision on the question of who, as between the two, should be held liable to Plaintiffs for damages. The lower court, by Judge Jose Zulueta, held that as far as the public is concerned, Defendant Cresencia, in the eyes of the law, continued to be the legal owner of the jeepney in question; chan roblesvirtualawlibraryand rendered judgment against him, jointly and severally with the driver Brigido Avorque, for P6,000 compensatory damages, P30,000 moral damages, P10,000 exemplary damages, P10,000 nominal damages, P5,000 attorneys fees, and costs, while Defendant Rosario Avorque was absolved from liability. From this judgment, Defendant Cresencia appealed. We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182 (December 29, 1953), which the court below cited, that the law (section 20 [g], C. A. No. 146 as amended) requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee; chan roblesvirtualawlibraryand that if property covered by the franchise is transferred or leased without this requisite approval, the transfer is not binding against the public or the Service Commission; chan roblesvirtualawlibraryand in contemplation of law, the grantee of record continues to be responsible under the franchise in relation to the Commission and to the public. There we gave the reason for this rule to be as follows:chanroblesvirtuallawlibrary cralaw Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission so that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval is granted, there should be a public hearing, with notice to all interested parties, in order that the Commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to public interest cralaw . The above ruling was later reiterated in the cases of Timbol vs. Osias, L-7547, April 30, 1955 and Roque vs. Malibay Transit Inc., L- 8561, November 18, 1955. As the sale of the jeepney here in question was admittedly without the approval of the Public Service Commission, Appellant herein, Guillermo Cresencia, who is the registered owner and operator thereof, continued to be liable to the Commission and the public for the consequences incident to its operation. Wherefore, the lower court did not err in holding him, and not the buyer Rosario Avorque, responsible for the damages sustained by Plaintiff by reason of the death of Vicente Medina resulting from the reckless negligence of the jeepneys driver, Brigido Avorque. Appellant also argues that the basis of Plaintiffs action being the employers subsidiary liability under the Revised Penal Code for damages arising from his employees criminal acts, it is Defendant Rosario Avorque who should answer subsidiarily for the damages sustained by Plaintiffs, since she admits that she, and not Appellant, is the employer of the negligent driver Brigido Avorque. The argument is untenable, because Plaintiffs action for damages is independent of the criminal case filed against Brigido Avorque, and based, not on the employers subsidiary liability under the Revised Penal Code, but on a breach of the carriers contractual obligation to carry his passengers safely to their destination (culpa contractual). And it is also for this reason that there is no need of first proving the insolvency of the driver Brigido Avorque before damages can be recovered from the carrier, for in culpa contractual, the liability of the carrier is not merely subsidiary or secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code). The propriety of the damages awarded has not been questioned, Nevertheless, it is patent upon the record that the award of P10,000 by way of nominal damages is untenable as a matter of law, since nominal damages cannot co-exist with compensatory damages. The purpose of nominal damages is to vindicate or recognize a right that has been violated, in order to preclude further contest thereon; chan roblesvirtualawlibraryand not for the purpose of indemnifying the Plaintiff for any loss suffered by him (Articles 2221, 2223, new Civil Code.) Since the court below has already awarded compensatory and exemplary damages that are in themselves a judicial recognition that Plaintiffs right was violated, the award of nominal damages is unnecessary and improper. Anyway, ten thousand pesos cannot, in common sense, be deemed nominal. With the modification that the award of P10,000 nominal damages be eliminated, the decision appealed from is affirmed. Costs against Appellant. SO ORDERED. G.R. No. L-14333 January 28, 1961

OSCAR VENTANILLA, plaintiff-appellant, vs. GREGORIO CENTENO, defendant-appellee. Espinosa and Ventanilla for plaintiff-appellant. Artemio R. Pascual for defendant-appellee. PADILLA, J.: This is an action to recover damages claimed to have been suffered by the plaintiff due to the defendant's neglect in perfecting within the reglementary period his appeal from an adverse judgment rendered by the Court of First Instance of Manila in civil case No. 18833, attorney's fees and costs (civil No. 2063, Court of First Instance of Nueva Ecija). After trial, the Court rendered judgment in favor of the plaintiff and against the 157

defendant, ordering the latter to pay the former the sum of P200 as nominal damages and the costs. The plaintiff appealed to the Court of Appeals, which certified the case to this Court on the ground that only questions of law are raised. The defendant did not appeal. The facts, as found by the trial court, are: In Civil Case No. 18833 of the Court of First Instance of Manila, entitled Oscar Ventanilla vs. Edilberto Alejandrino and Aida G. Alejandrino, plaintiff retained the service of Atty. Gregorio Centeno to represent him and prosecute the case. Civil Case No. 19833 was an action for the recovery of P4,000.00 together with damages. Decision unfavorable to the plaintiff was received by Atty. Gregorio Centeno on July 21, 1955, and a notice of appeal was filed by Atty. Centeno on July 25, 1955. On July 30, 1955, Atty. Centeno wrote to the plaintiff the letter, Exhibit A, enclosing copies of the decision and that notice of appeal, and stating that he was not conformable to the decision and had not hesitated to file the notice of appeal. Plaintiff Oscar Ventanilla after receiving the letter and copy of the decision went to see Atty. Centeno in his office in Manila about August 5, 1955. Atty. Centeno informed him that he intended to appeal and plaintiff agreed. Plaintiff, however, did not leave with Atty. Centeno at that time the amount for the appeal bond. About the middle of Aug. 1955, Atty. Centeno wrote a letter to the plaintiff enclosing therein forms for an appeal bond. The plaintiff Ventanilla, however, instead of executing an appeal bond, and because use of his reluctance to pay the premium on the appeal bond, decided to file a cash appeal bond of P60.00. He went to the office of Atty. Centeno at about 4 o'clock on August 18,1955, but was informed by the clerk, Leonardo Sanchez, that Atty. Centeno was in Laguna campaigning for his candidacy as member of the Provincial Board. Plaintiff then issued the check Exhibit 1, for P60.00 as appeal bond and delivered the same to Leonardo Sanchez with instruction to give the same to Atty. Centeno upon his arrival. The Court does not believe plaintiff's testimony that Sanchez had contacted Atty. Centeno by telephone and that he issued the cheek upon instruction of Atty. Centeno. Leonardo Sanchez had informed the plaintiff that Atty. Centeno was in Laguna, and if he were in Manila, Sanchez could not have known the whereabouts of Atty, Centeno. It was therefore improbable that he could contact Atty. Centeno that afternoon. On August 17, Atty. Centeno prepared the motion for extension of time to file the record on appeal, Exhibit D, which was filed only on August 20, 1955. Atty. Centeno returned to Manila and went to his office at about 10 o'clock in the morning of August 22. He cash the check, Exhibit 1, with the Marvel Building Corporation and then went to the office of the Clerk of Court to file the appeal bond. According to Atty. Centeno it was not accepted because the period of appeal had already expired, and that it was only at that time he came to know that the period of appeal had expired. The court does not likewise believe the testimony of Atty. Centeno. Neither the Clerk of Court, or any of the employees had the right to refuse an appeal bond that is being filed, for it is not in his power to determine whether or not the appeal bond has been filed within the time prescribed by law. In fact the record on appeal was accepted and filed on September 5, 1955, but no appeal bond has been filed by Atty. Centeno. The fact that the record on appeal was admitted for filing is the best evidence that Atty. Centeno had not in fact filed any appeal bond. The record on appeal was disapproved because it was filed out of time and no appeal bond had been filed by the plaintiff. (pp. 33-36, rec. on app.) The appellant claims that the trial court erred in not ordering the appellee to pay him actual or compensatory, moral, temperate or moderate, and exemplary or corrective damages; in ordering the appellee to pay the appellant only the sum of P200, and not P2,000 as nominal damages; and in not ordering the appellee to pay the appellant the sum of P500 as attorney's fee. Article 2199 of the new Civil Code provides: 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. Such compensation is referred to as actual or compensatory damages. He who claims actual or compensatory damages must establish and prove by competent evidence actual pecuniary loss.1 The appellant's bare allegation that by reason of the appellee's indifference, negligence and failure to perfect within the reglementary period his appeal from an adverse judgment rendered in civil case No. 18833, by not paying the appeal bond of P60, he lost his chance to recover from the defendants therein the sum of P4,000 and moral and actual damages, which he could have recovered if the appeal had duly been perfected, indicates that his claim for actual or compensatory damages is highly speculative. Hence he is not entitled to such damages. The appellant claims that he suffered mental anguish upon learning that his appeal had not been perfected within the reglementary period due to the appellee's negligence; serious anxiety upon learning that his adversary had won by a mere technicality; besmirched reputation for losing the opportunity to substantiate his claim made while testifying in open court that he was entitled to collect the sum of P4,000 and damages from the defendants in civil No. 18833; and wounded feelings for the appellee's failure to remain faithful to his client and worthy of his trust and confidence. The provisions of the new Civil Code on moral damages state: Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shocks, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; . (2) Quasi-delicts causing physical injuries; . (3) Seduction, abduction, rape, or other lascivious acts; . 158

(4) Adultery or concubinage; . (5) Illegal or arbitrary detention or arrest; . (6) Illegal search; . (7) Libel, slander or any other form of defamation; . (8) Malicious prosecution . (9) Acts mentioned in article 309; . (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants, and brothers and sister may bring action mentioned in No. 9 of this article, in the order named. Art. 2220. Willful injury to property may be 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. Moral damages are recoverable only when physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shocks, social humiliation, and similar injury are the proximate result of a criminal offense resulting in physical injuries, quasi-delicts causing physical injuries, seduction, abduction, rape or other lascivious acts, adultery or concubinage, illegal or arbitrary detention or arrest, illegal search, libel, slander or any other form of defamation, malicious prosecution, disrespect for the dead or wrongful interference with funerals, violation of specific provisions of the Civil Code on human relations, and willful injury to property. To this we may add that where a mishap occurs resulting in the death of a passenger being transported by a common carrier, the spouse, descendants and ascendants of the deceased passenger are entitled to demand moral damages for mental anguish by reason of the passenger's death.2 In Malonzo vs. Galang, supra, this Court categorically stated that . . .Art. 2219 specifically mentions "quasi-delicts causing physical injuries," as an instance when moral damages may be allowed, thereby implying that all other quasi-delicts not resulting in physical injuries are excluded (Strebel vs. Figueras, G.R. L-4722, Dec. 29, 1954), excepting, of course, the special torts referred to in Art. 309 (par. 9, Art. 2219) and in Arts. 21, 26, 27, 28, 29, 30, 32, 34 and 35 on the chapter on human relations (par. 10, Art. 2219).3 Since the appellant's cause of action for recovery of moral damages is not predicated upon any of those specifically enumerated, the trial court did not err in declining to award moral damages to him. Concerning temperate or moderate damages claimed by the appellant, considering that he is not entitled to actual or compensatory damages but has been awarded nominal damages by the trial court, such award precludes the recovery of temperate or moderate damages,4 and so the trial court did not err in refusing to award temperate or moderate damages to the appellant . As regards exemplary or corrective damages also claimed by the appellant, since it cannot be recovered as a matter of right and the court will decide whether or not they should be adjudicated,5 if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner,6 the trial court has judiciously, wisely and correctly exercised its discretion in not awarding them to the appellant. Relative to the sufficiency of the sum of P200 as nominal damages awarded by the trial court to the appellant, article 2221 of the new Civil Code provides: Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. The assessment of nominal damages is left to the discretion of the court, according to the circumstances of the case.7 Considering the circumstances, as found by the trial court, and the degree of negligence committed by the appellee, a lawyer, in not depositing on time the appeal bond and filing the record on appeal within the extension period granted by the court, which brought about the refusal by the trial court to allow the record on appeal, the amount of P200 awarded by the trial court to the appellant as nominal damages may seem exiguous. Nevertheless, considering that nominal damages are not for indemnification of loss suffered but for the vindication or recognition of a right violated or invaded; and that even if the appeal in civil case No. 18833 had been duly perfected, it was not an assurance that the appellant would succeed in recovering the amount he had claimed in his complaint, the amount of P2,000 the appellant seeks to recover as nominal damages is excessive. After weighing carefully all the considerations, the amount awarded to the appellant for nominal damages should not be disturbed. As regards attorney's fees, since the appellant's claim does not fall under any of those enumerated in article 2208, new Civil Code, the appellee may not be compelled to satisfy it. The judgment appealed from is affirmed, without special pronouncement as to costs. 159

V. TEMPERATE OR MODERATE G.R. No. L-56505 May 9, 1988 MAXIMO PLENO, petitioner, vs. THE HONORABLE COURT OF APPEALS, PHILIPPINE PAPER PRODUCTS, INC., and FLORANTE DE LUNA respondents. Oben, Oben & Fruto Law Office for petitioner. Poblador, Azada, Tomacruz, Cacanindin & Orbos Law Office for respondents. GUTTIERREZ, JR., J.: This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 64497 which modified the decision of the Court of First Instance of Rizal in a vehicular accident case and reduced by one-half the award for temperate damages, moral damages, and attorney's fees from a total of P430,000.00 to P215,000.00. The awards for actual damages in the amount of P48,244.08 and exemplary damages in the amount of P50,000.00 were affirmed. The facts of the case are summarized as follows: On April 11, 1972, plaintiff commenced an action for damages in the Court of First Instance of Rizal (Pasig) against defendants Philippine Paper Products, Inc., and Florante de Luna. The material allegations of the complaint are to the following effect. That the Philippine Paper Products, Inc., is the owner of a delivery truck (Ford Stake) with Plate No. 30-51 Y/Y T-Rizal '71, having in its regular employ in conducting business several motor vehicle drivers, one of them being Florante de Luna who, on December 21, 1971, at about 12:45 P.M., was in charge of and driving said delivery truck (Ford Stake) on the right lane of the South Super Highway in Taguig, Rizal, in a careless, reckless and imprudent manner, by driving the vehicle at a speed greater than what is reasonable and proper at the time without taking necessary precaution to avoid accident to persons and damage to property, that as a consequence of the said driver's reckless and imprudent driving, said vehicle of the defendant Philippine Paper Products, Inc., hit, bumped and sideswiped plaintiffs Volkswagen Delivery Van, with Plate No. 52-50 Y/Y, Manila '71, driven by said plaintiff causing the Volkswagen Delivery Van to swerve to the right that it rammed into the rear part of a truck with Plate No. 8157W T-Manila '71 parked at the shoulder of the road; that as a result of the vehicular accident, plaintiff suffered various serious injuries, was hospitalized, and because he suffered injuries affecting his brain, he acted beyond normalcy at times, that as a consequence he suffered actual and compensatory damages of approximately P100,000.00; moral damages of P500,000.00 for suffering from bodily pain, mental anguish, serious anxiety for Florante de Luna's wanton and brazen disregard of traffic laws and regulations aggravated by his running away from the scene of the accident, without rendering aid to the victim, plaintiff should be adjudged as exemplary or corrective damages of P 300,000.00 as an example to all, owners, operators and drivers of motor vehicles and in the interest of public safety and welfare, as well as the sum of P100,000.00 for the payment of attorney's fees. Plaintiff prays that defendants be jointly and severally ordered to pay him P100,000.00 for actual and compensatory damages; for moral damages P500,000.00; P300,000.00 as exemplary damages; for attorney's fees P100,000.00, interest at the rate of 6% on the actual and moral damage ages and loss of earnings computed from the filing of the complaint until the P100,000.00 and the P500,000.00 are fully paid and the costs of suit. On May 19, 1972, defendant Philippine Paper Products., Inc., filed its answer with counterclaim. While it admits the allegation of paragraph 1 of the complaint pertaining to it, the Id defendant denies the substantial allegations of the complaint and alleges as defenses that it exercises and continues to exercise the requisite diligence in the employment and supervision of its employees and laborers as well as in keeping in constant repair and in good condition all its vehicles; and that plaintiff is the one grossly negligent, careless and imprudent in driving and operating his vehicle who has neither the license nor the permit to drive the said vehicle. It prays that plaintiffs complaint be dismissed with cost against him; and on the counterclaim, that plaintiff be ordered to pay to the herein defendant actual damages and other expenses of litigation as shall be proved in the course of the proceedings as well as exemplary damages sufficient for the purposes sought to be attained thereby apart from reasonable attorney's fees. On May 24, 1972, plaintiff filed his Answer to Counterclaim denying the allegations of the counterclaim of defendant. On May 25, 1972, defendant Florante de Luna filed his answer with counterclaim. While he admits the allegations of paragraphs 1, 2 and 3 of the complaint, he denies the substantial allegations of the same and, as affirmative and/or special defenses, avers that plaintiff without proper license to drive a Volkswagen Kombi delivery van drove said vehicle along a portion of the east service road of the South Super Highway in Taguig, Rizal in a reckless and imprudent manner by operating and driving said kombi delivery van at a speed very much more than reasonable without taking the precautions to prevent injury to persons and damage to property and without considering the traffic condition at the place and time that as a consequence the delivery van titled to its left side of the road following its travel direction that somewhere in the front part of the vehicle being driven by him made a slight contact with the rear left side of the vehicle driven by plaintiff and despite the same, plaintiff did not bother to put to a stop his vehicle instead and continued to drive that his vehicle smashed against another vehicle driven by a certain Ruben Rivera and that in view of the circumstance plaintiff is not entitled from defendant even if only attorney's fees. As counterclaim, he avers that as a result of the filing of the unwarranted complaint he suffered mental anguish, serious anxiety besides forcing himself to 160

retain the services of counsel. He prays for the dismiss of the complaint in addition for payment for moral damages and attorney's fees and costs of suit. On June 1, 1972, plaintiff filed his answer to defendant Florante de Luna's counterclaim by denying the substantial allegations of said counterclaim with the averment that the complaint was initiated and filed for a just cause. After due trial, on August 30, 1977, the Court a quo rendered its decision sentencing jointly and severally defendants to pay plaintiff (1) P 48,244.08 actual damages: (2) temperate or moderate damage of P200,000.00; (3) moral damages of P200,000.00; (4) exemplary damages of P50,000.00; (5) attorney's fees of P30,000.00; and (6) costs of suit. The facts, as related by the trial court and as borne out by the records, are as follows: As brought out in the trial, the incident which is the basis of this complaint involves a three vehicle collision which happened about past noon of December 21,1971 at the South Super Highway in the portion of Taguig, Rizal. At about 12:45 in the afternoon of said date, a snub-nosed volkswagen kombi with plate No. 52-50, Manila '71, was cruising towards Manila along the asphalt pavement of the service road of the South Super Highway. The kombi had two passengers, Maximo Pleno who was at the wheel, and, a New Zealander, James Arthur Longley, who was sitting beside Mr. Pleno on the front seat. The volkswagen was suddenly and without warning hit on its left rear corner by a red colored cargo truck. Due to the impact, the volkswagen moved faster veering to the right and smashing unto the right rear portion of a truck with plate No. 81-87, T-Manila '71, parked along the shoulder of the road in front of the National Manpower Building. The parked truck was also moved forward when it was hit on its back by the Volkswagen and the driver of the parked truck, Ruben Rivera who was at that time standing in front of his parked truck urinating was bumped by his own truck. Witness to all these was Diego Orca, a gardener, who at such time, was watering his plants in front of the National Manpower Building. Having been hit from behind by the red colored cargo truck and having smashed into the rear portion of the parked truck, the right front portion of the volkswagen on the driver's side was reduced to a pulp. At impact, the front door on the right side burst open and Langley, who was seated on that side, was thrown out of the vehicle and landed on a ditch. Pleno, the driver of the volkswagen was crushed in the driver's seat since the kombi's front portion offered no protection, being the snub-nosed type, with the motor at the back. His legs were trapped in the wreckage. The red cargo truck stopped for a while and then spead away. Ruben Rivera, the driver of the parked truck, was brought by a passing jeepney to the hospital. Langley who was thrown out of the volkswagen but was not seriously hurt, with the help of a few persons nearby, extricated Pleno from the volkswagen after pushing the truck away and thereafter took him to the Makati Medical Center. Pleno suffered extensive injuries on his head and legs and affected his eyesight and stayed in the hospital for almost five (5) months. The hit and run incident was reported to the Taguig Police Department several hours later or about 3:15 in the afternoon of the same day by Manuel Pleno, son of plaintiff Maximo Pleno. An investigator was sent by the Taguig Police Department at the scene of the incident where an initial report was submitted containing a description of the suspect vehicle as a delivery truck colored red all over with yellow, canvass at the top. A team to investigate this hit and run incident was formed thereafter by Patrolman Maximo de Guzman of the Taguig Police Department. Days later or on January 8, 1972, a certain Atty. Tagumpay Eusebio, who is connected with the Philippine Paper Products, Inc., went to Pat. de Guzman's precinct at Taguig, Rizal inquiring why one of the Taguig's Police Traffic Officers at the service road of the South Super Highway stopped and investigated Florante de Luna, driver of the said company. Pat. de Guzman told Atty. Eusebio that De Luna was stopped and investigated because the delivery truck he was driving matched the description of the delivery truck in a hit and run incident which occured at about 12:45 p.m. of December 21, 1971. Atty. Eusebio promised to bring De Luna to the police precinct. After receiving such information, Pat. de Guzman and his team proceeded to the compound of the Philippine Paper Products, Inc., at Sun Valley Subdivision, South Super Highway, Paranaque, Rizal on the same day, January 8, 1972. Pat. de Guzman and his team made further visits at said compound and during these visits, they discovered that the suspect vehicle exmbited plate No. 3- 51 Taguig, Rizal, T-Manila '71 and was painted red all over. The team also discovered a'dented'or'depressed'portion of the right front portion of the vehicle. The distance from the ground to the 'denied' or 'depressed' portion of the truck was three feet and 3 inches, the same distance from the ground to the depressed portion of the volkswagen on its left rear portion. The paint was scratched off and there were blue colored stains. The volkswagen was blue colored. On one of the visits by Pat. de Guzman, he brought with him Dr. Diego Orca, the gardener who, at the time of the incident on December 21, 1971, was tending to his plants in front of the National Manpower Corporation and who witnessed the 3 vehicle collision, Orca positively Identified the vehicle of the defendant corporation as the one involved in the incident. Also brought along the team in one of their visits was a photographer, Bernardo Beduya who took photographs of the suspect vehicle (Exhibits "D-l" to "D- 2").<re||an1w> Pat. de Guzman was also able to look into the logbook of the Philippine Paper Products, Inc., which showed that the suspect vehicle with Florante de Luna driving it, left the compound of the company on December 21, 1971 at 12:00 p.m. or barely 25 minutes before the incident. A photograph of the log book with a finger pointing at the above entry was taken by photographer Beduya (Exh. "F-a"). On January 12, 1972, while Patrolman de Guzman and his team were in the compound of the Philippine Paper Products, Inc., they met Atty. Eusebio with two companions who later turned out to be Florante de Luna and an insurance adjuster. Atty. Eusebio invited Pat. de Guzman in Ms office and asked him about the progress of the investigation to which de Guzman informed him that 99% of the evidence in their hands pointed to the delivery truck of the defendant company as the vehicle involved in the accident. Atty. Eusebio then took Pat. de Guzman aside and revealed to him that it was only sometime that their driver, Florante de Luna, admitted to him the involvement of the company truck in the incident and that was the reason why a representative or 161

adjuster of the insurance company was with them so that they can settle the case. Thereafter, Pat. de Guzman, together with Atty. Eusebio, Florante de Luna and the adjuster, went to De Guzman's precinct where De Luna executed a written statement (Exhibits "G" and "G-l"). De Luna's statement, although admitting that the delivery truck of the company was involved in the incident, however, claimed that the fault lay in Mr. Pleno because while a truck was moving on its way to the main road, Pleno who was driving the volkswagen applied his brakes and his left rear portion veered towards the right and came in contact with the delivery truck being driven by De Luna. Thereafter, the volkswagen accelerated and went out of control veering further towards the right and hitting the truck which was then moving towards the direction of the highway. In other words, De Guzman claimed that the braked track was no longer parked at the time of the collision but that it was already moving, and the fault in the collision was on the part of Mr. Maximo Pleno. Before the written statement of Pleno was sub-scribed before the mayor of Taguig, Rizal, an incident transpired as testified by Pat. De Guzman: WITNESS (Pat. de Guzman) A. Before you went to the Municipal Building of Taguig, Rizal, for the subscription of the statement of Mr. de Luna, while I was along inside your investigation room, Atty. Eusebio with a certain adjuster of the insurance company approached me and offered me something. ATTY. OBEN: Q. What is that something? A. He told me in vernacular, to wit ; Tsip, iyon pala naman ay hindi pa nalalaman ng pamilya ng victim ang pagkakadeskobre ninyo nito tungkol sa involvement ni De Luna sa kasong ito. Kung maari ay pag-usapan na lang natin ito.' And I answered: Ano ang ibig mong sabihin ng pagusapan? Q. What did Atty. Eusebio tell you? A. He told me that if you will not divulge this incident to the family of the victim, we will just give you the amount, all the expenses that may be incurred by the Philippine Paper Products, Inc., in this case. Q. If Atty. Eusebio is in the courtroom, can you point to him up in the courtroom? A. He is in the middle. (witness pointing to Atty. Eusebio who is seated in the courtroom). (TSN., Nov. 21, 1972, pp. 5-9). As regards the injuries suffered by Maximo Pleno, it may be seen from the exhibits shown particularly the photographs of the volkswagen that it is the driver's side which was severely damaged considering that the vehicle is the snub-nosed type with its motor at the back. Due to the impact, Pleno's head was dashed and he lost consciousness with his legs trapped in the wreckage. It took several persons to extricate him therefrom. And they have to push the parked truck away before they could do so. Pleno was brought to the Makati Medical Center in the afternoon of December 21, 1971 and he left the hospital almost five (5) months later or on May 9, 1972. The orthopedic surgeon who treated Pleno at the emergency room of the Makati Medical Hospital testified that Pleno sustained multiple fractures of both thigh bones and the left shin bone or tibia He sustained multiple lacerations in his forehead and left thigh. There was evidence of head injury, according to the surgeon. Pleno was incoherent in pain and disabled, Pleno had to undergo about five surgical operations of his thighs one of which involving the insertion of these many operations, he still finds it difficult to stand up even with the aid of crutches or a cane. He walks with a limp and his left is shorter than the right. As regards his eyesight, Pleno complained that his left eye suffers from double vision so that whenever he looks to the left, he sees two objects of the same thing The injuries above mentioned affected his social and business life for he could not longer attend social gatherings nor could he concentrate on his business ventures.'(at pp. 30-39, Panted Amended Joint Record on Appeal). (pp. 39-47) Upon appeal, the Court of Appeals affirmed the factual findings of the lower court, to wit: We find the findings of the lower court after hearing the parties to be more in consonance to the truth and what actually occurred. We fully agree that the Kombi delivery panel was hit by the cargo truck driven by the driver at the left rear corner when the cargo truck of the driver was overtaking it. Naturally, when one overtakes another vehicle the overtaking vehicle must run faster than the vehicle to be overtaken. The impact caused the Kombi delivery panel upon being hit to swerve to the light at the same time due to the force and suddenness of impact Pleno lost control of his vehicle, as it happened in this case it accelerated towards the parked cargo truck with chairs. A table re-enactment of the incident convinces us that the claim of the driver that he saw a cargo truck moving out from the curve into the road a moment before the collision is false. It is a fact that the driver appellant was about to overtake the Kombi delivery panel momentt before the accident. Therefore, he must have been only about 2 to 5 meters to the left behind the Kombi delivery panel. At this position and distance, it is impossible for the driver to see the cargo truck with chairs he claimed to be moving out of the curve as his vision or view to the right is covered by the Kombi delivery panel which he was about to overtake. We likewise refuse to behave the driver's claim that the Kombi delivery panel swerved to the left towards his (driver's) lane to avoid the cargo truck with chairs then moving out of the shoulder of the road. Ruben Rivera, driver of the cargo truck with chairs, testified that his truck was parked and was not about to move out of the showder. Rivera testified that he was standing in front of his truck. Witness Diego Orca corroborated Ruben Rivera. 162

Efforts of appellants to discredit Rivera notwithstanding, we are convinced that the driver hitting the left rear corner of the Kombi delivery panel in the manner to overtake it was the proximate cause of the accident. It is also unbelievable that the driver did not feel or notice any contact between his cargo truck and the Kombi delivery panel. After all, it has been established and admitted after police investigation that the protruding front right edge of the loading platform of the cargo truck, establishrd by the telltale marks and measurement, hit the left rear corner of the Kombi delivery panel. Considering the accelerated speed of the cargo truck of the driver in attempting to overtake the Kombi delivery panel, in all probability upon contact there would have emitted an impact sound similar to a sound of a hard object hit by another hard object. This kind of sound one cannot miss to feel or notice. We are not, therefore, persuaded by the pretense of the driver. We are in full accord with the Court a quo when it said: Having been hit from behind by the red colored cargo truck and having smashed unto the rear portion of the parked car the right front portion of the volkswagen on the driver's truck side was reduced to a pulp. At impact, the front door on the right side burst open and Langley, who was seated on that side, was thrown out of the vehicle and landed on a ditch. Pleno, the driver of the volkswagen was crushed in the driver's seat since the Kombi's front portion offered no protection being the snub-nosed type, with the motor at the back. His legs were trapped in the wreckage. The red cargo truck stopped for a while and then sped away. Ruben Rivera, the driver of the parked truck, was brought by a passing jeepney to the hospital. Langley who was thrown out of the volkswagen but was not seriously hurt, with the help of a few persons nearby, extricated Pleno from the volkswagen after pushing the truck away and thereafter took him to the Makati Medical Center. Pleno suffered extensive injuries on his head and legs and affected his eyesight and stayed in the hospital for almost five (5) months. (at pp. 31-32, Printed Record on Appeal). The immediately preceding discussion disposes of the second, third, fourth, and fifth errors assigned by appellant driver. From the reconstruction of the incident, we find the driver the one negligent and not the plaintiff-appellee as assailed by the appellants. Neither do we find any contributory negligence attributable to plaintiff-appellee. The proximate cause as hereintofore discussed above was the recklessness of the driver De Luna in miscalculate his distance to and from the Kombi delivery panel on overtaking. So much so that the front right edge of his loading platform hit the left rear corner of the Kombi delivery panel Causing the Kombi delivery panel to swerve to the right forcing it to run smack into the parked cargo truck with chairs. Having been found negligent, which negligence resulted to serious injuries, the lower court did not err in sentencing defendant driver De Luna to pay actual, moral, temperate and exemplary damages, likewise to pay attorney's fees. To justify these awards, we consider the established fact that it is beyond dispute, despite driver's protestation that he did not hit the Kombi delivery panel at the left rear corner; that he did not attempt to evade responsibility; even knowingly realizing that he caused the accident, he merely stopped a while (which we doubt if he did); and, upon seeing the extensiveness of the resulting damage and the seriousness of the injury, left the scene of the accident and kept quiet all about it until discovered thru police investigation thus making it a hit and run case, pure and simple. Appellant chiver De Luna's seventh, eight and ninth errors will be treated together with the errors assigned by appellant corporation. Appellant Corporation asserts that it exercised due diligence in the selection and supervision of its employees. Therefore, it claimed it was error for the trial court not to so hold and further claimed that it erred in holding the Corporation able to plaintiff appellee. Contending that at the time of the accident its employee driver De Luna, a duly licensed professional driver, had been driving for five years before his employment with the Corporation in 1970; that he was given examination in driving and found fit; that he was assigned to drive small vehicles before being assigned to drive cargo trucks for two months and after being tested for his driving ability, appellant Corporation professes that it had exercised the due diligence of a good father of a family in the selection and supervision of its employee driver De Luna. One of the overriding circumstances considered by the court a quo in disregarding the defense of exercise of due diligence interposed by appellant Corporation is the record of defendant driver De Luna that he was once accused of serious physical injuries thru reckless imprudence. Appellant Corporation argued that in that case driver De Luna was acquitted. True. But the records did not show that his acquittal was in a trial on the merits. The case may have been dismissed and he was acquitted for failure of the prosecution to prosecute thru desistance of the aggrieved party. his innocence was not therefore proven. It is not enough that defendant Corporation hold high and waves driver's acquittal of that charge but Corporation should have presented evidence that in the trial on the merits his employed defendant driver was declared innocent. A diligent and thorough inquiry of the background of driver De Luna was not undertaken. Otherwise, defendantappellant Corporation should not have hired De Luna had it exercised the due diligence it is required by law in hiring the driver, the accident would not have occurred in the manner it happened and would have been avoided. The lower court, as we are, was not satisfied with the testimonies of Manuel Zurbano and Benjamin Francisco, both employees of appellant Corporation. Their testimonies, aside from dealing merely on generalities and mere observations on defendant driver De Luna's driving were not thorough. It war, not enough. They should have declared on the different company procedures in hiring its employees, particularly its drivers. There are steps, manual of procedures to be followed strictly by employers before hiring its employees. In the case at bar, evidence has it that there was unexcusable laxity in the supervision of its driver by the Corporation. Proof of 163

this is that the accident happened on December 21, 1972 and not until January 8, 1972 when the defendantappellant Corporation, thru Atty. Tagumpay Eusebio, came to know that one of its vehicles was involved in an accident. Indeed, if there was close supervision exercised by the defendant-appellant Corporation on its employees and proper care of its equipments, it would have known of the involvement of its driver De Luna in the accident in question. As it was lax in its supervision, it did not know until confronted that its cargo truck met an accident and caused the damage and injury in question. It is very difficult for us to believe the claim of the appellant that it did not report the accident because no one in its company knew about the accident. That even De Luna himself did not realize that the truck he was driving came in contact with the plaintiffs Kombi delivery panel. We have discarded driver De Luna's pretense that he did not realize that his truck came in contact with the Kombi delivery panel of plaintiff. His pretense is contrary to human and factual experience. A carefull driver can even detect a small pebble hitting his vehicle. Even a slight nudge becomes discernible. How much more with the contact and impact which have been established beyond doubt and ultimately admitted by driver De Luna that his truck, after all, hit the Kombi at its rear left corner which sent the Kombi delivery panel careening to the right smack against the parked cargo truck with chairs. Not only did the defendant-appellant corporation not report the accident to the authorities, but we are convinced by the conclusion arrived at by the trial court that defendant-appellant Corporation thru its representative and counsel, Atty. Eusebio, attempted to cover up the involvement of its driver and truck in the accident from the victim's family (Testimony of Pat. de Guzman). (pp. 49-54, Rollo) The court, however, modified the award on damages such that temperate damages were reduced from P200,000.00 to P100,000.00; moral damages were reduced from P200,000.00 to Pl00,000.00; and attorney's fees were reduced from P30,000.00 to P15,000.00. It further ruled that the employer's ability is subsidiary. All the parties assailed the decision by filing two separate petitions before us. Philippine Paper Products, Inc., sought the reversal of the factual findings of the appellate court as regards their lialibility The case was docketed as G.R. No. 56511. On the other hand, Maximo Pleno filed G.R. No. 56505 questioning the reduction of the damages awarded to him and the court's ruling that the ability of Philippine Paper Products, Inc., as employer is only subsidiary. On May 20, 1981, we issued a resolution in both petitions. G.R. No. 56511 was denied, "the questions raised being factual and for insufficient showing that findings of facts by respondent court are unsupported by substantial evidence." G.R. No. 56505, was given due course and it is the petition which we now resolve. In this same resolution, we declared "that with respect to the affirmed judgment of the Court of Appeals ordering respondents to pay jointly and severally the petitioner P48,244.08, actual damages, P100,000.00 temperate or moderate damages, P100,000.00 moral damages, P50,000.00 exemplary damages, and P15,000.00 attorney's fees, and the costs of suit, (with reduction of a total of P215,000.00) wherein the petition for review in G.R. No. 56511 has been herein DENIED, execution may issue immediately by the court a quo upon receipt of this resolution." (p. 79, Rollo) The resolution became final and executory on September 7, 1981 and an entry of judgment was made. The issues raised in this petition are two-fold. They are: (1) whether or not the employer's liability in quasidelict is subsidiary, and (2) whether or not the appellant court was correct in reducing the amount of damages awarded to the petitioner. We sustain the view of the petitioner that the ability of an employer in quasi-delict is primary and solidary and not subsidiary. This, we have ruled in a long line of cases. (See Bachrach Motor Co. v. Gamboa, L-110296, May 21, 1957; Malipol v. Tan, 55 SCRA 202; Barredo v. Garcia and Almario, 73 Phil. 607; Vinluan v. Court of Appeals, et al., 16 SCRA 742; Anuran, et al. v. Buno, et al., 17 SCRA 224; Poblete v. Fabros, 93 SCRA 20; Lanuzo v. Ping, 100 SCRA 205; Prudenciado v. Alliance Transport System, Inc., 148 SCRA 440) The Court of Appeals affirmed the awards of damages based on its findings, as follows: Both appellants assailed the awards of damages. Appellant Corporation claims that damages were not alleged in the complaint nor competent evidence adduced to prove the damages awarded. This is a sweeping statement. We find on record sufficient evidence supporting the adjudication of damages in favor of the plaintiff-appellee. Maximo Pleno is a mechanical engineer, a topnotcher, and at the time of the accident was a director, vice-president and general manager of Mayon Ceramics Corporation. He was confined from the date of the accident up to May, 1972. He could not work immediately. He sustained serious wounds on his forehead and legs. In short, he became an invalid. According to Dr. Ramon Borromeo, plaintiff-appellee Maximo Pleno sustained multiple fractures involving both thigh bones and the left shin bone or tibia and there is evidence of head imjury. Dr. Borromeo conducted a series of operations. In order to be more detailed, we quote from the brief of the appellee the condition of the plaintiff-appellee Mr. Pleno, borne by the records and remained unrefuted as follows: Dr. Ramon Borromeo, the orthopedic surgeon who treated Mr. Pleno and saw him at the emergency room of the Makati Medical Center on the day of the accident, testified that Mr. Pleno sustained multiple fractures involving both thigh bones and the left shin bone or tibia multiple laceration involving wound in his forehead and left thigh; and, evidence of head injury (t.s.n. Borromeo, February 22, 1974, p. 10 and 11). Mr. Pleno was incoherent when he first saw him (ibid, p. 11). He was in pain (ibid); limited in leg motion because of the fractures and disabled (ibid, pp. 11-12). On that same day, Mr. Pleno's wound in the thighs were cleaned followed by skeletal traction to both legs by which a wire is inserted to the bone to obtain more or less sittisfactory ent a temporary procedure, Dr. Borromeo explained, to relieved swelling and spasm of the muscles (ibid, pp. 13 and 14). Two weeks thereafter, Dr. Borromeo conducted another operation, this time what he described to be an open surgery on the left thigh bone, the purpose of which was to obtain an accurate alignment of the fractures (ibid, p. 15). Dr. Borromeo performed still another operation three weeks thereafter, this time on the right thigh bone (ibid, p. 16). This was not to be the last of the operations Mr. Pleno underwent. A year later, Mr. Pleno developed foreign body reaction, which according to Dr. Borromeo, necessitated another 164

surgery, this time the action of the metallic appliance (Exh. I) on both thighs (ibid, P. 16). Then, again, several months later he developed rejection of the metallic appliance with secondary infection of the bones which required another operation (ibid, p. 17).<re||an1w> The metallic appliance, the surgeon explained, is inserted throughout the whole canal of the thigh bone to obtain adequate alignment and in the case of Mr. Pleno, the appliance was inserted on both thigh bones (ibid, p. 18). Mr. Pleno had to use crutches because the fracture was not just an ordinary fracture; it was what the doctor called 'comminute fractures,' meaning the bone was broken up into several fragments, multiple fragments which naturally would prolong the healing period (ibid, p. 19). After Identifying the various x-ray Films presented (Exhibits M, M-1, M-2 and M-4), Dr. Borromeo testified that definitely there is shortening of oneleg of Mr. Pleno, the left leg, despite the surgery (ibid, pp. 23 and 24). Mr. Pleno had complained of defective eyesight (t.s.n., Pleno, July 13,1973, pp. 28 and 29). On the witness stand, an eye specialist, Dr. Reynaldo Bordador testified that Mr. Pleno was suffering from horizontal deplopia or double vision of the left eye which can be caused by injury resulting from a blunt instrument hitting the forehead or any part of the head (t.s.n. Bordador, April looks to the left, he would be seeing two objects (ibid, p. 8). Prolonged reading Will result in headache (ibid). Dr. Bordador described Mr. Pleno's eye condition as one which resulted from paralysis of one of the occular musde (ibid, p. 9). While surgery could be performed, the outcome is not guaranteed there will also be double vision no matter how good the surgery is, the doctor concluded (ibid, p. 9). (at pp. 14-17) There is clear and convinced evidence establishing actual and compensatory damages. The gravity of the injuries Mr. Pleno received and the result pain and mental suffer is very much evident from the medical diaganosis and prognosis initated above. pp. 54-57, Rollo) Nevertheless, as stated earlier, the appellate court reduced the amount of temperate and moral damages as well as the amount of attorney's fees on the ground that the awards were "too high" .The award of temperate damages was reduced by the appellate court on the ground that the amount of P200,000.00 is rather "too high" especially considering the fact that the driver De Luna is a mere driver and defendant-appellant Corporation is only subsidiarily liable thereof. The award was reduced to P100,000.00. The petitioner now assails the reduction of the damages as without justification. It specifically mentions the findings of the trial court which were affirmed by the appellate court regarding the gravity of the injuries suffered by the petitioner, the effect of the injuries upon him as a person, and his business as well as his standing in society. And yet, it reduced the amount of damages. As stated earlier, the employer's liability in quasi-delict is primary and solidary. The award of temperate, moral, and exemplary damages as well as attorney's fees lies upon the discretion of the court based on the facts and circumstances of each case. (See Magbanua v. Intermediate Appellate Court, 137 SCRA 328; Siquenza v. Court of Appeals, 137 SCRA 570; San Andres v. Court of Appeals, 116 SCRA 81; Sarkies Tours Phil., Inc. v. Intermediate Appellate Court, 124 SCRA 588; Prudenciado v. Alliance Transport System, Inc., supra.). The court's discretion is, of course, subject to the condition that the award for damages is not excessive under the attendant facts and circumstance of the case. Temperate damages are included within the context of compensatory damages (Radio Communications of the Philippines, Inc. (RCPI) v. Court of Appeals, supra.). In arriving at a reasonable level of temperate damages to be awarded, trial courts are guided by our ruling that: ... There are cases where from the nature of the case, defenite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to one's commercial credit or to the goodwill of a business firm is often hard to show certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act. (Araneta v. Bank of America, 40 SCRA 144,145) In the case of moral damages, the yardstick shaould be that the "amount awarded should not be palpably and scandalously excessive" so as to indicate that it was the result of passion, prejudice or corruption on the part of the trial court (Gerada v. Warner Barnes & Co., Inc., 57 O.G. (4) 7347, 7358; Sadie v. Bachrach Motor Co., Inc., 57 O.G. (4) 636; Adone v. Bachrach Motor Co., Inc., 656 cited in Prudenciado v. Alliance Transport System, Inc., supra.).<re||an1w> Moreover, the actual losses sustained by the aggrieved parties and the gravity of the injuries must be considered in arriving at reasonable levels (Siquenza v. Court of Appeals, supra, cited in Prudenciado v. Alliance Transport System, Inc., supra.). The trial court based the amounts of damages awarded to the petitioner on the following circumstances: Coming now to the damages suffered by plaintiff Maximo Pleno, it is not controverted that Pleno was hospitalized for about five months beginning December 21, 1971, the day of the incident, up to May 9, 1972. While in the hospital, he underwent several major operations on his legs and in spite of Id operations, a deformity still resulted and that his left leg is shorter than the right. The medical expenses, hospital bills and doctor's fees were properly exhibited and not rebutted by defendants. This being the case, actual expenses of P48,244.08 may be awarded. As to the loss or impairment of earning capacity, there is no doubt that Pleno is an enterpreneur and the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an industrious and resourceful person with several projects in line and were it not for the incident, might have pushed them through. On the day of the incident, Pleno was driving homeward with geologist Langley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income however has not been sufficiently 165

established so that this Court cannot award actual damages, but, an award of temperate or moderate damages may still be made on loss or impairment of earning capacity. That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from double vision in his left eye is also established. Because of this, he suffers from some inferiority complex and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila Electric Railroad Co., 44 Phil 165; Cordage, et al. v. LTB Co., et al., L11037, Dec. 29,1960, and in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given. There is also no doubt that due to the incident, Pleno underwent physical suffering, mental anguish, fight, severe arudety and that he also underwent several major operations. As previously stated, Pleno is the founder of Mayon Ceramics Corporation, manufacturer of the now famous Crown Lynn ceramic wares. He is a mechanical engineer and the topnotcher of the professional examination for mechanical engineering in 1938. From the record, most if not all of his children excelled in academic studies here and abroad. The suffering, both mental and physical, which he experienced, the anxiety and fright that he underwent are sufficiently proved, if not patent. He is therefore entitled to moral damages. Pleno is also entitled to exemplary damages since it appears that gross negligence was committed in the hiring of driver de Luna. In spite of his past record, he was still hired by the corporation. As regards de Luna, the very fact that he left the scene of the incident without assisting the victims and without reporting to the authorities entitles an award of exemplary damages, so as to serve as an example that in cases of accidents of this kind, the drivers involved should not leave their victims behind but should stop to assist the victims or if this is not possible, to report the matter immediately to the authorities. That the corporation did not also report the matter to the authorities and that their lawyer would attempt to bribe the police officers in order that the incident would be kept a secret shows that the corporation ratified the act of their employees and such act also shows bad faith. Hence, Id corporation is able to pay exemplary damages. The award of attorney's fees is also proper in this case considering the circumstances and that it took more than five years of trial to finish this case. Also, plaintiffs counsel prepared lengthy and exhausive memorandum. (pp- 48-50, Amended Joint Record on Appeal) We rule that the lower court's awards of damages are more consonant with the factual circumstances of the instant case. The trial court's findings of facts are clear and well-developed. Each item of damages is adequately supported by evidence on record. On the other hand, there are no substantial reasons and no references to any misimpressions of facts in the appellate decision. The Court of Appeals has shown no sufficient reasons for altering factual findings which appear correct. We, therefore, affirm the lower court's awards of damages and hold that the appellate court's reduction of the amounts of temperate and moral damages is not justified. However, we modify the award of attorney's fees to P20,000.00 which we deem to be just and equitable under the circumstances of the case. WHEREFORE, the instant petition is GRANTED. The questioned decision is REVERSED and SET ASIDE. The decision of the Court of First Instance of Rizal (Pasig) in Civil Case No. 16024 is AFFIRMED in all respects, except for the award of attorney's fees which is reduced to P20,000.00. SO ORDERED. G.R. No. 126524 November 29, 2001

BPI INVESTMENT CORPORATION, petitioner, vs. D.G. CARREON COMMERCIAL CORPORATION, DANIEL G. CARREON, AURORA J. CARREON, AND JOSEFA M. JECIEL, respondents. PARDO, J.: Before the Court is a petition for review on certiorari of the decision1 of the Court of Appeals reversing the ruling of the Regional Trial Court, Makati, dismissing petitioner's complaint for recovery of a sum of money alleged as overpayment of money market placements. The Facts Petitioner BPI Investment Corporation (BPI Investments), formerly known as "Ayala Investment and Development Corporation," was engaged in money market operations. Respondent D.G. Commercial Corporation was a client of petitioner and started its money market placements in September, 1978. The individual respondents, spouses Daniel and Aurora Carreon and Josefa M. Jeceil also placed with BPI Investments their personal money in money market placements. On November 15, 1979, D.G. Carreon Commercial Corporation (D.G. Carreon, for brevity) placed with BPI Investments P318,981.59 in money market placement with a maturity term of thirty two days, or up to December 17, 1979, at a maturity value of P323,518.22. BPI Investments issued the corresponding sales order slip for straight sale and confirmation slip. On December 12, 1979, there appeared in BPI Investments ledger due D.G. Carreon an amount of P323,518.22, which is the exact amount to mature on December 17, 1979. D.G. Carreon did not make any money placement maturing on December 12, 1979. As a result of this, Mr. Celso Abrantes, an officer of BPI Investments called up Aurora Carreon about the money market placement supposedly maturing on December 12, 1979. Aurora Carreon instructed Abrantes to roll over the amount of P323,518.22, for another thirty days at 19% interest to mature on January 11, 1980. A sales order slip and a confirmation slip were executed dated December 12, 1979. On December 17, 1979, BPI Investments credited D.G. Carreon with another P323,518.22 via roll over of P300,000.00, for a term of one hundred twenty days at 19% interest maturing on April 15, 1980, and 166

P23,518.22, paid out in cash. A sales order slip for straight sale and a confirmation slip were executed. BPI Investments paid the money placement on April 16, 1980. The money placement in the amount of P319,000.00 that matured on April 16, 1980 was again rolled over for a term of sixty one days at 19% interest maturing on June 16, 1980, with a maturity value of P329,443.81. The amount was again rolled over for a term of thirty days at 18% interest maturing on July 16, 1980, and again rolled over for another thirty days at 18% interest. BPI Investments paid D.G. Carreon twice in interest of the amount of P323,518.22, representing a single money market placement, the first on December 12, 1979, and the second on December 17, 1979. According to petitioner, their bookkeeper made an error in posting "12-17" on the sales order slip for "12-12." BPI Investments claimed that the same placement was also booked as maturing on December 12, 1979. Aurora Carreon instructed BPI Investments to roll over the whole amount of P323,518.22 for another thirty days, or up to January 11, 1980, at 19% interest. BPI Investments claimed that roll overs were subsequently made from maturing payments on which BPI Investments had made over payments at a total amount of P410,937.09, as follows: April 14, 1980 P14,371.74 June 18, 1980 P9,648.38 August 12, 1980 P100,000.00 March 19, 1981 P66,259.88 October 19, 1981 P220,657.64 TOTAL P410,937.09

All the above payments were evidenced by checks issued by BPI Investments to respondents. On April 21, 1982, BPI Investments wrote respondents Daniel Carreon and Aurora Carreon, demanding the return of the overpayment of P410,937.09.2 They discussed the matter with BPI Investments. The respondents asserted that there was no overpayment and asked for time to look for the papers. Upon the request of BPI Investments, the spouses Daniel and Aurora Carreon sent to BPI Investments a proposed memorandum of agreement, dated May 7, 1982, stating that: "NOW, THEREFORE, and for (sic) in consideration of the foregoing, the parties herein agree as follows: "1. Because of the age and retrieval difficulty of the transactions on this placement, the Company has a fiveyear option to determine if the said placement referred to as funded, and if so, to submit to AIDC (Now BPI Investments) documents to this effect. And if such documents support the funding of side placement, AIDC (BPI Investments) shall pay the company the stated amount being temporarily reimbursed by the Company with a 12% p.a. interest. In the spirit of goodwill the company hereby agrees to temporarily reimburse AIDC the amount of FOUR HUNDRED TEN THOUSAND NINE HUNDRED THIRTY SEVEN and 9/100 PESOS (P410,937.09) representing the full amount of the claim of AIDC as mentioned above."3 On May 10, 1982, BPI Investments, without responding to the memorandum and proposal of D.G. Carreon filed with the Court of First Instance of Rizal, Branch 36, Makati, a complaint4 for recovery of a sum of money against D.G. Carreon with preliminary attachment. On May 14, 1982, the trial court issued an order5 for preliminary attachment after submission of affidavit of merit to support the petition, and the posting of a bond in the amount of P200,000.00. However, on October 8, 1982, the trial court lifted the writ of attachment.6 On October 28, 1982, BPI Investments moved for reconsideration, but the trial court denied the motion after finding the absence of double payment to the defendants. On July 30, 1982, respondents D.G. Carreon filed with the trial court an answer7 to the complaint, with counterclaim. D.G. Carreon asked for compensatory damages in an amount to be proven during the trial; spouses Daniel and Aurora Carreon asked for moral damages of P1,000,000.00 because of the humiliation, great mental anguish, sleepless nights and deterioration of health due to the filing of the complaint and indiscriminate and wrongful attachment of their property, especially their residential house and payment of their money market placement of P109,283.75. Josefa Jeceil asked for moral damages of P500,000.00, because of sleepless nights and mental anguish, and payment of her money market placement of P73,857.57; all defendants claimed for exemplary damages and attorney's fees of P100,000.00. On May 25, 1993, the trial court rendered a decision, the pertinent portions of which read as follows: "Plaintiff's case is unmeritorious." "The court agrees with defendants' counsel's observation that plaintiff did not prove by clear and convincing evidence that defendants indeed received money in excess of what is due them as it utterly failed to show and present any proof what was actually due defendants. As pointed out by the same counsel, the summary of the money market placement submitted as evidence by plaintiff (Exh. A) is at best self-serving as it was admittedly prepared by plaintiff's own accounting department without any participation of defendants. (TSN of October 15, 1985, p. 4) "Moreover, the alleged payments in the complaint were admitted by plaintiff itself to be withdrawals from validly issued commercial papers (TSN of August 12, 1986, pp. 3-5) for value received (Exhs. 1-B, 2-B up to 11B) duly verified and signed by at least two (2) authorized high ranking officers of plaintiff's corporation. Again, as correctly stated by defendants, 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 disapproved as against the person relying thereon. Accordingly, plaintiff having thus clearly stated in several documents duly signed by its responsible officers cannot now vary their contents and claim that they were received without value having been received for the same. 167

"Lastly, it is incumbent upon plaintiff corporation to provide for competent employees possessed with adequate skills in implementing effective safeguards and measures that ensure the non-occurrence of errors of this nature, it would be gross negligence on the part of plaintiff if it fails to provide for the same considering that it is primarily engaged in the solicitation of money market placements. "In view of the foregoing, the case is hereby DISMISSED with cost against plaintiff. The attachment previously issued is likewise lifted. "It appearing that plaintiff was not motivated by malice in filing this case, the counterclaim is likewise DISMISSED. "SO ORDERED."8 Both parties appealed the above decision to the Court of Appeals.9 After due proceedings, on July 19, 1996, the Court of Appeals promulgated a decision, the dispositive portion of which reads as follows: "WHEREFORE, the appealed judgment of the trial court dismissing the plaintiff's complaint is hereby AFFIRMED while its dismissal of the counterclaim of defendants is REVERSED and SET ASIDE and judgment is hereby rendered as follows: "1. Ordering plaintiff BPI to pay the following amounts of damages: "Moral Damages "a) P1,000,000.00 to the late Daniel G. Carreon or his estate represented by Aurora J. Carreon; "b) P1,000,000.00 to Aurora J. Carreon; P500,000.00 to the late Josefa M. Jeceil or her estate represented by Aurora J. Carreon; "Compensatory Damages "P1,500,000.00 to D.G. Carreon Commercial Corporation; "Exemplary Damages P1,000,000.00 to all defendants; "Attorney's Fees P500,000.00 to all defendants "2. Ordering plaintiff BPI to pay to the estate of Daniel G. Carreon, represented by Aurora J. Carreon, the money market placement of P109,238.75 with 12% interest per annum from June 3, 1982 until fully paid; "3. Ordering plaintiff BPI to pay to the estate of Josefa M. Jeceil, represented by Aurora J. Carreon, the money market placement in the amount of P73,857.57 at 12% interest per annum from maturity on July 12, 1982 until fully paid; "4. Ordering plaintiff BPI to pay for the costs of the suit. "SO ORDERED"10 Hence, this appeal.11 Petitioner BPI Investments raises the following issues: 1. Whether there was an over payment of respondents' money market placements. 2. Whether petitioner abused its right in implementing the writ of preliminary attachment; 3. Whether the Court of Appeals awarded excessive moral and exemplary damages as well as attorney's fees to respondents; and 4. Whether petitioner was obliged to pay the estate of Josefa Jeceil the amount of her money market placement.12 Petitioner's Submissions First, BPI Investments submits that the summary of the money market placements and the checks issued to D.G. Carreon are sufficient to show that one renewal or "roll over" of the money market placement dated November 15, 1979, for a period of thirty-two days gave rise to two placements maturing on two dates, that is, December 12, 1979 and December 17, 1979.13 After several roll overs and withdrawals by D.G. Carreon, BPI Investments discovered that respondent corporation has overpaid P410,937.09 since the December 12, 1979 placement was not funded. BPI 168

Investments stressed that in a money market transaction an official receipt must support maturing placements. The December 12, 1979 placement was unsupported by any fund.14 Second, a mistake caused the overpayment in the posting of the maturity date of "12-12" instead of "12-17." The mistake in the posting of the maturity date benefited D.G. Carreon. And as soon as petitioner discovered the wrong posting, it immediately wrote D.G. Carreon to inform the latter of the error in the posting of the maturity dates on its money market placements.15 Third, the manner of execution of the writ of attachment is not the fault of BPI Investments. The sheriff of the trial court implemented the writ. The only participation BPI Investments had in the process was the application for a writ of preliminary attachment. BPI Investments did not have a hand in its implementation.16 Fourth, the Court of Appeals blamed BPI Investments for the deterioration of the health of two respondents who died pendente lite. The award of moral and exemplary damages and attorney's fees in favor of respondents is bereft of factual and legal bases.17 Petitioner filed the case below to recover the overpayment arising from an unfunded placement. The respondents failed to show proof that the December 12, 1979 placement was different from the December 17, 1979 placement. The Court of Appeals ruling that the filing of the case aggravated and caused the death of respondents Daniel Carreon and Josefa Jeceil is completely unfounded and farfetched. Daniel Carreon, prior to the filing of the case, was suffering from nasopharyngeal cancer from which he died in 1984. Whereas Josefa Jeceil died from various heart ailments in 1987, almost five years since the case was filed. No causal relation whatsoever was established between the health of the respondents and the filing of the case.18 The award of damages in favor of the respondent corporation was also without basis. There was no proof adduced that the credit standing of the respondent corporation was affected by the filing of the case. There was no proof of bad faith or malice on the part of BPI Investments. What happened was an honest mistake.19 Fifth, the order of the Court of Appeals for BPI Investments to pay the money market placement of Josefa Jeceil was also without basis. The amount of P73,857.57 was placed and deposited by BPI Investments with the sheriff of the Court of First Instance of Rizal in compliance with the order of the court. Respondent Jeceil knew of this fact but she failed to withdraw the amount in the custody of the trial court.20 Respondents' Position Respondents submit that the issues raised are factual, hence, not reviewable in this case. Only questions of law, distinctly set forth, may be raised in a petition for review on certiorari, subject to clearly settled exceptions in case law. The case at bar does not fall within any of the exceptions.21 BPI Investments was guilty of bad faith, malice and gross negligence in the management of respondent's money market placements. According to respondents, this is not a mere case of "misreading" "12-17" as "1212." The sloppy accounting and recording of the ledger was a clear case of gross negligence in the exercise of petitioner's primary business of accepting money market placements. BPI Investments was remiss in its duty to treat respondents' money market placements with the highest degree of care, considering the fiduciary nature of their relationship.22 The Court of Appeals correctly ruled that petitioner abused its right in executing the writ of attachment against respondents. Notwithstanding the fact that petitioner's claim amounted only up to P410,937.09, petitioner caused the levy on property of respondents valued at more than P40,000,000.00, in a harsh, unjust, inhuman and oppressive manner. This constitutes an abuse that justifies the award of damages to the respondents. Articles 19, 20 and 21 of the Civil Code constitute the legal basis for the award of damages to respondents.23 As to the alleged excessive award of moral and exemplary damages as well as attorney's fees, respondents submit that the same is supported by proofs. As to the moral damages awarded to Daniel G. Carreon and Aurora J. Carreon, both in the amount of P1,000,000.00, and to Josefa M. Jeceil in the amount of P500,000.00, the awards are reasonable and supported by evidence. All the respondents are persons of high reputation in the community. Each of them suffered mental anguish, embarrassment and humiliation due to the case filed by petitioner and two of them deteriorated in their health and died during the pendency of the case. As to the compensatory damages awarded to the corporation, the same is proper. It was proved that D.G. Carreon is a reputable corporation with good credit standing in the business community and this reputation was damaged due to the malicious charges filed by petitioner.24 As to the award of exemplary damages, the same is not excessive. It must be stressed that the amount of P1,000,000.00 was awarded to four respondents. The attorney's fees in the amount of P500,000.00 is not excessive considering that the case dragged on from 1981 up to the present, over fifteen years.25 As to the order to pay the long overdue money market placement of the late Josefa Jeceil, petitioner's contention that respondent failed to withdraw the amount deposited with the sheriff is not correct. First, the deposit does not amount to payment; indeed, consignation was not proper. Josefa Jeceil had no right to withdraw such deposit because of the pending litigation. As a consequence, the Court of Appeals directed the petitioner to pay the matured money market placement of the late Josefa Jeceil.26 169

The Court's Ruling After a careful consideration of the facts and the evidence presented by both parties, we consider the petition partly meritorious. "There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme Court, such as (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) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record."27 In the case at bar, the Court of Appeals committed errors in the apprehension of the facts of the case, hence, we review its findings of facts. We find petitioner not guilty of gross negligence in the handling of the money market placement of respondents. "Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them."28 However, while petitioner BPI Investments may not be guilty of gross negligence, it failed to prove by clear and convincing evidence that D.G. Carreon indeed received money in excess of what was due them. "The alleged payments in the complaint were admitted by plaintiff itself to be withdrawals from validly issued commercial papers, duly verified and signed by at least two authorized high-ranking officers of BPI Investments."29 The law on exemplary damages is found in Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; in quasi-delicts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.30 BPI Investments did not act in a wanton, fraudulent, reckless, oppressive, or malevolent manner, when it asked for preliminary attachment. It was just exercising a legal option. The sheriff of the issuing court did the execution and the attachment. Hence, BPI Investments is not to be blamed for the excessive and wrongful attachment. As to the finding of the appellate court that the filing of the case aggravated and eventually caused the death of two of the respondents, we agree with the petitioner that such correlation is bereft of basis and is far fetched. The award of moral damages and attorney's fees is also not in keeping with existing jurisprudence. Moral damages may be awarded in a breach of contract 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. Finally, with the elimination of award of moral damages, so must the award of attorney's fees be deleted."31 There is no doubt, however, that the damages sustained by respondents were due to petitioner's fault or negligence, short of gross negligence. Temperate or moderate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.32 The Court deems it prudent to award reasonable temperate damages to respondents under the circumstances.33 As to the claim for payment of the money market placement of Josefa Jeceil, the trial court may release the deposited amount of P73,857.57 to petitioner as the consignation was not proper or warranted. The Fallo IN VIEW WHEREOF, the decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION. The award of moral, compensatory and exemplary damages and attorney's fees are deleted. BPI Investments is ordered to pay to the estate of Daniel G. Carreon and Aurora J. Carreon the money market placement of P109,238.75, with legal interest of twelve (12%) percent per annum from June 3, 1982, until fully paid; to pay the estate of Josefa M. Jeceil, the money market placement in the amount of P73,857.57, with legal interest at twelve (12%) percent per annum from maturity on July 12, 1982, until fully paid. The petitioner may withdraw its deposit from the lower court at its peril. BPI Investments is likewise ordered to pay temperate damages to the estate of the late Daniel G. Carreon in the amount of P300,000.00, and to the estate of Aurora J. Carreon in the amount of P300,000.00, and to the estate of Josefa M. Jeceil in the amount of P150,000.00. No costs. SO ORDERED. G.R. No. 135644 September 17, 2001

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. SPOUSES GONZALO and MATILDE LABUNG-DEANG, respondents. PARDO, J.: 170

The petitioner in the case is the Government Service Insurance System (hereafter, "GSIS"). Having lost the case in the trial court and the Court of Appeals, it now comes to this Court for redress. At the onset, we state that the issue is not "suability" or whether GSIS may be sued despite the doctrine of state immunity from suit, but liability, whether or not GSIS may be liable to pay damages to respondent spouses given the applicable law and the circumstances of the case.1 The Case The case is a petition2 for review on certiorari of the decision of the Court of Appeals3 affirming the decision of the Regional Trial Court, Angeles City4 ordering GSIS to pay respondents Gonzalo (now deceased)5 and Matilde Labung-Deang (hereafter, "spouses Deang") temperate damages, attorney's fees, legal interests and costs of suit for the loss of their title to real property mortgaged to the GSIS. The Facts Sometime in December 1969, the spouses Deang obtained a housing loan from the GSIS in the amount of eight thousand five hundred pesos (P8,500.00). Under the agreement, the loan was to mature on December 23, 1979. The loan was secured by a real estate mortgage constituted over the spouses' property covered by Transfer Certificate of Title No. 14926-R issued by the Register of Deeds of Pampanga.6 As required by the mortgage deed, the spouses Daeng deposited the owner's duplicate copy of the title with the GSIS.7 On January 19, 1979, eleven (11) months before the maturity of the loan, the spouses Deang settled their debt with the GSIS8 and requested for the release of the owner's duplicate copy of the title since they intended to secure a loan from a private lender and use the land covered by it as collateral security for the loan of fifty thousand pesos (P50,000.00)9 which they applied for with one Milagros Runes.10 They would use the proceeds of the loan applied for the renovation of the spouses' residential house and for business.11 However, personnel of the GSIS were not able to release the owner's duplicate of the title as it could not be found despite diligent search.12 As stated earlier, the spouses as mortgagors deposited the owner's duplicate copy of the title with the GSIS located at its office in San Fernando, Pampanga.13 Satisfied that the owner's duplicate copy of the title was really lost, in 1979, GSIS commenced the reconstitution proceedings with the Court of First Instance of Pampanga for the issuance of a new owner's copy of the same.14 On June 22, 1979, GSIS issued a certificate of release of mortgage.15 On June 26, 1979, after the completion of judicial proceedings, GSIS finally secured and released the reconstituted copy of the owner's duplicate of Transfer Certificate of Title No. 14926-R to the spouses Deang.16 On July 6, 1979, the spouses Deang filed with the Court of First Instance, Angeles City a complaint against GSIS for damages, claiming that as result of the delay in releasing the duplicate copy of the owner's title, they were unable to secure a loan from Milagros Runes, the proceeds of which could have been used in defraying the estimated cost of the renovation of their residential house and which could have been invested in some profitable business undertaking.17 In its defense, GSIS explained that the owners' duplicate copy of the title was released within a reasonable time since it had to conduct standard pre-audit and post-audit procedures to verify if the spouses Deang's account had been fully settled.18 On July 31, 1995, the trial court rendered a decision ruling for the spouses Deang. The trial court reasoned that the loss of the owner's duplicate copy of the title "in the possession of GSIS as security for the mortgage... without justifiable cause constitutes negligence on the part of the employee of GSIS who lost it," making GSIS liable for damages.19 We quote the dispositive portion of the decision:20 "IN VIEW OF THE FOREGOING, the Court renders judgment ordering the GSIS: "a) To pay the plaintiffs-spouses the amount of P20,000.00 as temperate damages; "b) To pay plaintiffs-spouses the amount of P15,000.00 as attorney's fees; "c) To pay legal interest on the award in paragraphs a) and b) from the filing of the complaint; and, "d) To pay cost of the suit. "SO ORDERED." On August 30, 1995, GSIS appealed the decision to the Court of Appeals.21 On September 21, 1998, the Court of Appeals promulgated a decision affirming the appealed judgment, ruling: First, since government owned and controlled corporations (hereafter, "GOCCs") whose charters provide that they can sue and be sued have a legal personality separate and distinct from the government, GSIS is not covered by Article 218022 of the Civil Code, and it is liable for damages caused by their employees acting within the scope of their assigned tasks. Second, the GSIS is liable to pay a reasonable amount of damages and attorney's fees, which the appellate court will not disturb. We quote the dispositive portion:23 171

"WHEREFORE, finding no reversible error in the appealed judgment, the same is hereby AFFIRMED. "SO ORDERED." Hence, this appeal.24 The Issue Whether the GSIS, as a GOCC primarily performing governmental functions, is liable for a negligent act of its employee acting within the scope of his assigned tasks.25 The Court's Ruling We rule that the GSIS is liable for damages. We deny the petition for lack of merit. GSIS, citing the sixth paragraph of Article 2180 of the Civil Code argues that as a GOCC, it falls within the term "State" and cannot be held vicariously liable for negligence committed by its employee acting within his functions.26 "Article 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxx "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 State is responsible in like manner when it acts though a special agent, but not when the damage has been caused by the official to whom the task was done properly pertains, in which case what is provided in Article 2176 shall be applicable. xxx (italics ours)" The argument is untenable. The cited provision of the Civil Code is not applicable to the case at bar. However, the trial court and the Court of Appeals erred in citing it as the applicable law. Nonetheless, the conclusion is the same. As heretofore stated, we find that GSIS is liable for damages. The trial court and the Court of Appeals treated the obligation of GSIS as one springing from quasi-delict.27 We do not agree. Article 2176 of the Civil Code defines quasi-delict as follows: "Whoever by act or omission causes damages 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 (italics ours)." Under the facts, there was a pre-existing contract between the parties. GSIS and the spouses Deang had a loan agreement secured by a real estate mortgage. The duty to return the owner's duplicate copy of title arose as soon as the mortgage was released.28 GSIS insists that it was under no obligation to return the owner's duplicate copy of the title immediately. This insistence is not warranted. Negligence is obvious as the owners' duplicate copy could not be returned to the owners. Thus, the more applicable provisions of the Civil Code are: "Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages." "Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted x x x." Since good faith is presumed and bad faith is a matter of fact which should be proved,29 we shall treat GSIS as a party who defaulted in its obligation to return the owners' duplicate copy of the title. As an obligor in good faith, GSIS is liable for all the "natural and probable consequences of the breach of the obligation." The inability of the spouses Deang to secure another loan and the damages they suffered thereby has its roots in the failure of the GSIS to return the owners' duplicate copy of the title. We come now to the amount of damages. In a breach of contract, moral damages are not awarded if the defendant is not shown to have acted fraudulently or with malice or bad faith.30 The fact that the complainant suffered economic hardship31 or worries and mental anxiety32 is not enough. There is likewise no factual basis for an award of actual damages. Actual damages to be compensable must be proven by clear evidence.33 A court can not rely on "speculation, conjecture or guess work" as to the fact and amount of damages, but must depend on actual proof.34 However, it is also apparent that the spouses Deang suffered financial damage because of the loss of the owners' duplicate copy of the title. Temperate damages may be granted. "Article 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty." 172

GSIS submits that there must be proof of pecuniary loss. This is untenable. The rationale behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot be offered. When the court is convinced that there has been such loss, the judge is empowered to calculate moderate damages, rather than let the complainant suffer without redress from the defendant's wrongful act.35 The award of twenty thousand pesos (P20,000.00) in temperate damages is reasonable considering that GSIS spent for the reconstitution of the owners' duplicate copy of the title. Next, the attorney's fees. Attorney's fees which are granted as an item of damages are generally not recoverable.36 The award of attorney's fees is the exception rather than the rule and counsel's fees are not to be awarded every time a party wins a suit. The award of attorney's fees demands factual, legal and equitable justification; its basis cannot be left to speculation or conjecture.37 We find no circumstance to justify the award of attorney's fees. We delete the same. The Fallo WHEREFORE, we DENY the petition. We AFFIRM the decision of the Court of Appeals in CA-G.R. CV No. 51240 with the MODIFICATION that award of attorney's fees is DELETED. No costs. SO ORDERED. G.R. No. 130415 October 11, 2001

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ALVIN YRAT y BUGAHOD and RAUL JIMENA y POLLESCAS Alias "Bobong", accused-appellant. BUENA, J.: For the death of Benjamin Aca-ac, appellants Alvin Yrat and Raul Jimena were charged with the crime of murder based on an Information which reads: "That on or about the 27th day of December, 1995, at about 6:45 o'clock in the evening, in barangay Biasong, municipality of Lopez Jaena, province of Misamis Occidental, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, conspiring, confederating and helping one another, with intent to kill, with treachery and with abuse of their superior strength, did then and there willfully, unlawfully and feloniously attack, assault, hit, box and shot one BENJAMIN ACA-AC, thereby inflicting upon the latter fatal gunshot wounds which caused his immediate death. "CONTRARY TO LAW, with the presence of the qualifying circumstance of treachery and generic aggravating circumstance of abuse of superior strength."1 Arraigned on May 21, 1996, accused Jimena, assisted by counsel, entered a plea of not guilty. As accused Alvin Yrat was then still at large, the case with respect to accused Jimena proceeded to trial with the prosecution presenting Dr. Rachel T. Micarandayo, eyewitnesses Virginia and Violeta Singcay, Allan Garganera, Roger Rebosura, victim's wife, Julia Aca-ac and rebuttal witness Avelino Barbajo. For his part, accused Jimena presented Nercua, Henry Yabo and Emma Jimena. On September 3, 1996, appellant Yrat was arrested. Upon arraignment, with the assistance of counsel, on September 6, 1996, he also pleaded not guilty. For his defense, appellant adopted all the evidence, both testimonial and documentary, presented by accused Jimena. He was likewise utilized by accused Jimena as witness. The prosecution's case established that on December 27, 1995, on the eve of the town fiesta of Biasong, Lopez Jaena, Misamis Occidental, Benjamin Aca-ac, together with his wife, Julia and one Father Naron, were in the house of Avelino "Boy" Barbajo. At about 1 o'clock that afternoon, appellant, accused Jimena and his wife Emma arrived. (As Father Naron had another appointment,) the three bade their host goodbye and proceeded to the video house operated by Violeta and Virginia Singcay. At around 2 o'clock, Benjamin returned to Barbajo's house and joined appellant and accused Jimena. In the course of their conversation, Benjamin and accused Jimena had an altercation regarding the local game masiao, or jai-alai, and nearly engaged in a fistfight were it not for the timely intervention of Barbajo. Appellant was heard saying to Benjamin, "you cannot even reach this New Year." To avoid trouble in his house, Barbajo requested the group to leave,2 who proceeded to the videoke bar. They saw Julia Aca-ac talking to Violeta Singcay, approached her and told her that Benjamin is ill-mannered. Appellant likewise said that "you tell your husband that he will not reach the morning."3 Thereafter, the two left the place. Alarmed by the threats of appellant, Julia left the videoke bar to warn her husband. Not having seen him, she proceeded home.4 Between five and six o'clock in the evening, appellant returned to the videoke bar and ordered a bottle of beer. Later, accused Jimena and his wife Emma arrived. While accused Raul Jimena was looking for a place to park his motorcycle, Emma approached appellant and told the latter that Benjamin was following them.5 When Benjamin arrived, accused Raul stopped the former and talked to him. Benjamin did not alight from the motorcycle.6 Upon seeing Benjamin, appellant proceeded towards the two men at the same time pulling out a pistol. Walking behind Benjamin, appellant hit him at the right side of the neck with the butt of his gun. Simultaneously, accused Jimena hit Benjamin on the cheek causing the latter to tilt a little backward. At that instance, appellant Yrat pointed his pistol and fired, but the gun did not explode. He then went in front of Benjamin and fired two more shots hitting him on the middle portion of his breast and on the face. Benjamin fell down, and was pinned by his motorcycle.7 After the incident, spouses Jimena left the place while appellant 173

threw the gun towards the bushes and camote plantation. He went back to the videoke bar and ordered beer and cigarettes. He warned Virginia not to report to the authorities.8 The body of Benjamin Aca-ac was examined by Dr. Rachel Micarandayo and was found to have sustained the following wounds: "1. Gunshot wound, entrance, 1 inch in diameter lacerated in character, left cheek. "2. Gunshot wound, entrance, inch, oval, along the left sternal line, at the level of the 5th intercostal space. "3. Gunshot wound, exit, inch diameter, everted, at the level of the 7th intercostals space, back, left."9 Appellant Yrat admitted shooting Benjamin but claims that he only acted in self-defense. He narrated that on December 27, 1995, he was invited to the house of Boy Barbajo. Benjamin Aca-ac, who was with them, allegedly drunk, left the place together with a certain Father Naron and returned shortly thereafter on a motorcycle with a policeman. Without any provocation on his part, Benjamin slapped him. He did not retaliate, instead, he left the house and headed for his house in Barangay Canubay, Oroquieta City. He took his firearm and returned to Lopez Jaena. He proceeded to the videoke bar operated by Violeta Singcay, knowing that Benjamin will pass by that place. After waiting for about two hours, he saw Benjamin.10 He approached the latter and asked why he slapped him. Benjamin allegedly pulled out a gun so he stepped back, drew his firearm and shot Benjamin twice. Accused Raul Jimena, on the other hand, claimed that on December 27, 1995 at about 3 o'clock in the afternoon, he, together with his wife, went to Boy Barbajo's house in Biasong, Lopez Jaena. From the house of Boy Barbajo, they proceeded to the residence of Boy Bulawin. As the latter was not yet ready to serve them food, they went home, returned later in the afternoon to Bulawin's house. At about 5 o'clock, they left the house and passed by the videoke bar owned by Virginia Singcay. Emma went inside while accused Jimena looked for a place to park his motorcycle. He saw Santos, an ex-barangay captain of Barangay Dampalan. While talking, they heard a gun explosion. Accused Jimena looked for his wife and then left the place. While the remains of the deceased was brought to his house, Julia Aca-ac shouted to accused Jimena who resides nearby, "Bong, where is the man whom you wanted to be killed."11 After weighing the evidence presented by the parties, the trial court rendered a decision the decretal portion of which reads: "WHEREFORE, finding accused Alvin Yrat, as principal, and Raul Jimena, as an accomplice, guilty beyond reasonable doubt of the crime of Murder, committed without an aggravating or mitigating circumstance present and applying the provisions of the Indeterminate Sentence Law as regards Raul Jimena, the Court thereby sentences accused Alvin Yrat to suffer the penalty of RECLUSION PERPETUA, and accused Raul Jimena to suffer an indeterminate penalty of imprisonment from SIX (6) YEARS and ONE (1) DAY of prision mayor as its minimum to FOURTEEN (14) YEARS, EIGHT (8) MONTHS and ONE (1) DAY of reclusion temporal as maximum, both to indemnify jointly and severally the heirs of Benjamin Aca-ac P50,000.00 as death indemnity, P20,000.00 for funeral expenses, P50,000.00 for the loss of earning capacity of the deceased and P60,000.00 for moral damages and to pay the costs. "SO ORDERED."12 Both accused appealed the decision to this Court. On June 10, 1998, accused Raul Jimena filed a motion to withdraw the appeal which was granted by this Court per Resolution dated September 20, 1999.13 In his appeal, appellant made a lone assignment of error "THAT THE TRIAL COURT ERRED IN NOT FINDING ACCUSED-APPELLANT GUILTY ONLY OF HOMICIDE." Appellant argues that he cannot be sentenced to murder because of the absence of the qualifying circumstance of treachery. He argues that the deceased Benjamin Aca-ac was shot by him frontally. We find no cogent reason to reverse the decision of the trial court. The trial court correctly appreciated aleviosa as having qualified the killing of the victim to murder. Treachery is present when the offender employs means, methods, or forms in the execution of the crime which tend directly and especially to insure its execution without risk to himself arising from any defensive or retaliatory act which the victim might make. 14 Thus, for treachery to be considered, two (2) elements must concur, to wit: (1) the employment of means of execution that gives the person attacked no opportunity to defend himself or retaliate; and (2) the means of execution were deliberately or consciously adopted.15 Benjamin Aca-ac was talking to accused Jimena when appellant approached him from behind. With the butt of his gun, appellant hit Benjamin from behind. Almost simultaneously, accused Jimena boxed Benjamin on the face. The latter has not yet recovered from such sudden attack when appellant went in front of Benjamin and shot him face to face. Under this situation, Benjamin was not given any time at all to react. The suddenness of the attack made it impossible for him to defend himself. He was unarmed and totally defenseless when appellant shot him.16 Appellant employed means of execution which gave Benjamin no opportunity at all to defend himself and that the manner of execution was deliberately and consciously adapted. While Benjamin was assaulted frontally, this does not make such attack less treacherous. Treachery exists even if the attack is frontal if it is sudden and unexpected, giving the victim no opportunity to repel it or defend himself. What 174

is decisive is that the execution of the attack, without the slightest provocation from the victim who was unarmed, made it impossible for the victim to defend himself or to retaliate.17 Going now to the trial court's award of damages, we find the award of loss of earning capacity not in order. It bears stressing that compensation for loss of income is in the nature of damages and as such requires due proof of the damages suffered.18 The prosecution failed to present evidence to show the deceased's monthly earnings. What was presented in evidence was only the testimony of the wife that the deceased- was earning P50,000.00. We have held that "for lost income due to death, there must be unbiased proof of the deceased's average income. Self-serving, hence, unreliable statement is not enough."19 The award of P20,000.00 for funeral expenses should likewise be deleted in the absence of evidence to prove the same. To justify a grant of actual damages, it is necessary to show the amount of actual loss with the best evidence obtainable.20 The testimony of Julia Aca-ac that she spent P20,000.00 for the wake and burial of her husband, without presenting any receipts, is not sufficient to support the claim for funeral expenses. We have consistently ruled that only expenses supported by receipts and which appear to have been actually incurred shall be allowed.21 It is a settled rule that there must be proof that actual or compensatory damages have been suffered, and evidence of its actual amount. In the present case, since no receipt was presented to support the claim for funeral expenses, the same cannot be allowed.22 In lieu of the aforesaid damages, the heirs of the deceased Benjamin Aca-ac should be awarded the amount of P15,000.00 as temperate damages pursuant to Article 2224 of the Civil Code which provides that temperate damages may be recovered when the court finds that some pecuniary loss has been suffered, but its amount cannot, from the nature of the case, be proved with certainty.23 We, however, sustain the award of P50,000.00 as civil indemnity (ex delicto) which requires no proof other than the fact of death of the victim and assailant's responsibility therefor.24 Article 2206 of the Civil Code provides that when death occurs as a result of the crime, the heirs of the deceased are entitled to be indemnified for the death of the victim without need of any evidence or proof thereof. The award of moral damages in the amount of P60,000.00 should also be sustained taking into consideration the pain and anguish of the victim's family. WHEREFORE, the decision of the Regional Trial Court of Oroquieta City, Branch 12, is hereby AFFIRMED with the MODIFICATION that the awards of P50,000.00 for loss of earning capacity of the deceased, and P20,000.00 for funeral expenses, be deleted. SO ORDERED. G.R. No. 159352 April 14 ,2004

PREMIERE DEVELOPMENT BANK, petitioner, vs. COURT OF APPEALS, PANACOR MARKETING CORPORATION, respondents. YNARES-SANTIAGO, J.:

CORPORATION

and

ARIZONA

TRANSPORT

This is a petition for review under Rule 45 of the 1997 Rules on Civil Procedure seeking the annulment of the Decision dated June 18, 2003 of the Court of Appeals1 which affirmed the Decision of the Regional Trial Court2 in Civil Case No. 65577. The undisputed facts show that on or about October 1994, Panacor Marketing Corporation (Panacor for brevity), a newly formed corporation, acquired an exclusive distributorship of products manufactured by Colgate Palmolive Philippines, Inc. (Colgate for short). To meet the capital requirements of the exclusive distributorship, which required an initial inventory level of P7.5 million, Panacor applied for a loan of P4.1 million with Premiere Development Bank. After an extensive study of Panacors creditworthiness, Premiere Bank rejected the loan application and suggested that its affiliate company, Arizona Transport Corporation (Arizona for short),3 should instead apply for the loan on condition that the proceeds thereof shall be made available to Panacor. Eventually, Panacor was granted a P4.1 million credit line as evidenced by a Credit Line Agreement.4 As suggested, Arizona, which was an existing loan client, applied for and was granted a loan of P6.1 million, P3.4 million of which would be used to pay-off its existing loan accounts and the remaining P2.7 million as credit line of Panacor. As security for the P6.1 million loan, Arizona, represented by its Chief Executive Officer Pedro Panaligan and spouses Pedro and Marietta Panaligan in their personal capacities, executed a Real Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per Entry No. 49507 dated October 2, 1995.5 Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was previously approved, Panacor negotiated for a take-out loan with Iba Finance Corporation (hereinafter referred to as IbaFinance) in the sum of P10 million, P7.5 million of which will be released outright in order to take-out the loan from Premiere Bank and the balance of P2.5 million (to complete the needed capital of P4.1 million with Colgate) to be released after the cancellation by Premiere of the collateral mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an amount not to exceed P6 million. On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of Premiere Banks San Juan Branch, informing her of the approved loan in favor of Panacor and Arizona, and requesting for the release of TCT No. T-3475. Martillano, after reading the letter, affixed her signature of conformity thereto and sent the original copy to Premiere Banks legal office. The full text of the letter reads:6 Please be informed that we have approved the loan application of ARIZONA TRANSPORT CORP. and PANACOR MARKETING CORPORATION. Both represented by MR. PEDRO P. PANALIGAN (hereinafter the BORROWERS) in the principal amount of PESOS: SEVEN MILLION FIVE HUNDRED THOUSAND ONLY (P7,500,000.00) Philippine Currency. The loan shall be secured by a Real Estate Mortgage over a parcel of land located at #777 Nueve de 175

Pebrero St. Bo. Mauway, Mandaluyong City, Metro Manila covered by TCT No. 3475 and registered under the name of Arizona Haulers, Inc. which is presently mortgaged with your bank. The borrowers have authorized IBA FINANCE CORP. to pay Premiere Bank from the proceeds of their loan. The disbursement of the loan, however is subject to the annotation of our mortgage lien on the said property and final verification that said title is free from any other lien or encumbrance other than that of your company and IBA Finance Corporation. In order to register the mortgage, please entrust to us the owners duplicate copy of TCT No. 3475, current tax declaration, realty tax receipts for the current year and other documents necessary to affect annotation thereof. Upon registration of our mortgage, we undertake to remit directly to you or your authorized representative the amount equivalent to the Borrowers outstanding indebtedness to Premiere Bank as duly certified by your goodselves provided such an amount shall not exceed PESOS: SIX MILLION ONLY (P6,000,000.00) and any amount in excess of the aforestated shall be for the account of the borrowers. It is understood that upon receipt of payment, you will release to us the corresponding cancellation of your mortgage within five (5) banking days therefrom. If the foregoing terms and conditions are acceptable to you, please affix your signature provided below and furnish us a copy of the Statement of Account of said borrowers. On October 12, 1995, Premiere Bank sent a letter-reply7 to Iba-Finance, informing the latter of its refusal to turn over the requested documents on the ground that Arizona had existing unpaid loan obligations and that it was the banks policy to require full payment of all outstanding loan obligations prior to the release of mortgage documents. Thereafter, Premiere Bank issued to Iba-Finance a Final Statement of Account8 showing Arizonas total loan indebtedness. On October 19, 1995, Panacor and Arizona executed in favor of Iba-Finance a promissory note in the amount of 7.5 million. Thereafter, Iba-Finance paid to Premiere Bank the amount of P6,235,754.79 representing the full outstanding loan account of Arizona. Despite such payment, Premiere Bank still refused to release the requested mortgage documents specifically, the owners duplicate copy of TCT No. T-3475.9 On November 2, 1995, Panacor requested Iba-Finance for the immediate approval and release of the remaining P2.5 million loan to meet the required monthly purchases from Colgate. Iba-Finance explained however, that the processing of the P2.5 million loan application was conditioned, among others, on the submission of the owners duplicate copy of TCT No. 3475 and the cancellation by Premiere Bank of Arizonas mortgage. Occasioned by Premiere Banks adamant refusal to release the mortgage cancellation document, Panacor failed to generate the required capital to meet its distribution and sales targets. On December 7, 1995, Colgate informed Panacor of its decision to terminate their distribution agreement. On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and damages against Premiere Bank before the Regional Trial Court of Pasig City, docketed as Civil Case No. 65577. On June 11, 1996, Iba-Finance filed a complaint-in-intervention praying that judgment be rendered ordering Premiere Bank to pay damages in its favor. On May 26, 1998, the trial court rendered a decision in favor of Panacor and Iba-Finance, the decretal portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff Panacor Marketing Corporation and against the defendant Premiere Bank, ordering the latter to pay the former the following sums, namely: 1) P4,520,000.00 in addition to legal interest from the time of filing of the complaint until full payment; 2) P1,000,000.00 as and for exemplary damages; 3) P100,000.00 as and for reasonable attorneys fees; and 4) Costs of suit. Similarly, judgment is hereby rendered in favor of plaintiff-in-intervention IBA-Finance Corporation as against defendant Premiere bank, as follows, namely: 1) Ordering defendant Premiere Bank to release to plaintiff-intervenor IBA-Finance Corporation the owners duplicate copy of Transfer Certificate of Title No. 3475 registered in the name of Arizona Haulers, Inc. including the deed of cancellation of the mortgage constituted thereon; 2) Ordering the defendant Premiere Bank to pay to Intervenor IBA-Finance, the following sums, to wit: 3) P1,000,000.00 as and by way of exemplary damages; and 4) P100,000.00 as and for reasonable attorneys fees; and 5) Costs of suit. For lack of sufficient legal and factual basis, the counterclaim of defendant Premiere Bank is DISMISSED. SO ORDERED. 176

Premiere Bank appealed to the Court of Appeals contending that the trial court erred in finding, inter alia, that it had maliciously downgraded the credit-line of Panacor from P4.1 million to P2.7 million. In the meantime, a compromise agreement was entered into between Iba-Finance and Premiere Bank whereby the latter agreed to return without interest the amount of P6,235,754.79 which Iba-Finance earlier remitted to Premiere Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the compromise agreement was approved. On June 18, 2003, a decision was rendered by the Court of Appeals which affirmed with modification the decision of the trial court, the dispositive portion of which reads: WHEREFORE, premises considered, the present appeal is hereby DISMISSED, and the decision appealed from in Civil Case No. 65577 is hereby AFFIRMED with MODIFICATION in that the award of exemplary damages in favor of the appellees is hereby reduced to P500,000.00. Needless to add, in view of the Compromise Agreement plaintiff-intervenor IBA-Finance and defendant-appellant PREMIERE between plaintiff-intervenor IBA-Finance and defendant-appellant PREMIERE as approved by this Court per Resolution dated March 11, 1999, Our dispositive of the present appeal is only with respect to the liability of appellant PREMIERE to the plaintiffappellees. With costs against the defendant-appellant. SO ORDERED.10 Hence the present petition for review, which raises the following issues:11 I WHETHER OR NOT THE DECISION OF HONORABLE COURT OF APPEALS EXCEEDED AND WENT BEYOND THE FACTS, THE ISSUES AND EVIDENCE PRESENTED IN THE APPEAL TAKING INTO CONSIDERATION THE ARGUMENT OF PETITIONER BANK AND ADVENT OF THE DULY APPROVED COMPROMISE AGREEMENT BETWEEN THE PETITIONER BANK AND IBA FINANCE CORPORATION. II WHETHER OR NOT THE ISSUES THAT SHOULD HAVE BEEN RESOLVED BY THE HONORABLE COURT OF APPEALS, BY REASON OF THE EXISTENCE OF THE COMPROMISE AGREEMENT, IS LIMITED TO THE ISSUE OF ALLEGED BAD FAITH OF PETITIONER BANK IN THE DOWNGRADING OF THE LOAN AND SHOULD NOT INCLUDE THE RENDITION OF AN ADVERSE PRONOUNCEMENT TO AN ALREADY FAIT ACCOMPLI- ISSUE ON THE REFUSAL OF THE BANK TO RECOGNIZE THE TAKE-OUT OF THE LOAN AND THE RELEASE OF TCT NO. 3475. III WHETHER OR NOT PETITIONER ACTED IN BAD FAITH IN THE DOWNGRADING OF THE LOAN OF RESPONDENTS TO SUPPORT AN AWARD OF ACTUAL AND EXEMPLARY DAMAGES NOW REDUCED TO P500,000.00. IV WHETHER OR NOT THERE IS BASIS OR COMPETENT PIECE OF EVIDENCE PRESENTED DURING THE TRIAL TO SUPPORT AN AWARD OF ACTUAL DAMAGES OF P4,520,000.00. Firstly, Premiere Bank argues that considering the compromise agreement it entered with Iba-Finance, the Court of Appeals should have ruled only on the issue of its alleged bad faith in downgrading Panacors credit line. It further contends that the Court of Appeals should have refrained from making any adverse pronouncement on the refusal of Premiere Bank to recognize the take-out and its subsequent failure to release the cancellation of the mortgage because they were rendered fait accompli by the compromise agreement. We are not persuaded. In a letter-agreement12 dated October 5, 1995, Iba-Finance informed Premiere Bank of its approval of Panacors loan application in the amount of P10 million to be secured by a real estate mortgage over a parcel of land covered by TCT No. T-3475. It was agreed that Premiere Bank shall entrust to Iba-Finance the owners duplicate copy of TCT No. T-3475 in order to register its mortgage, after which Iba-Finance shall pay off Arizonas outstanding indebtedness. Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank on the understanding that said amount represented the full payment of Arizonas loan obligations. Despite performance by Iba-Finance of its end of the bargain, Premiere Bank refused to deliver the mortgage document. As a consequence, Iba-Finance failed to release the remaining P2.5 million loan it earlier pledged to Panacor, which finally led to the revocation of its distributorship agreement with Colgate. Undeniably, the not-so-forthright conduct of Premiere Bank in its dealings with respondent corporations caused damage to Panacor and Iba-Finance. It is error for Premiere Bank to assume that the compromise agreement it entered with Iba-Finance extinguished all direct and collateral incidents to the aborted take-out such that it also cancelled its obligations to Panacor. The unjustified refusal by Premiere Bank to release the mortgage document prompted Iba-Finance to withhold the release of the P2.5 million earmarked for Panacor which eventually terminated the distributorship agreement. Both Iba-Finance and Panacor, which are two separate and distinct juridical entities, suffered damages due to the fault of Premiere Bank. Hence, it should be held liable to each of them. 177

While the compromise agreement may have resulted in the satisfaction of Iba-Finances legal claims, Premiere Banks liability to Panacor remains. We agree with the Court of Appeals that the "present appeal is only with respect to the liability of appellant Premiere Bank to the plaintiffs-appellees (Panacor and Arizona)"13 taking into account the compromise agreement. For the foregoing reasons, we find that the Court of Appeals did not err in discussing in the assailed decision the abortive take-out and the refusal by Premiere Bank to release the cancellation of the mortgage document. Secondly, Premiere Bank asserts that it acted in good faith when it downgraded the credit line of Panacor from P4.1 million to P2.7 million. It cites the decision of the trial court which, albeit inconsistent with its final disposition, expressly recognized that the downgrading of the loan was not the proximate cause of the damages suffered by respondents. Under the Credit Line Agreement14 dated September 1995, Premiere Bank agreed to extend a loan of P4.1 million to Arizona to be used by its affiliate, Panacor, in its operations. Eventually, Premiere approved in favor of Arizona a loan equivalent to P6.1 million, P3.4 million of which was allotted for the payment of Arizonas existing loan obligations and P2.7 million as credit line of Panacor. Since only P2.7 million was made available to Panacor, instead of P4.1 million as previously approved, Panacor applied for a P2.5 loan from Iba-Finance, which, as earlier mentioned, was not released because of Premiere Banks refusal to issue the mortgage cancellation. It is clear that Premiere Bank deviated from the terms of the credit line agreement when it unilaterally and arbitrarily downgraded the credit line of Panacor from P4.1 million to P2.7 million. Having entered into a welldefined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. Law and jurisprudence dictate that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.15 The appellate court correctly observed, and we agree, that: Appellants actuations, considering the actual knowledge of its officers of the tight financial situation of appellee PANACOR brought about primarily by the appellant banks considerable reduction of the credit line portion of the loan, in relation to the "bail-out" efforts of IBA Finance, whose payment of the outstanding loan account of appellee ARIZONA with appellant was readily accepted by the appellant, were truly marked by bad faith and lack of due regard to the urgency of its compliance by immediately releasing the mortgage cancellation document and delivery of the title to IBA Finance. That time is of the essence in the requested release of the mortgage cancellation and delivery of the subject title was only too well-known to appellant, having only belatedly invoked the cross-default provision in the Real Estate Mortgage executed in its favor by appellee ARIZONA to resist the plain valid and just demand of IBA Finance for such compliance by appellant bank.16 Premiere Bank cannot justify its arbitrary act of downgrading the credit line on the alleged finding by its project analyst that the distributorship was not financially feasible. Notwithstanding the alleged forewarning, Premiere Bank still extended Arizona the loan of P6.1 million, albeit in contravention of the credit line agreement. This indubitably indicates that Premiere Bank had deliberately and voluntarily granted the said loan despite its claim that the distributorship contract was not viable. Neither can Premiere Bank rely on the puerile excuse that it was the banks policy not to release the mortgage cancellation prior to the settlement of outstanding loan obligations. Needless to say, the Final Statement of Account dated October 17, 1995 showing in no uncertain terms Arizonas outstanding indebtedness, which was subsequently paid by Iba-Finance, was the full payment of Arizonas loan obligations. Equity demands that a party cannot disown it previous declaration to the prejudice of the other party who relied reasonably and justifiably on such declaration. Thirdly, Premiere Bank avers that the appellate courts reliance on the credit line agreement as the basis of bad faith on its part was inadmissible or self-serving for not being duly notarized, being unsigned in all of its left margins, and undated. According to Premiere Bank, the irregularities in the execution of the credit line agreement bolsters the theory that the same was the product of manipulation orchestrated by respondent corporations through undue influence and pressure exerted by its officers on Martillano. Premiere Banks posture deserves scant consideration. As found by the lower court, there are sufficient indicia that demonstrate that the alleged unjust pressure exerted on Martillano was more imagined than real. In her testimony, Martillano claims that she was persuaded and coaxed by Caday of Iba-Finance and Panaligan of Panacor to sign the letter. It was she who provided Iba-Finance with the Final Statement of Account and accepted its payment without objection or qualification. These acts show that she was vested by Premiere Bank with sufficient authority to enter into the said transactions. If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that the apparent authority is real as to innocent third persons dealing in good faith with such officers or agents.17 As testified to by Martillano, after she received a copy of the credit line agreement and affixed her signature in conformity thereto, she forwarded the same to the legal department of the Bank at its Head Office. Despite its knowledge, Premiere Bank failed to disaffirm the contract. When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny ratification.18

178

Finally, Premiere Bank argues that the finding by the appellate court that it was liable for actual damages in the amount of P4,520,000.00 is without basis. It contends that the evidence presented by Panacor in support of its claim for actual damages are not official receipts but self-serving declarations. To justify an award for actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims, which are duly supported by receipts.19 The burden of proof is on the party who will be defeated if no evidence is presented on either side. He must establish his case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side is superior to that of the other. In other words, damages cannot be presumed and courts, in making an award, must point out specific facts that can afford a basis for measuring whatever compensatory or actual damages are borne. Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has been done, to compensate for the injury inflicted and not to impose a penalty. In the instant case, the actual damages were proven through the sole testimony of Themistocles Ruguero, the vice president for administration of Panacor. In his testimony, the witness affirmed that Panacor incurred losses, specifically, in terms of training and seminars, leasehold acquisition, procurement of vehicles and office equipment without, however, adducing receipts to substantiate the same. The documentary evidence marked as exhibit "W", which was an ordinary private writing allegedly itemizing the capital expenditures and losses from the failed operation of Panacor, was not testified to by any witness to ascertain the veracity of its contents. Although the lower court fixed the sum of P4,520,000.00 as the total expenditures incurred by Panacor, it failed to show how and in what manner the same were substantiated by the claimant with reasonable certainty. Hence, the claim for actual damages should be admitted with extreme caution since it is only based on bare assertion without support from independent evidence. Premieres failure to prove actual expenditure consequently conduces to a failure of its claim. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.20 Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the concept of temperate or moderate damages. When the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty, temperate damages may be recovered. Temperate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary loss. The Code Commission, in explaining the concept of temperate damages under Article 2224, makes the following comment:21 In some States of the American Union, temperate damages are allowed. There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to ones commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act. It is obvious that the wrongful acts of Premiere Bank adversely affected, in one way or another, the commercial credit22 of Panacor, greatly contributed to, if not, decisively caused the premature stoppage of its business operations and the consequent loss of business opportunity. Since these losses are not susceptible to pecuniary estimation, temperate damages may be awarded. Article 2216 of the Civil Code: No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the Court, according to the circumstances of each case. Under the circumstances, the sum of P200,000.00 as temperate damages is reasonable. WHEREFORE, the petition is DENIED. The Decision dated June 18, 2003 of the Court of Appeals in CA-G.R. CV No. 60750, ordering Premiere Bank to pay Panacor Marketing Corporation P500,000.00 as exemplary damages, P100,000.00 as attorneys fees, and costs, is AFFIRMED, with the MODIFICATION that the award of P4,520,000.00 as actual damages is DELETED for lack of factual basis. In lieu thereof, Premiere Bank is ordered to pay Panacor P200,000.00 as temperate damages. SO ORDERED. G.R. No. 124354 December 29, 1999 ROGELIO E. RAMOS and ERLINDA RAMOS, in their own behalf and as natural guardians of the minors, ROMMEL RAMOS, ROY RODERICK RAMOS and RON RAYMOND RAMOS, petitioners, vs. COURT OF APPEALS, DELOS SANTOS MEDICAL CENTER, DR. ORLINO HOSAKA and DRA. PERFECTA GUTIERREZ, respondents. KAPUNAN, J.: The Hippocratic Oath mandates physicians to give primordial consideration to the health and welfare of their patients. If a doctor fails to live up to this precept, he is made accountable for his acts. A mistake, through gross negligence or incompetence or plain human error, may spell the difference between life and death. In this sense, the doctor plays God on his patient's fate. 1 179

In the case at bar, the Court is called upon to rule whether a surgeon, an anesthesiologist and a hospital should be made liable for the unfortunate comatose condition of a patient scheduled for cholecystectomy. 2 Petitioners seek the reversal of the decision 3 of the Court of Appeals, dated 29 May 1995, which overturned the decision 4 of the Regional Trial Court, dated 30 January 1992, finding private respondents liable for damages arising from negligence in the performance of their professional duties towards petitioner Erlinda Ramos resulting in her comatose condition. The antecedent facts as summarized by the trial court are reproduced hereunder: Plaintiff Erlinda Ramos was, until the afternoon of June 17, 1985, a 47-year old (Exh. "A") robust woman (TSN, October 19, 1989, p. 10). Except for occasional complaints of discomfort due to pains allegedly caused by the presence of a stone in her gall bladder (TSN, January 13, 1988, pp. 4-5), she was as normal as any other woman. Married to Rogelio E. Ramos, an executive of Philippine Long Distance Telephone Company, she has three children whose names are Rommel Ramos, Roy Roderick Ramos and Ron Raymond Ramos (TSN, October 19, 1989, pp. 5-6). Because the discomforts somehow interfered with her normal ways, she sought professional advice. She was advised to undergo an operation for the removal of a stone in her gall bladder (TSN, January 13, 1988, p. 5). She underwent a series of examinations which included blood and urine tests (Exhs. "A" and "C") which indicated she was fit for surgery. Through the intercession of a mutual friend, Dr. Buenviaje (TSN, January 13, 1988, p. 7), she and her husband Rogelio met for the first time Dr. Orlino Hozaka (should be Hosaka; see TSN, February 20, 1990, p. 3), one of the defendants in this case, on June 10, 1985. They agreed that their date at the operating table at the DLSMC (another defendant), would be on June 17, 1985 at 9:00 A.M.. Dr. Hosaka decided that she should undergo a "cholecystectomy" operation after examining the documents (findings from the Capitol Medical Center, FEU Hospital and DLSMC) presented to him. Rogelio E. Ramos, however, asked Dr. Hosaka to look for a good anesthesiologist. Dr. Hosaka, in turn, assured Rogelio that he will get a good anesthesiologist. Dr. Hosaka charged a fee of P16,000.00, which was to include the anesthesiologist's fee and which was to be paid after the operation (TSN, October 19, 1989, pp. 14-15, 22-23, 31-33; TSN, February 27, 1990, p. 13; and TSN, November 9, 1989, pp. 3-4, 10, 17). A day before the scheduled date of operation, she was admitted at one of the rooms of the DLSMC, located along E. Rodriguez Avenue, Quezon City (TSN, October 19,1989, p. 11). At around 7:30 A.M. of June 17, 1985 and while still in her room, she was prepared for the operation by the hospital staff. Her sister-in-law, Herminda Cruz, who was the Dean of the College of Nursing at the Capitol Medical Center, was also there for moral support. She reiterated her previous request for Herminda to be with her even during the operation. After praying, she was given injections. Her hands were held by Herminda as they went down from her room to the operating room (TSN, January 13, 1988, pp. 9-11). Her husband, Rogelio, was also with her (TSN, October 19, 1989, p. 18). At the operating room, Herminda saw about two or three nurses and Dr. Perfecta Gutierrez, the other defendant, who was to administer anesthesia. Although not a member of the hospital staff, Herminda introduced herself as Dean of the College of Nursing at the Capitol Medical Center who was to provide moral support to the patient, to them. Herminda was allowed to stay inside the operating room. At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look for Dr. Hosaka who was not yet in (TSN, January 13, 1988, pp. 11-12). Dr. Gutierrez thereafter informed Herminda Cruz about the prospect of a delay in the arrival of Dr. Hosaka. Herminda then went back to the patient who asked, "Mindy, wala pa ba ang Doctor"? The former replied, "Huwag kang mag-alaala, darating na iyon" (Ibid.). Thereafter, Herminda went out of the operating room and informed the patient's husband, Rogelio, that the doctor was not yet around (id., p. 13). When she returned to the operating room, the patient told her, "Mindy, inip na inip na ako, ikuha mo ako ng ibang Doctor." So, she went out again and told Rogelio about what the patient said (id., p. 15). Thereafter, she returned to the operating room. At around 10:00 A.M., Rogelio E. Ramos was "already dying [and] waiting for the arrival of the doctor" even as he did his best to find somebody who will allow him to pull out his wife from the operating room (TSN, October 19, 1989, pp. 19-20). He also thought of the feeling of his wife, who was inside the operating room waiting for the doctor to arrive (ibid.). At almost 12:00 noon, he met Dr. Garcia who remarked that he (Dr. Garcia) was also tired of waiting for Dr. Hosaka to arrive (id., p. 21). While talking to Dr. Garcia at around 12:10 P.M., he came to know that Dr. Hosaka arrived as a nurse remarked, "Nandiyan na si Dr. Hosaka, dumating na raw." Upon hearing those words, he went down to the lobby and waited for the operation to be completed (id., pp. 16, 29-30). 180

At about 12:15 P.M., Herminda Cruz, who was inside the operating room with the patient, heard somebody say that "Dr. Hosaka is already here." She then saw people inside the operating room "moving, doing this and that, [and] preparing the patient for the operation" (TSN, January 13, 1988, p. 16). As she held the hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating the hapless patient. She thereafter heard Dr. Gutierrez say, "ang hirap ma-intubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan" (id., p. 17). Because of the remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez was doing. She thereafter noticed bluish discoloration of the nailbeds of the left hand of the hapless Erlinda even as Dr. Hosaka approached her. She then heard Dr. Hosaka issue an order for someone to call Dr. Calderon, another anesthesiologist (id., p. 19). After Dr. Calderon arrived at the operating room, she saw this anesthesiologist trying to intubate the patient. The patient's nailbed became bluish and the patient was placed in a trendelenburg position a position where the head of the patient is placed in a position lower than her feet which is an indication that there is a decrease of blood supply to the patient's brain (Id., pp. 19-20). Immediately thereafter, she went out of the operating room, and she told Rogelio E. Ramos "that something wrong was . . . happening" (Ibid.). Dr. Calderon was then able to intubate the patient (TSN, July 25, 1991, p. 9). Meanwhile, Rogelio, who was outside the operating room, saw a respiratory machine being rushed towards the door of the operating room. He also saw several doctors rushing towards the operating room. When informed by Herminda Cruz that something wrong was happening, he told her (Herminda) to be back with the patient inside the operating room (TSN, October 19, 1989, pp. 25-28). Herminda Cruz immediately rushed back, and saw that the patient was still in trendelenburg position (TSN, January 13, 1988, p. 20). At almost 3:00 P.M. of that fateful day, she saw the patient taken to the Intensive Care Unit (ICU). About two days thereafter, Rogelio E. Ramos was able to talk to Dr. Hosaka. The latter informed the former that something went wrong during the intubation. Reacting to what was told to him, Rogelio reminded the doctor that the condition of his wife would not have happened, had he (Dr. Hosaka) looked for a good anesthesiologist (TSN, October 19, 1989, p. 31). Doctors Gutierrez and Hosaka were also asked by the hospital to explain what happened to the patient. The doctors explained that the patient had bronchospasm (TSN, November 15, 1990, pp. 26-27). Erlinda Ramos stayed at the ICU for a month. About four months thereafter or on November 15, 1985, the patient was released from the hospital. During the whole period of her confinement, she incurred hospital bills amounting to P93,542.25 which is the subject of a promissory note and affidavit of undertaking executed by Rogelio E. Ramos in favor of DLSMC. Since that fateful afternoon of June 17, 1985, she has been in a comatose condition. She cannot do anything. She cannot move any part of her body. She cannot see or hear. She is living on mechanical means. She suffered brain damage as a result of the absence of oxygen in her brain for four to five minutes (TSN, November 9, 1989, pp. 21-22). After being discharged from the hospital, she has been staying in their residence, still needing constant medical attention, with her husband Rogelio incurring a monthly expense ranging from P8,000.00 to P10,000.00 (TSN, October 19, 1989, pp. 32-34). She was also diagnosed to be suffering from "diffuse cerebral parenchymal damage" (Exh. "G"; see also TSN, December 21, 1989, p. 6). 5 Thus, on 8 January 1986, petitioners filed a civil case 6 for damages with the Regional Trial Court of Quezon City against herein private respondents alleging negligence in the management and care of Erlinda Ramos. During the trial, both parties presented evidence as to the possible cause of Erlinda's injury. Plaintiff presented the testimonies of Dean Herminda Cruz and Dr. Mariano Gavino to prove that the sustained by Erlinda was due to lack of oxygen in her brain caused by the faulty management of her airway by private respondents during the anesthesia phase. On the other hand, private respondents primarily relied on the expert testimony of Dr. Eduardo Jamora, a pulmonologist, to the effect that the cause of brain damage was Erlinda's allergic reaction to the anesthetic agent, Thiopental Sodium (Pentothal). After considering the evidence from both sides, the Regional Trial Court rendered judgment in favor of petitioners, to wit: After evaluating the evidence as shown in the finding of facts set forth earlier, and applying the aforecited provisions of law and jurisprudence to the case at bar, this Court finds and so holds that defendants are liable to plaintiffs for damages. The defendants were guilty of, at the very least, negligence in the performance of their duty to plaintiff-patient Erlinda Ramos.

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On the part of Dr. Perfecta Gutierrez, this Court finds that she omitted to exercise reasonable care in not only intubating the patient, but also in not repeating the administration of atropine (TSN, August 20, 1991, pp. 5-10), without due regard to the fact that the patient was inside the operating room for almost three (3) hours. For after she committed a mistake in intubating [the] patient, the patient's nailbed became bluish and the patient, thereafter, was placed in trendelenburg position, because of the decrease of blood supply to the patient's brain. The evidence further shows that the hapless patient suffered brain damage because of the absence of oxygen in her (patient's) brain for approximately four to five minutes which, in turn, caused the patient to become comatose. On the part of Dr. Orlino Hosaka, this Court finds that he is liable for the acts of Dr. Perfecta Gutierrez whom he had chosen to administer anesthesia on the patient as part of his obligation to provide the patient a good anesthesiologist', and for arriving for the scheduled operation almost three (3) hours late. On the part of DLSMC (the hospital), this Court finds that it is liable for the acts of negligence of the doctors in their "practice of medicine" in the operating room. Moreover, the hospital is liable for failing through its responsible officials, to cancel the scheduled operation after Dr. Hosaka inexcusably failed to arrive on time. In having held thus, this Court rejects the defense raised by defendants that they have acted with due care and prudence in rendering medical services to plaintiff-patient. For if the patient was properly intubated as claimed by them, the patient would not have become comatose. And, the fact that another anesthesiologist was called to try to intubate the patient after her (the patient's) nailbed turned bluish, belie their claim. Furthermore, the defendants should have rescheduled the operation to a later date. This, they should have done, if defendants acted with due care and prudence as the patient's case was an elective, not an emergency case. xxx xxx xxx WHEREFORE, and in view of the foregoing, judgment is rendered in favor of the plaintiffs and against the defendants. Accordingly, the latter are ordered to pay, jointly and severally, the former the following sums of money, to wit: 1) the sum of P8,000.00 as actual monthly expenses for the plaintiff Erlinda Ramos reckoned from November 15, 1985 or in the total sum of P632,000.00 as of April 15, 1992, subject to its being updated; 2) the sum of P100,000.00 as reasonable attorney's fees; 3) the sum of P800,000.00 by way of moral damages and the further sum of P200,000,00 by way of exemplary damages; and, 4) the costs of the suit. SO ORDERED. 7 Private respondents seasonably interposed an appeal to the Court of Appeals. The appellate court rendered a Decision, dated 29 May 1995, reversing the findings of the trial court. The decretal portion of the decision of the appellate court reads: WHEREFORE, for the foregoing premises the appealed decision is hereby REVERSED, and the complaint below against the appellants is hereby ordered DISMISSED. The counterclaim of appellant De Los Santos Medical Center is GRANTED but only insofar as appellees are hereby ordered to pay the unpaid hospital bills amounting to P93,542.25, plus legal interest for justice must be tempered with mercy. SO ORDERED. 8 The decision of the Court of Appeals was received on 9 June 1995 by petitioner Rogelio Ramos who was mistakenly addressed as "Atty. Rogelio Ramos." No copy of the decision, however, was sent nor received by the Coronel Law Office, then counsel on record of petitioners. Rogelio referred the decision of the appellate court to a new lawyer, Atty. Ligsay, only on 20 June 1995, or four (4) days before the expiration of the reglementary period for filing a motion for reconsideration. On the same day, Atty. Ligsay, filed with the appellate court a motion for extension of time to file a motion for reconsideration. The motion for reconsideration was submitted on 4 July 1995. However, the appellate court denied the motion for extension of time in its Resolution dated 25 July 1995. 9 Meanwhile, petitioners engaged the services of another counsel, Atty. Sillano, to replace Atty. Ligsay. Atty. Sillano filed on 7 August 1995 a motion to admit the motion for reconsideration contending that the period to file the appropriate pleading on the assailed decision had not yet commenced to run as the Division Clerk of Court of the Court of Appeals had not yet served a copy thereof to the counsel on record. 182

Despite this explanation, the appellate court still denied the motion to admit the motion for reconsideration of petitioners in its Resolution, dated 29 March 1996, primarily on the ground that the fifteen-day (15) period for filing a motion for reconsideration had already expired, to wit: We said in our Resolution on July 25, 1995, that the filing of a Motion for Reconsideration cannot be extended; precisely, the Motion for Extension (Rollo, p. 12) was denied. It is, on the other hand, admitted in the latter Motion that plaintiffs/appellees received a copy of the decision as early as June 9, 1995. Computation wise, the period to file a Motion for Reconsideration expired on June 24. The Motion for Reconsideration, in turn, was received by the Court of Appeals already on July 4, necessarily, the 15-day period already passed. For that alone, the latter should be denied. Even assuming admissibility of the Motion for the Reconsideration, but after considering the Comment/Opposition, the former, for lack of merit, is hereby DENIED. SO ORDERED. 10 A copy of the above resolution was received by Atty. Sillano on 11 April 1996. The next day, or on 12 April 1996, Atty. Sillano filed before this Court a motion for extension of time to file the present petition for certiorari under Rule 45. The Court granted the motion for extension of time and gave petitioners additional thirty (30) days after the expiration of the fifteen-day (15) period counted from the receipt of the resolution of the Court of Appeals within which to submit the petition. The due date fell on 27 May 1996. The petition was filed on 9 May 1996, well within the extended period given by the Court. Petitioners assail the decision of the Court of Appeals on the following grounds: I IN PUTTING MUCH RELIANCE ON THE TESTIMONIES OF RESPONDENTS DRA. GUTIERREZ, DRA. CALDERON AND DR. JAMORA; II IN FINDING THAT THE NEGLIGENCE OF THE RESPONDENTS DID NOT CAUSE THE UNFORTUNATE COMATOSE CONDITION OF PETITIONER ERLINDA RAMOS; III IN NOT APPLYING THE DOCTRINE OF RES IPSA LOQUITUR. 11 Before we discuss the merits of the case, we shall first dispose of the procedural issue on the timeliness of the petition in relation to the motion for reconsideration filed by petitioners with the Court of Appeals. In their Comment, 12 private respondents contend that the petition should not be given due course since the motion for reconsideration of the petitioners on the decision of the Court of Appeals was validly dismissed by the appellate court for having been filed beyond the reglementary period. We do not agree. A careful review of the records reveals that the reason behind the delay in filing the motion for reconsideration is attributable to the fact that the decision of the Court of Appeals was not sent to then counsel on record of petitioners, the Coronel Law Office. In fact, a copy of the decision of the appellate court was instead sent to and received by petitioner Rogelio Ramos on 9 June 1995 wherein he was mistakenly addressed as Atty. Rogelio Ramos. Based on the other communications received by petitioner Rogelio Ramos, the appellate court apparently mistook him for the counsel on record. Thus, no copy of the decision of the counsel on record. Petitioner, not being a lawyer and unaware of the prescriptive period for filing a motion for reconsideration, referred the same to a legal counsel only on 20 June 1995. It is elementary that when a party is represented by counsel, all notices should be sent to the party's lawyer at his given address. With a few exceptions, notice to a litigant without notice to his counsel on record is no notice at all. In the present case, since a copy of the decision of the appellate court was not sent to the counsel on record of petitioner, there can be no sufficient notice to speak of. Hence, the delay in the filing of the motion for reconsideration cannot be taken against petitioner. Moreover, since the Court of Appeals already issued a second Resolution, dated 29 March 1996, which superseded the earlier resolution issued on 25 July 1995, and denied the motion for reconsideration of petitioner, we believed that the receipt of the former should be considered in determining the timeliness of the filing of the present petition. Based on this, the petition before us was submitted on time. After resolving the foregoing procedural issue, we shall now look into the merits of the case. For a more logical presentation of the discussion we shall first consider the issue on the applicability of the doctrine of res ipsa loquitur to the instant case. Thereafter, the first two assigned errors shall be tackled in relation to the res ipsa loquitur doctrine. 183

Res ipsa loquitur is a Latin phrase which literally means "the thing or the transaction speaks for itself." The phrase "res ipsa loquitur'' is a maxim for the rule that the fact of the occurrence of an injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiff's prima facie case, and present a question of fact for defendant to meet with an explanation. 13 Where the thing which caused the injury complained of is shown to be under the management of the defendant or his servants and the accident is such as in ordinary course of things does not happen if those who have its management or control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from or was caused by the defendant's want of care. 14 The doctrine of res ipsa loquitur is simply a recognition of the postulate that, as a matter of common knowledge and experience, the very nature of certain types of occurrences may justify an inference of negligence on the part of the person who controls the instrumentality causing the injury in the absence of some explanation by the defendant who is charged with negligence. 15 It is grounded in the superior logic of ordinary human experience and on the basis of such experience or common knowledge, negligence may be deduced from the mere occurrence of the accident itself. 16 Hence, res ipsa loquitur is applied in conjunction with the doctrine of common knowledge. However, much has been said that res ipsa loquitur is not a rule of substantive law and, as such, does not create or constitute an independent or separate ground of liability. 17 Instead, it is considered as merely evidentiary or in the nature of a procedural rule. 18 It is regarded as a mode of proof, or a mere procedural of convenience since it furnishes a substitute for, and relieves a plaintiff of, the burden of producing specific proof of negligence. 19 In other words, mere invocation and application of the doctrine does not dispense with the requirement of proof of negligence. It is simply a step in the process of such proof, permitting the plaintiff to present along with the proof of the accident, enough of the attending circumstances to invoke the doctrine, creating an inference or presumption of negligence, and to thereby place on the defendant the burden of going forward with the proof. 20 Still, before resort to the doctrine may be allowed, the following requisites must be satisfactorily shown: 1. The accident is of a kind which ordinarily does not occur in the absence of someone's negligence; 2. It is caused by an instrumentality within the exclusive control of the defendant or defendants; and 3. The possibility of contributing conduct which would make the plaintiff responsible is eliminated. 21 In the above requisites, the fundamental element is the "control of instrumentality" which caused the damage. 22 Such element of control must be shown to be within the dominion of the defendant. In order to have the benefit of the rule, a plaintiff, in addition to proving injury or damage, must show a situation where it is applicable, and must establish that the essential elements of the doctrine were present in a particular incident. 23 Medical malpractice 24 cases do not escape the application of this doctrine. Thus, res ipsa loquitur has been applied when the circumstances attendant upon the harm are themselves of such a character as to justify an inference of negligence as the cause of that harm. 25 The application of res ipsa loquitur in medical negligence cases presents a question of law since it is a judicial function to determine whether a certain set of circumstances does, as a matter of law, permit a given inference. 26 Although generally, expert medical testimony is relied upon in malpractice suits to prove that a physician has done a negligent act or that he has deviated from the standard medical procedure, when the doctrine of res ipsa loquitur is availed by the plaintiff, the need for expert medical testimony is dispensed with because the injury itself provides the proof of negligence. 27 The reason is that the general rule on the necessity of expert testimony applies only to such matters clearly within the domain of medical science, and not to matters that are within the common knowledge of mankind which may be testified to by anyone familiar with the facts. 28 Ordinarily, only physicians and surgeons of skill and experience are competent to testify as to whether a patient has been treated or operated upon with a reasonable degree of skill and care. However, testimony as to the statements and acts of physicians and surgeons, external appearances, and manifest conditions which are observable by any one may be given by non-expert witnesses. 29 Hence, in cases where the res ipsa loquitur is applicable, the court is permitted to find a physician negligent upon proper proof of injury to the patient, without the aid of expert testimony, where the court from its fund of common knowledge can determine the proper standard of care. 30 Where common knowledge and experience teach that a resulting injury would not have occurred to the patient if due care had been exercised, an inference of negligence may be drawn giving rise to an application of the doctrine of res ipsa loquitur without medical evidence, which is ordinarily required to show not only what occurred but how and why it occurred. 31 When the doctrine is appropriate, all that the patient must do is prove a nexus between the particular act or omission complained of and the injury sustained while under the custody and management of the defendant without need to produce expert medical testimony to establish the standard of care. Resort to res ipsa loquitur is allowed because there is no other way, under usual and ordinary conditions, by which the patient can obtain redress for injury suffered by him. Thus, courts of other jurisdictions have applied the doctrine in the following situations: leaving of a foreign object in the body of the patient after an operation, 32 injuries sustained on a healthy part of the body which was not under, or in the area, of treatment, 33 removal of the wrong part of the body when another part was 184

intended, 34 knocking out a tooth while a patient's jaw was under anesthetic for the removal of his tonsils, 35 and loss of an eye while the patient plaintiff was under the influence of anesthetic, during or following an operation for appendicitis, 36 among others. Nevertheless, despite the fact that the scope of res ipsa loquitur has been measurably enlarged, it does not automatically apply to all cases of medical negligence as to mechanically shift the burden of proof to the defendant to show that he is not guilty of the ascribed negligence. Res ipsa loquitur is not a rigid or ordinary doctrine to be perfunctorily used but a rule to be cautiously applied, depending upon the circumstances of each case. It is generally restricted to situations in malpractice cases where a layman is able to say, as a matter of common knowledge and observation, that the consequences of professional care were not as such as would ordinarily have followed if due care had been exercised. 37 A distinction must be made between the failure to secure results, and the occurrence of something more unusual and not ordinarily found if the service or treatment rendered followed the usual procedure of those skilled in that particular practice. It must be conceded that the doctrine of res ipsa loquitur can have no application in a suit against a physician or surgeon which involves the merits of a diagnosis or of a scientific treatment. 38 The physician or surgeon is not required at his peril to explain why any particular diagnosis was not correct, or why any particular scientific treatment did not produce the desired result. 39 Thus, res ipsa loquitur is not available in a malpractice suit if the only showing is that the desired result of an operation or treatment was not accomplished. 40 The real question, therefore, is whether or not in the process of the operation any extraordinary incident or unusual event outside of the routine performance occurred which is beyond the regular scope of customary professional activity in such operations, which, if unexplained would themselves reasonably speak to the average man as the negligent cause or causes of the untoward consequence. 41 If there was such extraneous interventions, the doctrine of res ipsa loquitur may be utilized and the defendant is called upon to explain the matter, by evidence of exculpation, if he could. 42 We find the doctrine of res ipsa loquitur appropriate in the case at bar. As will hereinafter be explained, the damage sustained by Erlinda in her brain prior to a scheduled gall bladder operation presents a case for the application of res ipsa loquitur. A case strikingly similar to the one before us is Voss vs. Bridwell, 43 where the Kansas Supreme Court in applying the res ipsa loquitur stated: The plaintiff herein submitted himself for a mastoid operation and delivered his person over to the care, custody and control of his physician who had complete and exclusive control over him, but the operation was never performed. At the time of submission he was neurologically sound and physically fit in mind and body, but he suffered irreparable damage and injury rendering him decerebrate and totally incapacitated. The injury was one which does not ordinarily occur in the process of a mastoid operation or in the absence of negligence in the administration of an anesthetic, and in the use and employment of an endoctracheal tube. Ordinarily a person being put under anesthesia is not rendered decerebrate as a consequence of administering such anesthesia in the absence of negligence. Upon these facts and under these circumstances a layman would be able to say, as a matter of common knowledge and observation, that the consequences of professional treatment were not as such as would ordinarily have followed if due care had been exercised. Here the plaintiff could not have been guilty of contributory negligence because he was under the influence of anesthetics and unconscious, and the circumstances are such that the true explanation of event is more accessible to the defendants than to the plaintiff for they had the exclusive control of the instrumentalities of anesthesia. Upon all the facts, conditions and circumstances alleged in Count II it is held that a cause of action is stated under the doctrine of res ipsa loquitur. 44 Indeed, the principles enunciated in the aforequoted case apply with equal force here. In the present case, Erlinda submitted herself for cholecystectomy and expected a routine general surgery to be performed on her gall bladder. On that fateful day she delivered her person over to the care, custody and control of private respondents who exercised complete and exclusive control over her. At the time of submission, Erlinda was neurologically sound and, except for a few minor discomforts, was likewise physically fit in mind and body. However, during the administration of anesthesia and prior to the performance of cholecystectomy she suffered irreparable damage to her brain. Thus, without undergoing surgery, she went out of the operating room already decerebrate and totally incapacitated. Obviously, brain damage, which Erlinda sustained, is an injury which does not normally occur in the process of a gall bladder operation. In fact, this kind of situation does not in the absence of negligence of someone in the administration of anesthesia and in the use of endotracheal tube. Normally, a person being put under anesthesia is not rendered decerebrate as a consequence of administering such anesthesia if the proper procedure was followed. Furthermore, the instruments used in the administration of anesthesia, including the endotracheal tube, were all under the exclusive control of private respondents, who are the physicians-in-charge. Likewise, petitioner Erlinda could not have been guilty of contributory negligence because she was under the influence of anesthetics which rendered her unconscious. Considering that a sound and unaffected member of the body (the brain) is injured or destroyed while the patient is unconscious and under the immediate and exclusive control of the physicians, we hold that a practical administration of justice dictates the application of res ipsa loquitur. Upon these facts and under these circumstances the Court would be able to say, as a matter of common knowledge and observation, if negligence attended the management and care of the patient. Moreover, the liability of the physicians and the 185

hospital in this case is not predicated upon an alleged failure to secure the desired results of an operation nor on an alleged lack of skill in the diagnosis or treatment as in fact no operation or treatment was ever performed on Erlinda. Thus, upon all these initial determination a case is made out for the application of the doctrine of res ipsa loquitur. Nonetheless, in holding that res ipsa loquitur is available to the present case we are not saying that the doctrine is applicable in any and all cases where injury occurs to a patient while under anesthesia, or to any and all anesthesia cases. Each case must be viewed in its own light and scrutinized in order to be within the res ipsa loquitur coverage. Having in mind the applicability of the res ipsa loquitur doctrine and the presumption of negligence allowed therein, the Court now comes to the issue of whether the Court of Appeals erred in finding that private respondents were not negligent in the care of Erlinda during the anesthesia phase of the operation and, if in the affirmative, whether the alleged negligence was the proximate cause of Erlinda's comatose condition. Corollary thereto, we shall also determine if the Court of Appeals erred in relying on the testimonies of the witnesses for the private respondents. In sustaining the position of private respondents, the Court of Appeals relied on the testimonies of Dra. Gutierrez, Dra. Calderon and Dr. Jamora. In giving weight to the testimony of Dra. Gutierrez, the Court of Appeals rationalized that she was candid enough to admit that she experienced some difficulty in the endotracheal intubation 45 of the patient and thus, cannot be said to be covering her negligence with falsehood. The appellate court likewise opined that private respondents were able to show that the brain damage sustained by Erlinda was not caused by the alleged faulty intubation but was due to the allergic reaction of the patient to the drug Thiopental Sodium (Pentothal), a short-acting barbiturate, as testified on by their expert witness, Dr. Jamora. On the other hand, the appellate court rejected the testimony of Dean Herminda Cruz offered in favor of petitioners that the cause of the brain injury was traceable to the wrongful insertion of the tube since the latter, being a nurse, was allegedly not knowledgeable in the process of intubation. In so holding, the appellate court returned a verdict in favor of respondents physicians and hospital and absolved them of any liability towards Erlinda and her family. We disagree with the findings of the Court of Appeals. We hold that private respondents were unable to disprove the presumption of negligence on their part in the care of Erlinda and their negligence was the proximate cause of her piteous condition. In the instant case, the records are helpful in furnishing not only the logical scientific evidence of the pathogenesis of the injury but also in providing the Court the legal nexus upon which liability is based. As will be shown hereinafter, private respondents' own testimonies which are reflected in the transcript of stenographic notes are replete of signposts indicative of their negligence in the care and management of Erlinda. With regard to Dra. Gutierrez, we find her negligent in the care of Erlinda during the anesthesia phase. As borne by the records, respondent Dra. Gutierrez failed to properly intubate the patient. This fact was attested to by Prof. Herminda Cruz, Dean of the Capitol Medical Center School of Nursing and petitioner's sister-in-law, who was in the operating room right beside the patient when the tragic event occurred. Witness Cruz testified to this effect: ATTY. PAJARES: Q: In particular, what did Dra. Perfecta Gutierrez do, if any on the patient? A: In particular, I could see that she was intubating the patient. Q: Do you know what happened to that intubation process administered by Dra. Gutierrez? ATTY. ALCERA: She will be incompetent Your Honor. COURT: Witness may answer if she knows. A: As have said, I was with the patient, I was beside the stretcher holding the left hand of the patient and all of a sudden heard some remarks coming from Dra. Perfecta Gutierrez herself. She was saying "Ang hirap maintubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan. xxx xxx xxx 186

ATTY. PAJARES: Q: From whom did you hear those words "lumalaki ang tiyan"? A: From Dra. Perfecta Gutierrez. xxx xxx xxx Q: After hearing the phrase "lumalaki ang tiyan," what did you notice on the person of the patient? A: I notice (sic) some bluish discoloration on the nailbeds of the left hand where I was at. Q: Where was Dr. Orlino Ho[s]aka then at that particular time? A: I saw him approaching the patient during that time. Q: When he approached the patient, what did he do, if any? A: He made an order to call on the anesthesiologist in the person of Dr. Calderon. Q: Did Dr. Calderon, upon being called, arrive inside the operating room? A: Yes sir. Q: What did [s]he do, if any? A: [S]he tried to intubate the patient. Q: What happened to the patient? A: When Dr. Calderon try (sic) to intubate the patient, after a while the patient's nailbed became bluish and I saw the patient was placed in trendelenburg position. xxx xxx xxx Q: Do you know the reason why the patient was placed in that trendelenburg position? A: As far as I know, when a patient is in that position, there is a decrease of blood supply to the brain. 46 xxx xxx xxx The appellate court, however, disbelieved Dean Cruz's testimony in the trial court by declaring that: A perusal of the standard nursing curriculum in our country will show that intubation is not taught as part of nursing procedures and techniques. Indeed, we take judicial notice of the fact that nurses do not, and cannot, intubate. Even on the assumption that she is fully capable of determining whether or not a patient is properly intubated, witness Herminda Cruz, admittedly, did not peep into the throat of the patient. (TSN, July 25, 1991, p. 13). More importantly, there is no evidence that she ever auscultated the patient or that she conducted any type of examination to check if the endotracheal tube was in its proper place, and to determine the condition of the heart, lungs, and other organs. Thus, witness Cruz's categorical statements that appellant Dra. Gutierrez failed to intubate the appellee Erlinda Ramos and that it was Dra. Calderon who succeeded in doing so clearly suffer from lack of sufficient factual bases. 47 In other words, what the Court of Appeals is trying to impress is that being a nurse, and considered a layman in the process of intubation, witness Cruz is not competent to testify on whether or not the intubation was a success.

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We do not agree with the above reasoning of the appellate court. Although witness Cruz is not an anesthesiologist, she can very well testify upon matters on which she is capable of observing such as, the statements and acts of the physician and surgeon, external appearances, and manifest conditions which are observable by any one. 48 This is precisely allowed under the doctrine of res ipsa loquitur where the testimony of expert witnesses is not required. It is the accepted rule that expert testimony is not necessary for the proof of negligence in non-technical matters or those of which an ordinary person may be expected to have knowledge, or where the lack of skill or want of care is so obvious as to render expert testimony unnecessary. 49 We take judicial notice of the fact that anesthesia procedures have become so common, that even an ordinary person can tell if it was administered properly. As such, it would not be too difficult to tell if the tube was properly inserted. This kind of observation, we believe, does not require a medical degree to be acceptable. At any rate, without doubt, petitioner's witness, an experienced clinical nurse whose long experience and scholarship led to her appointment as Dean of the Capitol Medical Center School at Nursing, was fully capable of determining whether or not the intubation was a success. She had extensive clinical experience starting as a staff nurse in Chicago, Illinois; staff nurse and clinical instructor in a teaching hospital, the FEU-NRMF; Dean of the Laguna College of Nursing in San Pablo City; and then Dean of the Capitol Medical Center School of Nursing. 50 Reviewing witness Cruz' statements, we find that the same were delivered in a straightforward manner, with the kind of detail, clarity, consistency and spontaneity which would have been difficult to fabricate. With her clinical background as a nurse, the Court is satisfied that she was able to demonstrate through her testimony what truly transpired on that fateful day. Most of all, her testimony was affirmed by no less than respondent Dra. Gutierrez who admitted that she experienced difficulty in inserting the tube into Erlinda's trachea, to wit: ATTY. LIGSAY: Q: In this particular case, Doctora, while you were intubating at your first attempt (sic), you did not immediately see the trachea? DRA. GUTIERREZ: A: Yes sir. Q: Did you pull away the tube immediately? A: You do not pull the . . . Q: Did you or did you not? A: I did not pull the tube. Q: When you said "mahirap yata ito," what were you referring to? A: "Mahirap yata itong i-intubate," that was the patient. Q: So, you found some difficulty in inserting the tube? A: Yes, because of (sic) my first attempt, I did not see right away. 51 Curiously in the case at bar, respondent Dra. Gutierrez made the haphazard defense that she encountered hardship in the insertion of the tube in the trachea of Erlinda because it was positioned more anteriorly (slightly deviated from the normal anatomy of a person) 52 making it harder to locate and, since Erlinda is obese and has a short neck and protruding teeth, it made intubation even more difficult. The argument does not convince us. If this was indeed observed, private respondents adduced no evidence demonstrating that they proceeded to make a thorough assessment of Erlinda's airway, prior to the induction of anesthesia, even if this would mean postponing the procedure. From their testimonies, it appears that the observation was made only as an afterthought, as a means of defense. The pre-operative evaluation of a patient prior to the administration of anesthesia is universally observed to lessen the possibility of anesthetic accidents. Pre-operative evaluation and preparation for anesthesia begins when the anesthesiologist reviews the patient's medical records and visits with the patient, traditionally, the day before elective surgery. 53 It includes taking the patient's medical history, review of current drug therapy, physical examination and interpretation of laboratory data. 54 The physical examination performed by the anesthesiologist is directed primarily toward the central nervous system, cardiovascular system, lungs and upper airway. 55 A thorough analysis of the patient's airway normally involves investigating the following: cervical spine mobility, temporomandibular mobility, prominent central incisors, diseased or artificial teeth, ability to visualize uvula and the thyromental distance. 56 Thus, physical characteristics of the patient's upper 188

airway that could make tracheal intubation difficult should be studied. 57 Where the need arises, as when initial assessment indicates possible problems (such as the alleged short neck and protruding teeth of Erlinda) a thorough examination of the patient's airway would go a long way towards decreasing patient morbidity and mortality. In the case at bar, respondent Dra. Gutierrez admitted that she saw Erlinda for the first time on the day of the operation itself, on 17 June 1985. Before this date, no prior consultations with, or pre-operative evaluation of Erlinda was done by her. Until the day of the operation, respondent Dra. Gutierrez was unaware of the physiological make-up and needs of Erlinda. She was likewise not properly informed of the possible difficulties she would face during the administration of anesthesia to Erlinda. Respondent Dra. Gutierrez' act of seeing her patient for the first time only an hour before the scheduled operative procedure was, therefore, an act of exceptional negligence and professional irresponsibility. The measures cautioning prudence and vigilance in dealing with human lives lie at the core of the physician's centuries-old Hippocratic Oath. Her failure to follow this medical procedure is, therefore, a clear indicia of her negligence. Respondent Dra. Gutierrez, however, attempts to gloss over this omission by playing around with the trial court's ignorance of clinical procedure, hoping that she could get away with it. Respondent Dra. Gutierrez tried to muddle the difference between an elective surgery and an emergency surgery just so her failure to perform the required pre-operative evaluation would escape unnoticed. In her testimony she asserted: ATTY. LIGSAY: Q: Would you agree, Doctor, that it is good medical practice to see the patient a day before so you can introduce yourself to establish good doctorpatient relationship and gain the trust and confidence of the patient? DRA. GUTIERREZ: A: As I said in my previous statement, it depends on the operative procedure of the anesthesiologist and in my case, with elective cases and normal cardio-pulmonary clearance like that, I usually don't do it except on emergency and on cases that have an abnormalities (sic). 58 However, the exact opposite is true. In an emergency procedure, there is hardly enough time available for the fastidious demands of pre-operative procedure so that an anesthesiologist is able to see the patient only a few minutes before surgery, if at all. Elective procedures, on the other hand, are operative procedures that can wait for days, weeks or even months. Hence, in these cases, the anesthesiologist possesses the luxury of time to be at the patient's beside to do a proper interview and clinical evaluation. There is ample time to explain the method of anesthesia, the drugs to be used, and their possible hazards for purposes of informed consent. Usually, the pre-operative assessment is conducted at least one day before the intended surgery, when the patient is relaxed and cooperative. Erlinda's case was elective and this was known to respondent Dra. Gutierrez. Thus, she had all the time to make a thorough evaluation of Erlinda's case prior to the operation and prepare her for anesthesia. However, she never saw the patient at the bedside. She herself admitted that she had seen petitioner only in the operating room, and only on the actual date of the cholecystectomy. She negligently failed to take advantage of this important opportunity. As such, her attempt to exculpate herself must fail. Having established that respondent Dra. Gutierrez failed to perform pre-operative evaluation of the patient which, in turn, resulted to a wrongful intubation, we now determine if the faulty intubation is truly the proximate cause of Erlinda's comatose condition. Private respondents repeatedly hammered the view that the cerebral anoxia which led to Erlinda's coma was due to bronchospasm 59 mediated by her allergic response to the drug, Thiopental Sodium, introduced into her system. Towards this end, they presented Dr. Jamora, a Fellow of the Philippine College of Physicians and Diplomate of the Philippine Specialty Board of Internal Medicine, who advanced private respondents' theory that the oxygen deprivation which led to anoxic encephalopathy, 60 was due to an unpredictable drug reaction to the short-acting barbiturate. We find the theory of private respondents unacceptable. First of all, Dr. Jamora cannot be considered an authority in the field of anesthesiology simply because he is not an anesthesiologist. Since Dr. Jamora is a pulmonologist, he could not have been capable of properly enlightening the court about anesthesia practice and procedure and their complications. Dr. Jamora is likewise not an allergologist and could not therefore properly advance expert opinion on allergic-mediated processes. Moreover, he is not a pharmacologist and, as such, could not have been capable, as an expert would, of explaining to the court the pharmacologic and toxic effects of the supposed culprit, Thiopental Sodium (Pentothal). The inappropriateness and absurdity of accepting Dr. Jamora's testimony as an expert witness in the anesthetic practice of Pentothal administration is further supported by his own admission that he formulated his opinions on the drug not from the practical experience gained by a specialist or expert in the administration and use of Sodium Pentothal on patients, but only from reading certain references, to wit: 189

ATTY. LIGSAY: Q: In your line of expertise on pulmonology, did you have any occasion to use pentothal as a method of management? DR. JAMORA: A: We do it in conjunction with the anesthesiologist when they have to intubate our patient. Q: But not in particular when you practice pulmonology? A: No. Q: In other words, your knowledge about pentothal is based only on what you have read from books and not by your own personal application of the medicine pentothal? A: Based on my personal experience also on pentothal. Q: How many times have you used pentothal? A: They used it on me. I went into bronchospasm during my appendectomy. Q: And because they have used it on you and on account of your own personal experience you feel that you can testify on pentothal here with medical authority? A: No. That is why I used references to support my claims. 61 An anesthetic accident caused by a rare drug-induced bronchospasm properly falls within the fields of anesthesia, internal medicine-allergy, and clinical pharmacology. The resulting anoxic encephalopathy belongs to the field of neurology. While admittedly, many bronchospastic-mediated pulmonary diseases are within the expertise of pulmonary medicine, Dr. Jamora's field, the anesthetic drug-induced, allergic mediated bronchospasm alleged in this case is within the disciplines of anesthesiology, allergology and pharmacology. On the basis of the foregoing transcript, in which the pulmonologist himself admitted that he could not testify about the drug with medical authority, it is clear that the appellate court erred in giving weight to Dr. Jamora's testimony as an expert in the administration of Thiopental Sodium. The provision in the rules of evidence 62 regarding expert witnesses states: Sec. 49. Opinion of expert witness. The opinion of a witness on a matter requiring special knowledge, skill, experience or training which he is shown to possess, may be received in evidence. Generally, to qualify as an expert witness, one must have acquired special knowledge of the subject matter about which he or she is to testify, either by the study of recognized authorities on the subject or by practical experience. 63 Clearly, Dr. Jamora does not qualify as an expert witness based on the above standard since he lacks the necessary knowledge, skill, and training in the field of anesthesiology. Oddly, apart from submitting testimony from a specialist in the wrong field, private respondents' intentionally avoided providing testimony by competent and independent experts in the proper areas. Moreover, private respondents' theory, that Thiopental Sodium may have produced Erlinda's coma by triggering an allergic mediated response, has no support in evidence. No evidence of stridor, skin reactions, or wheezing some of the more common accompanying signs of an allergic reaction appears on record. No laboratory data were ever presented to the court. In any case, private respondents themselves admit that Thiopental induced, allergic-mediated bronchospasm happens only very rarely. If courts were to accept private respondents' hypothesis without supporting medical proof, and against the weight of available evidence, then every anesthetic accident would be an act of God. Evidently, the Thiopental-allergy theory vigorously asserted by private respondents was a mere afterthought. Such an explanation was advanced in order to advanced in order to absolve them of any and all responsibility for the patient's condition. In view of the evidence at hand, we are inclined to believe petitioners' stand that it was the faulty intubation which was the proximate cause of Erlinda's comatose condition.

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Proximate cause has been defined as that which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces injury, and without which the result would not have occurred. 64 An injury or damage is proximately caused by an act or a failure to act, whenever it appears from the evidence in the case, that the act or omission played a substantial part in bringing about or actually causing the injury or damage; and that the injury or damage was either a direct result or a reasonably probable consequence of the act or omission. 65 It is the dominant, moving or producing cause. Applying the above definition in relation to the evidence at hand, faulty intubation is undeniably the proximate cause which triggered the chain of events leading to Erlinda's brain damage and, ultimately, her comatosed condition. Private respondents themselves admitted in their testimony that the first intubation was a failure. This fact was likewise observed by witness Cruz when she heard respondent Dra. Gutierrez remarked, "Ang hirap maintubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan." Thereafter, witness Cruz noticed abdominal distention on the body of Erlinda. The development of abdominal distention, together with respiratory embarrassment indicates that the endotracheal tube entered the esophagus instead of the respiratory tree. In other words, instead of the intended endotracheal intubation what actually took place was an esophageal intubation. During intubation, such distention indicates that air has entered the gastrointestinal tract through the esophagus instead of the lungs through the trachea. Entry into the esophagus would certainly cause some delay in oxygen delivery into the lungs as the tube which carries oxygen is in the wrong place. That abdominal distention had been observed during the first intubation suggests that the length of time utilized in inserting the endotracheal tube (up to the time the tube was withdrawn for the second attempt) was fairly significant. Due to the delay in the delivery of oxygen in her lungs Erlinda showed signs of cyanosis. 66 As stated in the testimony of Dr. Hosaka, the lack of oxygen became apparent only after he noticed that the nailbeds of Erlinda were already blue. 67 However, private respondents contend that a second intubation was executed on Erlinda and this one was successfully done. We do not think so. No evidence exists on record, beyond private respondents' bare claims, which supports the contention that the second intubation was successful. Assuming that the endotracheal tube finally found its way into the proper orifice of the trachea, the same gave no guarantee of oxygen delivery, the hallmark of a successful intubation. In fact, cyanosis was again observed immediately after the second intubation. Proceeding from this event (cyanosis), it could not be claimed, as private respondents insist, that the second intubation was accomplished. Even granting that the tube was successfully inserted during the second attempt, it was obviously too late. As aptly explained by the trial court, Erlinda already suffered brain damage as a result of the inadequate oxygenation of her brain for about four to five minutes. 68 The above conclusion is not without basis. Scientific studies point out that intubation problems are responsible for one-third (1/3) of deaths and serious injuries associated with anesthesia. 69 Nevertheless, ninety-eight percent (98%) or the vast majority of difficult intubations may be anticipated by performing a thorough evaluation of the patient's airway prior to the operation. 70 As stated beforehand, respondent Dra. Gutierrez failed to observe the proper pre-operative protocol which could have prevented this unfortunate incident. Had appropriate diligence and reasonable care been used in the pre-operative evaluation, respondent physician could have been much more prepared to meet the contingency brought about by the perceived anatomic variations in the patient's neck and oral area, defects which would have been easily overcome by a prior knowledge of those variations together with a change in technique. 71 In other words, an experienced anesthesiologist, adequately alerted by a thorough pre-operative evaluation, would have had little difficulty going around the short neck and protruding teeth. 72 Having failed to observe common medical standards in pre-operative management and intubation, respondent Dra. Gutierrez' negligence resulted in cerebral anoxia and eventual coma of Erlinda. We now determine the responsibility of respondent Dr. Orlino Hosaka as the head of the surgical team. As the so-called "captain of the ship," 73 it is the surgeon's responsibility to see to it that those under him perform their task in the proper manner. Respondent Dr. Hosaka's negligence can be found in his failure to exercise the proper authority (as the "captain" of the operative team) in not determining if his anesthesiologist observed proper anesthesia protocols. In fact, no evidence on record exists to show that respondent Dr. Hosaka verified if respondent Dra. Gutierrez properly intubated the patient. Furthermore, it does not escape us that respondent Dr. Hosaka had scheduled another procedure in a different hospital at the same time as Erlinda's cholecystectomy, and was in fact over three hours late for the latter's operation. Because of this, he had little or no time to confer with his anesthesiologist regarding the anesthesia delivery. This indicates that he was remiss in his professional duties towards his patient. Thus, he shares equal responsibility for the events which resulted in Erlinda's condition. We now discuss the responsibility of the hospital in this particular incident. The unique practice (among private hospitals) of filling up specialist staff with attending and visiting "consultants," 74 who are allegedly not hospital employees, presents problems in apportioning responsibility for negligence in medical malpractice cases. However, the difficulty is only more apparent than real. In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work within the hospital premises. Doctors who apply for "consultant" slots, visiting or attending, are required to submit proof of completion of residency, their educational qualifications; generally, evidence of accreditation by the appropriate board (diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized by members of the hospital administration or by a review committee set up by the hospital who either accept or reject the application. 75 This is particularly true with respondent hospital.

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After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinico-pathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or for the privilege of admitting patients into the hospital. In addition to these, the physician's performance as a specialist is generally evaluated by a peer review committee on the basis of mortality and morbidity statistics, and feedback from patients, nurses, interns and residents. A consultant remiss in his duties, or a consultant who regularly falls short of the minimum standards acceptable to the hospital or its peer review committee, is normally politely terminated. In other words, private hospitals, hire, fire and exercise real control over their attending and visiting "consultant" staff. While "consultants" are not, technically employees, a point which respondent hospital asserts in denying all responsibility for the patient's condition, the control exercised, the hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. This being the case, the question now arises as to whether or not respondent hospital is solidarily liable with respondent doctors for petitioner's condition. 76 The basis for holding an employer solidarily responsible for the negligence of its employee is found in Article 2180 of the Civil Code which considers a person accountable not only for his own acts but also for those of others based on the former's responsibility under a relationship of patria potestas. 77 Such responsibility ceases when the persons or entity concerned prove that they have observed the diligence of a good father of the family to prevent damage. 78 In other words, while the burden of proving negligence rests on the plaintiffs, once negligence is shown, the burden shifts to the respondents (parent, guardian, teacher or employer) who should prove that they observed the diligence of a good father of a family to prevent damage. In the instant case, respondent hospital, apart from a general denial of its responsibility over respondent physicians, failed to adduce evidence showing that it exercised the diligence of a good father of a family in the hiring and supervision of the latter. It failed to adduce evidence with regard to the degree of supervision which it exercised over its physicians. In neglecting to offer such proof, or proof of a similar nature, respondent hospital thereby failed to discharge its burden under the last paragraph of Article 2180. Having failed to do this, respondent hospital is consequently solidarily responsible with its physicians for Erlinda's condition. Based on the foregoing, we hold that the Court of Appeals erred in accepting and relying on the testimonies of the witnesses for the private respondents. Indeed, as shown by the above discussions, private respondents were unable to rebut the presumption of negligence. Upon these disquisitions we hold that private respondents are solidarily liable for damages under Article 2176 79 of the Civil Code. We now come to the amount of damages due petitioners. The trial court awarded a total of P632,000.00 pesos (should be P616,000.00) in compensatory damages to the plaintiff, "subject to its being updated" covering the period from 15 November 1985 up to 15 April 1992, based on monthly expenses for the care of the patient estimated at P8,000.00. At current levels, the P8000/monthly amount established by the trial court at the time of its decision would be grossly inadequate to cover the actual costs of home-based care for a comatose individual. The calculated amount was not even arrived at by looking at the actual cost of proper hospice care for the patient. What it reflected were the actual expenses incurred and proved by the petitioners after they were forced to bring home the patient to avoid mounting hospital bills. And yet ideally, a comatose patient should remain in a hospital or be transferred to a hospice specializing in the care of the chronically ill for the purpose of providing a proper milieu adequate to meet minimum standards of care. In the instant case for instance, Erlinda has to be constantly turned from side to side to prevent bedsores and hypostatic pneumonia. Feeding is done by nasogastric tube. Food preparation should be normally made by a dietitian to provide her with the correct daily caloric requirements and vitamin supplements. Furthermore, she has to be seen on a regular basis by a physical therapist to avoid muscle atrophy, and by a pulmonary therapist to prevent the accumulation of secretions which can lead to respiratory complications. Given these considerations, the amount of actual damages recoverable in suits arising from negligence should at least reflect the correct minimum cost of proper care, not the cost of the care the family is usually compelled to undertake at home to avoid bankruptcy. However, the provisions of the Civil Code on actual or compensatory damages present us with some difficulties. Well-settled is the rule that actual damages which may be claimed by the plaintiff are those suffered by him as he has duly proved. The Civil Code provides: Art. 2199. 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. Such compensation is referred to as actual or compensatory damages. Our rules on actual or compensatory damages generally assume that at the time of litigation, the injury suffered as a consequence of an act of negligence has been completed and that the cost can be liquidated. 192

However, these provisions neglect to take into account those situations, as in this case, where the resulting injury might be continuing and possible future complications directly arising from the injury, while certain to occur, are difficult to predict. In these cases, the amount of damages which should be awarded, if they are to adequately and correctly respond to the injury caused, should be one which compensates for pecuniary loss incurred and proved, up to the time of trial; and one which would meet pecuniary loss certain to be suffered but which could not, from the nature of the case, be made with certainty. 80 In other words, temperate damages can and should be awarded on top of actual or compensatory damages in instances where the injury is chronic and continuing. And because of the unique nature of such cases, no incompatibility arises when both actual and temperate damages are provided for. The reason is that these damages cover two distinct phases. As it would not be equitable and certainly not in the best interests of the administration of justice for the victim in such cases to constantly come before the courts and invoke their aid in seeking adjustments to the compensatory damages previously awarded temperate damages are appropriate. The amount given as temperate damages, though to a certain extent speculative, should take into account the cost of proper care. In the instant case, petitioners were able to provide only home-based nursing care for a comatose patient who has remained in that condition for over a decade. Having premised our award for compensatory damages on the amount provided by petitioners at the onset of litigation, it would be now much more in step with the interests of justice if the value awarded for temperate damages would allow petitioners to provide optimal care for their loved one in a facility which generally specializes in such care. They should not be compelled by dire circumstances to provide substandard care at home without the aid of professionals, for anything less would be grossly inadequate. Under the circumstances, an award of P1,500,000.00 in temperate damages would therefore be reasonable. 81 In Valenzuela vs. Court of Appeals, 82 this Court was confronted with a situation where the injury suffered by the plaintiff would have led to expenses which were difficult to estimate because while they would have been a direct result of the injury (amputation), and were certain to be incurred by the plaintiff, they were likely to arise only in the future. We awarded P1,000,000.00 in moral damages in that case. Describing the nature of the injury, the Court therein stated: As a result of the accident, Ma. Lourdes Valenzuela underwent a traumatic amputation of her left lower extremity at the distal left thigh just above the knee. Because of this, Valenzuela will forever be deprived of the full ambulatory functions of her left extremity, even with the use of state of the art prosthetic technology. Well beyond the period of hospitalization (which was paid for by Li), she will be required to undergo adjustments in her prosthetic devise due to the shrinkage of the stump from the process of healing. These adjustments entail costs, prosthetic replacements and months of physical and occupational rehabilitation and therapy. During the lifetime, the prosthetic devise will have to be replaced and readjusted to changes in the size of her lower limb effected by the biological changes of middle-age, menopause and aging. Assuming she reaches menopause, for example, the prosthetic will have to be adjusted to respond to the changes in bone resulting from a precipitate decrease in calcium levels observed in the bones of all post-menopausal women. In other words, the damage done to her would not only be permanent and lasting, it would also be permanently changing and adjusting to the physiologic changes which her body would normally undergo through the years. The replacements, changes, and adjustments will require corresponding adjustive physical and occupational therapy. All of these adjustments, it has been documented, are painful. xxx xxx xxx A prosthetic devise, however technologically advanced, will only allow a reasonable amount of functional restoration of the motor functions of the lower limb. The sensory functions are forever lost. The resultant anxiety, sleeplessness, psychological injury, mental and physical pain are inestimable. 83 The injury suffered by Erlinda as a consequence of private respondents' negligence is certainly much more serious than the amputation in the Valenzuela case. Petitioner Erlinda Ramos was in her mid-forties when the incident occurred. She has been in a comatose state for over fourteen years now. The burden of care has so far been heroically shouldered by her husband and children, who, in the intervening years have been deprived of the love of a wife and a mother. Meanwhile, the actual physical, emotional and financial cost of the care of petitioner would be virtually impossible to quantify. Even the temperate damages herein awarded would be inadequate if petitioner's condition remains unchanged for the next ten years.

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We recognized, in Valenzuela that a discussion of the victim's actual injury would not even scratch the surface of the resulting moral damage because it would be highly speculative to estimate the amount of emotional and moral pain, psychological damage and injury suffered by the victim or those actually affected by the victim's condition. 84 The husband and the children, all petitioners in this case, will have to live with the day to day uncertainty of the patient's illness, knowing any hope of recovery is close to nil. They have fashioned their daily lives around the nursing care of petitioner, altering their long term goals to take into account their life with a comatose patient. They, not the respondents, are charged with the moral responsibility of the care of the victim. The family's moral injury and suffering in this case is clearly a real one. For the foregoing reasons, an award of P2,000,000.00 in moral damages would be appropriate. Finally, by way of example, exemplary damages in the amount of P100,000.00 are hereby awarded. Considering the length and nature of the instant suit we are of the opinion that attorney's fees valued at P100,000.00 are likewise proper. Our courts face unique difficulty in adjudicating medical negligence cases because physicians are not insurers of life and, they rarely set out to intentionally cause injury or death to their patients. However, intent is immaterial in negligence cases because where negligence exists and is proven, the same automatically gives the injured a right to reparation for the damage caused. Established medical procedures and practices, though in constant flux are devised for the purpose of preventing complications. A physician's experience with his patients would sometimes tempt him to deviate from established community practices, and he may end a distinguished career using unorthodox methods without incident. However, when failure to follow established procedure results in the evil precisely sought to be averted by observance of the procedure and a nexus is made between the deviation and the injury or damage, the physician would necessarily be called to account for it. In the case at bar, the failure to observe pre-operative assessment protocol which would have influenced the intubation in a salutary way was fatal to private respondents' case. WHEREFORE, the decision and resolution of the appellate court appealed from are hereby modified so as to award in favor of petitioners, and solidarily against private respondents the following: 1) P1,352,000.00 as actual damages computed as of the date of promulgation of this decision plus a monthly payment of P8,000.00 up to the time that petitioner Erlinda Ramos expires or miraculously survives; 2) P2,000,000.00 as moral damages, 3) P1,500,000.00 as temperate damages; 4) P100,000.00 each as exemplary damages and attorney's fees; and, 5) the costs of the suit. SO ORDERED. PHILIPPINE TELEGRAPH & TELEPHONE CORPORATION and LOUIE CABALIT, petitioners, vs. HON. COURT OF APPEALS and LOLITA SIPE ESCARA, respondents. VITUG, J.: Assailed in the instant petition of the Philippine Telegraph & Telephone Corporation (PT&T) and Louie Cabalit is the judgment of the Court of Appeals in CA G.R. CV No. 48313, promulgated on 15 March 1999, which has affirmed with modification the decision of the Regional Trial Court of Makati awarding damages to respondent Lolita Sipe Escara. The facts were synthesized by the appellate court in its decision under review. On July 13, 1990, Felicitas B. Sipe, a resident of Surralah, South Cotabato, remitted to her sister-in-law, Lolita Sipe Escara, two telegraphic money orders through the facilities of Philippine Telegraph and Telephone Company (PT&T, for brevity). The money orders, one for P2,000.00 and the other for P1,000.00, originated from Marbel, South Cotabato, and were transmitted to the Cubao branch of PT&T. Plaintiff was then studying for a doctoral degree in Education at the University of the Philippines (U.P., for brevity), Diliman, Quezon City and was residing in one of its dormitories, the Ipil Residence Hall. According to the plaintiff, the money was sent for the purpose of paying for her tuition fee for one semester at the U.P.; paying for her fare to go back to Cotabato to enable her to complete the requirements for a job promotion; and paying for the cost of the medical consultation of her son who is sick of diabetes. On July 22, 1990, plaintiffs husband sent her a telegram advising her to inform him if she has received a remittance of P3,000.00. She made several phone calls to PT&T to inquire about the money but was told that no money was transmitted in her favor. On August 10, 1990, plaintiff sent her husband a telegram to inform him of her non-receipt of the money. On August 18, 1990, plaintiffs husband again sent her a telegram instructing her to claim at the PT&T Cubao branch the money transmitted on July 13, 1990. On August 20, 1990, plaintiff went to the PT&T office to inquire about the remittance in her favor. Since Louie Cabalit, the branch cashier, was not around, plaintiff was constrained to return the next day. It was only in the afternoon of August 21, 1990, that she was able to talk to Louie Cabalit about the remittance. Cabalit looked into his records, after which, the branch security guard informed plaintiff that no money was transmitted to her. Upon plaintiffs request, Cabalit issued a certification that no telegraphic money order in favor of plaintiff was received from Surralah by PT&T. Nevertheless, Cabalit told her that he would re-examine his records to determine whether a remittance was made in her name. Subsequently, Cabalit informed plaintiff that the money being claimed by her did not come from Surralah but from Marbel, South Cotabato. On August 22, 1990, an attempt was made by PT&T to deliver the telegraphic money order at plaintiffs dormitory but she was not around. On September 10, 1990, plaintiff received from PT&T two checks representing the amount remitted to her. However, plaintiff was not able to encash the 194

checks at once because the bank did not have a clearance from PT&T. Finally, on September 14, 1990, plaintiff was able to encash the checks. Aggrieved by the delay in the delivery of the remittance, plaintiff filed a complaint for damages against PT&T and Louie Cabalit. In her complaint, she alleged that the delay was the cause of her failure to enroll for one semester at the U.P.; to complete her requirements for a job promotion; and to bring her son to the doctor for medical consultation. On November 29, 1994, the lower court rendered the questioned decision, the dispositive portion of which reads: `WHEREFORE, this Court renders judgment in favor of the plaintiff and against the defendants, ordering the defendants, jointly and severally, to pay the plaintiff: `1. `2. `3. `4. `5. The sum of P100,000.00 in actual/compensatory damages; The sum of P50,000 in moral damages; The sum of P10,000.00 in exemplary damages; No attorneys fees awarded being a pro bono publica case; and To pay costs of suits.[1]

Petitioners appealed the decision of the trial court to the Court of Appeals. The appellate court affirmed the decision with modification. Finding to be inadequate the evidence submitted by respondent Lolita Sipe Escara to prove pecuniary loss suffered by her, the Court of Appeals deleted the award of actual damages. The appellate court, however, sustained the award of moral and exemplary damages in favor of private respondent, ratiocinating thusly: Article 1170 of the Civil Code provides that `those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. In the case at bar, appellant PT&T, for a fee, undertook to send plaintiff two telegraphic money orders in the sum of P3,000.00. Appellant, however, failed to deliver the money to plaintiff immediately after the money order was transmitted to its Cubao branch. It was only on September 14, 1990, or almost two months from transmittal that plaintiff was finally able to have her money. We find PT&T negligent when it did not take steps to ensure the prompt delivery of the money to plaintiff from the time the checks were issued in her favor. It is quite clear that PT&T did not act with any sense of urgency but with indifference and nonchalance with respect to plaintiffs case. First of all, after Louie Cabalit endorsed the two checks to the dispatch section of PT&T and subsequently took an emergency leave, the personnel at the Cubao branch did not exert enough effort to effect the delivery of the money. In fact, the Cubao branch wired its Marbel branch only on August 3, 1990 to request for the complete address of the recipient from the sender. Apparently, it took them eighteen days to realize that the address of the recipient was insufficient. Furthermore, the claim of PT&T that it made several attempts to deliver the money between July 17, 1990 and August 3, 1990 is open to doubt because there is no proof showing to what extent PT&T endeavored to locate the plaintiff. Francisco Dumlao, administrative officer of the Registrars Office of U.P., testified that the addressee of letters or telegrams labeled only as `U.P. Diliman, is located by referring to the records of currently enrolled students under the active file or to the records of its alumni under the inactive file. It appears that PT&T did not attempt to inquire from the Registrars Office regarding plaintiffs whereabouts since it obviously failed to draw the inference that the University of the Philippines is a school with facilities that can be of assistance in locating its own students.[2] In the instant appeal, petitioners would strongly urge that the appellate court be reversed in awarding moral and exemplary damages to respondent Lolita Escara with the latters failure to present evidence that she had suffered wounded feelings, serious anxiety, and mental anguish or that the act she had ascribed to petitioners was done in bad faith, or in wanton, fraudulent, oppressive or malevolent manner. Private respondent, however, would insist that the clearly established culpable conduct of petitioners warranted the award of both moral and exemplary damages. There is merit in the petition. The breach of an obligation because of fraud, negligence or delay or of a contravention by any means of the tenor of that obligation does open the defaulting obligor to possible liability for damages. The right to those damages and the extent of their recovery would depend on the kind and nature of the damages and the manner in which the injury causing it is brought about. The Court of Appeals was correct in deleting the award made by the trial court of actual damages where proof of pecuniary loss, in an action based on culpa contractual, is essential. Finding the evidence to be wanting in this respect, the appellate court did not err in its judgment. In the case of moral damages, recovery is more an exception rather than the rule. Moral damages are not punitive in nature 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. In order that an award of moral damages can be aptly justified, the claimant must be able to satisfactorily prove that he has suffered such damages and that the injury causing it has sprung from any of the cases listed in Articles 2219[3] and 2220[4] of the Civil Code.[5] Then, too, the damages must be shown to be the proximate result of a wrongful act or omission. The claimant must establish the factual basis of the damages and its causal tie with the acts of the defendant. In fine, an award of moral damages would 195

require, 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 the 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. In culpa contractual or breach of contract, particularly, moral damages may be recovered when the defendant has acted in bad faith or is found to be guilty of gross negligence (amounting to bad faith) or in wanton disregard of his contractual obligation.[6] In the case at bar, the appellate court itself did not see any clear indication of bad faith or gross negligence amounting to bad faith on the part of petitioners. It would be error to make an award of moral damages to private respondent merely because petitioner corporation was unable to effect immediate delivery of the money sent through it in two money orders, one for P2,000.00 and the other for P1,000.00. Indeed, it would appear that the address given by the sender was merely and vaguely stated to be U.P. Diliman Quezon City. So, also, when private respondent went to the office of petitioner PT&T to inquire about the money order she erroneously mentioned it to have been sent from Surralah, South Cotabato. It was only upon verification made by petitioners that the latter were able to discover that the money transfers did originate, not, however, from Surralah, but from Marbel, South Cotabato. Given all the circumstances found by the appellate court, the delay of less than two months in the remittance to private respondent of the amounts due her could hardly be said as being constitutive of bad faith or gross negligence amounting to bad faith. Neither can the award of exemplary damages be sustained. Exemplary damages are not recoverable as a matter of right.[7] Although such damages need not be proved, plaintiff must first show that he is entitled to moral, temperate, or compensatory damages before a court can favorably consider an award of exemplary damages.[8] In contracts and quasi-contracts, specifically, exemplary damages may be justified if the defendant is shown to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.[9] Petitioner corporation might have been remiss in the prompt delivery of the sums sent through it to respondent; however, the Court would be hardput to say that such delay under the facts obtaining can be described as being wanton, fraudulent, reckless, or oppressive in character. Still, of course, petitioner corporation is not totally free from liability. It may have had good reasons, but it has not been able to overcome thereby its burden to prove a valid excuse, for the breach of agreement such as by proving, among other possible legal grounds, fortuitous event to account for its failure. The breach would have justified a recovery of actual damages but, there being no adequate proof of pecuniary loss found by the appellate court, such damages cannot be awarded. Neither moral nor exemplary damages have been justified, as hereinbefore explained, as to warrant any recovery thereof. The Court thus is left with two alternative possibilities an award of temperate or moderate damages or an award of nominal damages. Temperate or moderate damages may only be given if the court finds that some pecuniary loss has been suffered but that its amount cannot, from the nature of the case, be proved with certainty.[10] The factual findings of the appellate court that respondent has failed to establish such pecuniary loss or, if proved, cannot from their nature be precisely quantified precludes the application of the rule on temperate or moderate damages. The result comes down to only a possible award of nominal damages. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[11] The court may award nominal damages in every obligation arising from any source enumerated in article 1157 of the Civil Code or, generally, in every case where property right is invaded. In the instant case, for the violation of the right of private respondent to receive timely delivery of the money transmitted through petitioner corporation an award of nominal damages is appropriate. An amount of P20,000.00 by way of nominal damages, considering all that private respondent has had to go through, is in the Courts view reasonable and fair. There is, however, neither enough factual nor adequate legal basis to hold petitioner Louie Cabalit, PT&Ts branch cashier, solidarily liable with petitioner corporation. WHEREFORE, the instant petition is GRANTED. The appealed decision is reversed and set aside and, in its stead, petitioner Philippine Telegraph & Telephone Corporation is ordered to pay respondent Lolita Sipe Escara the sum of P20,000.00 by way of nominal damages. Costs against petitioner corporation. SO ORDERED. REPUBLIC vs. TUVERA, supra. PHILIPPINE HAWK CORPORATION vs. VIVIAN TAN LEE, supra. G.R. No. L-7991 January 29, 1914 VI. LIQUIDATED

LEON J. LAMBERT, plaintiff-appellant, vs. T. J. FOX, defendant-appellee. O'Brien and DeWitt and C. W. Ney, for appellant. J. C. Hixon, for appellee. MORELAND, J.: This is an action brought to recover a penalty prescribed on a contract as punishment for the breach thereof. Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business, found itself in such condition financially that its creditors, including the plaintiff and the defendant, together with 196

many others, agreed to take over the business, incorporate it and accept stock therein in payment of their respective credits. This was done, the plaintiff and the defendant becoming the two largest stockholders in the new corporation called John R. Edgar & Co., Incorporated. A few days after the incorporation was completed plaintiff and defendant entered into the following agreement: Whereas the undersigned are, respectively, owners of large amounts of stock in John R. Edgar and Co, Inc; and, Whereas it is recognized that the success of said corporation depends, now and for at least one year next following, in the larger stockholders retaining their respective interests in the business of said corporation: Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of their present holdings of stock in said John R. Edgar & Co. Inc., till after one year from the date hereof. Either party violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos as liquidated damages, unless previous consent in writing to such sale, transfer, or other disposition be obtained. Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said corporation to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc. This sale was made by the defendant against the protest of the plaintiff and with the warning that he would be held liable under the contract hereinabove set forth and in accordance with its terms. In fact, the defendant Foz offered to sell his shares of stock to the plaintiff for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract. The learned trial court decided the case in favor of the defendant upon the ground that the intention of the parties as it appeared from the contract in question was to the effect that the agreement should be good and continue only until the corporation reached a sound financial basis, and that that event having occurred some time before the expiration of the year mentioned in the contract, the purpose for which the contract was made and had been fulfilled and the defendant accordingly discharged of his obligation thereunder. The complaint was dismissed upon the merits. It is argued here that the court erred in its construction of the contract. We are of the opinion that the contention is sound. The intention of parties to a contract must be determined, in the first instance, from the words of the contract itself. It is to be presumed that persons mean what they say when they speak plain English. Interpretation and construction should by the instruments last resorted to by a court in determining what the parties agreed to. Where the language used by the parties is plain, then construction and interpretation are unnecessary and, if used, result in making a contract for the parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504.) In the case cited the court said with reference to the construction and interpretation of statutes: "As for us, we do not construe or interpret this law. It does not need it. We apply it. By applying the law, we conserve both provisions for the benefit of litigants. The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation come only after it has been demonstrated that application is impossible or inadequate without them. They are the very last functions which a court should exercise. The majority of the law need no interpretation or construction. They require only application, and if there were more application and less construction, there would be more stability in the law, and more people would know what the law is." What we said in that case is equally applicable to contracts between persons. In the case at bar the parties expressly stipulated that the contract should last one year. No reason is shown for saying that it shall last only nine months. Whatever the object was in specifying the year, it was their agreement that the contract should last a year and it was their judgment and conviction that their purposes would not be subversed in any less time. What reason can give for refusing to follow the plain words of the men who made the contract? We see none. The appellee urges that the plaintiff cannot recover for the reason that he did not prove damages, and cites numerous American authorities to the effect that because stipulations for liquidated damages are generally in excess of actual damages and so work a hardship upon the party in default, courts are strongly inclined to treat all such agreements as imposing a penalty and to allow a recovery for actual damages only. He also cites authorities holding that a penalty, as such, will not be enforced and that the party suing, in spite of the penalty assigned, will be put to his proof to demonstrate the damages actually suffered by reason of defendants wrongful act or omission. In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in which the court is authorized to intervene for the purpose of reducing a penalty stipulated in the contract is when the principal obligation has been partly or irregularly fulfilled and the court can see that the person demanding the penalty has received the benefit of such or irregular performance. In such case the court is authorized to reduce the penalty to the extent of the benefits received by the party enforcing the penalty. In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal results are concerned. Whatever differences exists between them as a matter of language, they are treated the same legally. In either case the party to whom payment is to be made is entitled to recover the sum stipulated without the necessity of proving damages. Indeed one of the primary purposes in fixing a penalty or in liquidating damages, is to avoid such necessity. 197

It is also urged by the appelle in this case that the stipulation in the contract suspending the power to sell the stock referred to therein is an illegal stipulation, is in restraint of trade and, therefore, offends public policy. We do not so regard it. The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension. We do not here undertake to discuss the limitations to the power to suspend the right of alienation of stock, limiting ourselves to the statement that the suspension in this particular case is legal and valid. The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance. [G.R. No. 147614. January 29, 2004] H.L. CARLOS CONSTRUCTION, INC., petitioner, vs. MARINA PROPERTIES CORPORATION, JESUS K. TYPOCO SR. and TAN YU, respondents. PANGANIBAN, J.: There is unjust enrichment when a building contractor is denied payment for increased labor cost validly incurred and additional work validly rendered with the owners express or implied agreement. The Case The Petition for Review[1] before the Court, filed under Rule 45, seeks the reversal of the Decision[2] dated March 29, 2001, issued by the Court of Appeals[3] in CA-GR CV No. 60975. The assailed Decision disposed as follows: WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new one entered DISMISSING the [petitioners] Complaint, and partially granting the [respondent-corporations] Counterclaim, in that the [petitioner] is directed to pay unto the [respondent-corporation] the sum of P4,604,579.00 in actual damages plus P3,549,416.00 as and for liquidated damages.[4] The Facts The facts of the case, summarized by the Court of Appeals (CA), are as follows: [Respondent] MARINA PROPERTIES CORPORATION (MPC for brevity) is engaged in the business of real estate development. On May 10, 1988, MPC entered into a contract[5] with [Petitioner] H.[L.] CARLOS CONSTRUCTION, INC. (HLC) to construct Phase III of a condominium complex called MARINA BAYHOMES CONDOMINIUM PROJECT, consisting of townhouses and villas, totaling 31 housing units, for a total consideration of P38,580,609.00, within a period of 365 days from receipt of Notice to Proceed. The original completion date of the project was May 16, 1989, but it was extended to October 31, 1989 with a grace period until November 30, 1989.[6] The contract was signed by Jovencio F. Cinco, president of MPC, and Honorio L. Carlos, president of HLC. On December 15, 1989, HLC instituted this case for sum of money against not only MPC but also against the latters alleged president, [Respondent] Jesus K. Typoco, Sr. (Typoco) and [Respondent] Tan Yu (Tan), seeking the payment of various sums with an aggregate amount of P14 million pesos, broken down as follows: a) b) P7,065,885.03 for costs of labor escalation, change orders and material price escalation; P2,000,000.00 as additional compensatory damages, exclusive of the cost of suit.

c) P3,147,992.00 representing retention money allegedly withheld by MPC on HLCs Progress Billings as of January 1990, and d) P2,000,000.00 representing the value of construction materials allegedly withheld/detained by MPC.

Traversing the allegations of the complaint, [respondents] filed separate answers, whereby the two individual [respondents] alleged that they are not parties to the Construction Contract and Amendatory Contract and are therefore not liable to HLC. [Respondent] MPC on the other hand alleged that the [petitioner] has no cause of action against it and that it (HLC) is not entitled to its various claims. MPC interposed a counterclaim in the aggregate sum of P68,296,227.14 for actual and compensatory damages, liquidated damages, unliquidated advances, and attorneys fees.[7] On May 15, 1997, the trial court[8] ruled as follows:[9] WHEREFORE, premises above considered, judgment is hereby rendered for [Petitioner] H.L. CARLOS CONSTRUCTION, INC. and as against [Respondents] MARINA PROPERTIES CORPORATION, TAN YU, and JESUS K. TYPOCO, SR., who are hereby ordered to pay, jointly and severally, the [petitioner], as follows: 1. the amount of P7,065,885.03, representing unpaid labor escalation costs, change orders and material price escalations, plus 12% interest per annum from date of filing of the complaint, until fully paid; 2. the amount of P3,147,992.39 representing the 10% retention money withheld by the [respondents] [from] [petitioners] progress billing as of January 1990, plus 12% interest per annum from the date of filing of the complaint, until fully paid; 198

3. the amount of P2,000,000.00 representing the value of construction materials and the like detained by the [respondents], plus 12% legal interest from the date of filing of the complaint, until fully paid; 4. 5. the sum equivalent to 15% of the principal sum as and by way of attorneys fees; and to [p]ay the costs of this suit.

The counterclaim for liquidated damages, are hereby DISMISSED for lack of evidence. Liquidated damages can only be awarded under paragraph 2 of the amended construction contract that extended the completion period and mainly on the finding of the 85% substantial completion of the project, and that the delay and stoppage of the project was caused by [respondents] default in payment of [the] progress billings that would have allowed [petitioner] to have the capability to continue and complete the project. Ruling of the Court of Appeals On appeal, the CA held that respondents were not liable for escalations in the cost of labor and construction materials, because of the following reasons: (1) the contract between the parties was for a lump sum consideration, which did not allow for cost escalation; and (2) petitioner failed to show any basis for the award sought. Respondents were also absolved from paying for change orders and extra work, inasmuch as there was no supplemental agreement covering them as required in the main Construction Contract. Although Progress Billing No. 24 apparently indicates that extra work was rendered by petitioner, this claim is not supported by sufficient evidence. The CA further failed to find any basis for the release of the 10 percent retention fee. The Construction Contract had provided that such release would be made only under certain conditions, none of which was complied with, as petitioner failed to complete the work required. Furthermore, MPC was not held liable for detained or withheld construction materials, since petitioner had eventually withdrawn them. Nothing in the records indicated any personal liability on the part of Typoco and Tan. nothing to assume, as MPC was not held liable to petitioner. Moreover, they had

Furthermore, the CA ruled that petitioner was liable for actual and liquidated damages. The latter had abandoned the project prior to its completion; hence, MPC contracted out the work to another entity and incurred actual damages in excess of the remaining balance of the contract price. In addition, the Construction Contract had stipulated payment of liquidated damages in an amount equivalent to 1/1000 of the contract price for each calendar day of delay. Hence, this Petition.[10] Issues In its Memorandum, petitioner raises the following issues: a. Whether or not the respondents are liable to pay the petitioner its claim for price escalation of construction materials and labor cost escalation. b. Whether or not the respondents are liable to the petitioner for cost of change orders and extra works. c. Whether or not the respondents are liable to the petitioner for the ten percent retention money. d. Whether or not the respondents are liable to pay the petitioner attorneys fees. e. Whether or not the respondents are liable to the petitioner for the cost of illegally detained materials. f. Whether or not the respondents Jesus Typoco Sr., and Tan Yu are jointly and solidarily liable to the petitioner for the latters claims. g. Whether or not the petitioner is liable to the respondents for actual and liquidated damages.[11] In simpler terms, the issues to be resolved are as follows: (1) Whether petitioner is entitled to (a) a price escalation for labor and material cost, (b) the cost of change orders and extra work, (c) the release of the 10 percent retention money, (d) the cost of illegally detained materials, and (e) attorneys fees (2) (3) Whether Typoco and Tan are solidarily liable with MPC Whether petitioner is liable for actual and liquidated damages

The Courts Ruling The Petition is partly meritorious. First Issue: 199

Liability for Additional Costs Petitioner argues that it is entitled to price escalation for both labor and materials, because MPC was delayed in paying for its obligations. The former admits that it is normally not entitled to any price increase for labor and materials, because a contractor is expected to build into its price a contingency factor to protect it from cost increases that may occur during the contract period.[12] It justifies its claim, however, on the ground that a contractor cannot be expected to anticipate price increases beyond the original contract period. Respondents, on the other hand, aver that it was delayed in finishing the project; hence, it is not entitled to any price increase. It must be pointed out that the reason for the CAs denial of petitioners claim was that the contract between the parties was for a lump sum consideration, and petitioner was guilty of delay in completing the project. Labor and Material Cost Escalation We agree with petitioner that it is entitled to price escalation, but only for the labor component of Progress Billing No. 24. The Construction Contract contains the following provision on the considerations therefor: 6.1 For and in consideration of the true and faithful performance of the work by the CONTRACTOR, the OWNER shall pay the Lump Sum Contract Price of PESOS: THIRTY EIGHT MILLION FIVE HUNDRED EIGHTY THOUSAND SIX HUNDRED NINE (P38,580,609.00) broken down as shown in the Bid Form. No cost escalation shall be allowed except on the labor component of the work x x x.[13] Since the Contract allows escalation only of the labor component, the implication is that material cost escalations are barred. There appears to be no provision, either in the original or in the amended contract, that would justify billing of increased cost of materials. Furthermore, no evidence -- like official economic data showing an increase in the price index of construction materials -- was even adduced by petitioner to prove that there had indeed been increases in material costs.[14] Petitioner attempts to pass off these cost escalations as a form of damages suffered by it as a natural consequence of the delay in the payment of billings and claims for additional work. It argues that the baseless and malicious refusal to pay for those claims renders respondents liable for damages under Article 2201 of the Civil Code. We disagree. Without tackling the issue of delay, we find that the contentious Progress Billing No. 24 contains no claim for material cost escalation. The other unsettled bills claimed by petitioner are those for change orders or extra work, which have not been shown to be related to the increase in cost of materials. Dealt with in separate contracts between the parties were such claims, the costs of which were to be determined and agreed upon only when required by MPC. Materials used for those additional jobs were to be purchased only when the work was contracted, not prior thereto. As admitted by petitioner, expenses for change orders/additional work were not included in the agreed contract price[15] and, hence, were not subject to increases. MPC admits that the labor cost escalation clause was adopted by the parties to safeguard the contractor against losses in the event that, during the execution of the Contract, the government would order a minimum wage adjustment, which would then inflate the labor cost.[16] Respondents deny liability for this added expense because, according to the Contract, the allowance for labor cost escalation is available only within the duration of the original construction period. We clarify. The claimed cost of labor escalation pertains to the period September 1 to December 15, 1989, in the amount of P170,722.10; and December 16 to January 27, 1990, P45,983.91. During those periods, petitioner had not yet incurred any delay in the project, originally stipulated to be finished by May 16, 1989. But by mutual agreement, the period was extended up to October 31, 1989, with a grace period until November 30, 1989. Furthermore, a legislated wage increase became effective after the expiration of the original period.[17] Respondents are, therefore, liable for this increase in labor cost, because they allowed petitioner to continue working on the project until April 20, 1990 (even beyond November 30, 1989). MPC argues that to allow the claim for labor cost escalation would be to reward petitioner for incurring delay, thereby breaching a contractual obligation. This contention is untenable. Before the expiration of the extended period, petitioner was not yet in delay. It was granted by MPC an extension to complete the project until November 30, 1989. Moreover, despite the expiration of the extended period, MPC allowed it to continue working on the project until the former took over and awarded that project to another contractor. Hence, labor costs were actually incurred by petitioner until April 20, 1990. It was thus entitled to reimbursement for labor cost escalation until that date. MPC cannot now be allowed to question the true valuation of the additional labor because, instead of submitting to an independent evaluator, it violated the Temporary Restraining Order (TRO) issued by the trial court and hired another contractor to finish the project. Noteworthy is the fact that MPC paid for the labor cost escalation during the period August 1-15, 1989,[18] which was past the expiration of the original period. Apparently, it thereafter stopped paying for labor cost escalation in response to the suit filed against it by petitioner.

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The CA denied the labor cost escalation claim because, despite having billed MPC therefor, petitioner accepted payments that did not include such claim. The appellate court construed the acceptance by petitioner as a waiver of the latters right to be reimbursed for the increased labor cost. We believe that this position is untenable. The CA mistook Exhibits C-7-B[19] and D-1[20] as bills coming from petitioner, when in truth they were Accomplishment Evaluation Sheets issued by MPC. The notation labor escalation not included in the said Exhibits was an admission on the part of MPC that it had not paid such amount, upon the advice of Atty. Jose C. Laureta, its resident counsel. According to him, petitioner should be faulted for having incurred labor cost increases after the expiration of the original period (after May 16, 1989). Not having waived such increases, it should thus bear them.[21] To allow MPC to acquire the partially accomplished project without paying for labor cost escalation validly incurred would constitute unjust enrichment at the expense of petitioner.[22] There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.[23] Since petitioner had rendered services that were accepted by MPC, then the former should be compensated for them. Labor cost escalation, in this case, has already been earned by petitioner. Change Orders and Extra Work Petitioner claims entitlement to compensation for change orders and extra work that were covered by construction memoranda. MPC counters, however, that the former never presented any cost estimate for additional work. The estimate would have formed the basis for a consensual agreement and a computation of actual accomplishment, for which MPC could have been unilaterally billed. Worse, the extra work was allegedly assessed by its engineer to be worth only P705.41. We side with petitioner. The General Conditions to the Construction Contract provides: 13. CLAIMS FOR EXTRA AND FORCE ACCOUNT WORK:

If the Contractor claims that any construction by drawings or otherwise involve extra cost under this Contract, he shall give the Owner and/or the Architect, written notice thereof within a reasonable time after receipt of such instructions, and in any event before proceeding to execute the work, except in emergency endangering life or property. No such claim shall be valid unless so made. Extra work for which no price is provided in the proposal shall be covered by a supplementary agreement to be signed by both parties before such work is commenced. [24] The CA is correct in holding that there is no supplemental agreement covering the claimed extra work and change orders. Exhibits C-1, C-2, C-2-A, C-3 and C-4 show billings for extra work sent by petitioner to MPC. But the former did not submit in evidence the alleged construction memoranda covering them. Neither were they mentioned in the letter[25] of Roilo Golez dated November 24, 1989. Progress Billing No. 24, which pertained to the project as covered by the Construction Contract, did not mention any claim for extra work or change orders. These additional jobs were covered by separate bills other than the twenty-four Progress Billings sent by petitioner. MPC, however, never denied having ordered additional work. In Item No. 12 of its Amended Answer,[26] it averred that petitioners claim for change orders and extra work were premature. Limneo P. Miranda, respondents work engineer, manifested that additional work was indeed done, but that claims therefor were not settled for the following reasons: (1) reconciliation between the parties was never completed due to the absence of petitioners representative in scheduled meetings; (2) difference in opinion on the proper valuation of the additional work, as MPC wanted to use the net quantity method, while petitioner preferred the gross method; and (3) some claims were rejected by MPC, because they had not been properly approved in accordance with the Contract.[27] Evidence on record further reveals that MPC approved some change order jobs despite the absence of any supplementary agreement. In its Over-all Summary of Reconciled Quantities as of September 6, 1989 (Annex C),[28] it valued petitioners valid claim therefor at P79,340.52. After noting that the claim had extremely been bloated, Atty. Laureta, in-house counsel for respondent corporation, affirmed as valid the amount stated in the summary.[29] Petitioner may have failed to show the construction memoranda covering its claim, but it inarguably performed extra work that was accepted by MPC. Hence, we will consider Annex C as the proper valuation thereof. Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment.[30] Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves.[31] To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the expense of the contractor.[32] The CA held that since Billing No. 24 did not include any claim for additional work, such work had presumably been previously paid for. This reasoning is not correct. It is beyond dispute that the change orders and extra work were billed separately from the usual progress billings petitioner sent to MPC. Retention Money

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The CA denied the claim for the 10 percent retention money, because petitioner had failed to comply with the conditions under paragraph 6.3 of the Construction Contract. On the other hand, the latter avers that these conditions were deemed fulfilled under Article 1186 of the Civil Code because, when its contract was terminated, MPC prevented the fulfillment of those conditions. It would allegedly be unfair and unreasonable for petitioner to guarantee a project finished by another contractor. We disagree with petitioner. In the construction industry, the 10 percent retention money is a portion of the contract price automatically deducted from the contractors billings, as security for the execution of corrective work -- if any -- becomes necessary. This amount is to be released one year after the completion of the project, minus the cost of corrective work.[33] The conditions for its release are stated in the Construction Contract as follows: 6.3 In all cases, however, payment of the progress billings shall be subject to deduction of twenty percent (20%) recoupment of the downpayment, ten percent (10%) retention and expanded withholding tax on CONTRACTORS income. Upon issuance of the Certificate of Completion of the work by the OWNER and upon submission of Guaranty Bond, Ninety Percent (90%) of the retained amount shall be released to the CONTRACTOR and the balance thereof shall be released by the OWNER within thirty (30) days after the expiration of the guaranty period which is 365 days after issuance of the certificate of completion. [34] None of the foregoing conditions were satisfied; hence, the CA was correct in forfeiting the retention fee. The completion of the work was stipulated in the Contract to be within 365 days from the issuance of a Notice to Proceed or until May 16, 1989. Then the period was extended up to November 30, 1989. Petitioner worked on the project till April 20, 1990. It was given by MPC ample time and two extensions to complete the project. The simple truth is that in failing to finish the project, the former failed to fulfill a prerequisite for the release of the retention money. Detained Materials Petitioner claims cost reimbursement of illegally detained materials, as it was allowed to withdraw them from the site only after two years from the unilateral termination of the Contract. By 1992, only 30 percent of the materials detained were salvageable, while the rest had depreciated. This contention has no merit. According to the CAs ruling, the only proof that MPC detained materials belonging to petitioner was the denial of the request, contained in the latters February 1990 letter,[35] for the release of used form lumber. Aside from that letter, however, no other attempt was shown to have been made by petitioner to obtain its request. It should have tried again to do so before claiming that respondents unreasonably prevented it from removing its construction materials from the premises. As to the other materials, there was absolutely no attempt to remove them from the construction site. Hence, we cannot say that these were ever withheld from petitioner. Detention is not proved by Atty. Lauretas letter[36] dated July 4, 1992, allowing petitioner to remove its materials from the site. The letter was merely a directive for it to clear out its belongings therefrom, in view of the hiring of a second contractor to finish the project. Moreover, in a specifically designated yard inside the construction site, petitioner maintained a warehouse that was guarded by its own security complement and completely inaccessible to MPC personnel.[37] It therefore had control over those materials and should have made provisions to keep them safe from the elements and from pilferage. Attorneys Fees Petitioner argues that it is entitled to attorneys fees based on Article 2208 of the Civil Code, because (1) respondents act or omission has compelled it to litigate with third persons or to incur expenses to protect its interest; and (2) respondents acted in gross and evident bad faith in refusing to satisfy its plainly valid, just and demandable claim. The grant of some of the claims of petitioner does not change the fact that it did not finish the project. Attorneys fees are not granted every time a party prevails in a suit, because no premium should be placed on the right to litigate.[38] Petitioner is not, after all, blameless in the present controversy. Just because MPC withheld some payments from petitioner does not mean that the former was in gross or evident bad faith. MPC had claims that it wanted to offset with those of the latter. Second Issue: Typoco and Tans Liabilities Petitioner claims that Respondents Jesus Typoco and Tan Yu are solidarily liable with MPC. We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides: Section 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith x x x shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons.

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The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons.[39] The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. The unilateral termination of the Contract during the existence of the TRO was indeed contemptible -- for which MPC should have merely been cited for contempt of court at the most -- and a preliminary injunction would have then stopped work by the second contractor. Besides, there is no showing that the unilateral termination of the Contract was null and void. Respondent Tan is not an officer or a director of MPC. His participation is limited to an alleged conversation between him and Engineer Mario Cornista, petitioners project manager. Supposedly, the former verbally agreed therein to guarantee the payment of the latters progress billings. We find no satisfactory evidence to show respondents alleged solidary liability to petitioner. Third Issue: Liability for Actual and Liquidated Damages Petitioner avers that it should be exonerated from the counterclaims for actual and liquidated damages, because its failure to complete the project was due to respondents acts. Central to the resolution of this issue is the question of which party was in delay. Aside from the contentious Progress Billing No. 24, there are no other unpaid claims. The bills for extra work and change orders, aside from those for the beams and columns, were premature and still subject to reconciliation and adjustment. Hence, we cannot hold MPC liable for them. In comparison, petitioner did not fulfill its contractual obligations. It could not totally pass the blame to MPC for hiring a second contractor, because the latter was allowed to terminate the services of the contractor. 10.1 The OWNER shall have the right to terminate this Contract in the event that the CONTRACTOR incurs a fifteen percent (15%) or greater slippage in the prosecution of the overall work evaluated against the Project schedule as indicated by the critical path of the approved PERT/CPM network for the Project or as amended by Art. II herein. Either party shall have the right to terminate this Contract for reason of violation or non-compliance by the other party of the terms and conditions herein agreed upon.[40] As of November 30, 1989, petitioner accomplished only approximately 80 percent of the project. In other words, it was already in delay at the time. In addition, Engineer Miranda testified that it would lose money even if it finished the project;[41] thus, respondents already suspected that it had no intention of finishing the project at all. Petitioner was in delay and in breach of contract. Clearly, the obligor is liable for damages that are the natural and probable consequences of its breach of obligation.[42] Petitioner was already paid by MPC in the amount of P31,435,187 out of the total contract price of P38,580,609; thus, only P7,145,422 remained outstanding. In order to finish the project, the latter had to contract the services of a second construction firm for P11,750,000. Hence, MPC suffered actual damages in the amount of P4,604,579 for the completion of the project. Petitioner is also liable for liquidated damages as provided in the Contract,[43] the pertinent portion of which is quoted as follows: 4.1 Time is an essential feature of this Contract and in the event that the CONTRACTOR fails to complete the contracted work within the stipulated time inclusive of any granted extension of time, the CONTRACTOR shall pay the OWNER, as liquidated damages, the amount of one over one thousand (1/1000) of the value of the contract price for each and every calendar day of delay (Sundays and Holidays included), not to exceed 15% of [the] Contract amount, in the completion of the work as specified in Article II above. It is understood that the liquidated damages herein provided are fixed, agreed upon and not by way of penalty, and as such, the OWNER shall not be further required to prove that he has incurred actual damages to be entitled thereto. In the case of such delays, the OWNER is hereby authorized to deduct the amount of liquidated damages from any money due or which may become due the CONTRACTOR in this or any other contract or to collect such amount from the CONTRACTORs performance bond whichever is convenient and expeditious to the OWNER. Liquidated damages are those that the parties agree to be paid in case of a breach.[44] As worded, the amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. Under Philippine laws, these damages take the nature of penalties.[45] A penal clause is an accessory undertaking to assume greater liability in case of a breach. It is attached to an obligation in order to ensure performance. Thus, as held by the CA, petitioner is bound to pay liquidated damages for 92 days, or from the expiration of the grace period in the Amended Contract until February 1, 1990, when it effectively abandoned the project. WHEREFORE, the Petition is partly GRANTED and the assailed Decision MODIFIED. Petitioner is AWARDED labor cost escalation in the sum of P1,196,202 and cost of extra work in the sum of P79,340.52. In all other respects, the appealed Decision is AFFIRMED. SO ORDERED. G.R. No. 112916 March 16, 1995 203

SCOTT CONSULTANTS & RESOURCE DEVELOPMENT CORPORATION, INC., petitioner, vs. COURT OF APPEALS and PHILIPPINE ROCK PRODUCTS, INC., respondents. DAVIDE, JR., J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, the petitioner seeks to review and set aside the decision of 28 August 1992 and the resolution of 9 December 1993 of the Court of Appeals in CAG.R. CV No. 31376. 1 In the assailed decision, the Court of Appeals modified the decision of 23 November 1990 of Branch 75 of the Regional Trial Court (RTC) at San Mateo, Rizal, in Civil Case No. 658-90. 2 The petitioner was the plaintiff in the said case. The factual and procedural antecedents of this case are summarized by the trial court in its decision as follows: The Complaint filed on April 2, 1990, in essence, alleged that plaintiff [petitioner] is a corporation organized under and by virtue of the laws of the Philippines with office at Ermita Centre Bldg., 1350 Roxas Blvd., Ermita, Manila; that on November 21, 1988, plaintiff entered into an Option Agreement for a twelve-month period with Lourdes Yaneza, a representative of Kadakilaan Estate, owner of a mining claim at Rodriguez, Rizal which was registered with the Office of the Mining Recorder of the DENR, "to develop, operate, mine and market the products therefrom, and otherwise exploit properties with respect to their alluvial precious metals", under government laws and regulations and under the terms and conditions of the Option Agreement; on February 14, 1990, plaintiff and Juana B. Santos, a duly authorized representative of San Mateo Mines Exploration, Inc., (SMMEI, for short), an entity that has the "possession and beneficial use of the mining claim" situated at San Isidro, Rodriguez, Rizal, entered into an agreement, granting the plaintiff "the exclusive and irrevocable right and privilege, to do all or any of the acts" mentioned in the Agreement; that the mining claims and the operating agreement between plaintiff and the claim-owners herein mentioned, were registered with the Mines and Geosciences Sector, Dept. of Environment and Natural Resources; that defendant [private respondent] used to hold an operating agreement with the San Mateo Mines Exploration, Inc., a holder of an Industrial Permit No. 40 dated August 21, 1989 and Commercial Permit No. 968 dated March 19, 1987 by the Bureau of Mines and Geosciences for a five-year period; that on February 9, 1990, San Mateo Mines Exploration, Inc. notified the defendant of the termination of their operating agreement for the reasons stated in the letter; that defendant has "prevented plaintiff from gaining access, occupying, exploring and developing the existing mining claims and despite a cease and desist order and a letter from the Bureau of Mines to the defendant dated December 12, 1989, the latter "has prevented, impeded and/or otherwise denied plaintiff access to its legitimate area of activity"; that by reasons of the act of the defendant alleged in the next preceding paragraphs, plaintiff sustained damage of not less than P300,000.00 a day and asked for P500,000.00 exemplary damages and P200,000.00 as attorney's fees. The Court issued a temporary restraining order on April 2, 1990 and a Writ of preliminary Mandatory Injunction on April 23, 1990 which was dissolved by the Order of the Court dated June 7, 1990 upon the filing by the defendant of a bond in the amount of P4,000,000.00. After the Motion to Declare the Defendant in Default was denied by the Court in its Order dated May 4, 1990, defendant, on May 14, 1990, filed its Answer denying the allegations contained in paragraphs two, three, four, five, six, seven, eleven, twelve, thirteen and fourteen, and, as Affirmative Defense, averred that the Puray Plant was constructed on the land of Eligio Bautista, who had a lease contract with Philrock; the site where the defendant performs extraction process of retrum materials for the aggregate products, by virtue of an operating permit issued by the Bureau of Mines, is located about five (5) kilometers further from the plant site which is also located five hundred (500) meters away from the nearest national road the land to be traversed from the national road to the plant site and from the latter to the extraction site, are privately owned; that with the acquisition of easement rights from the owners of the land in favor of the defendant, the latter constructed access routes to provide ingress to and egress from the extraction site and caused the construction of a spillway, a private property of the defendant devoted to its exclusible use to facilitate the delivery of aggregate products to its various projects; that the contract granting easement rights to defendant which is recognized under P.D. No. 463 carries with it the stipulation that such grant shall be exclusive and before any third-party make use of these access routes, the said third-party must first secure written permission from the defendant, and, as Counterclaim, defendant alleges that as a result of the malicious acts of the plaintiff, the employees and officers of the defendant-corporation, experienced serious anxiety and mental anguish for which plaintiff is liable for moral damages in the amount of P1,000,000.00; P500,000.00 as exemplary damages and P200,000.00 as and for attorney's fees. On May 21, 1990, plaintiff filed its Comment to defendant's Answer with Motion for Dissolution of the Writ of Preliminary Mandatory Injunction and Answer with Counterclaim. On May 24, 1990, the Court granted the Motion for Leave to File Third-Party Complaint and the Motion for Intervention and, accordingly, admitted the Third-Party Complaint filed by the defendant Philrock against the San Mateo Mines Exploration, Inc. and the Complaint in Intervention filed by the land owners. In its Third-Party Complaint filed on April 17, 1990, Philrock averred that on November 18, 1987, the latter and the third-party defendant, San Mateo Mines Exploration, Inc., entered into an operating agreement wherein Philrock shall extract gravel and sand materials and other aggregate products for a period of five (5) years; that on February 9, 1990, San Mateo Mines Exploration, Inc. sent a letter unilaterally terminating the agreement; on February 14, 1990, San Mateo Mines Exploration, Inc. entered into a substantially the same agreement with the plaintiff for a higher consideration and that Philrock suffered damages. 204

On April 10, 1990, the intervenors flied a Complaint in Intervention which was amended on August 28, 1990 and alleged that the intervenors have a legal interest in the matter now in litigation considering that the mining claims being asserted by the plaintiff are located in intervenors' private property and that the plaintiff had been using the same without the permission of the intervenors as owners of the property. On April 18, 1990, plaintiff filed its Opposition to the Motion for Intervention by alleging, in the main, that it obtained a written permission from the land owners on whose property exploration is currently conducted. During the pre-trial conference of the Third-Party Complaint on October 24, 1990, third-party plaintiff and thirdparty defendant agreed to submit for decision the Third-Party Complaint based on the stipulations and issues agreed upon by the parties. During the hearing of the main case, plaintiff manifested that it will be adopting the evidence in the hearing on the petition for the issuance of a writ of preliminary mandatory injunction as part of its evidence in the main case. Luz Zaldivia was again called to testify on certain documents issued by the Bureau of Mines which recognizes the right of the plaintiff to conduct mining exploration within the claimed area (Exhibits "F" to "K"), the lease and rental contracts and that it has entailed actual expenses in the pursuit of its exploration, in support of the claim for actual and moral damages (Exhibits "L" to "I"). Defendant, on the other hand, adopted certain exhibits of the plaintiff as its own, such as Exhibit "A", the Option Agreement between the plaintiff and the Kadakilaan Estate; Exhibit "D", the locational map of Montalban; Annex "H" of the main complaint, the letter of indorsement from the Bureau of Mines to defendant Philrock; Exhibit "I", the letter of the Bureau of Mines to Luz Zaldivia; and presented other evidence to show that plaintiff has no right to conduct exploration activities within Montalban (Exhibits "3", "4", "5", "6", and "9") and also (Exhibits "8", "17" to "17-g") to prove that plaintiff is not entitled to use the access routes constructed by the defendant within the privately owned lands at the Montalban Fan Area. Testimonial evidence (Claro San Juan, Antonio Ayson and Marciano Magtoto), were presented on the illegal acts of trespass of the plaintiff and the fact that the employees and officers of the company suffered actual and moral damages (Exhibits "14" and "16"). 3 The trial court then resolved what it perceived to be the issue and determined the liabilities of the parties thus: The core of the problem the Court is called upon to resolve simply stated is: WHETHER OR NOT THE PLAINTIFF IS ENTITLED TO CONDUCT EXPLORATION AND SIMILAR ACTIVITIES WITHIN THE MINING CLAIMS. The recording of a declaration of location for a mining claim gives the claim owner or his assigns, the right to occupy, explore and develop said claim from the date of the recording thereof subject to the rights of the landowners and occupants (Section 12, Pres. Decree No. 463). In this case, plaintiff is the lessee of the two registered mining locators, Kadakilaan Estate and the San Mateo Mines Exploration, Inc. by virtue of the two (2) contracts entered into by the plaintiff with the Kadakilaan Estate and the San Mateo Mines Exploration, Inc. (Exhibits "A" and "B" respectively). It becomes necessary, therefore, to look into the contracts themselves in order to determine what are the rights and privileges the plaintiff may have acquired by virtue of the same. From the contract entered into by the plaintiff with the San Mateo Mines Exploration, Inc., the following are undisputed: San Mateo Mines Exploration, Inc. entered into a contract with defendant Philrock on November 18, 1987 for the latter to operate San Mateo Mines Exploration, Inc.'s Industrial Permit No. 40 for a period of five (5) years. Subsequently, on February 9, 1990, San Mateo Mines Exploration, Inc. notified the defendant that it is unilaterally terminating the contract for being "one-sided." Five days thereafter, or on February 14, 1990, San Mateo Mines Exploration, Inc. entered into a mining exploration contract with the plaintiff, which includes the operation of Industrial Permit No. 40. A letter-directive was issued on April 10, 1990, by the Mines and Geo-Science Sector, Region VI, of the Department of Environment and Natural Resources, recognizing the validity and enforcement of San Mateo Mines Exploration, Inc.'s agreement with the defendant (Defendant's Exhibit "9"), which states: In reply thereto, we take exception to your assertion in the Letter that the Office has no jurisdiction on the Operating Agreement executed by and between your client San Mateo Mines Expl. Inc. and Philrock. xxx xxx xxx Once an operating agreement is registered with our Office, the registration thereof partakes of official cognizance of the agreement of the area covered thereby and said area should not be the subject of another operating agreement while the former is still operative. Corollary to the above, a mining permit is for the exclusive use of the permittee. As a consequence thereof, the permittee can take one operator at a time, and he is to operate within the area while the agreement subsists . . . The special law being cited by the Mines and Geo-Sciences Bureau in support of such directive is Pres. Decree No. 1281, creating the Bureau of Mines. Said decree, in addition to its regulatory and adjudicatory functions over mining operations, also grants the Bureau of Mines, the original and exclusive jurisdiction to hear and decide all cases involving "a mining property subject of different agreements entered into by the claim holder thereof with several mining operators." (Sec. 7[a])

205

This matter of having two (2) operating agreements covering the same mining area is properly taken cognizant [sic] of by the Bureau of Mines, being the specialized agency most equipped to deal on these matters. This Court has no recourse but to lend fealty to its directive. As held in the case of R.B. Industrial Development Corp. vs. the Hon. Enage and Eastern Timber Corp., 24 SCRA 365: A doctrine long recognized is that where the law confines in an administrative office the power to determine particular questions or matters, upon the facts to be presented, the jurisdiction of such office shall prevail over the courts. As such, all the parties to this case are bound by the directive of the Mines and Geo-Sciences Bureau. The remedy of plaintiff, in this light, is to seek a reconsideration of the directive before the Bureau. Should the same be denied, plaintiff may still enforce the warranty stipulated in its operating agreement against San Mateo Mines Exploration, Inc. This Court is of the view that a party cannot unilaterally terminate a contract it entered into with another without justifiable cause. Going over the records of the case, San Mateo Mines Exploration, Inc.'s basis for unilaterally terminating its contract with defendant Philrock is the one-sidedness and partiality of said agreement (Annex "E" of the complaint). To the mind of this Court, such does not constitute a justifiable cause as San Mateo Mines Exploration, Inc. voluntarily entered into the said agreement. In fact, a party's unilateral termination of a contract without legal justification makes it liable for damages suffered pursuant to Article 1170 of the New Civil Code (Pacmac, Inc. vs. IAC, 150 SCRA 555). As regards the contract entered into by the plaintiff with the Kadakilaan Estate, the same is in the nature of an Option Agreement, giving plaintiff the right of exploration over the mining claim area. The contract, however, stipulates that "such right shall be for a period of twelve (12) months counted from the date of this agreement." Paragraph 3 of the contract sets a pre-condition on plaintiff the delivery of a written notice to exercise the option within the twelve-month period before it may be given the exclusive right to develop, operate and mine the minerals found in the claim area. This pre-condition, as observed by the Court, has never been met by the plaintiff. As correctly pointed out by the defendant, the option period expired on November 22, 1989, without plaintiff having exercised its option. Under the law, if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control (Art. 1370 of the New Civil Code). Only when the terms of a contract are susceptible of various interpretations, and the intention of the parties is in doubt, may the authority of the Court be invoked to rule on the same. In this case, there is no occasion which could call for such determination by this Court, as the words of the Option Agreement are clear and unequivocable. The Court has taken cognizance of certain facts appearing in the records that bears significant consideration on the rights of the parties. Assuming arguendo that plaintiff has valid operating agreements, there are still certain requirements of the law which, in the Court's belief, has never been satisfied. As previously-found in the injunction hearings, and which forms the reason for the filing of this complaint, the Court was made to understand that plaintiff does not pretend to conduct mining exploration/ operation on the access routes. These areas, i.e., access routes, are to be utilized only as a means to go to and come from on the plaintiff's legitimate area of activity. The Court finds, as amply supported by preponderance of proof, that these access routes have been built by defendant Philrock after having entered into contracts granting easement rights with the various landowners of Rodriguez, Rizal. Plaintiff now claims that under the law, it is entitled to make use of these access routes built by the defendant. Plaintiff's intention, in effect, is to ask this Court that it grant plaintiff similar easement rights already obtained by defendant from the landowners. As such, plaintiff's remedy, under the law, is to file an action for Eminent Domain before the Court, against the proper parties. . . . xxx xxx xxx A look into the locational map of the Montalban Fan area shows that the mining claim area of the plaintiff is extensive (Exhibit "D"). Yet, the evidence of the plaintiff shows that the blockades were limited on the access routes. To be sure, the plaintiff does not contest that the access routes were built at the expense of the defendant. What the plaintiff objects to is that all other persons/vehicles are allowed to pass and make use of these routes, to its exclusion. But that is a prerogative of the defendant being the builder and owner thereof. Attention should also be called to the fact that the operating agreements speak only of the mining rights. Said agreements do not vest on plaintiff the right to make use of these access routes, as these are not owned nor built by the Kadakilaan Estate nor by the San Mateo Mines Exploration, Inc. The remedy afforded to the plaintiff, therefore, is to file the proper suit for Eminent Domain to compel the defendant to allow it to make use of the access routes and after payment of just compensation. Or, the more prudent way, is build their own access routes to their legitimate area of activity after entering into arrangements with the landowners. As to the defendant's counterclaim, the Court resolves to treat the same as a compulsory counterclaim as the evidence adduced by the defendant to refute the cause of action alleged in the plaintiff's complaint, is also the evidence used to sustain the defendant's counterclaim (Lim Tanhu vs. Ramolete, 66 SCRA 425). The Court finds that there is ample proof to grant the defendant's claim for actual damages. There is no doubt that the defendant sustained pecuniary loss due to the acts of the plaintiff, including the filing of this complaint. The only question that confronts this Court is the amount to be awarded. Due to the filing of this complaint, it was adequately shown that the employees of the defendant Philrock became the object of ridicule by the general public, and that they suffered mental anxiety due to the same. A 206

defending party may set up a claim for money or any other relief which he may have against the opposing party in a counterclaim. And the Court may, if warranted, grant actual, moral or exemplary damages as prayed (Agustin vs. Bacalan and the Provincial Sheriff of Cebu, 135 SCRA 340). In respect to attorney's fees, it should be held also that where a claim therefore [sic] arises out of the filing of the complaint, they, too, should be considered as in the nature of a compulsory counterclaim (Tie Po vs. Bautista, 103 SCRA 388). Attorney's fees should be held reasonable under the Circumstances. 4 On the basis of its findings of fact and conclusions of law, the trial court then decreed as follows: WHEREFORE, premises considered, this Court hereby renders judgment in favor of the defendant Philippine Rock Products, Inc. and against the plaintiff Scott Consultants & Resource Development Corp., Inc., as follows: (1) Ordering the dismissal of the case and the dissolution of the Writ of Preliminary Mandatory Injunction; (2) Sentencing the plaintiff to pay the defendant the sum of Eight Hundred Thousand (P800,000.00) Pesos as compensatory or actual damages; P300,00.00 as moral damages and the sum of P50,000.00 as exemplary damages; (3) Condemning the plaintiff to pay the defendant the sum of P50,000:00 as and for attorney's fees; and (4) To pay the costs. SO ORDERED. The petitioner then appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 31376. In its brief, 5 the petitioner alleges that the trial court erred I. IN HOLDING THAT THE MAIN ISSUE TO BE RESOLVED IS WHETHER OR NOT PLAINTIFF-APPELLANT IS ENTITLED TO CONDUCT EXPLORATION AND SIMILAR ACTIVITIES WITHIN THE MINING CLAIMS. II. IN FAILING TO HOLD DEFENDANT-APPELLEE LIABLE TO PLAINTIFF-APPELLANT FOR DAMAGES; III. IN HOLDING PLAINTIFF-APPELLANT LIABLE TO DEFENDANT-APPELLEE FOR DAMAGES; AND IV. IN EVENTUALLY DISMISSING THE CASE. In its decision of 28 August 1992, the Court of Appeals affirmed the decision of the trial court except as to the award of moral damages which it deleted on the ground that the testimonies of the witnesses did not prove that the private respondent's good reputation was besmirched. 6 However, like the trial court, the Court of Appeals sustained the award of actual damages, although not on the testimony of Marcial Magtoto, the private respondent's Accounting Manager (on whose testimony the petitioner based its claim that no proof of actual damages was adduced), but on the testimony of the two other witnesses of the private respondent, namely, Antonio Ayson and Claro San Juan. Its motion for reconsideration having been denied by the Court of Appeals in its resolution of 9 December 1993, 7 the petitioner filed this petition wherein it prays that we set aside the decision of the Court of Appeals because the said court erred: I. IN RULING THAT THERE WAS NEED FOR THE PETITIONER TO ESTABLISH THAT (1) IT HAD THE RIGHT TO USE THE ACCESS AND (2) IN NOT FINDING THAT PHILROCK HAD VIOLATED SUCH RIGHT II. IN RULING THAT PHILROCK IS NOT LIABLE FOR DAMAGES BECAUSE IT DID NOT ILLEGALLY PREVENT PETITIONER FROM USING THE ACCESS ROADS III. IN FINDING PETITIONER LIABLE FOR DAMAGES. 8 There is no merit in the first two assigned errors. The petitioner's reliance on Section 2 of P.D. No. 512, Section 12 of P.D. No. 463, and Section 10 of the Consolidated Mines Administrative Order (CMAO) is misplaced. These provisions apply to entry into land (public or private) where prospecting, exploring, or exploiting is to be done, and enjoin the surface owners or occupants of such land from preventing any entry for such purpose. They do not apply to land or a portion thereof which may be used for ingress to or egress from the land where the prospecting, exploration, or exploitation is to be made. In the instant case, the petitioner was not prevented by the surface owners or occupants of the land covered by its mining claims. As to the private respondent's access routes, the petitioner was unable to prove its right to use it. The third assigned error, however, is impressed with merit. Just as in the case of moral damages, there was no credible proof of actual damages. The trial court made no specific finding on the extent thereof. All that it could state was: The Court finds that there is ample proof to grant the defendant's claim for moral damages. There is no doubt that the defendant sustained pecuniary loss due to the acts of the plaintiff, including the filing. The only question that confronts this Court is the amount to be awarded. 9 The trial court did not answer this question by making specific references to the testimonies of the witnesses or to the documentary evidence. Yet, in the dispositive portion of its decision, it awarded compensatory and actual damages in the staggering amount of P800,000.00. In sustaining this award, the Court of Appeals quoted 207

portions of the testimonies of Antonio Ayson and Claro San Juan, the Operations Manager of the Materials Division and the Plant Superintendent of the Aggregate Crushing Plant, respectively, of the private respondent. Such quoted portions 10 do not at all support the award. Ayson cites the private respondent's "non-full" operation because the private respondent was unable to extract aggregates from its own area due to the fence constructed by the petitioner. San Juan speaks of "attention, diverted to the entering of Scott Consultants to [our] area" and lack of "sleep" and "anxiety" because of public ridicule. How the award of P800,000.00 was arrived at was never shown. It remains a pure speculation. Article 2199 of the Civil Code provides that one is entitled to adequate compensation only for such pecuniary loss suffered by him as is duly proved. Both decisions do not as well state the justification for the award of exemplary damages of P50,000.00. Under Article 2229 of the Civil Code, 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 2234 of the Civil Code expressly provides: Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. In case liquidated damages have been agreed upon, although no proof of loss is necessary in order that such liquidated damages may be recovered, nevertheless, before the court may consider the question of granting exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to moral, temperate or compensatory damages were it not for the stipulation for liquidated damages. There was, therefore, no legal basis for the award of exemplary damages since the private respondent was not entitled to moral, temperate, or compensatory damages and there was no agreement on stipulated damages. Nor can we affirm the award for attorney's fees in the sum of P50,000.00. Under Article 2208 of the Civil Code, in the absence of stipulation, there can be no recovery of attorney's fees and expenses of litigation other than judicial costs except in the instances therein enumerated. The closet instance which could be considered here is paragraph 11 of Article 2208 which provides for such recovery where the court deems it just and equitable. The body of the decision of the trial court, however, is devoid of any statement that it would be just and equitable to award attorney's fees and of any finding on the amount to be so awarded. All that was stated was the following: In respect to attorney's fees, it should be held also that where a claim therefore [sic] arises out of the filing of the complaint, they, too, should be considered as in the nature of a compulsory counterclaim (Tio Po vs. Bautista, 103 SCRA 388). Attorney's fees should be held reasonable under the circumstances. It is settled that the award of attorney's fees is the exception rather than the rule and counsel's fees are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 11 Thus for lack of factual and legal basis, the award of attorney's fees must likewise be deleted. WHEREFORE, the instant petition is partly GRANTED and the awards of actual damages, exemplary damages, and attorney's fees in the challenged decision are DELETED. In all other respects, the challenged decision is AFFIRMED. SO ORDERED. VII. EXEMPLARY OR CORRECTIVE DAMAGES b. When answerable G.R. No. L-31931 August 31, 1988 FORTUNATO DE LEON & JUANA F. GONZALES-DE LEON, petitioners-appellants, vs. HONORABLE COURT OF APPEALS (Sixth Division composed of Justices Concepcion, Serrano & San Diego) DR. CORNELIO S. TANTOCO and JUAN BRIONES represented by Administratrix MAGDALENA BERNARDO, respondents-appellees. Fortunato de Leon, Celso B. Jamora and Guillermo B. Ilagan for petitioners-appellants. Jose B. Puerto for respondent-appellee Juan Briones. Diogracias T. Reyes & Associates and Jose M. Luison for respondent-appellee Cornelio S. Tantoco. PARAS, J.: This is an appeal by certiorari from the decision * of the Court of Appeals (Sixth Division) in C.A., G.R. No. 40201-R promulgated on February 21, 1970 affirming the judgment ** of the Court of First Instance of Bulacan, with modification of the amount of moral and exemplary damages from P100,000.00 to P60,000.00 and the amount of attorney's fees from P10,000.00 to P5,000.00 the dispositive portion of which appellate court's decision reads as follows: WHEREFORE, the decision appealed from is hereby modified as above indicated respecting the award of moral and exemplary damages as well as attorney's fees. The rest are hereby affirmed with costs against plaintiffsappellants. (pp. 6-7, Decision of the Court of Appeals; pp. 61-62, Rollo) 208

The facts of the case as drawn by respondent court from the evidence on record are quoted as follows: The third-party defendants spouses Juan Briones and Magdalena Bernardo were the former registered owners of the fishpond situated at San Roque, Paombong, Bulcacan, which was covered by Transfer Certificate of Title No. 28296 (Exhibit 2). This fishpond was the subject of a deed of mortgage executed by the spouses Briones on January 22, 1954, in favor of Hermogenes Tantoco involving the consideration of P20,000.00 (Exh. 2), which amount was later assigned by the mortgagee to his father herein defendant and thirdparty plaintiff Dr. Cornelio S. Tantoco (Exh. 10). Apart from this first mortgage, the spouses Briones likewise executed a deed of second mortgage for P68,824.00 with 10% interest per annum in favor of Cornelio S. Tantoco dated May 26, 1959 (Exh. 1). Both mortgages were duly registered in the Office of the Register of Deeds of Bulacan and duly annotated at the back of Transfer Certificate of Title No. 28296 (Exh. 2) of the Briones. While these two mortgages were still subsisting the Briones spouses sold the fishpond, which is the subject matter of said two mortgages, to plaintiff spouses Fortunato de Leon and Juana F. Gonzales de Leon in the amount of P120,000.00 (Exh. 5). Of the amount of P120,000.00, the Briones spouses actually received only the amount of P31,000.00 on June 2, 1959, as the amount of P89,000.00 was withheld by the plaintiff de Leon who assumed to answer the mortgage indebtedness of the Briones to the Tantocos (Exhs. 3, 3-a, 3-a-1 to 3-b). After the sale plaintiffs de Leon satisfied the mortgage loan of P20,000.00 including 10% interest per annum to Hermogenes Tantoco who then accordingly executed a deed of discharge of mortgage (Exhs. Z & Z-1), but the mortgage in favor of Cornelio S. Tantoco in the amount of P68,824 was not satisfied. On February 5, 1962 plaintiffs made payment of P29,382.50 to the defendant Cornelio Tantocos." (Decision of the Court of Appeals, pp. 23). In his letter to private respondent Cornelio Tantoco dated February 5, 1962, petitioner Fortunato de Leon made it clear that he was tendering the sum of P29,382.50, represented by PNB Cashier's Check No. 119874 in full discharge of the legitimate obligation of his clients, the spouses Juan Briones and Magdalena Bernardo. He requested acknowledgment of the receipt of his letter and the execution of the necessary document (Exhibits, p. 103). Through counsel private respondent, trying to set the records straight for petitioners, made the clarification that the principal obligation of the Briones as of May 25, 1959 was P68,824.00 and on January 26, 1962 when a letter of demand was sent to them their total obligation including the agreed interest amounted to P88,888.98. Hence the above mentioned PNB check will be held in abeyance pending remittance of the total obligation after which the necessary document will be executed (Exhibits, p. 105). On April 5, 1962 Juan Briones executed an affidavit denying ever having hired petitioner Fortunato de Leon as counsel nor having authorized petitioner to pay any obligation of his to private respondent for as a matter of fact all obligations he had with private respondent had been assumed by petitioner in a document executed by petitioner himself in his own handwriting (Exhibits, p. 108). On May 8, 1962 the spouses Fortunato de Leon and Juana F. de Leon, petitioners herein, filed a complaint with the Court of First Instance of Bulacan against defendant Cornelio S. Tantoco, respondent herein, Civil Case No. 2554, for discharge of mortgage (Record on Appeal, p. 4). On May 31, 1962 defendant filed his answer with counterclaim and third party complaint against the Briones spouses with petition for leave to file third party complaint (Record on Appeal, p. 7). He alleged by way of special and affirmative defenses, among others, that the true and real amount of obligation of the Briones spouses is the sum of P68,824.00, Philippine currency, with 10% interest secured by a second mortgage in favor of defendant, executed and signed by the Briones spouses on May 26,1959, which deed of second mortgage was duly registered in the Office of the Register of Deeds of Malolos, Bulacan on May 27, 1959 and properly annotated at the back of Transfer Certificate of Title No. 28296 issued in the names of Juan Briones and Magdalena Bernardo; that the amount of P29,382.50 sent by plaintiff as alleged counsel of the spouses Juan Briones and Magdalena Bernardo was accepted by the said defendant as part payment or partial extinguishment of the mortgage loan of P68,824.00 with 10% interest thereon per annum from May 22, 1959, and plaintiffs have been informed of the tenor of said acceptance and application thereof as partial payment of the mortgage obligation in question; and, that defendant did not accede to the demand of the plaintiff to have the mortgage lien on the property in question cancelled or discharged because the full amount of the mortgage debt of P68,824.00 plus the 10% interest thereon from May 22, 1959 has not yet been fully paid either by the plaintiffs or by the spouses Juan Briones and Magdalena Bernardo. Defendant prayed under the counterclaim that plaintiffs be ordered to pay defendant the following amounts: (1) P62,245.04 plus lO% interest thereon per annum from May 22, 1962 until the full amount thereon has been paid in the event that the assumption of obligation (Annex "2") is found by the Court to be true, valid and binding between the parties thereto; (2) P100,000.00 for moral damages with 6% interest thereon from the date of the filing of the counterclaim until full payment thereof; (3) P10,000.00 for exemplary damages with 6% interest thereon from the date of the filing of the counterclaim until full payment thereof; and (4) P5,000.00 for attorney's fee with 6% interest thereon from the date of the filing of the counterclaim until full payment thereof." On June 8, 1962 plaintiffs filed an answer to defendants' counterclaim, by way of counterclaim to the counterclaim and praying for judgment (Record on Appeal, p. 24) as follows: A. Dismissing defendants' counterclaim with costs against them; B. Sentencing defendants to pay unto the plaintiffs the sum of P200,00o.oo by way of moral damages with legal interest thereon from date hereof; 209

C. Sentencing defendants to pay not less than P20,000.00 to Plaintiffs by way of exemplary damages with legal interest from date hereof; D. Sentencing defendants to pay unto plaintiffs the sum of P30,000.00 by way of actual damages; E. Declaring the lien on Transfer Certificate of Title No. T-25079 of plaintiffs duly discharged; F. Ordering defendant Cornelio S. Tantoco to execute the covering Release and Discharge of Mortgage; G. Ordering defendant Cornelio S. Tantoco to return his mortgagee's copy of Transfer Certificate of Title No. T25079 to the Register of Deeds of Bulacan; H. Sentencing defendant Cornelio S. Tantoco to pay unto the plaintiffs the sum of P5,000.00 by way of attorney's fees; I. Plaintiffs further pray for such additional relief just and proper in the premises. On June 22, 1962, long before defendant's third party complaint was admitted, the Briones spouses filed an answer to the third-party complaint (Record on Appeal, p. 32) which was stricken out by order of the trial court dated September 3, 1962 (Record on Appeal, p. 35) on petition of plaintiffs dated July 18, 1962 (Record on Appeal, p. 33). Third-party defendants filed their second answer to third-party complaint on October 6, 1962, virtually confessing judgment in behalf of third-party plaintiff (Record on Appeal, p. 35). They alleged by way of special and affirmative defense that plaintiff Fortunato de Leon at the time of the sale knew of the obligations of herein third-party defendants to third-party plaintiff and as a matter of fact said plaintiff assumed said obligations. On July 29,1963 Magdalena Bernardo Vda. de Briones was substituted third-party defendant as administratrix of the estate of Juan Briones who died in the course of the proceedings, upon petition of defendant Tantoco (Record on Appeal, p. 64). On September 16, 1963 plaintiffs filed a petition for leave to intervene in defendant's third-party complaint, with their answer in intervention, which was granted by the Court on October 14, 1963 (Record on Appeal, p. 64). On May 16, 1967 the trial court rendered its decision on the case (Record on Appeal, p. 74) the dispositive portion of which reads as follows: WHEREFORE, judgment is hereby rendered ordering: the dismissal of the complaint; payment by its plaintiffs to the defendant Third-party plaintiff by way of counterclaim the sum of P64,921.00 wth interest thereon at 10% per annum from February 5, 1962 until fully paid; payment by plaintiff to defendant the sum of P100,000.00 as moral and exemplary damages, and the further sum of P10,000.00 as attorney's fees; payment of costs of plaintiff. On appeal respondent Court affirmed the judgment of the trial court with modification respecting the award of moral and exemplary damages as well as attorney's fees. Petitioner spouses filed on March 7, 1970 their motion for reconsideration of the decision of respondent court which motion was denied on April 20, 1970. On April 23, 1979 petitioners filed their motion for leave to file a second motion for reconsideration. On July 5, 1970, barely two days before the expiration date of the period of appeal with their motion still unacted upon, petitioners filed with this Court their motion for extension of time to file petition for certiorari by way of appeal (Rollo, p. 1) which motion was granted in the Resolution of May 8, 1970 (Rollo, p. 2). The motion to file a second motion for reconsideration was denied by respondent Court on May 15, 1970 (Rollo, p. 53). The instant petition for certiorari by way of appeal with preliminary injunction was filed with this Court on May 20, 1970 (Rollo, P. 7). In the resolution of June 8, 1970 the petition was given due course solely on the issue of the propriety of the award made by the respondent Cornelio S. Tantoco in "the amount of P60,000 in the concept of moral and exemplary damages" (Rollo, p. 75). On June 20, 1970 petitioners moved for reconsideration of the Resolution of the Court dated June 8, 1979 (Rollo, p. 82), to include other issues. On the same date private respondent Corn elio Tantoco moved for the issuance of partial entry of final judgment with respect to the portion of the decision appealed from which is not the subject of the instant appeal by certiorari (Rollo, p. 102). On June 25, 1970 the Court resolved to require respondents to comment on the aforementioned motion for reconsideration (Rollo, p. 101). Said comment was filed on July 8, 1970 (Rollo, p. 109). On July 8, 1970 petitioner spouses filed a consolidated opposition to private respondent Tantoco motion for partial entry of final judgment and reply to his manifestation-motion (Rollo, p. 121) and on July 9, 1970 filed a reply to respondent Tantoco's motion to dismiss appeal (Rollo, p. 128). On July 20, 1970 the Court resolved among others to deny: (1) respondent Tantoco's motion to dismiss appeal; (2) petitioners motion for reconsideration of the Court's resolution of June 8, 1970; and (3) respondent Tantoco's motion for partial entry of judgment insofar as the portion of the decision appealed from which is not 210

the subject of the instant appeal by certiorari is concerned, without prejudice to respondent's presenting the same motion to respondent Court of Appeals for consideration and action at the proper time (Rollo, p. 133). Respondent Cornelio S. Tantoco filed with this Court on July 21, 1970 reply to consolidated opposition and rejoinder to reply to respondent Tantoco's motion to dismiss appeal (Rollo, p. 134). Brief for petitioners was filed on August 5, 1970 (Rollo, p. 159); brief for respondents was filed on October 28, 1970 (Rollo, p. 187). On November 14,1970 petitioners filed an "Urgent Petition ex-parte For Issuance of Restraining Order and To Declare Respondent Cornelio S. Tantoco Guilty of Contempt of Court" stating that respondent Tantoco filed with the Court of Appeals on August 14, 1970 the same motion for partial entry of judgment which was filed with this Court and denied in the resolution of July 20, 1970 but which was granted by the Court of Appeals in its resolution of October 31, 1970 over petitioners-appellants' objection (Rollo, p. 192). On November 18, 1970 respondents were required to comment thereon (Rollo, p. 197) and the required comment was filed by private respondent on November 26, 1970 (Rollo, p. 200). On December 2, 1970 a partial remanding of the records of this case to the Court of Appeals was made in compliance with Section 11 of Rule 51 of the Rules of Court (Rollo, P. 220). The Reply brief of the petitioners was filed on December 3, 1970 (Rollo, p. 210). On the same date petitionersappellants' "Urgent Petition for Issuance of Restraining Order and To Declare Respondent Cornelio's Tantoco Guilty of Contempt of Court" was denied. (Rollo, p. 212). On February 12, 1971 petitioners spouses again filed a petition for issuance of a restraining order (Rollo, p. 227) and private respondent was required to comment thereon (Rollo, p. 233). Said comment was filed on February 23, 1971 (Rollo, p. 236). On February 24, 1971 petitioner spouses filed an urgent manifestation informing the Court of the urgency of the issuance of a restraining order or writ of preliminary injunction because the Court of First Instance of Bulacan had presumably granted respondent Cornelio S. Tantoco's motion for partial execution of judgment in an order dated February 11, 1971 which petitioners had not yet received, notwithstanding petitioners' urgent motion to postpone hearing of same scheduled for February 15, 1971 because of the pendency of petitioner's motion before this Court for issuance of a restraining order or writ of preliminary injunctions filed on February 11, 1971 (Rollo, p. 241). In the resolution of February 26, 1971 private respondent Cornelio S. Tantoco was required to comment thereon (Rollo, p. 248) and said comment was filed by respondent on March 6, 1971 (Rollo, p. 251). In the resolution of March 10, 1971 petitioners' petition for issuance of a restraining order was denied (Rollo, p. 265). Petitioners assign the following errors (Brief for Petitioners, p. 1): I. The respondent Court erred in awarding in favor of respondent Cornelio S. Tantoco moral and exemplary damages in the amount of P60,000.00 in the absence of supporting evidence and reasons notwithstanding that no actual and compensatory damages have been allegedly proved and awarded in respondent's favor. II. The respondent Court erred in awarding P5,000.00 attorney's fees in favor of respondent Cornelio S. Tantoco and in sentencing petitioners de Leons to pay same; instead of awarding the latter (Petitioners) reasonable attorney's fees as prayed for in their complaint. III. The respondent Court erred in sentencing herein petitioners de Leons to pay respondent Tantoco P60,000.00 moral and exemplary damages and P5,000.00 attorney's fees when there exist no contractual or juridical relations whatsoever between them. IV. That the decision of respondent Court of Appeals of February 21, 1970 and its adverse Resolutions of April 20, 1970 and of May 15, 1970 are all nullities. In accordance with the Resolution of the Court dated June 8, 1970 (Rollo, p. 75) the sole issue that has to be resolved by the Court is the question of whether or not the award of P60,000.00 in the concept of moral and exemplary damages is proper. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission (People v. Baylon, 129 SCRA 625 [1984]; Bagumbayan Corporation v. Intermediate Appellate Court, 132 SCRA 441 [1984]; Guita v. Court of Appeals, 139 SCRA 576 [1985]); (Prudenciado v. Alliance Transport System, Inc., 148 SCRA 440 [1987]). On the other hand, jurisprudence sets certain conditions when exemplary damages may be awarded, to wit: (1) 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; (2) the claimant must first establish his right to moral, temperate, liquidated or compensatory damages; and (3) the wrongful 211

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 malevolant manner (Octot v. Ybaez, III SCRA 79 [1982]); Sweet Lines, Inc., v. Court of Appeals, 121 SCRA 769 [19831); Dee Hua Liong Electrical Equipment Corporation v. Reyes, 145 SCRA 713 [1985]); Tan Kapoc v. Masa, 134 SCRA 231 [1985]). It may be awarded for breach of contract or quasicontract as when a telegraph company personnel transmitted the wrong telegram (Radio Communication of the Philippines, Inc. v. Court of Appeals, 103 SCRA 359 [1981]. Respondent Court found malice in petitioners'refusal to satisfy respondent Tantocos lawful claim and in their subsequent filing of the present case against respondent, and took into consideration the worries and mental anxiety of respondent as a result thereof. In the words of respondent court: The evidence shows that plaintiff-appellants'refusal to satisfy appellee's lawful claims clearly amounted to malice on their part when they filed the present case resulting as it were in worries and mental anxiety of the defendant Tantoco who was dragged to court to litigate this case for almost 10 years up to now. He was even branded as a money lender, and accused forgery and of entering into collusion with the end in view of extracting extra amount ... from the herein plaintiff. All these tried to picture defendant Cornelio Tantoco with alleged dishonesty who respecting the legitimate obligation of the Briones to defendant Cornelio Tantoco, thereby blemishing his honor, integrity and reputation as a prominent doctor and a businessman. With all these extant circumstances which served as a guidepost for us in determining the reasonable amount of damages sustained by the defendant-appellee, this Court hereby fixes the amount of P60,000.00 representing moral and exemplary damages and the further sum of P5,000.00 as attorney's fees, which plaintiffs-appellants should pay the defendant-appellee. (Rollo, p. 61) As a lawyer in the practice of law since his admission to the Bar in 1929, who has held several important positions in the government (TSN, April 22, 1965, p. 127) petitioner Fortunato de Leon could not have missed the import of the annotation at the back of TCT No. 28296 regarding the second mortgage for the sum of sixty eight thousand eight hundred twenty-four pesos (P68,824.00) of the property he was buying, in favor of respondent Cornelio Tantoco, entry No. 54835 in the registry of deeds of Bulacan (Exhibits, p. 93). The same annotation was transferred to TCT No. T-25079 in the name of petitioner after the sale of the property was effected and entered in the registry of deeds of Bulacan on June 3, 1959 (Exhibits, p. 102). Furthermore, petitioners cannot deny having assumed the mortgage debts of the Briones spouses amounting to P89,000.00 in favor of the Tantocos. The "Patunay" (Exhibits 3-a) executed by the Briones spouses on June 3, 1959 gives the information that their property, and fishpond, was sold by them to the spouses Fortunato de Leon and Juana F. Gonzales for the amount of one hundred twenty thousand pesos (Pl20,000.00), payment made to them, as follows: Pinanagutan na aming pagkakautang kay G. Hermogenes Tantoco hanggang Mayo 1959 Cash na tinanggap namin PBC Check No. 57040 Pagare No. 1 Junio 1, 1959 Pagare No. 2 Junio 1, 1959 Kabuuan P 89,000.00 11,000.00 10,000.00 10,000.00 P 120,000.00

At the bottom of the "Patunay" in the handwriting of petitioner Fortunato de Leon is a statement signed by him (Exh. 3b) signifying that he was assuming the spouses'debt of P89,000.00 to respondent Tantoco, in the following words: Ang pagkautang na P89,000.00 sa mga Tantoco ay aking inaasumihan. (Exhibits, p. 97). Petitioner retained P89,000.00 out of the P120,000.00, representing the mortgage loan of the Briones spouses to the Tantocos, including interest. Immediately after the sale of the fishpond was effected and registered with the registry of deeds of Bulacan petitioner paid the P20,000.00 loan of the Briones spouses to Hermogenes Tantoco including 10% interest on the loan, covered by a first mortgage on the property. Accordingly, Hermogenes Tantoco executed a deed of discharge from the mortgage. Out of the P68,000.00 mortgage loan of the Briones spouses from respondent Cornelio Tantoco, petitioner, however made only a payment of P29,382.50 but would want respondent to execute the necessary discharge document. The documents speak for themselves. They are mute but plain and visible evidence of the deliberate intent of petitioner to defraud respondent of the amount withheld from the Briones spouses to cover the amount of the mortgage loan in favor of respondent. The filing of the case against respondent being unfounded and maliciously prosecuted satisfactorily proves the existence of the factual basis for moral damages and the causal relation to petitioners' acts (Hawpia v. Court of Appeals, 20 SCRA 535 [1967]; Ventura v. Bernabe, 38 SCRA 587 [1971]; Enervida v. de la Torre, 55 SCRA 340 [1974]; Tan Kapoe v. Masa, 134 SCRA 231 [1985]). Private respondent has a good name to protect. He is a surgeon by profession, had been Chief of the Bulacan Provincial Hospital since 1946 until he put up a hospital of his own, the Rosary General Hospital.He is a member of the Knights of Columbus, a Cursillista, a member of the Lions, a fellow of the Philippine College of Surgeons in good standing from 1946 up to the present, a member of the Philippine Medical Association and of the Bulacan Medical Association. He has been humiliated, embarrassed, maligned and has been charged in bad faith as a money lender in petitioner's complaint accusing him of defrauding the Briones spouses (TSN, pp. 227-250). The entitlement to moral damages having been established the award of exemplary damages is proper (Bert Osmea & Associates v. Court of Appeals, 120 SCRA 395 [1983]; Tan Kapoe v. Masa, 134 SCRA 231 [1985]).

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While the award of moral and exemplary damages in an aggregate amount may not be the usual way of awarding said damages there is no question of respondent's entitlement to moral and exemplary damage (Tan Kapoe v. Masa, supra). The amount should be reduced, however, for being excessive compared to the actual losses sustained by the aggrieved party (Prudenciado v. Alliance Transport System, Inc., 148 SCRA 440 [1987]). Moral damages though incapable of pecuniary estimations, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty of the wrongdoer (San Andres v. Court of Appeals, 116 SCRA 85 [1982] cited in Prudenciado v. Alliance Transport System, Inc. supra). Time and again the Court has ruled that "moral damages are emphatically not intended to enrich a complainant at the expense of a defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendants' culpable action" (Grand Union Supermarket, Inc. v. Espino, Jr., 94 SCRA 966 [1979]); R & B Surety & Insurance Co., Inc. v. Intermediate Appellate Court, 129 SCRA 736 [1984]; Prudenciado v. Alliance Transport System, Inc., supra). In the case of Miranda Ribaya v. Bautista (95 SCRA 672 [1980]), this Court considered 25% of the principal amount as reasonable. In the case at bar, the Court of Appeals found on February 21, 1970 that the outstanding balance of the disputed loan was P64,921.69. Twenty five percent thereof is P16,230.00 but considering the depreciation of the Philippine peso today, it is believed that the award of moral and exemplary damages in the amount of P25,000.00 is reasonable. PREMISES CONSIDERED, the assailed decision of the Court of Appeals is AFFIRMED but the aggregate award of moral and exemplary damages is reduced to P25,000.00. SO ORDERED. G.R.No. L-48643 January 18, 1982 DIOSDADO OCTOT, petitioner, vs. JOSE R. YBAEZ, in his capacity as Regional Director of Regional Health Office No. VII, CLEMENTE S. GATMAITAN, in his capacity as Secretary of Health, and Presidential Executive Assistant JACOBO C. CLAVE, respondents. TEEHANKEE, J.: Petitioner Diosdado Octot sought in this action of mandamus his reinstatement in the government service as Security Guard in Regional Health Office No. VII, Cebu City from which he was summarily dismissed "for being notoriously undesirable". It appears that petitioner was employed as Security Guard since 1970 and at the time of his separation from the service was receiving a salary of P4,632 per annum plus P50.00 per month as cost of living allowance. On October 1, 1975, petitioner was summarily dismissed pursuant to P.D. No. 6 and LOI Nos. 14 and 14-A directing heads of departments and agencies Of the government to weed out undesirable government officials and employees, specifically those who were facing charges or were notoriously undesirable on ground of dishonesty, incompetence or other kinds of misconduct defined in the Civil Service Law. Petitioner had been convicted by the Court of First Instance of Cebu of the crime of libel, but his appeal therefrom was pending in the Court of Appeals. Believing that his dismissal was illegal, petitioner continued reporting for work the whole month of October 1975 but respondent Regional Director refused to order the release of his salary for the period and instead ordered that his name be deleted from the office payroll In due time, petitioner was acquitted of the libel case by the Court of Appeals. On March 10, 1977, one Mr. Alfredo Imbong Wrote to the Undersecretary of Justice assistance to reinstate petitioner to his former position which letter was for. warded by the Undersecretary of Justice to the Secretary of Health on March 22, 1977. When the letter-request was referred by the Secretary of Health to the Region Health Office for comment, Dr. Felicito Aniceto, officer-in-Charge of the same regional office favorably recommended petitioners reinstatement, not only because of petitioner's acquittal in the case but also because of his satisfactory performance rating. Petitioner's papers were likewise favorably acted upon by the Presidential Executive Assistant but in returning the papers to the Secretary of Health, attention was invited to the provision of LOI No. 647, dated December 27, 1977. 1 The papers were then forwarded to herein petitioner informing him that his request for reinstatement may now be given due course. When petitioner failed to appear, petitioner was personally furnished sometime on May, 1978 by Personnel Officer Ramon R. Encarnacion with the mu papers to be fined up to support his new appointment. This notwithstanding, petitioners again sent a letter, dated June 6, 1978, to respondent Secretary of Health, reiterating his request for reinstatement and demanding back salaries from the date of his dismiss from the service, furnishing the Regional Health Director a copy thereof, who upon receipt of his copy, contacted petitioner instructing him to come so that the necessary papers for his new appointment could be prepared. Again, petitioner did not appear, and instead filed the instant petition for mandamus wherein he prays that respondents be ordered (1) to reinstate him to his former position (2) to pay his back salary, as well as the cost of living allowance of P50.00 a month from the date of his alleged dismiss (3) to grant him compensatory, exemplary and moral damages (4) to pay his attorney's fees and cost of the suit.

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Since petitioner's right to reinstatement was not effectively disputed, for his reinstatement had been authority by the Office of the President of the Philippines, (although the Solicitor General in his comment prayed for denial of the petition) this Court in a resolution dated January 29, 1979 directed respondents public officials to immediately reinstate petitioner to his former position. In compliance therewith, petitioner was reappointed and his appointment duly attested by the Civil Service Commission on May 23, 1979. Petitioner reported for duty on June 11, 1979. The remaining question to be resolved under the Court's aforesaid Resolution is whether petitioner is entitled to his claim for backwages from the date of his dismissal in 1975 up to the date of reinstatement and damages. In the absence of Proof that respondent Regional Director acted in bad faith and with grave abuse of discretion, petitioner is not entitled to backwages 2 and consequently cannot claim for damages. In the case at bar, the record manifests that respondents officials were not motivated by ill will or personal malice in dismissing petitioner but only by their desire to comply with the mandates of Presidential Decree No. 6. Accordingly, when petitioner was acquitted by the Court of Appeals, and made a re. quest for his reinstatement, respondents readily showed their willingness to take him back and recommended to the authorities concerned his reinstatement. Moreover, the Office of the President of the Philippines, in approving the reinstatement of petitioner, specifically invited attention to the provisions of LOI No. 647 which does not authorize payment of backwages of reinstated employees. The Court likewise denies petitioner's claim for moral damages, because as pointed out by the Solicitor General, if there was any delay in his reinstatement, it was attributed to his own fault and negligence. After his reinstatement was authorized by the Office of the President,respondents had promptly communicated with him. directing him to report to the Regional Office and accomplish the necessary papers for his reinstatement, but he delayed doing so, as above stated. It is clear that since the separation of petitioner from the government service had not been shown to be in bad faith, an award for damages under the circumstances would not be just and proper. Neither is it among the cases mentioned in Articles 2219 and 2220 of the Civil Code wherein moral damages may be recovered. Exemplary damages are not generally recoverable in a special civil action for mandamus unless the defendant patently acted with vindictiveness or wantonness and not in the exercise of honest judgment. The claim for exemplary damages must presuppose the existence of the circumstances enumerated in Articles 2231 and 2232 of the Civil Code. 3 Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. 4 Such damages are required by public policy, for wanton acts must be suppressed. They are an antidote so that the poison of wickedness may not run through the body politic. 5 Thus, our jurisprudence sets certain conditions when exemplary damages may be awarded, as follows: 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. 6 Second: The claimant must first establish his right to moral, temperate, liquidated or compensatory damages. 7 Third: The wrongful act must be accompanied by bad faith, 8 and the award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 9 ACCORDINGLY, considering that petitioner has already been reinstated to his former position since 1979 pursuant to the Court's Resolution of January 29, 1979, the petition for mandamus for his reinstatement is now moot. Petitioner's claim for backwages and damages is hereby denied. No costs. BPI INVESTMENT VS DG CARREON, supra. VIII. ASSESSMENT OF DAMAGES G.R. No. L-52358 May 30, 1983 INHELDER CORPORATION, petitioner, vs. COURT OF APPEALS, DANIEL PANGANIBAN and PAULA RAMIREZ PANGANIBAN, respondents. Ozaeta Romulo, De Leon, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner. Nario de la Cruz for private respondents. MELENCIO-HERRERA, J: What commenced the instant proceedings is a case (hereinafter referred to as the DAMAGE CASE) instituted by private respondents (hereinafter referred to as the PANGANIBANS), residents of Calapan, Oriental Mindoro, against petitioner (hereinafter referred to as INHELDER), domiciled in Mandaluyong, Rizal, before the Court of First Instance of Oriental Mindoro (hereinafter referred to as the MINDORO COURT). The Complaint alleged that INHELDER had filed a case (hereinafter referred to as the COLLECTION CASE) against the PANGANIBANS before the Municipal Court of Mandaluyong, Rizal (hereinafter referred to as MANDALUYONG COURT), which was subsequently dismiss; that the COLLECTION CASE (Civil Case No. 5582), was clearly unfounded,- and that the PANGANIBANS were entitled, as against INHELDER, to quantified damages totalling P169,550.00. The prayer in the complaint was: 214

WHEREFORE, it is most respectfully prayed: 1. That defendant be ordered to pay plaintiffs the amount of FOUR THOUSAND FIVE HUNDRED FIFTY PESOS (P4,550.00), as actual damages spent by plaintiffs in Civil Case No. 5582 of the Municipal Court of Mandaluyong, Rizal; 2. That defendant be ordered to pay plaintiffs the amount of FIVE THOUSAND PESOS (P5,000.00) as attorney's fees in Civil Case No. 5582; 3. That defendant be ordered to pay plaintiffs the amount of FIFTY THOUSAND PESOS (P50,000.00) as compensatory damages for injury to plaintiffs' business standing or commercial credit pursuant to Art. 2205, par. 2 of the New Civil Code in relation to Art. 2201 and 2202 of the same Code; 4. That defendant be ordered to pay plaintiffs the amount of FIFTY THOUSAND PESOS (P50,000.00) as moral and/or compensatory damages due to the nervous breakdown suffered by plaintiff Dra. Paula R. Panganiban, Pursuant to Arts. 2201, 2202 and 2217 of the New Civil Code; 5. That defendant be ordered to pay plaintiff the amount of FIFTY THOUSAND PESOS (P50,000.00) as moral damages suffered by plaintiffs due to the mental anguish, social humiliation besmirched reputation and similar injury; 6. That defendant -e ordered to pay plaintiffs the amount of TEN THOUSAND PESOS (P10,000.00) as attorney's fees in pro. securing this claim; 7. That defendant be ordered to pay plaintiffs any amount that may be determined by this Honorable Court as exempt or corrective damages pursuant to Art. 2229 of the New Civil Code; 8. And for such other relief as may be deemed just and equitable in the premises. As will be seen, the complaint of the PANGANIBANS was essentially for actual and compensatory damages, moral damages and exemplary damages, based on the alleged clearly unfounded COLLECTION CASE. After declaring INHELDER in default in the DAMAGE CASE, the MINDORO COURT rendered judgment in favor of the PANGANIBANS as follows: WHEREFORE, judgment is hereby ed in favor of the plaintiffs and against the defendant Inhelder Corporation, as follows: 1. Ordering defendant to pay plaintiffs the sum of P4,550.00 as actual damages spent by plaintiffs in Civil Case No. 5682 of the Municipal Court of Mandaluyong, Rizal as well as the sum of P3,000.00 as attorney's fees in said Civil Case No. 5682; 2. Ordering defendant to pay plaintiffs the sum of P50,000.00 as compensatory damages for injury to plaintiffs business standing, 3. Ordering defendant to pay plaintiff the sum of P50,000.00 as compensatory damages due to the nervous breakdown suffered by plaintiff Paula R. Panganiban and the additional amount of P50,000.00 for moral damages plaintiffs sustained due to mental anguish, social humiliation, besmirched reputation and other injuries; 4. Ordering defendant to pay plaintiffs the sum of P50,000.00 as exemplary damages; 5. Ordering defendant to pay plaintiffs the sum of P5,000.00 in the form of attorney's fees. With costs against defendant corporation. It will be noted that the P5,000.00 claim for attorney's fees corresponding to the COLLECTION CASE was reduced from P5,000.00 to P3,000.00, and attorney's fees corresponding to the DAMAGE CASE was reduced from P10,000.00 to P5,000.00. But the prayed for P50,000.00 "as moral and/or compensatory damages due to the nervous break-down suffered by plaintiff Dra. Paula R. Panganiban" was increased to P100,000.00, that is, P50,000.00 compensatory and P50,000.00 moral. Thus, the total damages granted to the PANGANIBANS by the MINDORO COURT amounted to P169,550.00 minus P7,000.00 plus P50,000.00, or P212,550.00. On appeal by INHELDER, the Appellate Court * reduced the total damages awarded to the PANGANIBANS from P212,650.00 to P41,550.00 by modifying the judgment of the MINDORO COURT as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Inhelder Corporation as follows: 1. Ordering defendant to pay plaintiffs the sum of P4,550.00 as actual damages spent by plaintiffs in Civil Case No. 5582 of the Municipal Court of Mandaluyong, Rizal as well as the sum of P2,000.00 as attorney's fees in Civil Case No. 5582; 2. Ordering defendant to pay plaintiffs the sum of P10,000.00 as compensatory damages for injury to plaintiffs' business standing, 3. Ordering defendant to pay plaintiffs the sum of P10,000.00 as compensatory damages due to the nervous breakdown suffered by plaintiff Paula R. Panganiban; 215

4. Ordering defendant to pay plaintiffs the sum of P 10,000.00 as exemplary damages; 5. Ordering defendant to pay plaintiffs the sum of P5,000.00 in the form of attorney's fees for the prosecution of this case. The background facts and circumstances of the COLLECTION CASE can be stated as follows: 1. (a) INHELDER is engaged in the manufacture and sale of medicines and drug. Its principal office is at No. 41 Pioneer Street, Mandaluyong, Rizal (now Metro Manila). (b) McGaw Baxter Laboratories, Inc. appears to be another Company also having its principal office at No. 41 Pioneer Street. (c) INHELDER's lawyer, both in the COLLECTION CASE and in the DAMAGE CASE is Atty. Maximo M. Fajardo, Jr. He appears to have offices both at INHELDER (Annex "C", Petition for Review) and at McGaw Baxter Laboratories, Inc. 1 2. The PANGANIBANS, physicians, are the owners of the DOCTOR's CLINIC in Calapan. 3. On December 29, 1972, DOCTOR's CLINIC purchased medicines and drugs from INHELDER in the amount of P1,385.10, payable in installments. The PANGANIBANS were able to pay the amount of P824.10 for that purchase, leaving a balance of P561.00 which had remained unpaid for approximately two years. 4. On December 2, 1974, Atty. Fajardo sent a letter to the PANGANIBANS requesting settlement of the said amount of P561.00. In their reply, the PANGANIBANS requested a statement of account which was sent to them on January 17, 1975 with a follow-up letter, again, requesting remittance of the outstanding balance of P561.00. 5. (a) On January 28, 1975, the PANGANIBANS, as stated by them, "sent PNB Check No. 32058 to (INHELDER) in the amount of P561.00, dated January 28, 1975, and said check was received by (INHELDER) on or before February 5. 1975". 2 (b) The check must have been sent by mail If it was personally delivered, the PANGANIBANS would know the specific date when the check was received, which then would not be "on or before February 5, 1975." (c) It can be presumed that the PNB Check was drawn on the PNB Branch in Calapan. 6. On February 8, 1975, Atty. Fajardo prepared the complaint in the COLLECTION CASE, which was filed with the MANDALUYONG COURT on February 12, 1975. 7. (a) On February 19, 1975, INHELDER sent a letter to the PANGANIBANS "acknowledging the receipt of the PNB Check No. 32058 in the amount of P561.00 representing full payment of the ('PANGANIBANS') account with INHELDER". 3 (b) For the payment made by the PANGANIBANS to be effective, the PNB Check must first be cleared with the PNB Branch in Calapan, which could have been completed only on February 19, 1975. 8. The records do not disclose the written Answer to the complaint in the COLLECTION CASE. In regards to the hearing thereof on May 14, 1975, the PANGANIBANS have alleged: 22. That during the hearing of the instant case before the Municipal Court of Mandaluyong, undersigned counsel showed to the Court plaintiffs' receipts to the effect that several days before the malicious and unfounded complaint was filed before said Court Dr. and Mm Panganiban had already paid their accounts and as a matter of fact the Inhelder Corporation has acknowledged receipt of payment, thus, upon motion of the undersigned counsel, Civil Case No. 5582 was dismissed without the objection of Atty. Maximo M. Fajardo, Jr., counsel for the Inhelder Corporation; 23. That the ORDER of dismissal by the Municipal Judge of Mandaluyoug, Rizal dated May 14, 1975, was given in open court and the written order was nut to the undersigned counsel later at Calapan, Oriental Mindoro thru the mails, hence, it is very clear that mill ORDER of with the conformity of defendant Inhelder Corporation, has already become final; insofar as plaintiffs and defendant are concerned; 4 On the above facts and circumstances, it should be difficult to conclude that the COLLECTION CASE was a clearly unfounded civil action. It is not clear that the account of the PANGANIBANS had already been paid as of February 12, 1975. Under Article 1249 of the Civil Code, payment should be held effective only when PNB Check No. 32058 was actually cashed by, or credited to the account of, INHELDER. If that did not eventuate on or before February 12, 1975, and there is no proof that it did, the account would still be unpaid, and the complaint in the COLLECTION CASE, technically, could not be considered as substantially unfounded. It is true that when the check of the PANGANIBANS was received on February 5, 1975, the better procedure would have been to withhold a complaint pending determination of whether or not the check was good. If dishonored, that would be the time to file the complaint. That procedure was not followed because of the failure of the corresponding advice which could have been given to Atty. Fajardo by the INHELDER Credit and Collection Manager. But the lack of that advice should not justify qualifying the COLLECTION CASE as clearly unfounded. If the check had bounced, the COLLECTION CASE would have been tried and acted upon by the MANDALUYONG COURT on the merits. 216

Neither may it be said that the COLLECTION CASE was malicious. Malicious prosecution, to be the basis of a suit, requires the elements of malice and want of probable cause. 5 There must be proof that the prosecution was prompted by a sinister design to vex and humiliate a person, and that it was initiated deliberately knowing that the charge was false and groundless. 6 In the present case, there is no evidence on record, clearly establishing these two elements. Although there may be want of probable cause, there is no proof that petitioner deliberately initiated the COLLECTION CASE knowing that the same was false and groundless. And the rule is the same for criminal prosecution and civil suits. To support an action for malicious prosecution under American law the plaintiff must prove, in the first place, the fact of the p petition and the fact that the defendant was himself the prosecutor, or that he instigated its commencement, and that it finally terminated in his acquittal that, in bringing it, the prosecutor had acted without probable cause, and that he was actuated by legal malice, i.e., by improper or sinister motives. These three elements must concur; and there is no distinction between actions for criminal prosecutions and civil suits. Both classes require substantially the same essentials. Malice is essential to the maintenance of an action for malicious prosecution and not merely to the recovery of exemplary damages. But malice alone does not make one liable for malicious prosecution where probable cause is shown, even where it appears that the suit was brought, for the mere purpose of vexing harrassing and injuring his adversary. In other words, malice and want of probable cause must both exist in order to justify the action. (Buchanan vs. Vda. de Esteban 32 Phil. 363). 7 (Emphasis ours) Nor can malice be inferred from want of probable cause. It would be a harsh rule to hold that, where the evidence was merely sufficient to make a prima facie showing of want of probable cause. malice must necessarily be inferred thererom. 8 It should also be stressed that the mere filing of a suit does 'not render a person liable for malicious prosecution should he be unsuccessful. The law could not have meant to impose a penalty on the right to litigate. 9 Sound principles of justice and public policy demand that persons shall have free resort to Courts of law for redress of wrongs and vindication of their rights without fear of later on standing trial for damages should their actions lose ground. 10 As expressed by Chief Justice Enrique M. Fernando from a broader perspective: ... Well-worth paraphrasing is the thought expressed in a United States Supreme Court decision as to the existence of an abiding and fundamental principle that the expenses and annoyance of litigation form part of the social burden of living in a society which seeks to attain social control through law. 11 At this juncture, it may not be amiss to remind Trial Courts to guard against the award of exhorbitant damages that are way out of proportion to the environmental circumstances of a case and which, time and again, this Court has reduced or eliminated. Judicial discretion granted to the Courts in the assessment of damages must always be ex with balanced restraint and measured objectivity. WHEREFORE, the appealed judgment of the erstwhile Court of Appeals is hereby reversed, and the decision of the Court of First Instance of Oriental Mindoro in its Civil Case No. R-2525 is set aside. No costs. SO ORDERED. RAAGAS VS TRAYA, supra. -end-

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