Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11624 January 21, 1918
E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
STREET, J.:
In the year 1913, the individuals named as defendants in this action formed a civil partnership, called "La
Protectora," for the purpose of engaging in the business of transporting passengers and freight at Laoag,
Ilocos Norte. In order to provide the enterprise with means of transportation, Marcelo Barba, acting as
manager, came to Manila and upon June 23, 1913, negotiated the purchase of two automobile trucks
from the plaintiff, E. M. Bachrach, for the agree price of P16,500. He paid the sum of 3,000 in cash, and
for the balance executed promissory notes representing the deferred payments. These notes provided for
the payment of interest from June 23, 1913, the date of the notes, at the rate of 10 per cent per annum.
Provision was also made in the notes for the payment of 25 per cent of the amount due if it should be
necessary to place the notes in the hands of an attorney for collection. Three of these notes, for the sum
of P3,375 each, have been made the subject of the present action, and there are exhibited with the
complaint in the cause. One was signed by Marcelo Barba in the following manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word "By" omitted before the name of Marcelo
Barba in the second line of the signature. It is obvious that in thus signing the notes Marcelo Barba
intended to bind both the partnership and himself. In the body of the note the word "I" (yo) instead of
"we" (nosotros) is used before the words "promise to pay" (prometemos) used in the printed form. It is
plain that the singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas Segundo, Antonio Adiarte, Ignacio
Flores, and Modesto Serrano, upon June 12, 1913, executed in due form a document in which they
declared that they were members of the firm "La Protectora" and that they had granted to its president
full authority "in the name and representation of said partnership to contract for the purchase of two
automobiles" (en nombre y representacion de la mencionada sociedad contratante la compra de dos
automoviles). This document was apparently executed in obedience to the requirements of subsection 2
of article 1697 of the Civil Code, for the purpose of evidencing the authority of Marcelo Barba to bind the
partnership by the purchase. The document in question was delivered by him to Bachrach at the time the
automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased of the plaintiff various
automobile effects and accessories to be used in the business of "La Protectora." Upon May 21, 1914, the
indebtedness resulting from these additional purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had retained on the trucks in order to
secure the purchase price. The amount realized from this sale was P1,000. This was credited unpaid. To
recover this balance, together with the sum due for additional purchases, the present action was
instituted in the Court of First Instance of the city of Manila, upon May 29, 1914, against "La Protectora"
and the five individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano. No question has been made as to the propriety of impleading "La Protectora" as if it were a
legal entity. At the hearing, judgment was rendered against all of the defendants. From this judgment no
appeal was taken in behalf either of "La Protectora" or Marcelo Barba; and their liability is not here under
consideration. The four individuals who signed the document to which reference has been made,
authorizing Barba to purchase the two trucks have, however, appealed and assigned errors. The question
here to be determined is whether or not these individuals are liable for the firm debts and if so to what
extent.
The amount of indebtedness owing to the plaintiff is not in dispute, as the principal of the debt is agreed
to be P7,037. Of this amount it must now be assumed, in view of the finding of the trial court, from
which no appeal has been taken by the plaintiff, that the unpaid balance of the notes amounts to P4,121,
while the remainder (P2,916) represents the amount due for automobile supplies and accessories.
The business conducted under the name of "La Protectora" was evidently that of a civil partnership; and
the liability of the partners to this association must be determined under the provisions of the Civil Code.
The authority of Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully established
by the document executed by the four appellants upon June 12, 1913. The transaction by which Barba
secured these trucks was in conformity with the tenor of this document. The promissory notes constitute
the obligation exclusively of "La Protectora" and of Marcelo Barba; and they do not in any sense
constitute an obligation directly binding on the four appellants. Their liability is based on the fact that
they are members of the civil partnership and as such are liable for its debts. It is true that article 1698
of the Civil Code declares that a member of a civil partnership is not liable in solidum (solidariamente)
with his fellows for its entire indebtedness; but it results from this article, in connection with article 1137
of the Civil Code, that each is liable with the others (mancomunadamente) for his aliquot part of such
indebtedness. And so it has been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment against the appellants in part upon the
idea that the document executed by them constituted an authority for Marcelo Barba to bind them
personally, as contemplated in the second clause of article 1698 of the Civil Code. That cause says that
no member of the partnership can bind the others by a personal act if they have not given him authority
to do so. We think that the document referred to was intended merely as an authority to enable Barba to
bind the partnership and that the parties to that instrument did not intend thereby to confer upon Barba
an authority to bind them personally. It is obvious that the contract which Barba in fact executed in
pursuance of that authority did not by its terms profess to bind the appellants personally at all, but only
the partnership and himself. It follows that the four appellants cannot be held to have been personally
obligated by that instrument; but, as we have already seen, their liability rests upon the general
principles underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for automobile supplies and accessories, it
is obvious that the document of June 12, 1913, affords no authority for holding the appellants liable.
Their liability upon this account is, however, no less obvious than upon the debt incurred by the purchase
of the trucks; and such liability is derived from the fact that the debt was lawfully incurred in the
prosecution of the partnership enterprise.
There is no proof in the record showing what the agreement, if any, was made with regard to the form of
management. Under these circumstances it is declared in article 1695 of the Civil Code that all the
partners are considered agents of the partnership. Barba therefore must be held to have had authority to
incur these expenses. But in addition to this he is shown to have been in fact the president or manager,
and there can be no doubt that he had actual authority to incur this obligation.
From what has been said it results that the appellants are severally liable for their respective shares of
the entire indebtedness found to be due; and the Court of First Instance committed no error in giving
judgment against them. The amount for which judgment should be entered is P7,037, to which shall be
added (1) interest at 10 per cent per annum from June 23, 1913, to be calculated upon the sum of
P4.121; (2) interest at 6 per cent per annum from July 21, 1915, to be calculated upon the sum of
P2,961; (3) the further sum of P1,030.25, this being the amount stipulated to be paid by way of
attorney's fees. However, it should be noted that any property pertaining to "La Protectora" should first
be applied to this indebtedness pursuant to the judgment already entered in this case in the court below;
and each of the four appellants shall be liable only for the one-fifth part of the remainder unpaid.
Let judgment be entered accordingly, without any express finding of costs of this instance. So ordered.
Arellano, C.J., Torres, Araullo, Malcolm, and Avancea, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 13228 September 13, 1918
WILLIAM OLLENDORFF, plaintiff-appellee,
vs.
IRA ABRAHAMSON, defendant-appellant.
Lawrence & Ross for appellant.
Wolfson & Wolfson for appellee.
FISHER, J.:
This is an appeal by defendant from a judgment of the Court of First Instance of Manila by which he was
enjoined for a term of five years, from September 10, 1915, from engaging in the Philippine Islands in
any business similar to or competitive with that of plaintiff.
The record discloses that plaintiff is and for a long time past has been engaged in the city of Manila and
elsewhere in the Philippine Islands in the business of manufacturing ladies embroidered underwear for
export. Plaintiff imports the material from which this underwear is made and adopts decorative designs
which are embroidered upon it by Filipino needle workers from patterns selected and supplied by him.
Most of the embroidery work is done in the homes of the workers. The embroidered material is then
returned to plaintiff's factory in Manila where it is made into finished garments and prepared for export.
The embroiderers employed by plaintiff are under contract to work for plaintiff exclusively. Some fifteen
thousand home workers and eight hundred factory workers are engaged in this work for plaintiff, and
some two and a half million pesos are invested in his business.
On September 10, 1915, plaintiff and defendant entered into a contract in the following terms:
Contract of agreement made and entered into this date by and between William Ollendorff, of
Manila, Philippine Islands, party of the first part, and Ira Abrahamson, of Manila, Philippine
Islands, party of the second part:
The party of first part hereby agrees to employ the party of the second part, and the party of the
second part hereby obligates and binds himself to work for the party of the first part for a term
of two years from date commencing from the sixth of September, one thousand nine hundred
and fifteen and ending on the fifth day of September, one thousand nine hundred seventeen, at
a salary of fifty peso (50) per week payable at the end of each week.
The party of the second part hereby obligates and binds himself to devote his entire time,
attention, energies and industry to the promotion of the furtherance of the business and interest
of the party of the first part and to perform during the term of this contract such duties as may
be assigned to him by the party of the first part, and failure by the said party of the second part
to comply with these conditions to the satisfaction of the party of the first shall entitle the party
of the first part to discharge and dismiss the said party of the second part from the employ of the
party of the first part.
It is mutually understood and agreed by the parties hereto that this contract, upon its
termination, may be extended for a like for a longer or a shorter period by the mutual consent of
both contracting parties.
The said party of the second part hereby further binds and obligates himself, his heirs,
successors and assigns, that he will not enter into or engage himself directly or indirectly, nor
permit any other person under his control to enter in or engage in a similar or competitive
business to that of the said party of the first part anywhere within the Philippine Islands for a
period of five years from this date.
Under the terms of this agreement defendant entered the employ of plaintiff and worked for him until
April, 1916, when defendant, on account of ill health, left plaintiff's employ and went to the United
States. While in plaintiff's establishment, and had full opportunity to acquaint himself with plaintiff' s
business method and business connection. The duties performed by him were such as to make it
necessary that he should have this knowledge of plaintiff's business. Defendant had a general knowledge
of the Philippine embroidery business before his employment by plaintiff, having been engaged in similar
work for several years.
Some months after his departure for the United States, defendant returned to Manila as the manager of
the Philippine Underwear Company, a corporation. This corporation does not maintain a factory in the
Philippine Islands, but send material and embroidery designs from New York to its local representative
here who employs Filipino needle workers to embroider the designs and make up the garments in their
homes. The only difference between plaintiff's business and that of the firm by which the defendant is
employed, is the method of doing the finishing work -- the manufacture of the embroidered material into
finished garments. Defendant admits that both firms turn out the same class of goods and that they are
exported to the same market. It also clearly appears from the evidence that defendant has employed to
work his form some of the same workers employed by the plaintiff.
Shortly after defendant's return to Manila and the commencement by him of the discharge of the duties
of his position as local manager of the Philippine Embroidery Company, as local manager of the Philippine
Embroidery Company, plaintiff commenced this action, the principal purpose of which is to prevent by
injunction, any further breach of that part of defendant's contract of employment by plaintiff, by which he
agreed that he would not "enter into or engage himself directly or indirectly . . . in a similar or
competitive business to that of (plaintiff) anywhere within the Philippine Islands for a period of five years
. . ." from the date of the agreement. The lower court granted a preliminary injunction, and upon trial the
injunction was made perpetual.
Defendant, as appellant, argues that plaintiff failed to substantiate the averments of his complaints to the
effect that the business in which the defendant is employed is competitive with that of plaintiff. The court
below found from the evidence that the business was "very similar." We have examined the evidence and
rare of the opinion that the business in which defendant is engaged is not only very similar to that of
plaintiff, but that it is conducted in open competition with that business within the meaning of the
contract in question. Defendant himself expressly admitted, on cross-examination, that the firm by which
he is now employed puts out the same class of foods as that which plaintiff is engaged in producing.
When two concerns operate in the same field, produce the same class of goods and dispose them in the
same market, their businesses are of necessity competitive. Defendant having engaged in the Philippine
Islands in a business directly competitive with that of plaintiff, within five years from the date of his
contract of employment by plaintiff, under the terms of which he expressly agreed that he would refrain
form doing that very thing, his conduct constitutes a breach of that agreement.
Defendant argues that even assuming that there has been a breach of the agreement, the judgment of
the court below is nevertheless erroneous, contending that (1) the contract is void for lack of mutuality;
(2) that the contract is void as constituting an unreasonable restraint of trade; (3) that plaintiff has failed
to show that he has suffered any estimable pecuniary damage; and (4) that even assuming that such
damage as to warrant the court in restraining by injunction its continuance.
The contention that the contract is void for lack of mutuality is based upon that part of the agreement
which authorizes plaintiff to discharge the defendant before the expiration of the stipulated term, should
defendant fail to comply with its conditions to plaintiff's satisfaction. It is argued that by this contracts it
was sought to impose upon defendant the absolute obligation of rendering service, while reserving to
plaintiff the right to rescind it at will. We are of the opinion that this question is largely academic. It is
admitted that defendant left plaintiff's employ at his own request before the expiration of the stipulated
terms of the contract. Had plaintiff sought to discharge defendant without just cause, before the
expiration of the term of the employment, it might have been a serious question whether he could
lawfully do so, notwithstanding the terms in which the contract was drawn. (Civil Code, art. 1256.) But
even assuming this particular clause of the contract to be invalid, this would not necessarily affect the
rest of the agreement. The inclusion is an agreement of one or more pacts which are invalid does not of
necessity invalidate the whole contract.
We are of the opinion that the contract was not void as constituting an unreasonable restraint of trade.
We have been cited to no statutory expression of the legislative will to which such an agreement is
directly obnoxious. The rule in this jurisdiction is that the obligations created by contracts have the force
of law between the contracting parties and must be enforce in accordance with their tenor. (Civil Code,
art 1091.) The only limitation upon the freedom of contractual agreement is that the pacts established
shall not be contrary to "law, morals or public order." (Civil Code, Art. 1255.) The industry of counsel has
failed to discover any direct expression of the legislative will which prohibits such a contract as that
before us. It certainly is not contrary to any recognized moral precept, and it therefore only remains to
consider whether it is contrary to "public order." This term, as correctly stated by Manresa
(Commentaries, vol. 8, p. 606) "does not mean, as here used, the actual keeping of the public peace, but
signifies the public weal . . . that which is permanent, and essential in institutions . . . ." It is the
equivalent, as here used and as defined by Manresa, of the term "public policy" as used in the law of the
United States. Public policy has been defined as being that principle under which freedom of contract or
private dealing is restricted for the freedom of contract or private dealing is restricted for the good of the
community. (People's Bank vs. Dalton, 2 Okla., 476.) It is upon this theory that contracts between private
individuals which result in an unreasonable restraint of trade have frequently being recognized by article
1255 of our Civil Code, the court of these Islands are vested with like authority.
In the nature of things, it is impossible to frame a general rule by which to determine in advance the
precise point at which the right of freedom of contract must yield to the superior interest of community in
keeping trade and commerce free from unreasonable restrictions. Originally the English courts adopted
the view that any agreement which imposed restrictions upon a man's right to exercise his trade or
calling was void as against public policy. (Cyc. vol. 9, p. 525.) In the course of time this opinion was
abandoned and the American and English courts adopted the doctrine that where the restraint was
unlimited as to space but unlimited as to time were valid. In recent years there has been a tendency on
the part of the courts of England and America to discard these fixed rules and to decide each case
according to its peculiar circumstances, and make the validity of the restraint depend upon its
reasonableness. If the restraint is no greater than is reasonably necessary for the protection of the party
in whose favor it is imposed it is upheld, but if it goes beyond this is declared void. This is the principle
followed in such cases by the Supreme Court of the United States. In the case of Gibbs vs. Consolidated
Gas Co. of Baltimore (130 U.S., 396) the court said:
The decision in Mitchel vs. Reynolds (1P. Wms. 181 [Smith's Leading Cases, Vol. 1, Pt. II, 508]),
is the foundation of rule in relation to the invalidity of contracts in restraint of trade; but as it was
made under a condition of things, and a state of society, different from those which now prevail,
the rule laid down is not regarded as inflexible, and has been considerably modified. Public
welfare is first considered, and if it be not involved, and the restraint upon one party is not
greater than protection to the other party requires, the contract may be sustained. The question
is, whether, under the particular circumstances of the case and the nature of the particular
contract involved in it, the contract is, or is not, unreasonable. (Rousillon vs. Rousillon, L. R. 14
Ch. Div., 351; Leather Cloth Co. vs. Lorsont, L. R. 9 Eq., 345.)
Following this opinion, we adopt the modern rule that the validity of restraints upon trade or employment
is to be determined by the intrinsinc reasonableness of restriction in each case, rather than by any fixed
rule, and that such restrictions may be upheld when not contrary to afford a fair and reasonable
protection to the party in whose favor it is imposed.
Examining the contract here in question from this stand point, it does not seem so with respect to an
employee whose duties are such as of necessity to give him an insight into the general scope and details
of his employers business. A business enterprise may and often does depend for its success upon the
owner's relations with other dealers, his skill in establishing favorable connections, his methods of buying
and selling -- a multitude of details, none vital if considered alone, but which in the aggregate constitute
the sum total of the advantages which the result of the experience or individual aptitude and ability of
the man or men by whom the business has been built up. Failure or success may depend upon the
possession of these intangible but all important assets, and it is natural that their possessor should seek
to keep them from falling into the hands of his competitors. It is with this object in view that such
restrictions as that now under consideration are written into contracts of employment. Their purpose is
the protection of the employer, and if they do not go beyond what is reasonably necessary to effectuate
this purpose they should be upheld. We are of the opinion, and so hold, that in the light of the
established facts the restraint imposed upon defendant by his contract is not unreasonable. As was well
said in the case of Underwood vs. Barker (68 Law J. Ch., 201). "If there is one thing more than another
which is essential to the trade and commerce of this country, it is the inviolability of contract deliberately
entered into; and to allow a person of mature age, and not imposed upon, to enter into a contract, to
obtain the benefit of it, and then to repudiate it and the obligation which he has undertaken, is prima
facie, at all events, contrary to the interest of any and every country . . . . The public policy which allows
a person to obtain employment on certain terms understood by and agreed to by him, and to repudiate
his contract, conflicts with, and must, to avail the defendant, for some sufficient reason, prevail over, the
manifest public policy, which, as a rule holds him to his bond . . . .
Having held that the contract is valid, we pass to a consideration of defendant's objections to its
enforcement by injunction.
It is contended that plaintiff has not proved that he has suffered any estimable pecuniary damage by
reason of defendant's breach of the contract, and that for that reason his action must fail. It is further
contended that in no event is it proper to enforce such a contract as this by injunction, because it has not
been alleged and proved that the continuance of the acts complained of will cause plaintiff "irreparable
damage." These objections can conveniently be considered together.
The obligation imposed upon defendant by the particular clause of his contract now under consideration
is negative in character. Unless defendant voluntarily complies with his undertaking there is no way by
which the contract can be enforced except by the injunctive power of judicial process. Such negative
obligations have long been enforced by the courts in this manner. As stated by High in his well-known
work on Injunctions (vol. 2, pp. 877-878):
The remedy by injunction to prevent the violation of negative agreements, or contracts not to do
a particular thing, is closely akin to the remedy by way of specific performance of agreements of
an affirmative nature. In both cases the object sought is substantially one and the same, and by
enjoining the violation of a negative agreement the court of equity in effect decrees its specific
performance. (Lumley vs. Wagner, 1 DeGex, M. & G., 604.)
Where by the terms of a contract imposing a positive obligation the obligor is entitled to a specific
performance, it will not avail the defendant to show that plaintiff will suffer no pecuniary damage if the
contract is not performed. Upon like reasons, when the undertaking is negative in character and
defendant is violating the obligation imposed upon him the court may interfere without requiring proof of
actual damage. (High on Injunctions, par. 1135, citing Dickenson vs. Grand Junction Canal Co., 15 Beav.,
270.)
The admitted fact that plaintiff has failed to establish proof of pecuniary damage by reason of the breach
of the contract by defendant by the acts committed prior to the issuance of the preliminary injunction i s,
of course, a bar or nay money judgment for damages for the breach of the contract, but will not justify
us in permitting defendant to continue to break his contract over plaintiff's objection. The injury is a
continuous one. The fact that the court may not be able to give damages for that part of the breach of
the contract which had already taken place when its aid was invoked is no reason why it should
countenance a continuance of such disregard of plaintiff's rights.
With respect to the contention that an injunction may only be granted to prevent irreparable injury, the
answer is that any continuing breach of a valid negative covenant is irreparable by the ordinary process
of courts of law. As stated by High, (vol. 2, p. 906) injunctive relief is granted in cases like this "upon the
ground that the parties cannot be placed in statu quo, and that damages at law can afford no adequate
compensation, the injury being a continuous one irreparable by the ordinary process of courts of law."
In the case of Gilchrist vs. Cuddy (29 Phil. rep., 542), at page 552, this court said, citing with approval
the case of Wahle vs. Reinbach (76 Ill., 322):
By "irreparable injury" is not meant such injury as is beyond the possibility of repair, or beyond
possible compensation in damages, nor necessarily great injury or great damage, but that
species of injury, whether great or small, that ought not be submitted to on the one hand or
inflicted on the other; and, because it is so large on the one hand, or so small on the other, i s of
such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a
court of law.
This definition was quoted with approval by the Supreme Court of the United States in the case of
Donovan vs. Pennsylvania Co., (199 U.S., 279), in which the injury complained of was continuous in its
nature.
It is true, as held in the case of Liongson vs. Martinez (36 Phil. Rep., 948) that "an injunction should
never issue when an action for damages would adequately compensate the injuries caused" But it
frequently happens that the acts of the defendant, while constituting a very substantial invasion of
plaintiff's rights are of such a character that the damages which result therefrom "cannot be measured by
any certain pecuniary standard." (Eau Claire Water Co. vs. City of Eau Claire, 127 Wis., 154.) The Civil
Code (art. 1908) casts upon real estate owners liability in damages for the emission, upon their premises,
of excessive smoke, which may be noxious to person or property. The injury caused by such a nuisance
might bring about a depreciation in the value of adjoining properties, but there is no "certain pecuniary
standard" by which such damages can be measured, and in that sense the threatened injury is
"irreparable" and may appropriately be restrained by injunction.
. . . If the nuisance is a continuing one, invading substantial rights of the complainant in such a
manner that he would thereby lose such rights entirely but for the assistance of a court of equity
he will entitled but for the assistance of a court of equity he will be entitled to an injunction upon
a proper showing, notwithstanding the fact the he might recover some damages in an action at
law. (Tise vs. Whitaker-Harvey Co., 144 N. C., 507.)
The injury done the business of a merchant by illegal or unfair competition is exceedingly difficult to
measure. A diminution of the volume of a business may be due to so many different causes that it is
often impossible to demonstrate that it has in fact been caused by the illegal competition of the
defendant. This is frequently the case in suit for the infringement of trademark rights, in which the courts
may enjoin the continued use of the infringing mark, although unable to assess damages for the past
injury.
The judgment of the trial court is affirmed with costs. So ordered.
Arellano, C.J., Torres, Johnson, Street and Avancea, JJ., concur.
Malcolm, J., concurs in result.

The Lawphil Project - Arellano Law Foundation























Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21676 February 28, 1969
VICENTE ALDABA, ET AL., petitioners,
vs.
COURT OF APPEALS, CESAR ALDABA, ET AL., respondents.
Rodas and Almeda for petitioners.
Dakila F. Castro and Associates for respondents.
ZALDIVAR, J.:
This is a petition to review the decision of the Court of Appeals in case CA-G.R. No. 27561-R,
entitled "Vicente Aldaba, et al., plaintiffs-appellants, versus Cesar Aldaba, et al., defendants-appellees",
affirming the decision of the Court of First Instance of Manila in its Civil Case No. 41260.
When Belen Aldaba, a rich woman of Malolos, Bulacan, died on February 25, 1955, she left as her
presumptive heirs her surviving husband Estanislao Bautista, and her brother Cesar Aldaba. Belen Aldaba
was childless. Among the properties that she left were the two lots involved in this case, situated at 427
Maganda Street, Santa Mesa, Manila.
Petitioners Dr. Vicente Aldaba and Jane Aldaba, father and daughter, respectively, lived during the
last war in their house in Malate, Manila. Belen Aldaba used to go to their house to seek the advice and
medical assistance of Dr. Vicente Aldaba. When the latter's house was burned during the liberation of
Manila in 1945, Belen Aldaba invited Dr. Aldaba and his daughter, who was then a student in medicine, to
live in one of her two houses standing on the lots in question, and the Aldaba father and daughter
accepted the offer of Belen and they actually lived in one of those two houses until sometime in 1957
when respondent Emmanuel Bautista filed an ejectment case against them in the city court of Manila. Dr.
Vicente Aldaba continued to act as a sort of adviser of Belen and Jane, after becoming a qualified doctor
of medicine, became the personal physician of Belen until the latter's death on February 25, 1955.
On June 24, 1955, the presumptive heirs Estanislao Bautista and Cesar Aldaba, executed a deed
of extrajudicial partition of the properties left by the deceased Belen Aldaba, by virtue of which deed the
two lots in question were alloted to Cesar Aldaba. Subsequently, on August 26, 1957, herein respondents
Cesar Aldaba and Emmanuel Bautista, the latter being a grandson of Estanislao Bautista by his first
marriage, executed a deed whereby the two lots that were alloted to Cesar Aldaba were ceded to
Emmanuel Bautista in exchange of the latter's lot situated at San Juan, Rizal. By virtue of the deed of
extra-judicial partition and the deed of exchange, Transfer certificates of Title Nos. 1334 and 1335,
respectively, covering lots Nos. 32 and 34 now in question both in the name of Belen Aldaba, were
cancelled by the Register of Deeds of Manila, and Transfer Certificates of Title Nos. 49996 and 49997 in
the name of Emmanuel Bautista were issued in lieu thereof.
Emmanuel Bautista then required Dr. Vicente Aldaba to vacate the lots in question and, upon the
latter's refusal, filed an ejectment case against him in the City Court of Manila. Without awaiting the final
result of the ejectment case, herein petitioners filed, on August 22, 1959, a complaint in the Court of First
Instance of Manila, docketed as Civil Case No. 41260, against herein respondents Cesar Aldaba and
Emmanuel Bautista and the Register of Deeds of Manila, alleging that they had become the owners of the
two lots in question, and praying that the deed of partition entered into by Estanislao Bautista and Cesar
Aldaba be declared null and void with respect to Lot No. 32, covered by Transfer Certificate of Title No.
1334, and lot No. 34 covered by Transfer Certificate of Title No 1335; that said lots be declared the
property of therein plaintiffs (herein petitioners); and that the Register of Deeds of Manila be ordered to
cancel TCT Nos. 49996 and 49997 in the name of Emmanuel Bautista and in lieu thereof issue two new
TCTs in the name of therein plaintiffs.
After hearing, the court a quo rendered a decision dismissing the complaint, and declaring, among
others, that if the deceased Belen Aldaba intended to convey the lots in question to Vicente Aldaba and
Jane Aldaba, by way of donation, the conveyance should be considered a donation inter vivos, for the
validity of which a public instrument was necessary pursuant to Article 749 of the Civil Code. The
dispositive portion of the decision of the trial court reads as follows:
IN VIEW WHEREOF both complaint and counterclaim dismissed; the Court holds
Emmanuel Bautista to be the absolute owner of the property in question, land and
improvement, but with the right of plaintiffs to stay until they should have been
reimbursed of P5,000.00 but without any obligation, until such reimbursement, to pay
any rental unto defendant Emmanuel Bautista. No pronouncement as to costs.
From this decision, therein plaintiffs appealed to the Court of Appeals, and the latter court
rendered a decision, on June 21, 1963, raising from P5,000 to P8,000 the amount to be reimbursed to
plaintiffs-appellants, but affirming in all other respects the decision of the lower court. Herein petitioners'
motion for reconsideration of the decision having been denied by the Court of Appeals, they forthwith
filed the present petition in this Court.
Before this Court, petitioners now contend that the Court of Appeals erred: (1) in affirming the
decision of the Court of First Instance; (2) in holding that the donation, as found by the Court of First
Instance of Manila, was a simple donation inter vivos and not a donation "con causa onerosa and so it
was void for it did not follow the requirements of Article 749 of the Civil Code; (3) in not holding that the
property in question had already been donated to herein petitioners in consideration of the latter's
services; (4) in not declaring petitioners to be the absolute owners of the property in dispute; and (5) in
considering testimonies which had been stricken out.
The errors assigned by petitioners being interrelated, We are going to discuss them together.
Petitioners contend that petitioners Dr. Vicente Aldaba and Jane Aldaba had rendered services to
the deceased Belen Aldaba for more than ten years without receiving any compensation, and so in
compensation for their services Belen Aldaba gave them the lots in dispute including the improvements
thereon. It is the stand of petitioners that the property in question was conveyed to them by way of an
onerous donation which is governed by Article 733, and not Article 749, of the Civil Code. Under Article
733 of the Civil Code an onerous donation does not have to be done by virtue of a public instrument. The
petitioners point to the note, Exhibit 6, as indicating that a donation had been made, which note reads as
follows:
June 18, 1953
Jane,
Huag kayong umalis diyan. Talagang iyan ay para sa
inyo. Alam nila na iyan ay sa inyo.
Belen A. Bautista.
Petitioners maintain that the note, although it could not transmit title, showed, nevertheless, that
a donation had already been made long before its writing, in consideration of the services rendered
before the writing and to be rendered after its writing. And the donation being with an onerous cause,
petitioners maintain that it was valid even if it was done orally. Petitioners further maintain that if Exhibit
6 labors under some ambiguity, this ambiguity is cured by Exhibit 7, which reads as follows:
June 27, 1956
Dear Nana Tering,
Narito po ang notice tungkol sa amillaramiento na
pagbabayaran diyan sa lupa at bahay na kinatatayuan ninyo. Sa
Malolos po ito tinanggap. Ang pagbabayaran po ng Inkong ay
bayad na.
Gumagalang,
"Cely."
The addressee, Tering, was the wife of Dr. Vicente Aldaba, and the sender, Cely was the wife of
respondent Emmanuel Bautista. This note, petitioners argue, proves that respondents had recognized the
ownership of the petitioners of the house and lot, for, otherwise, Cely should have sent the notice of real
estate tax to respondent Cesar Aldaba, to whom was alloted the property in question by virtue of the
extra-judicial partition.
Respondents, Cesar Aldaba and Emmanuel Bautista, on the other hand, contend that the evidence
of the plaintiff does not disclose clearly that a donation had been made. Respondents point out that the
note, Exhibit 6, as worded, is vague, in that it could not be interpreted as referring to the lots in question,
or that which was given therein was given for a valuable consideration. And finally, respondents contend
that if the property had really been given to petitioners, why did they not take any step to transfer the
property in their names?
The Court of Appeals, in its decision, made the following findings and conclusions:
(1) The note Exhibit 6 did not make any reference to the lots in question, nor to the services
rendered, or to be rendered, in favor of Belen. The note was insufficient is a conveyance, and
hence could not be considered as evidence of a donation with onerous cause. This note can be
considered, at most, as indicative of the intention to donate.
(2) There is no satisfactory explanation why from 1945 to 1955, no notarial document was
executed by Belen in favor of petitioners who were educated persons. The reason given was
"extremada delicadeza" which reason the Court of Appeals considered as unsatisfactory.
(3) The evidence regarding the value of the services (P53,000.00) rendered by petitioners (father
and daughter) to Belen does not improve the proof regarding the alleged donation. If petitioners
believed that the gratuitous use of the property was not sufficient to compensate them for their
services, they could have presented their claims in the intestate proceedings, which they
themselves could have initiated, if none was instituted.
The conclusion of the Court of Appeals, as well as that of the trial court, that there was no
onerous donation made by Belen Aldaba to petitioners is based upon their appreciation of the evidence,
and this Court will not disturb the factual findings of those courts.lawphi1.nt
The question to be resolved in the instant case is: Was there a disposition of the property in
question made by the deceased Belen Aldaba in favor of herein petitioners? The note, Exhibit 6,
considered alone, was, as held by the Court of Appeals, confirming the opinion of the lower court, only
an indication of the intention of Belen Aldaba to donate to the petitioners the property occupied by the
latter. We agree with this conclusion of the trial court and the Court of Appeals. The note, in fact,
expressed that the property was really intended for the petitioners, "talagang iyan ay para sa inyo." If the
property was only intended for petitioners then, at the time of its writing, the property had not yet been
disposed of in their favor. There is no evidence in the record that such intention was effectively carried
out after the writing of the note. Inasmuch as the mere expression of an intention is not a promise,
because a promise is an undertaking to carry the intention into effect,
1
We cannot, considering Exhibit 6
alone, conclude that the deceased promised, much less did convey, the property in question to the
petitioners. That the note, Exhibit 6, was only an indication of an intention to give was also the
interpretation given by petitioners themselves, when they said in their memorandum, dated February 2,
1960, in the lower court
2
thus:
Legally speaking, there was a contractual relation created between Belen Aldaba and the
plaintiff since 1945 whereby the former would give to the latter the two parcels of land, together
with the house standing thereon, upon the rendition of said services. This fact can be gleaned
from the note (Exh. "6", Plaintiffs) which in part says: TALAGANG IYAN AY PARA SAINYO
We have said that Exhibit 6 expressed only the intention to donate. Let us suppose, for the sake
of argument, that previous to the writing of the note there had already been a disposition of the property
in favor of the petitioners. This disposition alone, would not make the donation a donation for a valuable
consideration. We still have to ask: What was the consideration of such disposition? We do not find in the
record that there had been an express agreement between petitioners and Belen Aldaba that the latter
would pay for the services of the former. If there was no express agreement, could it not be at least
implied? There could not be an implied contract for payment because We find in the record that Jane did
not expect to be paid for her services. In the memorandum of counsel for the petitioners in the trial court
We find this statement:
For all she did to her aunt she expected not to be paid.
3

When a person does not expect to be paid for his services, there cannot be a contract implied in
fact to make compensation for said services.
However, no contract implied in fact to make compensation for personal services
performed for another arises unless the party furnishing the services then expected or had
reason to expect the payment or compensation by the other party. To give rise to an implied
contract to pay for services, they must have been rendered by one party in expectation that the
other party would pay for them, and have been accepted by the other party with knowledge of
that expectation. (58 Am. Jur. p. 512 and cases cited therein).
In the same manner when the person rendering the services has renounced his fees, the services
are not demandable obligations.
4

Even if it be assumed for the sake of argument that the services of petitioners constituted a
demandable debt, We still have to ask whether in the instant case this was the consideration for which
the deceased made the (alleged) disposition of the property to the petitioners. As we have adverted to,
we have not come across in the record even a claim that there was an express agreement between
petitioners and Belen Aldaba that the latter would give the property in question in consideration of the
services of petitioners. All that petitioners could claim regarding this matter was that "it was impliedly
understood" between them.
5
How said agreement was implied and from what facts it was implied,
petitioners did not make clear. The question of whether or not what is relied upon as a consideration had
been knowingly accepted by the parties as a consideration, is a question of fact,
6
and the Court of
Appeals has not found in the instant case that the lots in question were given to petitioners in
consideration of the services rendered by them to Belen Aldaba.
We find, therefore, that the conditions to constitute a donation cum causa onerosa are not present
in the instant case, and the claim of petitioners that the two lots in question were donated to them by
Belen Aldaba cannot be sustained.
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against the petitioners. It
is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Capistrano, Teehankee and Barredo,
JJ., concur.
Sanchez, J., took no part.
Footnotes
1
17 American Jurisprudence, 2d. p. 334.
2
Record on Appeal, pp. 87-88. Emphasis supplied.
3
Record on Appeal, p. 83.
4
Manresa, Commentaries al Codigo Civil Espaol, 5th ed. Vol. V, p. 73.
5
Brief for petitioners, p. 14.
6
17 American Jurisprudence 2d. pp. 434-435.

The Lawphil Project - Arellano Law Foundation






Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-13012 and L-14786 December 31, 1960
THE CITY OF CEBU, petitioner,
vs.
JUDGE EDMUNDO S. PICCIO, of the Court of First Instance of Cebu, and ANACLETO
CABALLERO, respondents.
--------------------------------------
THE CITY OF CEBU, plaintiff-appellant,
vs.
ANACLETO CABALLERO, defendant-appellee.
Emilio A. Matheu for respondent and appellee A. Caballero.

PAREDES, J.:
On April 11, 1955, Anacleto Caballero filed with the CFI of Cebu (Civil Case No. R-3941), a petition for
Mandamus against the City Mayor, the Municipal Board, the City, for reinstatement to his former position
of Caretaker, Operation of Cemeteries, and for the payment of his back salaries from April 15, 1953. On
August 6, 1955, the Hon. Edmundo Piccio, rendered the following judgement:
IN VIEW THEREOF, this Court hereby decides that this petition is in order and consequently
orders for the reinstatement of petitioner Caballero to his former position from which he has
been separated without benefit of an investigation and determination of sufficient cause, and was
thus contrary to the existing law and regulations, such reinstatement to be affected within 30
days from receipt of this order plus the payment of his back salaries from April 15, 1953.
No appeal had been taken by the respondent therein and the above judgment became final. Upon motion
of petitioner therein (Caballero), a writ of execution was issued. Pursuant to the writ, the municipal board
of Cebu City passed a resolution, appropriating the amount of P3,224.00 for the payment of the back
salaries of Caballero. Respondent City Mayor Jose V. Rodriguez approved the resolution and the amount
was paid to Caballero.
Caballero not having been reinstated, notwithstanding the abolition of his position, Judge Piccio issued an
order dated August 27, 1958, directing the municipal board to recreate Caballero's position as Caretaker,
with compensation of P4.00 per day. As the municipal board did not comply with order, on September
11, 1957, Caballero filed a motion, asking for an order to compel the members of the board to do so. The
City Mayor, members of the board, the treasure and the Auditor, answering the motion for compliance,
alleged that the City of Cebu, not having been made a party to the case (Mandamus), compulsion would
be illegal and unwarranted under the facts obtaining.
The lower court entered, on October 11, 1957, the following Order:
IN VIEW THEREOF, the Court, amending its original order of reinstatement by excluding
therefrom petitioner's right to reimbursement of his back salaries from June 30, 1955 to the date
of his reinstatement, hereby directs that its order of August 28, 1957, directing respondent
Municipal Board to recreate the petitioner's position as caretaker of the cemetery of Cebu, Cebu
City, with compensation at the rate of P4.00 a day including Sundays and holidays be carried out
within 5 days from receipt of this order, or the Court shall avail itself of its coercive powers to
enforce said directive until it is obeyed.
The City of Cebu exception from the above order and on October 18, 1957, filed a petition for Certiorari
with this Court (G.R. No. L-13012), to restrain Caballero and judgment.
Before the termination of the Mandamus proceedings, on October 2, 1957, the City of Cebu, claiming that
the payment of the sum of P3,224.00 to Caballero was wrongful and illegal, since it was not a party to
the case, instituted an action (Civil Case No. R-5243) against said Caballero, for the recovery of the same
amount, plus P25,000.00 by way of compensatory, moral and exemplary damages. Instead of answering,
Caballero on October 29, 1957, moved to dismiss the complaint for alleged failure to state a cause of
action. To buttress his motion, Caballero cited a number of cases decided by this Court, ordering the
payment of back salaries of employees illegally ousted, even though the municipality and/or city
concerned was not impleaded.(Mission et al. vs. Del Rosario, et al., 94 Phil., 483; 50 Off., Gaz., No.
4,1571; Uy vs. Rodriguez, 95 Phil., 493; 50 Off. Gaz., No. 8, 3574; Rodriguez vs. Del Rosario et al., 93
Phil., 1070; 49 Off. Gaz., [12] 5427; Manuel vs. De la Fuente, 92 Phil., 302; 48 Off. Gaz., No. 11, 4829-
32). An answer to the Motion to Dismiss was presented by the City of Cebu on October 30, 1957,
invoking Section 5 of the Charter for the said City, exempting the City Government from any liability for
damages or injuries to person or property arising from the failure of the Mayor, the Municipal Board, or
any other city officer, to enforce the provisions of the Charter, or any other law or ordinance, or from
negligence of the said officials and/or officers while enforcing or attempting to enforce the said
provisions. Cited in support of this Answer were cases decided by this Court, dismissing them for failure
to include the municipal corporations concerned (Cabanes, et al. vs. Rodriguez, et al., G.R. No. L-9799,
May 31, 1957; Cabo Kho vs. Rodriguez, et al., G.R. No. L-9032, Sept. 28, 1957; City of Bacolod vs.
Enriquez, et al., 101 Phil., 644; 55 Off. Gaz., [51] 10545; Angara vs. Gorospe, 101 Phil., 79; 53 Off. Gaz.
[14] 4480).lawphil.net
On December 3, 1957, the CFI of Cebu, presided by Judge Rodriguez entered an order dismissing the
complaint. The City of Cebu appealed the order directly to this Court, (now G.R. No. L-14876), claiming
that the lower court erred;(1) in overlooking the fact that the City of Cebu was never made a party in the
mandamus case (Civil No. R-3941), so that it could not be bound by the judgment therein entered; (2) in
ignoring the provisions of section 5 of the Charter of the City of Cebu, as interpreted and applied in the
case of Faunillan vs. Del Rosario, et al, 99 Phil., 758; Off. Gaz. [31] 5815; and(3) in dismissing the case.
The issues involved in the petition for certiorari and the appeal are identical. Both cases pose the
following questions: (1) Does the non-inclusion of the City of Cebu in the Mandamus case, make the
payment of the back salaries of Caballero wrongful or illegal and not binding on said City; and (2) Is the
dismissal of the recovery case, well taken?
While the petition is designated as certiorari, there is, however, no allegation therein regarding the lack
or excess of jurisdiction or grave abuse of discretion, committed by the respondent court which constitute
precisely the basis of this kind of action. Furthermore, the appropriate remedy against the decision
and/or orders complained of is appeal, if properly and timely, which petitioners herein did not interpose.
It seems that the complaint to refund is predicated upon the following provisions of the Civil Code:
Art. 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
Considering that the indispensable requisites of this juridical relation, known as solutio indebiti, are (a)
that he who paid was not under obligation to do so; and (b) that the payment was made by reason of an
essential mistake of fact (Hoskyn vs. The Goodyear Tire, etc., CA, 40 Off. Gaz., Supp. 11, 245; Velez vs.
Balzarza, 73 Phil., 630), we are of the belief that the complaint was correctly dismissed. It is fully
established that Caballero had the perfect right to demand for the payment of his back salaries during his
illegal dismissal, that the sum of P3,224.00 was paid to Caballero by virtue of a writ of execution lawfully
issued; and that the payment was not made through mistake. On this score, alone, it would appear
manifest that the complaint does not state a cause of action.
The question of whether the City of Cebu was a party or not in the mandamus case becomes
unimportant, as it is immaterial. It is true that in the mandamus case, only, the City Mayor, the Municipal
Board, the City Treasurer, and the City Auditor, of Cebu City were included in the order of the execution
of the judgment, but we have declared that a municipal corporation whether included or not in the
complaint for the recovery of back salaries due to wrongful removal from office, is liable. In the case of
Mangubat vs. Osmea, G.R. No. L-12837, April 30, 1959, a ruling was enunciated, thus:
The necessity of making the City a respondent herein is based upon its right to defend itself, as
demanded by the requirements of due process. However, these requirements have been
substantially complied with in the case at bar. The parties herein have handled the case, and the
same was heard and decided in the lower court, as if the City had been named respondent in the
pleadings. The officer required by law "to cause to be defended all suits against the City", its
Mayor (Sec. 8, Commonwealth Act No. 58), is respondent in his official capacity. The officer
charged with the duty to represent the City "in all civil cases wherein the City . . . is a party" to
wit, its city attorney (Sec. 17, Commonwealth Act No. 58) counsel for respondents herein. In
addition thereto, the auditor, the treasurer, and even the municipal board of the City of Cebu, are
parties respondents.
There is no reason to believe that these officers and the City Mayor would have exerted greater
effort, than those already displayed by them, in protecting the interests of the City of Cebu,
where it formally a respondent therein. Indeed, it is only logical to expect that, having been
individually named as respondents, said officers, must have taken as much concern if not more,
in warding off petitioner's claim. Under the foregoing circumstances, we would be subordinating
the substance to the form if the action for mandamus insofar as the claim for back salaries is
concerned were, either dismissed, or remanded to the lower court, for the corresponding
amendment of the pleading and a repetition of the proceedings held for the last five (5) years, in
order to reach the same decision rendered by the lower court and the same conclusions set forth
in this decision, as regards the substansive rights of the parties. It is our considered opinion,
therefore, that the ends of justice and equity would be served best if the inclusion of the City of
Cebu, as one of the respondents herein, were considered a mere formality and deemed effective,
as if a formal amendment of the pleadings had been made. (Emphasis supplied)
which was reiterated in the case of Discano, et al. vs. Gatmaitan, et al., 109 Phil., 918; 60 Off. Gaz., [42]
6786.
We find no plausible reason for disregarding the above ruling on a procedural matter, knowing as we do,
that after all, the obligation to pay the back salary of Caballero, cannot be eluded and the officer
concerned in the City of Cebu will have to pay it anyhow, in his official capacity. When a judgment is
rendered against an officer of a municipal corporation who sues or is sued in his official capacity, the
judgment is binding upon the corporation, upon the other officers of the municipal corporation who
represent the same interest and the effect of judgment against a municipal officer is not lost by a change
in the occupant of the office. (38 Am. Jur. sec. 727, pp. 431-32). We are not unmindful of the
pronouncement in the Faunillan case (supra) but the same is evidently predicated upon a different set of
facts. Furthermore, it would seem that the City of Cebu in the case at bar, had already waived the rights
and benefits afforded by section 5 of the Cebu City Charter, by and through the acts of its agents, the
officers-respondents in the mandamus case, by appropriating funds and paying Caballero with them. The
lawful act of these officers within the scope of their authority is deemed the act of the principal, the City
of Cebu.
In view hereof, the petition for certiorari is dismissed for lack of merits and the order of dismissal of the
complaint, object of the appeal, is affirmed. Costs is taxed against the petitioners and the appellant City
of Cebu, in both cases and in both instances. So ordered.
Bengzon, Padilla, Bautista Angelo, Reyes, J. B. L., Barrera, and Gutierrez David, JJ., concur.

The Lawphil Project - Arellano Law Foundation








Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 166869 February 16, 2010
PHILIPPINE HAWK CORPORATION, Petitioner,
vs.
VIVIAN TAN LEE, Respondent.
D E C I S I O N
PERALTA, J.:
This is a Petition for Review on Certiorari
1
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
2
against
petitioner Philippine Hawk Corporation and defendant Margarito Avila for damages based on quasi-delict,
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.
On June 18, 1992, respondent filed an Amended Complaint,
3
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,
4
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
5
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;
2. 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;
3. 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
4. Defendant Margarito Avila is an employee of defendant Philippine Hawk.
6

The parties also agreed on the following issues:
1. 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
2. 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.
7

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.
8

Respondents husband died due to the vehicular accident. The immediate cause of his death was massive
cerebral hemorrhage.
9

Respondent further testified that her husband was leasing
10
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.
11

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.
12

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.
13

Avila further testified that he had previously been involved in sideswiping incidents, but he forgot how
many times.
14

Rodolfo Ilagan, the bus conductor, testified that the motorcycle bumped the left side of the bus that was
running at 40 kilometers per hour.
15

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.
16

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.
17

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.
18

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.
19

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.
20
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.
21

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.
22

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.
2) 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 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.
23

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.
24
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.
25

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.
26
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.
27
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.
28

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.
29
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.
30

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.
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
31
cited the book
32
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.
33

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.
34
Compensation of this nature is awarded not for loss of earnings, but for loss of capacity to earn
money.
35

As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of
earning capacity.
36
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.
37

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,
38
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.
39
In the absence of documentary evidence, it is
reasonable to 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
Capacity
=
Life Expectancy
[2/3 (80-age at the
time of death)]
x
Gross Annual
Income (GAI)

Reasonable and
Necessary Expenses
(80% of GAI)
X = [2/3 (80-65)] x P1,000,000.00 - P800,000.00
X = 2/3 (15) x P200,000.00 - P100,000.00(Living
Expenses)
X = 30/3 x P100,000.00
X = 10 x P100,000.00
X = P1,000,000.00
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
40
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.
41
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.
42

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
43
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.
44

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,
45
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.
46

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.
47
The award is proper under Art. 2206 of
the Civil Code.
48

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.
49

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 Twenty-Seven 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.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
RENATO C. CORONA
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR.
Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
JOSE CATRAL MENDOZA
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Associate Justice
Third Division, Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1
Under Rule 45 of the Rules of Court.
2
Records, p. 1.
3
Id. at 38.
4
Id. at 54.
5
Id. at 80.
6
Supra note 2, at 80.
7
Id.
8
TSN, April 26, 1994, pp. 6-7, 14 and 22; May 11, 1994, pp. 14-15.
9
Death Certificate, Exhibit "B," folder of exhibits, p. 3.
10
Annex "C," folder of exhibits, p.11.
11
TSN, April 26, 1994, pp. 12-13.
12
TSN, March 16, 1995, pp. 4-6.
13
TSN, February 13, 1996, pp. 5-11, 18-19 and 23; September 10, 1996, pp. 7, 10, 12 and 14.
14
TSN, September 10, 1996, pp. 3-4.
15
TSN, October 22, 1996, p. 5.
16
TSN, January 14, 1997, pp. 5-18.
17
TSN, July 8, 1997, p. 5.
18
Record, p. 209.
19
Supra note 18, at 208.
20
Id.
21
Id.
22
Rollo p. 32.
23
Id. at 8-9.
24
Viron Transportation Co., Inc. v. Delos Santos, G.R. No. 138296, November 22, 2000, 345
SCRA 509.
25
Supra note 18, at 208.
26
TSN, July 8, 1997, p. 27.
27
Achevara v. Ramos, G.R. No. 175172, September 29, 2009.
28
Id.
29
Macalinao v. Ong, G.R. No. 146635, December 14, 2005, 477 SCRA 740.
30
Id.
31
G.R. No. 134406, November 15, 2000, 344 SCRA 706.
32
Remedial Law Compendium, Vol. I, 582-583 (Sixth Revised Edition, 1997).
33
Supra note 31, at 715.
34
Civil Code, Art. 2206. xxxx
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and
the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case
be assessed and awarded by the court, unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time of
his death;
xxxx
35
Heirs of George Y. Poe v. Malayan Insurance Co., Inc., G.R. No. 156302, April 7, 2009, 584
SCRA 178.
36
People v. Garchitorena, G.R. No. 175605, August 28, 2009.
37
Supra note 36.
38
Exhibit "J," folder of exhibits, p. 20.
39
Smith Bell Dodwell Shipping Agency Corporation v. Borja, G.R. No. 143008, June 10, 2002, 383
SCRA 341, 351.
40
People v. Ibaez, G.R. Nos. 133923-24, July 30, 2003, 407 SCRA 406.
41
Hernandez v. Dolor, G.R. No. 160286, July 30, 2004, 435 SCRA 668.
42
Id.
43
Exhibit "M," folder of exhibits, p. 47.
44
See Viron Transportation Co., Inc. v. Delos Santos, supra note 24.
45
Art. 2219. Moral damages may be recovered in the following and analogous cases:
xxxx
(2) Quasi-delicts causing physical injuries;
xxxx
46
Guillang v. Bedania, G.R. No. 162987, May 21, 2009, 588 SCRA 73.
47
Id.; Philtranco Service Enterprises v. Court of Appeals, G.R. No. 120553, June 17, 1997, 273
SCRA 562.
48
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. xxxx
49
Korean Airlines Co., Ltd. v. Court of Appeals, G.R. No. 114061, August 3, 1994, 234 SCRA 717.

The Lawphil Project - Arellano Law Foundation






Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6913 November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea, defendant-
appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.

MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the
action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Pea was the duly authorized representative
of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la
Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he
deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly
thereafter and during the war of the revolution, Father De la Pea was arrested by the military authorities
as a political prisoner, and while thus detained made an order on said bank in favor of the United States
Army officer under whose charge he then was for the sum thus deposited in said bank. The arrest of
Father De la Pea and the confiscation of the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the funds thus deposited had been collected by him
for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of
such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust
funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact
counterpart in the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father
De la Pea's liability is determined by those portions of the Civil Code which relate to obligations. (Book
4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve
it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one
shall be liable for events which could not be foreseen, or which having been foreseen were inevitable,
with the exception of the cases expressly mentioned in the law or those in which the obligation so
declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby
assume an obligation different from that under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the money at all hazards. If the had been forcibly
taken from his pocket or from his house by the military forces of one of the combatants during a state of
war, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility.
The fact that he placed the trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or whether
he was more or less negligent by depositing the money in his personal account than he would have been
if he had deposited it in a separate account as trustee. We regard such discussion as substantially
fruitless, inasmuch as the precise question is not one of negligence. There was no law prohibiting him
from depositing it as he did and there was no law which changed his responsibility be reason of the
deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound,
when he sees events approaching the results of which will be dangerous to his trust, to take all
reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we
do not feel constrained to hold that, in choosing between two means equally legal, he is culpably
negligent in selecting one whereas he would not have been if he had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action
was deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; that
said money was forcibly taken from the bank by the armed forces of the United States during the war of
the insurrection; and that said Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.
Arellano, C.J., Torres and Carson, JJ., concur.


Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Pea was a trustee or an agent of the
plaintiff his books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641
belonging to the plaintiff as the head of the church. This money was then clothed with all the immunities
and protection with which the law seeks to invest trust funds. But when De la Pea mixed this trust fund
with his own and deposited the whole in the bank to his personal account or credit, he by this act
stamped on the said fund his own private marks and unclothed it of all the protection it had. If this
money had been deposited in the name of De la Pea as trustee or agent of the plaintiff, I think that it
may be presumed that the military authorities would not have confiscated it for the reason that they were
looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la Pea would
attempt to strip the fund of its identity, nor had he said or done anything which tended to relieve De la
Pea from the legal reponsibility which pertains to the care and custody of trust funds.
The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page
343, said: "Trustees are only bound to exercise the same care and solicitude with regard to the trust
property which they would exercise with regard to their own. Equity will not exact more of them. They
are not liable for a loss by theft without their fault. But this exemption ceases when they mix the trust-
money with their own, whereby it loses its identity, and they become mere debtors."
If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no
doubt on this point, the liability of the estate of De la Pea cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Pea) placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not make him a debtor who must
respond at all hazards. . . . There was no law prohibiting him from depositing it as he did, and there was
no law which changed his responsibility, by reason of the deposit."
I assume that the court in using the language which appears in the latter part of the above
quotation meant to say that there was no statutory law regulating the question. Questions of this
character are not usually governed by statutory law. The law is to be found in the very nature of the trust
itself, and, as a general rule, the courts say what facts are necessary to hold the trustee as a debtor.
If De la Pea, after depositing the trust fund in his personal account, had used this money for
speculative purposes, such as the buying and selling of sugar or other products of the country, thereby
becoming a debtor, there would have been no doubt as to the liability of his estate. Whether he used this
money for that purpose the record is silent, but it will be noted that a considerable length of time
intervened from the time of the deposit until the funds were confiscated by the military authorities. In
fact the record shows that De la Pea deposited on June 27, 1898, P5,259, on June 28 of that year
P3,280, and on August 5 of the same year P6,000. The record also shows that these funds were
withdrawn and again deposited all together on the 29th of May, 1900, this last deposit amounting to
P18,970. These facts strongly indicate that De la Pea had as a matter of fact been using the money in
violation of the trust imposed in him. lawph!1.net
If the doctrine announced in the majority opinion be followed in cases hereafter arising in this
jurisdiction trust funds will be placed in precarious condition. The position of the trustee will cease to be
one of trust.

The Lawphil Project - Arellano Law Foundation























Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9935 February 1, 1915
YU TEK and CO., plaintiff-appellant,
vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff.
Buencamino and Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine
currency from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates himself
to deliver to the said Yu Tek and Co., 600 piculs of sugar of the first and second grade, according
to the result of the polarization, within the period of three months, beginning on the 1st day of
January, 1912, and ending on the 31st day of March of the same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek and
Co., of this city the said 600 piculs of sugar at any place within the said municipality of Santa
Rosa which the said Messrs. Yu Tek and Co., or a representative of the same may designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the 600
piculs of sugar within the period of three months, referred to in the second paragraph of this
document, this contract will be rescinded and the said Mr. Basilio Gonzales will then be obligated
to return to Messrs. Yu Tek and Co. the P3,000 received and also the sum of P1,200 by way of
indemnity for loss and damages.
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able to recover
the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200 under paragraph 4,
supra. Judgment was rendered for P3,000 only, and from this judgment both parties appealed.
The points raised by the defendant will be considered first. He alleges that the court erred in refusing to
permit parol evidence showing that the parties intended that the sugar was to be secured from the crop
which the defendant raised on his plantation, and that he was unable to fulfill the contract by reason of
the almost total failure of his crop. This case appears to be one to which the rule which excludes parol
evidence to add to or vary the terms of a written contract is decidedly applicable. There is not the
slightest intimation in the contract that the sugar was to be raised by the defendant. Parties are
presumed to have reduced to writing all the essential conditions of their contract. While parol evidence is
admissible in a variety of ways to explain the meaning of written contracts, it cannot serve the purpose of
incorporating into the contract additional contemporaneous conditions which are not mentioned at all in
the writing, unless there has been fraud or mistake. In an early case this court declined to allow parol
evidence showing that a party to a written contract was to become a partner in a firm instead of a
creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14
Phil. Rep., 509) a contract of employment provided that the plaintiff should receive from the defendant a
stipulated salary and expenses. The defendant sought to interpose as a defense to recovery that the
payment of the salary was contingent upon the plaintiff's employment redounding to the benefit of the
defendant company. The contract contained no such condition and the court declined to receive parol
evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the crop raised
by the defendant. There is no clause in the written contract which even remotely suggests such a
condition. The defendant undertook to deliver a specified quantity of sugar within a specified time. The
contract placed no restriction upon the defendant in the matter of obtaining the sugar. He was equally at
liberty to purchase it on the market or raise it himself. It may be true that defendant owned a plantation
and expected to raise the sugar himself, but he did not limit his obligation to his own crop of sugar. Our
conclusion is that the condition which the defendant seeks to add to the contract by parol evidence
cannot be considered. The rights of the parties must be determined by the writing itself.
The second contention of the defendant arises from the first. He assumes that the contract was limited to
the sugar he might raise upon his own plantation; that the contract represented a perfected sale; and
that by failure of his crop he was relieved from complying with his undertaking by loss of the thing due.
(Arts. 1452, 1096, and 1182, Civil Code.) This argument is faulty in assuming that there was a perfected
sale. Article 1450 defines a perfected sale as follows:
The sale shall be perfected between vendor and vendee and shall be binding on both of them, if
they have agreed upon the thing which is the object of the contract and upon the price, even
when neither has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
perfected, be governed by the provisions of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with regard to the "thing" whenever the
article of sale has been physically segregated from all other articles Thus, a particular tobacco factory
with its contents was held sold under a contract which did not provide for either delivery of the price or
of the thing until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was the
recent case of Barretto vs. Santa Marina (26 Phil. Rep., 200) where specified shares of stock in a tobacco
factory were held sold by a contract which deferred delivery of both the price and the stock until the
latter had been appraised by an inventory of the entire assets of the company. In Borromeo vs. Franco (5
Phil. Rep., 49) a sale of a specific house was held perfected between the vendor and vendee, although
the delivery of the price was withheld until the necessary documents of ownership were prepared by the
vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into
the warehouse of the defendant. The defendant drew a bill of exchange in the sum of P800, representing
the price which had been agreed upon for the hemp thus delivered. Prior to the presentation of the bill
for payment, the hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It was
held that the hemp having been already delivered, the title had passed and the loss was the vendee's. It
is our purpose to distinguish the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar of the
first and second classes. Was this an agreement upon the "thing" which was the object of the contract
within the meaning of article 1450, supra? Sugar is one of the staple commodities of this country. For the
purpose of sale its bulk is weighed, the customary unit of weight being denominated a "picul." There was
no delivery under the contract. Now, if called upon to designate the article sold, it is clear that the
defendant could only say that it was "sugar." He could only use this generic name for the thing sold.
There was no "appropriation" of any particular lot of sugar. Neither party could point to any specific
quantity of sugar and say: "This is the article which was the subject of our contract." How different is this
from the contracts discussed in the cases referred to above! In the McCullough case, for instance, the
tobacco factory which the parties dealt with was specifically pointed out and distinguished from all other
tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired to
transfer were capable of designation. In the Tan Leonco case, where a quantity of hemp was the subject
of the contract, it was shown that that quantity had been deposited in a specific warehouse, and thus set
apart and distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana, where the civil law prevails, which
confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47 Sou.,
444). In this case a contract was entered into by a traveling salesman for a quantity of shoes, the sales
having been made by sample. The court said of this contract:
But it is wholly immaterial, for the purpose of the main question, whether Mitchell was authorized
to make a definite contract of sale or not, since the only contract that he was in a position to
make was an agreement to sell or an executory contract of sale. He says that plaintiff sends out
375 samples of shoes, and as he was offering to sell by sample shoes, part of which had not
been manufactured and the rest of which were incorporated in plaintiff's stock in Lynchburg, Va.,
it was impossible that he and Seegars and Co. should at that time have agreed upon the specific
objects, the title to which was to pass, and hence there could have been no sale. He and Seegars
and Co. might have agreed, and did (in effect ) agree, that the identification of the objects and
their appropriation to the contract necessary to make a sale should thereafter be made by the
plaintiff, acting for itself and for Seegars and Co., and the legend printed in red ink on plaintiff's
billheads ("Our responsibility ceases when we take transportation Co's. receipt `In good order'"
indicates plaintiff's idea of the moment at which such identification and appropriation would
become effective. The question presented was carefully considered in the case of State vs.
Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely necessary that it should be
decided), and it was there held that in receiving an order for a quantity of goods, of a kind and at
a price agreed on, to be supplied from a general stock, warehoused at another place, the agent
receiving the order merely enters into an executory contract for the sale of the goods, which
does not divest or transfer the title of any determinate object, and which becomes effective for
that purpose only when specific goods are thereafter appropriated to the contract; and, in the
absence of a more specific agreement on the subject, that such appropriated takes place only
when the goods as ordered are delivered to the public carriers at the place from which they are
to be shipped, consigned to the person by whom the order is given, at which time and place,
therefore, the sale is perfected and the title passes.
This case and State vs. Shields, referred to in the above quotation are amply illustrative of the position
taken by the Louisiana court on the question before us. But we cannot refrain from referring to the case
of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is summarized by the court itself
in the Shields case as follows:
. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of
cotton, had received $3,000 on account of the price, and had given an order for its delivery,
which had been presented to the purchaser, and recognized by the press in which the cotton was
stored, but that the cotton had been destroyed by fire before it was weighed. It was held that it
was still at the risk of the seller, and that the buyer was entitled to recover the $3,000 paid on
account of the price.
We conclude that the contract in the case at bar was merely an executory agreement; a promise of sale
and not a sale. At there was no perfected sale, it is clear that articles 1452, 1096, and 1182 are not
applicable. The defendant having defaulted in his engagement, the plaintiff is entitled to recover the
P3,000 which it advanced to the defendant, and this portion of the judgment appealed from must
therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to recover
the additional sum of P1,200 under paragraph 4 of the contract. The court below held that this paragraph
was simply a limitation upon the amount of damages which could be recovered and not liquidated
damages as contemplated by the law. "It also appears," said the lower court, "that in any event the
defendant was prevented from fulfilling the contract by the delivery of the sugar by condition over which
he had no control, but these conditions were not sufficient to absolve him from the obligation of
returning the money which he received."
The above quoted portion of the trial court's opinion appears to be based upon the proposition that the
sugar which was to be delivered by the defendant was that which he expected to obtain from his own
hacienda and, as the dry weather destroyed his growing cane, he could not comply with his part of the
contract. As we have indicated, this view is erroneous, as, under the contract, the defendant was not
limited to his growth crop in order to make the delivery. He agreed to deliver the sugar and nothing is
said in the contract about where he was to get it.
We think is a clear case of liquidated damages. The contract plainly states that if the defendant fails to
deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded and he will be
obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss and damages.
There cannot be the slightest doubt about the meaning of this language or the intention of the parties.
There is no room for either interpretation or construction. Under the provisions of article 1255 of the Civil
Code contracting parties are free to execute the contracts that they may consider suitable, provided they
are not in contravention of law, morals, or public order. In our opinion there is nothing in the contract
under consideration which is opposed to any of these principles.
For the foregoing reasons the judgment appealed from is modified by allowing the recovery of P1,200
under paragraph 4 of the contract. As thus modified, the judgment appealed from is affirmed, without
costs in this instance.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
Johnson, J., dissents.

The Lawphil Project - Arellano Law Foundation


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 177685 January 26, 2011
HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN BUILDERS, Petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE CORPORATION, Respondents.
Present:
CARPIO MORALES, J.,
Chairperson,
NACHURA,*
BRION,
VILLARAMA, JR., and
SERENO, JJ.
Promulgated:
D E C I S I O N
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks
to reverse and set aside the Decision[1] dated June 27, 2006 and Resolution[2] dated April 20, 2007 of
the Court of Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed with modification the Decision[3]
dated July 3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328
(43083) and 40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through
its President, Jose C. Reyes, entered into a contract[4] with Rhogen Builders (Rhogen), represented by
Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for the
price of P7,600,000.00. On July 18, 1980, to secure Rhogens compliance with its obligation under the
contract, Gaite and FGU Insurance Corporation (FGU) executed a surety bond in the amount of
P1,155,000.00 in favor of The Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding
taxes as down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building.
In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of the
Municipality of Makati, ordered Gaite to cease and desist from continuing with the construction of the
building for violation of Sections 301 and 302 of the National Building Code (P.D. 1096) and its
implementing rules and regulations.[5] The letter was referred to The Plazas Project Manager, Architect
Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of
the restaurant was revoked for non-compliance with the provisions of the National Building Code and for
the additional temporary construction without permit.[6] The Memorandum Report of Building Inspector
Victor Gregory enumerated the following violations of Rhogen in the construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated September
10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority of the Building Officials Inspector.
6) Construction plans use[d] on the job site is not in accordance to the approved plan.[7]
On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his
evaluation of Progress Billing #1 submitted by Rhogen. Tayzon stated that actual jobsite assessment
showed that the finished works fall short of Rhogens claimed percentage of accomplishment and Rhogen
was entitled to only P32,684.16 and not P260,649.91 being demanded by Rhogen. Further, he
recommended that said amount payable to Rhogen be withheld pending compliance with Construction
Memo #18, resolution of cases regarding unauthorized withdrawal of materials from jobsite and stoppage
of work by the Municipal Engineers Office of Makati.[8]
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his
actions/observations on the stoppage order issued. On the permit for temporary structure, Gaite said the
plans were being readied for submission to the Engineering Department of the Municipality of Makati and
the application was being resent to Reyes for his appropriate action. As to the notice for concrete
pouring, Gaite said that their construction set-up provides for a Project Manager to whom the Pouring
Request is first submitted and whose job is to clear to whoever parties are involved (this could still be
worked out with the Building Inspector). Regarding the safety devices for workers, Gaite averred that he
had given strict rules on this but in the course of construction some workers have personal preferences.
On the refusal of the secretary and construction foreman to receive the stoppage order dated September
10, 1980, Gaite took responsibility but insisted it was not a violation of the National Building Code.
Likewise, questioning the authority of the Building Inspector is not a violation of the Code although Gaite
denied he ever did so. Lastly, on the construction plans used in the jobsite not being in accordance with
the approved plan, Gaite said he had sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes office
and make a copy of the only approved plan which was in the care of Reyes, but the latter did not give it
to Engr. Laurel. Gaite thus thought that Reyes would handle the matter by himself.[9]
On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the
Project Manager cooperate to resolve the issue he had raised to address the problem.[10] This was
followed by another letter dated November 18, 1980 in which Gaite expressed his sentiments on their
aborted project and reiterated that they can still resolve the matter with cooperation from the side of The
Plaza.[11] In his reply-letter dated November 24, 1980, Reyes asserted that The Plaza is not the one to
initiate a solution to the situation, especially after The Plaza already paid the agreed down payment of
P1,155,000.00, which compensation so far exceeds the work completed by Rhogen before the municipal
authorities stopped the construction for several violations. Reyes made it clear they have no obligation to
help Rhogen get out of the situation arising from non-performance of its own contractual undertakings,
and that The Plaza has its rights and remedies to protect its interest.[12]
Subsequently, the correspondence between Gaite and Reyes involved the custody of remaini ng bags of
cement in the jobsite, in the course of which Gaite was charged with estafa for ordering the removal of
said items. Gaite complained that Reyes continued to be uncooperative in refusing to meet with him to
resolve the delay. Gaite further answered the estafa charge by saying that he only acted to protect the
interest of the owner (prevent spoilage/hardening of cement) and that Reyes did not reply to his request
for exchange.[13]
On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the
Contractors Right to Stop Work or Terminate Contracts as provided for in the General Conditions of the
Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in solving the problem
concerning the revocation of the building permits, which he described as a "minor problem." Additionally,
Gaite demanded the payment of P63,058.50 from The Plaza representing the work that has already been
completed by Rhogen.[14]
On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully
responsible for failure to comply with the terms of the contract and to deliver the finished structure on
the stipulated date. Reyes argued that the down payment made by The Plaza was more than enough to
cover Rhogens expenses.[15]
In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogens undertaking to complete the
construction within 180 calendar days from July 16, 1980 or up to January 12, 1981, and to pay the
agreed payment of liquidated damages for every month of delay, chargeable against the performance
bond posted by FGU. Reyes invoked Section 121 of the Articles of General Conditions granting the owner
the right to terminate the contract if the contractor fails to execute the work properly and to make good
such deficiencies and deducting the cost from the payment due to the contractor. Reyes also informed
Gaite that The Plaza will continue the completion of the structure utilizing the services of a competent
contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the Contract.
After proper evaluation of the works completed by Rhogen, The Plaza shall then resume the construction
and charge Rhogen for all the costs and expenses incurred in excess of the contract price. In the
meantime that The Plaza is still evaluating the extent and condition of the works performed by Rhogen to
determine whether these are done in accordance with the approved plans, Reyes demanded from Gaite
the reimbursement of the balance of their initial payment of P1,155,000.00 from the value of the works
correctly completed by Rhogen, or if none, to reimburse the entire down payment plus expenses of
removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as
possible.[16] The Plaza sent copy of said letter to FGU but the latter replied that it has no liability under
the circumstances and hence it could not act favorably on its claim against the bond.[17]
On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for the
work it had completed because the evaluation of the extent, condition, and cost of work done revealed
that in addition to the violations committed during the construction of the building, the structure was not
in accordance with plans approved by the government and accepted by Ayala. Hence, The Plaza
demanded the reimbursement of the down payment, the cost of uprooting or removal of the defective
structures, the value of owner-furnished materials, and payment of liquidated damages.[18]
On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and
damages against Gaite and FGU in the Court of First Instance (CFI) of Rizal.[19] The Plaza later
amended its complaint to include Cynthia G. Gaite and Rhogen.[20] The Plaza likewise filed Civil Case
No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of
Rizal for nullification of the project development contract executed prior to the General Construction
Contract subject of Civil Case No. 40755, which was allegedly in violation of the provisions of R.A. No.
545 (Architectural Law of the Philippines).[21] After the reorganization of the Judiciary in 1983, the
cases were transferred to the RTC of Makati and eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza
against Rhogen, the Gaites and FGU, and the cross-claim of FGU against Rhogen and the Gaites. The trial
court ruled that the Project Manager was justified in recommending that The Plaza withhold payment on
the progress billings submitted by Rhogen based on his evaluation that The Plaza is liable to pay only
P32,684.16 and not P260,649.91. The other valid grounds for the withholding of payment were the
pending estafa case against Gaite, non-compliance by Rhogen with Construction Memorandum No. 18
and the non-lifting of the stoppage order.[22]
Regarding the non-lifting of the stoppage order, which the trial court said was based on simple
infractions, the same was held to be solely attributable to Rhogens willful inaction. Instead of readily
rectifying the violations, Rhogen continued with the construction works thereby causing more damage.
The trial court pointed out that Rhogen is not only expected to be aware of standard requirements and
pertinent regulations on construction work, but also expressly bound itself under the General
Construction Contract to comply with all the laws, city and municipal ordinances and all government
regulations. Having failed to complete the project within the stipulated period and comply with its
obligations, Rhogen was thus declared guilty of breaching the Construction Contract and is liable for
damages under Articles 1170 and 1167 of the Civil Code.[23]
The dispositive portion of the trial courts decision reads:
WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders are
jointly and severally ordered to pay plaintiff:
1. the amount of P525,422.73 as actual damages representing owner-furnished materials with legal
interest from the time of filing of the complaint until full payment;
2. the amount of P14,504.66 as actual damages representing expenses for uprooting with interest from
the time of filing the complaint until full payment;
3. the amount of P1,155,000.00 as actual damages representing the downpayment with legal interest
from the time of filing the complaint until full payment;
4. the amount of P150,000.00 for moral damages;
5. the amount of P100,000.00 for exemplary damages;
6. the amount of P500,000.00 as liquidated damages;
7. the amount of P100,000.00 as reasonable attorneys fees; and,
8. the cost of suit.
Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff the
amount of P1,155,000.00 with legal interest from the time of filing the complaint until full payment. In
the event [that] FGU pays the said amount, third-party defendants are jointly and severally ordered to
pay the same amount to FGU plus P50,000.00 as reasonable attorneys fees, the latter having been
forced to litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.
SO ORDERED.[24]
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.[25] In view of the death of
Ramon C. Gaite on April 21, 1999, the CA issued a Resolution dated July 12, 2000 granting the
substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and
Roman Juan G. Gaite.[26]
In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following errors,
to wit:
I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-
APPELLANT RHOGEN BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;
II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER OF
THE THEN MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-
APPELLANT RHOGENS WILLFUL INACTION;
III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF
PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE FOR DEFENDANTAPPELLANT RHOGEN TO
PERFORM ITS OBLIGATIONS UNDER THE CONTRACT;
IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY, AND
LIQUIDATED DAMAGES AND ATTORNEYS FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES
THEREFOR; AND
V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IN FAVOR OF DEFENDANTS-APPELLANTS.[27]
For its part, FGU interposed the following assignment of errors:
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-APPELLANT RAMON GAITE
VALIDLY TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT RAMON GAITE
RESPONSIBLE FOR THE STOPPAGE OF THE CONSTRUCTION.
III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY
THE AMOUNT OF P525,422.73 FOR THE OWNER FURNISHED MATERIALS.
IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY
PLAINTIFF-APPELLEE THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK
HE PERFORMED.
V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO
REFUND THE DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.
VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-APPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-
APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-
APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES TO PLAINTIFF-APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE
CORPORATION LIABLE TO PLAINTIFF-APPELLEE.[28]
On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages as
follows:
WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City,
Branch 63 in Civil Case Nos. 40755 and 1328 is AFFIRMED with the modification that: (a) the award
for actual damages representing the owner-furnished materials and the expenses for uprooting are
deleted, and in lieu thereof, the amount of P300,000.00 as temperate damages is awarded; and (b) the
awards for moral, exemplary, liquidated and attorneys fees are likewise deleted.
SO ORDERED.[29]
According to the CA, The Plaza cannot now be demanded to comply with its obligation under the contract
since Rhogen has already failed to comply with its own contractual obligation. Thus, The Plaza had every
reason not to pay the progress billing as a result of Rhogens inability to perform its obligations under the
contract. Further, the stoppage and revocation orders were issued on account of Rhogens own violations
involving the construction as found by the local building official. Clearly, Rhogen cannot blame The Plaza
for its own failure to comply with its contractual obligations. The CA stressed that Rhogen obliged itself to
comply with "all the laws, city and municipal ordinances and all government regulations insofar as they
are binding upon or affect the parties [to the contract] , the work or those engaged thereon."[30] As
such, it was responsible for the lifting of the stoppage and revocation orders. As to Rhogens act of
challenging the validity of the stoppage and revocation orders, the CA held that it cannot be done in the
present case because under Section 307 of the National Building Code, appeal to the Secretary of the
Department of Public Works and Highways (DPWH) whose decision is subject to review by the Office of
the President -- is available as remedy for Rhogen.[31]
However, the CA modified the award of damages holding that the claim for actual damages of
P525,422.73 representing the damaged owner-furnished materials was not supported by any evidence.
Instead, the CA granted temperate damages in the amount of P300,000.00. As to moral damages, no
specific finding for the factual basis of said award was made by the trial court, and hence it should be
deleted. Likewise, liquidated damages is not proper considering that this is not a case of delay but non-
completion of the project. The Plaza similarly failed to establish that Rhogen and Gaite acted with malice
or bad faith; consequently, the award of exemplary damages must be deleted. Finally, there being no
bad faith on the part of the defendants, the award of attorneys fees cannot be sustained.[32]
The motion for reconsideration of the aforesaid Decision was denied in the Resolution dated April 20,
2007 for lack of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when it found that Petitioner Rhogen had no
factual or legal basis to terminate the General Construction Contract.
II.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when, as a consequence of its finding that
Petitioners did not have valid grounds to terminate the Construction Contract, it directed Petitioners to
return the downpayment paid by The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when, in addition thereto, it awarded temperate
damages to The Plaza.
IV.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when it failed to award damages in favor of
Petitioners.[33]
Petitioners contend that the CA gravely erred in not holding that there were valid and legal grounds for
Rhogen to terminate the contract pursuant to Article 1191 of the Civil Code and Article 123 of the General
Conditions of the Construction Contract. Petitioners claim that Rhogen sent Progress Billing No. 1 dated
September 10, 1980 and demanded payment from The Plaza in the net amount of P473,554.06 for the
work it had accomplished from July 28, 1980 until September 7, 1980. The Plaza, however, failed to pay
the said amount. According to petitioners, Article 123 of the General Conditions of the Construction
Contract gives The Plaza seven days from notice within which to pay the Progress Billing; otherwise,
Rhogen may terminate the contract. Petitioners also invoke Article 1191 of the Civil Code, which states
that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191[34] of
the Civil Code, which provides for the remedy of "rescission" or more properly resolution, a principal
action based on breach of faith by the other party who violates the reciprocity between them. The breach
contemplated in the provision is the obligors failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The injured party is the party who has faithfully
fulfilled his obligation or is ready and willing to perform his obligation.[35]
The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the
latters obligation to pay the contract price or progress billing is conditioned on the formers performance
of its undertaking to complete the works within the stipulated period and in accordance with approved
plans and other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished
materials and paid the agreed down payment. It also exercised the option of furnishing and delivering
construction materials at the jobsite pursuant to Article III of the Construction Contract. However, just
two months after commencement of the project, construction works were ordered stopped by the local
building official and the building permit subsequently revoked on account of several violations of the
National Building Code and other regulations of the municipal authorities.
Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that when the
new contractor (ACK Construction, Inc.) took over the project, the local government of Makati allowed
the construction of the building using the old building permit; moreover, the basement depth of only two
meters was retained, with no further excavation made. They cite the testimony of the late Ramon Gaite
before the trial court that at the time, he had incurred the ire of then Mayor of Makati because his (Gaite)
brother was the Mayors political opponent; hence, they sought to file whatever charge they could against
him in order to call the attention of his brother. This "political harassment" defense was raised by
petitioners in their Amended Answer. Gaites testimony was intended to explain the circumstances leading
to his decision to terminate the construction contract and not to question the revocation of the building
permit. As the available remedy was already foreclosed, it was thus error for the CA to suggest that
Rhogen should have appealed the stoppage and revocations orders issued by the municipal authorities to
the DPWH and then to the OP.[36]
Article 123 of the Articles of General Conditions states the grounds for the termination of the work or
contract by the Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR TERMINATE
CONTRACT
If work should be stopped under order of any court, or other public authority, for period of three (3)
months through no act or fault of Contractor or of anyone employed by him, or if Owners Representative
should fail to issue any certificate of payment within seven (7) days after its maturity and presentation of
any sum certified by Owners Representative or awarded arbitrator, then contractor, may, stop work or
terminate Contract, recover from Owner payment for work executed, loss sustained upon any plant or
materials, reasonable profit, damages.[37] (Emphasis supplied.)
Petitioners may not justify Rhogens termination of the contract upon grounds of non-payment of
progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the
violations which were the basis for issuance of the stoppage order. Having breached the contractual
obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local
authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in
withholding payment on Rhogens first progress billing, on account of the stoppage order and additionally
due to disappearance of owner-furnished materials at the jobsite. In failing to have the stoppage and
revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with its
contractual undertaking, thus:
In the performance of the works, services, and obligations subject of this Contract, the CONTRACTOR
binds itself to observe all pertinent and applicable laws, rules and regulations promulgated by duly
constituted authorities and to be personally, fully and solely liable for any and all violations of the
same.[38] (Emphasis supplied.)
Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a victim of
abuse by a local official and this was the primary reason for the problems besetting the project. On the
contrary, the site appraisal inspection conducted on February 12 and 13, 1981 in the presence of
representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in
addition to the violations committed by Rhogen which resulted in the issuance of the stoppage order,
Rhogen built the structure not in accordance with government approved plans and/or without securing
the approval of the Municipal Engineer before making the changes thereon.[39]
Such non-observance of laws and regulations of the local authorities affecting the construction project
constitutes a substantial violation of the Construction Contract which entitles The Plaza to terminate the
same, without obligation to make further payment to Rhogen until the work is finished or subject to
refund of payment exceeding the expenses of completing the works. This is evident from a reading of
Article 122 which states:
122. OWNERS RIGHT TO TERMINATE CONTRACT
A. If Contractor should be adjudged bankrupt, or if he should make general assignment for benefit of his
creditors, or if receiver should be appointed on account of his insolvency, or if he should persistently or
repeatedly refuse or should fail, except in cases for which extension of time is provided, to supply enough
properly skilled workmen or proper materials, or if he should fail to make prompt payment to Sub-
Contractors or for materials of labor, or persistently disregard laws, ordinances, or instructions of Owners
Representative or otherwise be guilty of substantial violation of any provision of [the] Contract, then
Owner, upon certification by Owners Representative that sufficient cause exists to justify such action,
may, without prejudice to any right or remedy, after giving Contractor seven days written notice,
terminate contract with Contractor, take possession of premises, materials, tools, appliances, thereon,
finish work by whatever method he may deem expedient. In such cases, Contractor shall not be entitled
to receive any further payment until work is finished.
B. If unpaid balance of Contract sum shall exceed expense of finishing work including compensation for
additional managerial and administrative services, such excess, paid to Contractor. Refund the difference
to Owner if such expense shall exceed unpaid balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a serious
breach of its contract with The Plaza, which justified the latter in terminating the contract. Petitioners are
thus liable for damages for having breached their contract with respondent The Plaza. 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.
Petitioners assail the order for the return of down payment, asserting that the principle of quantum
meruit demands that Rhogen as contractor be paid for the work already accomplished.
We disagree.
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.
Quantum meruit means that in an action for work and labor, payment shall be made in such amount as
the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied
would be to permit unjust enrichment at the expense of the contractor.[41]
Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two
months from the start of construction. Despite the down payment received from The Plaza, Rhogen, upon
evaluation of the Project Manager, was able to complete a meager percentage much lower than that
claimed by it under the first progress billing between July and September 1980. Moreover, after it
relinquished the project in January 1981, the site inspection appraisal jointly conducted by the Project
Manager, Building Inspector Engr. Gregory and representatives from FGU and Rhogen, Rhogen was
found to have executed the works not in accordance with the approved plans or failed to seek prior
approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point that if a person
obliged to do something fails to do it, the same shall be executed at his cost.
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.
In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be
entitled to receive further payment "until the work is finished." As the works completed by Rhogen were
not in accordance with approved plans, it should have been executed at its cost had it not relinquished
the project in January 1981. The CA thus did not err in sustaining the trial courts order for the return of
the down payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil Code provides that 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. 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 defendants wrongful act.[42] Petitioners contention that such award is
improper because The Plaza could have presented receipts to support the claim for actual damages, must
fail considering that Rhogen never denied the delivery of the owner-furnished materials which were under
its custody at the jobsite during the work stoppage and before it terminated the contract. Since Rhogen
failed to account either for those items which it had caused to be withdrawn from the premises, or those
considered damaged or lost due spoilage, or disappeared for whatever reason there was no way of
determining the exact quantity and cost of those materials. Hence, The Plaza was correctly allowed to
recover temperate damages.
Upon the foregoing, we find petitioners claim for actual, moral and exemplary damages and attorneys
fees lacking in legal basis and undeserving of further discussion.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated April
20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.
With costs against petitioners.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA
Associate Justice
ARTURO D. BRION
Associate Justice
MARIA LOURDES P. A. SERENO
Associate Justice

A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairpersons Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice




Footnotes
*
Designated additional member per Special Order No. 937 dated January 24, 2011.
1
Rollo, pp. 88-102. Penned by Associate Justice Aurora Santiago-Lagman, with Associate Justices
Josefina Guevara-Salonga and Normandie B. Pizarro, concurring.
2
Id. at 85-86.
3
Id. at 440-444. Penned by Judge Salvador S. Abad Santos.
4
Records, pp. 202-210.
5
Rollo, p. 139.
6
Id. at 140.
7
Id. at 141.
8
Records, Exhibits "DD" to "HH".
9
Rollo, pp. 368-370.
10
Id. at 388.
11
Id. at 389-390.
12
Id. at 391-392.
13
Id. at 393-396.
14
Id. at 146-147.
15
Id. at 149-150.
16
Id. at 151-154.
17
Id. at 156-158,161-162.
18
Id. at 159-160.
19
Id. at 103-120.
20
Id. at 299-319.
21
Id. at 276-282.
22
Id. at 442.
23
Id. at 442-443.
24
Id. at 444.
25
Docketed as CA-G.R. CV No. 58790.
26
CA rollo, p. 84.
27
Rollo, pp. 450-451.
28
Id. at 544-545.
29
Id. at 101-102.
30
Art. II, paragraph (4), General Construction Contract, records, pp. 733-734.
31
Rollo, pp. 96-98.
32
Id. at 98-101.
33
Id. at 44.
34
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
35
Heirs of Antonio F. Bernabe v. Court of Appeals, G.R. No. 154402, July 21, 2008, 559 SCRA 53,
66, citing Ong v. Court of Appeals, 369 Phil. 243, 252 (1999), Sps. Velarde v. Court of Appeals,
413 Phil. 360, 373 (2001) and Almira v. Court of Appeals, 447 Phil. 467, 482 (2003).
36
Rollo, pp. 55-58.
37
Records, Exhibit "AAA".
38
Art. IX, paragraph (2), General Construction Contract, records, p. 737.
39
Records, Exhibits "T," "RR" and "SS".
40
Id., Exhibit "AAA".
41
H. L. Carlos Construction, Inc. v. Marina Properties Corporation, G.R. No. 147614, January 29,
2004, 421 SCRA 428, 439, citing Melchor v. Commission on Audit, G.R. No. 95398, August 16,
1991, 200 SCRA 704, 713; Republic v. Court of Appeals, 359 Phil. 530, 640 (1998); and Eslao v.
Commission on Audit, G.R. No. 89745, April 8, 1991, 195 SCRA 730, 738-739.
42
Government Service Insurance System v. Labung-Deang, G.R. No. 135644, September 17,
2001, 365 SCRA 341, 350.
Unchecked Article




































Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 162523 November 25, 2009
NORTON RESOURCES AND DEVELOPMENT CORPORATION, Petitioner,
vs.
ALL ASIA BANK CORPORATION,
*
Respondent.
D E C I S I O N
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari
1
under Rule 45 of the Rules of Civil Procedure,
seeking the reversal of the Court of Appeals (CA) Decision
2
dated November 28, 2002 which set aside the
Decision
3
of the Regional Trial Court (RTC) of Davao City, Branch 14, dated August 27, 1999.
The Facts
Petitioner Norton Resources and Development Corporation (petitioner) is a domestic corporation engaged
in the business of construction and development of housing subdivisions based in Davao City, while
respondent All Asia Bank Corporation (respondent), formerly known as Banco Davao-Davao City
Development Bank, is a domestic banking corporation operating in Davao City.
On April 13, 1982, petitioner applied for and was granted a loan by respondent in the amount of Three
Million Eight Hundred Thousand Pesos (P3,800,000.00) as evidenced by a Loan Agreement.
4
The loan
was intended for the construction of 160 housing units on a 3.9 hectare property located in Matina
Aplaya, Davao City which was subdivided by petitioner per Subdivision Sketch Plan.
5
To speed up the
processing of all documents necessary for the release of the funds, petitioner allegedly offered
respondent a service/commitment fee of P320,000.00 for the construction of 160 housing units, or at
P2,000.00 per unit. The offer having been accepted, both parties executed a Memorandum of
Agreement
6
(MOA) on the same date.
As guarantor, the Home Financing Corporation (HFC), a government entity tasked to encourage lending
institutions to participate in the government's housing programs, extended security coverage obligating
itself to pay the said loan upon default of petitioner. Out of the loan proceeds in the amount of
P3,800,000.00, respondent deducted in advance the amount of P320,000.00 as commitment/service fee.
Unfortunately, petitioner was only able to construct 35 out of the 160 housing units proposed to be
constructed under the contract. In addition, petitioner defaulted in the payment of its loan obligation.
Thus, respondent made a call on the unconditional cash guarantee of HFC. In order to recover from HFC,
respondent assigned to HFC its interest over the mortgage by virtue of a Deed of Assignment
7
on August
28, 1983 coupled with the delivery of the Transfer Certificate of Title.
As of August 2, 1983, the outstanding obligation of petitioner amounted to P3,240,757.99. HFC paid only
P2,990,757.99, withholding the amount of P250,000.00. Upon payment, HFC executed a Deed of Release
of Mortgage
8
on February 14, 1984, thereby canceling the mortgage of all properties listed in the Deed of
Assignment. Respondent made several demands from HFC for the payment of the amount of
P250,000.00 but HFC continued to withhold the same upon the request of petitioner. Thus, respondent
filed an action to recover the P250,000.00 with the RTC, Branch 15, of Davao City, docketed as Civil Case
No. 17048.
9
On April 13, 1987, said RTC rendered a Decision
10
in favor of respondent, the dispositive
portion thereof reads as follows:
IN VIEW WHEREOF, judgment is hereby rendered as follows:
1. The defendant shall return to the plaintiff the P250,000.00 with legal interest to be computed
from April 12, 1984 until fully paid.
2. The defendant shall pay the plaintiff fifty thousand pesos (P50,000.00) as attorneys fees and
P7,174.82 as collection expenses.
3. The defendant shall pay the costs of this suit.
SO ORDERED.
11

HFC appealed to the CA which, in turn, sustained the decision of the RTC. The CA decision became final
and executory.
However, on February 22, 1993, petitioner filed a Complaint
12
for Sum of Money, Damages and
Attorneys Fees against respondent with the RTC, docketed as Civil Case No. 21-880-93. Petitioner
alleged that the P320,000.00 commitment/service fee mentioned in the MOA was to be paid on a per-unit
basis at P2,000.00 per unit. Inasmuch as only 35 housing units were constructed, petitioner posited that
it was only liable to pay P70,000.00 and not the whole amount of P320,000.00, which was deducted in
advance from the proceeds of the loan. As such, petitioner demanded the return of P250,000.00,
representing the commitment fee for the 125 housing units left unconstructed and unduly collected by
respondent.
In its Answer,
13
respondent denied that the P320,000.00 commitment/service fee provided in the MOA
was broken down into P2,000.00 per housing unit for 160 units. Moreover, respondent averred that
petitioners action was already barred by res judicata considering that the present controversy had
already been settled in a previous judgment rendered by RTC, Branch 15, of Davao City in Civil Case No.
17048.
The RTC's Ruling
After trial on the merits, the RTC rendered a Decision
14
on August 27, 1999 in favor of petitioner. It held
that the amount of P320,000.00, as commitment/service fee provided in the MOA, was based on the 160
proposed housing units at P2,000.00 per unit. Since petitioner was able to
construct only 35 units, there was overpayment to respondent in the amount of P250,000.00. Thus, the
RTC disposed of the case in this wise:
THE FOREGOING CONSIDERED, judgment is hereby rendered for the plaintiff and against the defendant
ordering the said defendant:
1. To pay the plaintiff the amount of TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00)
with interest at the legal rate reckoned from February 22, 1993, the date of the filing of the
plaintiffs complaint until the same shall have been fully paid and satisfied;
2. To pay the plaintiff the sum of THIRTY THOUSAND PESOS (P30,000.00) representing litigation
expenses;
3. To pay the plaintiff the sum of SIXTY TWO THOUSAND FIVE HUNDRED PESOS (P62,500.00)
as and for attorneys fees; and
4. To pay the costs.
SO ORDERED.
15

Aggrieved, respondent appealed to the CA.
16

The CA's Ruling
On November 28, 2002, the CA reversed the ruling of the RTC. The CA held that from the literal import of
the MOA, nothing was mentioned about the arrangement that the payment of the commitment/service
fee of P320,000.00 was on a per unit basis valued at P2,000.00 per housing unit and dependent upon the
actual construction or completion of said units. The CA opined that the MOA duly contained all the terms
agreed upon by the parties.
Undaunted, petitioner filed a Motion for Reconsideration
17
which was, however, denied by the CA in its
Resolution
18
dated February 13, 2004.
Hence, this Petition which raised the following issues:
1. WHETHER OR NOT THE MEMORANDU[M] OF AGREEMENT (MOA) REFLECTS THE TRUE
INTENTION OF THE PARTIES[;]
2. WHETHER OR NOT HEREIN PETITIONER IS ENTITLED TO RECOVER THE AMOUNT OF TWO
HUNDRED [FIFTY] THOUSAND PESOS REPRESENTING THE ONE HUNDRED TWENTY FIVE (125)
UNCONSTRUCTED HOUSING UNITS AT TWO THOUSAND PESOS (PHP. 2,000.00) EACH AS
AGREED [; AND]
3. WHETHER OR NOT VICTOR FACUNDO AS THE VICE PRESIDENT AND GENERAL MANAGER AT
THE TIME THE AFOREMENTIONED MOA WAS EXECUTED, WAS AUTHORIZED TO ENTER INTO
[AN] AGREEMENT AND TO NEGOTIATE THE TERMS AND CONDITIONS THEREOF TO THEIR
CLIENTELE.
19

Our Ruling
The instant Petition is bereft of merit.
Our ruling in Benguet Corporation, et al. v. Cesar Cabildo
20
is instructive:
The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of
the Civil Code: "[i]f 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." This provision is akin to the "plain
meaning rule" applied by Pennsylvania courts, which assumes that the intent of the parties to an
instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent
is to be discovered only from the express language of the agreement." It also resembles the "four
corners" rule, a principle which allows courts in some cases to search beneath the semantic surface for
clues to meaning. A court's purpose in examining a contract is to interpret the intent of the contracting
parties, as objectively manifested by them. The process of interpreting a contract requires the court to
make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of
the contract are not ambiguous and can only be read one way, the court will interpret the contract as a
matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is
left to the court, to resolve the ambiguity in the light of the intrinsic evidence.
In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:
The rule is that where the language of a contract is plain and unambiguous, its meaning should be
determined without reference to extrinsic facts or aids. The intention of the parties must be gathered
from that language, and from that language alone. Stated differently, where the language of a written
contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it
purports to mean, unless some good reason can be assigned to show that the words should be
understood in a different sense. Courts cannot make for the parties better or more equitable agreements
than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or
inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the
other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or
impose on him those which he did not.
21

Moreover, Section 9, Rule 130 of the Revised Rules of Court clearly provides:
SEC. 9. Evidence of written agreements. When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between the parties
and their successors in interest, no evidence of such terms other than the contents of the written
agreement.
However, a party may present evidence to modify, explain or add to the terms of the written agreement
if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties
thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.
The "parol evidence rule" forbids any addition to or contradiction of the terms of a written instrument by
testimony or other evidence purporting to show that, at or before the execution of the parties' written
agreement, other or different terms were agreed upon by the parties, varying the purport of the written
contract. When an agreement has been reduced to writing, the parties cannot be permitted to adduce
evidence to prove alleged practices which, to all purposes, would alter the terms of the written
agreement. Whatever is not found in the writing is understood to have been waived and abandoned.
22

None of the above-cited exceptions finds application in this case, more particularly the alleged failure of
the MOA to express the true intent and agreement of the parties concerning the commitment/service fee
of P320,000.00.
In this case, paragraph 4 of the MOA plainly states:
4. That the CLIENT offers and agrees to pay a commitment and service fee of THREE HUNDRED TWENTY
THOUSAND PESOS (P320,000.00), which shall be paid in two (2) equal installments, on the same dates
as the first and second partial releases of the proceeds of the loan.
23

As such, we agree with the findings of the CA when it aptly and judiciously held, to wit:
Unmistakably, the testimonies of Antonio Soriano and Victor Facundo jibed in material points especially
when they testified that the P320,000.00 commitment/service fee mentioned in Paragraph 4 of Exhibit
"B" is not to be paid in lump sum but on a per unit basis valued at P2,000.00 per housing unit. But a
careful scrutiny of such testimonies discloses that they are not in accord with the documentary evidence
on record. It must be stressed that both Antonio Soriano and Victor Facundo testified that the
P320,000.00 commitment/service fee was arrived at by multiplying P2,000.00, the cost per housing unit;
by 160, the total number of housing units proposed to be constructed by the [petitioner] as evidenced by
a certain subdivision survey plan of [petitioner] marked as Exhibit "C."
x x x x
Looking closely at Exhibit "C," noticeable are the date of survey of the subdivision which is May 15-31,
1982 and the date of its approval which is June 25, 1982, which dates are unmistakably later than the
execution of the Loan Agreement (Exhibit "A") and Exhibit "B" which was on April 13, 1982. With these
dates, we cannot lose sight of the fact that it was impossible for Victor Facundo to have considered
Exhibit "C" as one of the documents presented by [petitioner] to support its proposal that the
commitment/service fee be paid on a per unit basis at P2,000.00 a unit. x x x.
x x x x
To stress, there is not even a slim possibility that said blue print (referring to Exhibit "C") was submitted
to [respondent] bank during the negotiation of the terms of Exhibit "B" and was made the basis for the
computation of P320,000.00 commitment/service fee. As seen on its face, Exhibit "C" was approved in a
much later date than the execution of Exhibit "B" which was on April 13, 1982. In addition, as viewed
from the foregoing testimony, no less than Victor Facundo himself admitted that there were only 127
proposed housing units instead of 160. Considering these factual milieus, there is sufficient justification to
discredit the stance of [petitioner] that Exhibit "B" was not reflective of the true intention or agreement of
the parties. Paragraph 4 of Exhibit "B" is clear and explicit in its terms, leaving no room for different
interpretation. Considering the absence of any credible and competent evidence of the alleged true and
real intention of the parties, the terms of Paragraph 4 of Exhibit "B" remains as it was written. Therefore,
the payment of P320,000.00 commitment/service fee mentioned in Exhibit "B" must be paid in lump sum
and not on a per unit basis. Consequently, we rule that [petitioner] is not entitled to the return of
P250,000.00.
24
1avvphi1
The agreement or contract between the parties is the formal expression of the parties' rights, duties and
obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an agreement
have been reduced to writing, it is considered as containing all the terms agreed upon and there can be
no evidence of such terms other than the contents of the written agreement between the parties and
their successors in interest.
25
Time and again, we have stressed the rule that a contract is the law
between the parties, and courts have no choice but to enforce such contract so long as it is not contrary
to law, morals, good customs or public policy. Otherwise, courts would be interfering with the freedom of
contract of the parties. Simply put, courts cannot stipulate for the parties or amend the latter's
agreement, for to do so would be to alter the real intention of the contracting parties when the contrary
function of courts is to give force and effect to the intention of the parties.
26

Finally, as correctly observed by respondent, petitioner's claim that the MOA is a contract of adhesion
was never raised by petitioner before the lower courts. Settled is the rule that points of law, theories,
issues, and arguments not adequately brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court. They cannot be raised for the first time on appeal.
To allow this would be offensive to the basic rules of fair play, justice and due process.
27

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of
contract, which the other party may accept or reject, but which the latter cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes his signature or his
"adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain
on equal footing.
28
It must be borne in mind, however, that contracts of adhesion are not invalid per se.
Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not
entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he
adheres, he gives his consent.
29

All told, we find no reason to disturb, much less, to reverse the assailed CA Decision.
WHEREFORE, the instant Petition is DENIED and the assailed Court of Appeals Decision is AFFIRMED.
Costs against petitioner.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
RENATO C. CORONA
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO
Associate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*
Formerly known as Banco Davao-Davao City Development Bank.
1
Rollo, pp. 11-20.
2
Penned by Associate Justice Bienvenido L. Reyes, with Associate Justices Romeo A. Brawner
(deceased) and Danilo B. Pine, concurring; rollo, pp. 27-39.
3
Records, pp. 221-231.
4
Exhibit "1," id. at 148-151.
5
Exhibit "C," id. at 134.
6
Exhibit "2," id. at 152-154.
7
Records, pp. 185-188.
8
Id. at 189-190.
9
CA rollo, pp. 58-63.
10
Id. at 64-79.
11
Id. at 79.
12
Records, pp. 1-4.
13
Id. at 19-22.
14
Supra note 3.
15
Id. at 231.
16
Records, p. 232.
17
CA rollo, pp. 125-129.
18
Id. at 138-139.
19
Supra note 1, at 14.
20
G.R. No. 151402, August 22, 2008, citing Abad v. Goldloop Properties, Inc., 521 SCRA 131,
143-145 (2007).
21
Citations omitted.
22
Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc., G.R. No. 146428,
January 19, 2009.
23
Supra note 6, at 153.
24
Supra note 2, at 35-39.
25
Gamboa, Rodriguez, Rivera & Co., Inc. v. Court of Appeals, G.R. No. 117456, May 6, 2005, 458
SCRA 68, 73.
26
Heirs of San Andres v. Rodriguez, 388 Phil. 571, 586 (2000).
27
Stronghold Insurance Company, Inc. v. Tokyu Construction Company, Ltd., G.R. Nos. 158820-
21, June 5, 2009, citing Eastern Assurance and Surety Corporation v. Con-Field Construction and
Development Corporation, 552 SCRA 271, 279-280 (2008).
28
Radio Communications of the Philippines, Inc. v. Verchez, G.R. No. 164349, January 31, 2006,
481 SCRA 384, 401, citing Philippine Commercial International Bank v. Court of Appeals, 325 Phil.
588, 597 (1996).
29
Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No. 176246,
February 13, 2009.

The Lawphil Project - Arellano Law Foundation





























Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 156038 October 11, 2010
SPOUSES VICTORIANO CHUNG and DEBBIE CHUNG, Petitioners,
vs.
ULANDAY CONSTRUCTION, INC.,
*
Respondent.
D E C I S I O N
BRION, J.:
We resolve the petition for review on certiorari
1
filed by petitioners Spouses Victoriano Chung and Debbie
Chung (petitioners) to challenge the decision
2
and resolution
3
of the Court of Appeals (CA) in CA-G.R. CV
No. 61583.
4

FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized below.
In February 1985, the petitioners contracted with respondent Ulanday Construction, Inc. (respondent) to
construct, within a 150-day period,
5
the concrete structural shell of the formers two-storey residential
house in Urdaneta Village, Makati City at the contract price of P3,291,142.00.
6

The Contract
7
provided that: (a) the respondent shall supply all the necessary materials, labor, and
equipment indispensable for the completion of the project, except for work to be done by other
contractors;
8
(b) the petitioners shall pay a P987,342.60
9
downpayment, with the balance to be paid in
progress payments based on actual work completed;
10
(c) the Construction Manager or Architect shall
check the respondents request for progress payment and endorse it to the petitioners for payment within
3 days from receipt;
11
(d) the petitioners shall pay the respondents within 7 days from receipt of the
Construction Managers or Architects certificate; (e) the respondent cannot change or alter the plans,
specifications, and works without the petitioners prior written approval;
12
(f) a penalty equal to 0.01% of
the contract amount shall be imposed for each day of delay in completion, but the respondent shall be
granted proportionate time extension for delays caused by the petitioners;
13
(g) the respondent shall
correct, at its expense, defects appearing during the 12-month warranty period after the petitioners
issuance of final acceptance of work.
14

Subsequently, the parties agreed to exclude from the contract the roofing and flushing work, for
P321,338.00,
15
reducing the contract price to P2,969,804.00. On March 17, 1995, the petitioners paid the
P987,342.60 downpayment,
16
with the balance of P1,982,461.40 to be paid based on the progress
billings. While the building permit was issued on April 10, 1995,
17
actual construction started on March 7,
1995.
18

As the actual construction went on, the respondent submitted 12 progress billings.
19
While the petitioners
settled the first 7 progress billings, amounting to P1,270,641.59,
20
payment was made beyond the seven
(7)-day period provided in the contract. The petitioner subsequently granted the respondent a
P100,000.00 cash advance,
21
leaving the unpaid progress billings at P445,922.13.
22

During the construction, the respondent also effected 19 change orders
without the petitioners prior written approval, amounting to P912,885.91.
23
The petitioners, however,
paid P42,298.61 for Change Order No. 1
24
and partially paid P130,000.00 for Change Order Nos. 16 and
17.
25
Petitioner Debbie Chung acknowledged in writing that the balance for Change Order Nos. 16 and 17
would be paid upon completion of the contract.
26
The outstanding balance on the change orders totaled
P740,587.30.
On July 4, 1995, the respondent notified the petitioners that the delay in the payment of progress billings
delays the accomplishment of the contract work.
27
The respondent made similar follow-up letters
between July 1995 to February 1996.
28
On March 28, 1996, the respondent demanded full payment for
progress billings and change orders.
29
On April 8, 1996, the respondent demanded payment of
P1,310,670.56 as outstanding balance on progress billings and change orders.
30

In a letter dated April 16, 1996, the petitioners denied liability, asserting that the respondent violated the
contract provisions by, among others, failing to finish the contract within the 150-day stipulated period,
failing to comply with the provisions on change orders, and overstating its billings.
31

On May 8, 1996, the respondent filed a complaint with the Regional Trial Court (RTC), Branch 145,
Makati City, for collection of the unpaid balance of the contract and the unpaid change orders, plus
damages and attorneys fees.
32

In their answer with counterclaim,
33
the petitioners complained of the respondents delayed and defective
work. They demanded payment of liquidated damages for delay in the completion, the construction
errors, loss or non-usage of specified construction materials, unconstructed and non-completed works,
plus damages and attorneys fees.
THE RTC RULING
In a decision
34
dated December 11, 1997, the RTC found that both parties have not complied strictly with
the requirements of the contract. It observed that change orders were made without the parties
prescribed written agreement, and that each party should bear their respective costs. It noted that the
respondent could not demand from the petitioners the payment for change orders undertaken upon
instruction of the project architect without the petitioners written approval. Applying Article 1724 of the
Civil Code, the RTC found that when the respondent performed the change orders without the petitioners
written agreement, it did so at its own risk and it could not compel the petitioners to pay.
The RTC noted that the petitioners were nonetheless liable for P130,000.00 under Change Order Nos. 16
and 17, because petitioner Debbie Chung ratified and acknowledged that such amount was still due upon
completion. It also noted that the respondent should not be faulted or penalized for the delay in the
completion of the contract within the 150-day period due to the petitioners delay in the payment of the
progress billings. It found, however, that the petitioners are liable for the construction defect on the roof
leak traceable to the shallow concrete gutter.
Thus, the RTC ordered the respondent to repair, at its expense, the defective concrete gutter of the
petitioners house and to restore other affected structures according to the architectural plans and
specifications. It likewise ordered the petitioners to pay the respondent P629,819.84 as unpaid balance
on the progress billings and P130,000.00 as unpaid balance on the ratified change orders.
Both parties elevated the case to the CA by way of ordinary appeal under Rule 41 of the Rules of Court.
The respondent averred that the RTC failed to consider evidence of the petitioners bad faith in violating
the contract, while the petitioners argued that the RTC should have quantified the cost of the repairs and
simply ordered the respondent to reimburse the petitioners expenses.
THE CA RULING
The CA decided the appeal on June 28, 2002.
35
It found Article 1724 inapplicable because the provision
pertains to disputes arising from the higher cost of labor and materials, while the respondent demands
payment of change order billings and there was no demand for increase in the costs of labor and
materials. Applying the principle of estoppel in pais, the appellate court noted that the petitioners
impliedly consented or tacitly ratified the change orders by payment of several change order billings and
their inaction or non-objection to the construction of the projects covered by the change orders.
Thus, the CA affirmed the RTC decision, but increased the payment on the unpaid balance of the change
orders to P740,587.11. It likewise ordered the petitioners to pay 6% interest on the unpaid amounts from
the day of formal demand and until the finality of the decision, and 12% interest after finality of the
decision, plus P50,000.00 as exemplary damages.
Both parties filed motions for reconsideration. On November 15, 2002, the CA issued a resolution denying
the petitioners motion for reconsideration, but partially granting the respondents motion for
reconsideration by awarding it attorneys fees equal to 10% of the total award.
36

Hence, the petitioners came to us through the present petition.
THE PETITION
The petitioners insist that the CA should have quantified the cost of the repairs on the defective gutter
and simply ordered the respondent to reimburse the petitioners expenses because repairing the defective
gutter requires the demolition of the existing cement gutter, the removal of the entire roofing and the
dismantling of the second floor steel trusses; they are entitled to liquidated damages for the unjust delay
in the completion of the construction within the 150-day contract period; the award of P629,819.84 for
progress billings is unwarranted since only P545,920.00 is supported by the respondents evidence; the
respondents construction errors should set-off or limit the petitioners liability, if any; the CA
misinterpreted Article 1724 of the Civil Code and misapplied the principle of estoppel in pais since the
contract specifically provides the petitioners prior written approval for change orders; the respondent is
not entitled to exemplary damages and attorneys fees since the respondent was at fault for the defective
gutter.
THE CASE FOR THE RESPONDENT
The respondent submits that the petition is merely dilatory since it seeks to review the lower courts
factual findings and conclusions, and it raised no legal issue cognizable by this Court.
37

THE ISSUE
The core issue is whether the CA erred in: (a) affirming the RTC decision for payment of progress
billings; (b) in increasing the amount due for change orders; and, (c) in awarding exemplary damages
and attorneys fees to the respondent.
OUR RULING
We find the petition meritorious.
This Court is not a trier of facts. However, when the inference drawn by the CA from the facts is
manifestly mistaken, as in the present case, we can review the evidence to allow us to arrive at the
correct factual conclusions based on the record.
38

Contract is the law between the parties
In contractual relations, the law allows the parties leeway and considers their agreement as the law
between them.
39
Contract stipulations that are not contrary to law, morals, good customs, public order or
public policy shall be binding
40
and should be complied with in good faith.
41
No party is permitted to
change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party.
42
In the present case, we find that both parties failed to comply strictly with
their contractual stipulations on the progress billings and change orders that caused the delays in the
completion of the project.
Amount awarded for unpaid progress billings is unsupported by evidence
There is no dispute that the petitioners failed to pay progress billings nos. 8 to 12. However, we find no
basis to hold the petitioners liable for P629,819.84, the balance of the total contract price, without
deducting the discount of P18,000.00 granted by the respondent. The petitioners likewise cannot be held
liable for the balance of the total contract price because that amount is clearly unsupported by the
evidence; only P545,922.13
43
is actually supported by progress billings nos. 8 to 12. Deducting the
respondents P100,000.00 cash advance,
44
the unpaid progress billings amount to only P445,922.13.
Article 1724 of the Civil Code applies
The CA erred in ruling that Article 1724 of the Civil Code does not apply because the provision pertains to
disputes arising from the higher cost of labor and materials and there was no demand for increase in the
costs of labor and materials.
Article 1724
45
governs the recovery of additional costs in contracts for
a stipulated price (such as fixed lump-sum contracts), and the increase in price for additional work due to
change in plans and specifications.

Such added cost can only be allowed upon the: (a) written authority
from the developer or project owner ordering or allowing the written changes in work, and (b) written
agreement of parties with regard to the increase in price or cost due to the change in work or design
modification. Compliance with these two requisites is a condition precedent for the recovery. The absence
of one or the other condition bars the recovery of additional costs. Neither the authority for the changes
made nor the additional price to be paid therefor may be proved by any other evidence.
46

In the present case, Article I, paragraph 6, of the Contract incorporates this provision:
The CONTRACTOR shall make no change or alteration in the plans, and specifications as well as in the
works subject hereof without the prior written approval of the OWNER. A mere act of tolerance shall not
constitute approval.
47

Significantly, the respondent did not secure the required written approval of the petitioners before
making the changes in the plans, specifications and works. Thus, for undertaking change orders without
the stipulated written approval of the petitioners, the respondent cannot claim the additional costs it
incurred, save for the change orders the petitioners accepted and paid for as discussed below.
CA misapplied the principle of estoppel in pais
The petitioners payment of Change Order Nos. 1, 16, and 17 and their non-objection to the other change
orders effected by the respondent cannot give rise to estoppel in pais that would render the petitioners
liable for the payment of all change orders.
Estoppel in pais, or equitable estoppel, arises when one, by his acts, representations or admissions or by
his silence when he ought to speak out, intentionally or through culpable negligence, induces another to
believe certain facts to exist and the other rightfully relies and acts on such beliefs so that he will be
prejudiced if the former is permitted to deny the existence of such facts.
48
The real office of the equitable
norm of estoppel is limited to supplying deficiency in the law, but it should not supplant positive law.
49

In this case, the requirement for the petitioners written consent to any change or alteration in the
specifications, plans and works is explicit in Article 1724 of the Civil Code and is deemed written in the
contract between the parties.
50
The contract also expressly provides that a mere act of tolerance does
not constitute approval. Thus, the petitioners did not, by accepting and paying for Change Order Nos. 1,
16, and 17, do away with the contractual term on change orders nor with the application of Article 1724.
The payments for Change Order Nos. 1, 16, and 17 are, at best, acts of tolerance on the petitioners part
that could not modify the contract.
Consistent with this ruling, the petitioners are still liable for the P130,000.00 balance on Change Order
Nos. 16 and 17 that, to date, remain unpaid.
51

Accordingly, the petitioners outstanding liabilities amount to P445,922.13 for the unpaid progress billings
and P130,000.00 for the ratified change orders, or a total of P575,922.13.
Award of exemplary damages and attorneys fees is unwarranted.
We cannot allow the award for exemplary damages and attorneys fees. It is a requisite in the grant of
exemplary damages that the act of the offender must be accompanied by bad faith or done in a wanton,
fraudulent, or malevolent manner.
52
On the other hand, attorneys fees may be awarded only when a
party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of
the other party, as when the defendant acted in gross and evident bad faith in refusing the plaintiffs
plainly valid, just and demandable claim.
53
We do not see the presence of these circumstances in the
present case. As previously discussed, the petitioners refusal to pay the change orders was based on a
valid ground lack of their prior written approval. There, too, is the matter of defective construction
discussed below.
Petitioners liability is set-off by respondents construction defect
We cannot sustain the lower courts order to repair the defective concrete gutter. The considerable lapse
of time between the filing of the complaint in May 1996 and the final resolution of the present case
renders the order to repair at this time highly impractical, if not manifestly absurd. Besides, under the
contract, the respondents repair of construction defects, at its expense, pertains to the 12-month
warranty period after the petitioners issuance of the final acceptance of work.
54
This provision does not
apply since the petitioners have not even issued a certificate of completion and final acceptance of work.
Under the circumstances, fairness and reason dictate that we simply order the set-off of the petitioners
contractual liabilities totaling P575,922.13 against the repair cost for the defective gutter, pegged at
P717,524.00,
55
leaving the amount of P141,601.87 still due from the respondent. Support in law for this
ruling for partial legal compensation proceeds from Articles 1278,
56
1279,
57
1281,
58
and 1283
59
of the Civil
Code. In short, both parties are creditors and debtors of each other, although in different amounts that
are already due and demandable.
Monetary award is subject to legal interest
Pursuant to our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,
60
we hold that the
amount of P141, 601.87 is subject to the legal interest of 6% per annum computed from the time the
RTC rendered judgment on December 11, 1997 since it was the respondent who filed the complaint.
61

After the finality of this decision, the judgment award inclusive of interest shall bear interest at 12% per
annum until full satisfaction.
WHEREFORE, the petition is hereby GRANTED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV Nos. 61583 are REVERSED and SET ASIDE. The respondent is ORDERED to pay
the petitioners P141,601.87 representing the balance of the repair costs for the defective gutter in the
petitioners house, with interest at 6% per annum to be computed from the date of the filing of the
complaint until finality of this decision and 12% per annum thereafter until full payment.
No pronouncement as to costs.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
MARIA LOURDES P.A. SERENO
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*
Known as "Ulanday Constructors, Inc." and "Ulanday Contractors, Inc." in other parts of the
record.
1
Filed under Rule 45 of the Rules of Court; rollo, pp. 9-67.
2
Dated June 28, 2002; penned by Associate Justice Andres B. Reyes, Jr., with the concurrence of
Associate Justices Josefina Guevara-Salonga and Mario L. Guaria III; id. at 69-88.
3
Dated November 22, 2002, id. at 90-93.
4
Entitled "Ulanday Construction, Inc. v. Sps. Victoriano Chung and Debbie Chung."
5
Article VI of the Contract, Exhibit "A", Folder of Plaintiffs Exhibits, p. 6.
6
Article III of the Contract, Exhibit "A", id. at 2-4.
7
Exhibit "A", id. at 1-11.
8
The exempted works were electrical works and fixtures, plumbing works equipment and
fixtures, landscaping and site development, sanitary dump and deepwell, and interior and
exterior architectural finishes; Article II of the Contract, Exhibit "A", id. at 2.
9
Article V, paragraph A, of the Contract, Exhibit "A", id. at 5.
10
Article V, paragraph B, of the Contract, Exhibit "A", ibid.
11
Ibid.
12
Article I, paragraph 6, of the Contract, Exhibit "A", id. at 2.
13
Article V, paragraph D, of the Contract, Exhibit "A", id. at 5.
14
Article IX, paragraph C, of the Contract, Exhibit "A", id. at 7.
15
Erroneously printed as P321,388.00, Exhibit "A", id. at 4.
16
Exhibit "104", Folder of Defendants Exhibits, p. 246.
17
Exhibit "86", id. at 214.
18
Affidavit by way of Direct Testimony of Defendant Debbie Chung, Original Records, p. 584.
19
Progress Date Amount Amount Approved billing no.
1 May 31 1995 P448,512.06 P342,976.63
2 June 26, 1995 P466,747.64
3 July 10, 1995 P236,843.50 P187,180.50
4 July 26, 1995 P219,437.99 P170,278.44
5 August 16, 1995 P160,779.45 P108,445.91
6 August 31, 1995 P110,128.93 P66,518.18
7 September 18, 1995 P209,073.81 P88,157.70
8 October 14, 1995 P33, 516.25 P36,481.42
9 November 4, 1995 P216,419.11 P126,628.27
10 November 27, 1995 P72,547.23 P68,350.51
11 December 11, 1995 P187,268.12 P62,316.13
12 December 27, 1995 P252,145.80
(Exhibit "LL", Folder of Plaintiffs Exhibits, p. 81).
20
The petitioners paid progress billing nos. 1 and 2 for P695,275.00 on June 11, 1995; progress
billing no. 3 for P186,461.29 on August 8, 1995; progress billing nos. 4 and 5 for P208,038.21 on
September 11, 1995; progress billing no. 6 for P92,781.00 on October 3, 1995; and, progress
billing no. 7 for P88,086.09 on October 31, 1995 (Exhibit "LL", ibid).
21
Exhibit "C-3", id. at 20.
22
Supra note 19.
23
Change Order No. 1 (construction of room warehouse) P42,298.61
Change Order No. 3 (rehabilitation of trusses and rear portion ) 57,866.00
Change Order No. 4 (Installation of purlins) 29,764.00
Change Order No. 6 (reinforcement of truss at rear portion) 10,000.00
Change Order No. 8 (breaking of slab) 10,560.00
Change Order No. 12 (additional wall footing) 14,000.00
Change Order No. 13 (additional canopy at service) 30,000.00
Change Order No. 15 (ceiling eaves) 190,731.00
Change Order No. 16 (wood battens) 60, 000.00
Change Order No. 17 (structural reinforcement) 200,000.00
Change Order No. 18 (additional angle bar) 14,000.00
Change Order No. 19 (stair revision) 13,000.00
Change Order No. 21 (revision of porch) 7,055.65
Change Order No. 24 (false column and additional groove) 41,498.00
Change Order No. 25 (additional footing and column at entrance) 33,664.00
Change Order No. 26 (additional laundry tub at service) 6,949.10
Change Order No. 27 (additional slab on fill at garage and service) 93,685.00
Change Order No. 28 (revision of window sill) 49,091.00
Change Order No. 29 (additional burdillo at bridgeway and stairs) 8,723.55
Total P912,885.91
(Exhibits "G" to "X", id. at 30-31, 41-50, 54-56, 59-62)
24
The petitioners paid Change Order No. 1; Exhibit "Q-1", id. at 51.
25
The petitioner partially paid Change Order Nos. 16 and 17 on September 11, 1995; Exhibits "N"
and "O-1", id. at 46 and 48.
26
Exhibits "N" and "O-1", ibid.
27
Exhibit "Y", id. at 63.
28
Exhibits "Z" to "FF", id. at 64-70.
29
Exhibit "HH", id. at 72.
30
Exhibit "JJ", id. at 74.
31
Exhibit "JJ-1", id. at 76-78.
32
Original Records, pp. 1-7.
33
Id., pp. 44-57.
34
Rollo, p. 115-125.
35
Id. at 69-88.
36
Id. at 90-93.
37
Id. at 148-152.
38
Aguirre v. Heirs of Lucas Villanueva, G.R. No. 169898, October 27, 2006, 505 SCRA 855, 860;
Heirs of Flores Restar v. Heirs of Dolores R. Cichon, G.R. No. 161720, November 22, 2005, 475
SCRA 731, 739.
39
CIVIL CODE, Art. 1159; Norton Resources and Development Corporation v. All Asia Bank
Corporation, G.R. No. 162523, November 25, 2009, 605 SCRA 370, 380.
40
CIVIL CODE, Art. 1306; National Power Corporation v. Premier Shipping Lines, Inc. G.R. No.
179103, September 17, 2009, 600 SCRA 153, 176; Meralco Industrial Engineering Services
Corporation v. National Labor Relations Commission, G.R. No. 145402, March 14, 2008, 548
SCRA 315, 334.
41
CIVIL CODE, Art. 1159.
42
Liga v. Allegro Resources Corp., G.R. No. 175554, December 23, 2008, 575 SCRA 310, 320;
Department of Health v. HMTC Engineers Company, G.R. No. 146120, January 27, 2006, 480
SCRA 299, 311.
43
Excluding the P100,000.00 case advance, supra notes 19 and 21.
44
Supra note 21.
45
ART. 1724. The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the land-owner,
can neither withdraw from the contract nor demand an increase in the price on account of the
higher cost of labor or materials, save when there has been a change in the plans and
specifications, provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by
both parties.
46
Titan-Ikeda Construction & Development Corporation v. Primetown Properties Group, Inc., G.R.
No. 158768, February 12, 2008, 544 SCRA 466, 489-490; Powton Conglomerate, Inc. v.
Agcolicol, 448 Phil. 643, 655 (2003).
47
Supra note 12.
48
Soliman v. Pampanga Sugar Development Company (PASUDECO), Inc., G.R. No. 169589, June
16, 2009, 589 SCRA 236, 252.
49
Ibid.
50
See Halaguea v. Philippine Airlines, Incorporated, G.R. No. 172013, October 2, 2009, 602
SCRA 297, 313, citing Pakistan International Airlines Corporation v. Ople, G.R. No. 61594,
September 28, 1990, 190 SCRA 90, 99; National Steel Corporation v. RTC, Br. 2, Iligan City, 364
Phil. 240, 257 (1999).
51
Supra note 25.
52
Tanay Recreation Center and Development Corp. v. Fausto, G.R. No. 140182, April 12, 2005,
455 SCRA 436, 457.
53
CIVIL CODE, ART. 2208. In the absence of stipulation, attorney's fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing the plaintiff's
plainly valid, just, and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers, and skilled
workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
54
Supra note 14.
55
Exhibit "53", Folder of Defendants Exhibits, p. 174.
56
ART. 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.
57
ART. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
58
ART. 1281. Compensation may be total or partial. When the two debts are of the same
amount, there is total compensation.
59
ART. 1283. If one of the parties to a suit over an obligation has a claim for damages against
the other, the former may set it off by proving his right to said damages and the amount thereof.
60
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
We held:
"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."
61
See Crystal v. Bank of the Philippine Islands, G.R. No. 180274, September 4, 2009, 598 SCRA
464, 471.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 171660 October 17, 2011
CONTINENTAL CEMENT CORPORATION Petitioner,
vs.
ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B. ERIKSON,
**

Respondents.
D E C I S I O N
DEL CASTILLO, J.:
"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."
1

This Petition for Review on Certiorari
2
under Rule 45 of the Rules of Court assails the Decision
3
dated
August 25, 2005 and the Resolution
4
dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV
No. 58551.
Factual Antecedents
Sometime in July 1990, petitioner Continental Cement Corporation (CCC),
a corporation engaged in the business of producing cement,
5
obtained the services of respondents
6
Asea
Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln
Drive Motor).
7

On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner
filed with Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint
8
for sum of money
and damages, docketed as Civil Case No. Q-91-10419, against respondent corporations and respondent
Tord B. Eriksson (Eriksson), Vice-President of the Service Division of the respondent ABB.
9
Petitioner
alleged that:
4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants to
be repaired under PO No. 17136-17137, x x x
The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor.
He has direction and control of the business of the defendant corporations. Apparently, the
defendant Asea Brown Boveri, Inc. has no separate personality because of the 4,000 shares of
stock, 3996 shares were subscribed by Honorio Poblador, Jr. The four other stockholders
subscribed for one share of stock each only.
5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for testing
on October 3, 1990. On October 4, 1990 the test failed. The plaintiff removed the DC Drive Motor
and replaced it with its old motor. It was only on October 9, 1990 that the plaintiff resumed
operation. The plaintiff lost 1,040 MTD per day from October 5 to October 9, 1990.
6. On November 14, 1990, after the defendants had undertaken the second repair of the motor
in question, it was installed in the kiln. The test failed again. The plaintiff resumed operation with
its old motor on November 19, 1990. The plaintiff suffered production losses for five days at the
rate of 1,040 MTD daily.
7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor.1avvphi1
On March 13, 1991, the motor was installed and tested. Again, the test failed. The plaintiff
resumed operation on March 15, 1991. The plaintiff sustained production losses at the rate of
1,040 MTD for two days.
8. As a consequence of the failure of the defendants to comply with their contractual obligation
to repair the 160 KW Kiln DC Drive Motor, the plaintiff sustained the following losses:
(a) Production and opportunity losses - P10,600,000.00
This amount represents only about 25% of the production losses at the rate of P72.00
per bag of cement.
(b) Labor Cost and Rental of Crane - 26,965.78
(c) Penalties (at P987.25 a day) for
failure to deliver the motor from
Aug. 29, 1990 to July 31, 1991. - 331,716.00
(d) Cost of money interest of the
P987.25 a day from July 18, 1990
to April 5, 1991 at 34% for 261 days - 24,335.59
Total Damages 10,983,017.42
9. The plaintiff has made several demands on the defendants for the payment of the above-
enumerated damages, but the latter refused to do so without valid justification.
10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty
Percentum (20%) of the amount sought to be recovered as attorneys fees.
10

Respondents, however, claimed that under Clause 7 of the General Conditions,
11
attached to the letter of
offer
12
dated July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB "does
not extend to consequential damages either direct or indirect."
13
Moreover, as to respondent Eriksson,
there is no lawful and tenable reason for petitioner to sue him in his personal capacity because he did not
personally direct the repair of the Kiln Drive Motor.
14

Ruling of the Regional Trial Court
On August 30, 1995, the RTC rendered a Decision
15
in favor of petitioner. The RTC rejected the defense
of limited liability interposed by respondents since they failed to prove that petitioner received a copy of
the General Conditions.
16
Consequently, the RTC granted petitioners claims for production loss, labor cost
and rental of crane, and attorneys fees.
17
Thus:
WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is
hereby rendered in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and
severally the former, the following sums:
P10,600,00.00 for loss of production;
P 26,965.78 labor cost and rental of crane;
P 100,000.00 attorneys fees and cost.
SO ORDERED.
18

Ruling of the Court of Appeals
On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the General
Conditions and ruled that there is no implied warranty on repair work; thus, the repairman cannot be
made to pay for loss of production as a result of the unsuccessful repair.
19
The fallo of the CA Decision
20

reads:
WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial Court of
Quezon City, Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is
hereby DISMISSED.
SO ORDERED.
21

Petitioner moved for reconsideration
22
but the CA denied the same in its Resolution
23
dated February 16,
2006.
Issues
Hence, the present recourse where petitioner interposes the following issues:
1. Whether x x x the [CA] gravely erred in applying the terms of the "General Conditions" of
Purchase Orders Nos. 17136 and 17137 to exculpate the respondents x x x from liability in this
case.
2. Whether x x x the [CA] seriously erred in applying the concepts of implied warranty and
warranty against hidden defects of the New Civil Code in order to exculpate the respondents x x
x from its contractual obligation.
24

Petitioners Arguments
Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never
agreed to be bound by it nor did petitioner receive a copy of it.
25
Petitioner also imputes error on the part
of the CA in applying the concepts of warranty against hidden defects and implied warranty.
26
Petitioner
contends that these concepts are not applicable because the instant case does not involve a contract of
sale.
27
What applies are Articles 1170 and 2201 of
the Civil Code.
28

Respondents Arguments
Conversely, respondents insist that petitioner is bound by the General Conditions.
29
By issuing Purchase
Order Nos. 17136-37, petitioner in effect accepted the General Conditions appended to respondent ABBs
letter of offer.
30
Respondents likewise defend the ruling of the CA that there could be no implied warranty
on the repair made by respondent ABB as the warranty of the fitness of the equipment should be
enforced directly against the manufacturer of the Kiln Drive Motor.
31
Respondents also deny liability for
damages claiming that they performed their obligation in good faith.
32

Our Ruling
The petition has merit.
Petitioner and respondent ABB entered into a contract for the repair of petitioners Kiln Drive Motor,
evidenced by Purchase Order Nos. 17136-37,
33
with the following terms and conditions:
a) Total Price: P197,450.00
b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment
34

c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and
Twenty five centavos (P987.25) per day of delay.
Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to
repair the Kiln Drive Motor; thus, prompting petitioner to sue for damages.
Clause 7 of the General Conditions is not binding on petitioner
Respondents contend that under Clause 7 of the General Conditions their liability "does not extend to
consequential damages either direct or indirect."
35
This contention, however, is unavailing because
respondents failed to show that petitioner was duly furnished with a copy of said General Conditions.
Hence, it is not binding on petitioner.
Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to
Articles 1167, 1170, and 2201 of the Civil Code, which state:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.
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.
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.
Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the
execution of the obligation plus damages. Though entitled, petitioner in this case is not claiming
reimbursement for the repair allegedly done by Newton Contractor,
36
but is instead asking for damages
for the delay caused by respondent ABB.
Petitioner is entitled to penalties under Purchase Order Nos. 17136-37
As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day
from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to
petitioner. Records show that although the testing of Kiln Drive Motor was done on March 13, 1991, the
said motor was actually delivered to petitioner as early as January 7, 1991.
37
The installation and testing
was done only on March 13, 1991 upon the request of petitioner because the Kiln was under repair at the
time the motor was delivered; hence, the load testing had to be postponed.
38

Under Article 1226
39
of the Civil Code, the penalty clause takes the place of indemnity for damages and
the payment of interests in case of non-compliance with the obligation, unless there is a stipulation to the
contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount of P987.25
per day of delay covers all other damages (i.e. production loss, labor cost, and rental of the crane)
claimed by petitioner.
Petitioner is not entitled to recover production loss, labor cost and the rental of crane
Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the
instant case,
40
damages and interests may still be recovered on top of the penalty. Damages claimed
must be the natural and probable consequences of the breach, which the parties have foreseen or could
have reasonably foreseen at the time the obligation was constituted.
41

Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and
the rental of the crane.
Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for
labor to install the motor.
42
But except for the Summary of Claims for Damages,
43
no other evidence was
presented by petitioner to show that it had indeed rented a crane or that it incurred labor cost to install
the motor.
Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its production
from August 29, 1990 to March 15, 1991 decreased since it had to use its old motor which was not able
to produce cement as much as the one under repair;
44
and that every time the said motor was installed
and tested, petitioner had to stop its operations; thereby, incurring more production losses.
45
To support
its claim, petitioner presented its monthly production reports
46
for the months of April to June 1990
showing that on the average it was able to produce 1040 MT of cement per day. However, the
production reports for the months of August 1990 to March 1991 were not presented. Without these
production reports, it cannot be determined with reasonable certainty whether petitioner indeed incurred
production losses during the said period. It may not be amiss to say that competent proof and a
reasonable degree of certainty are needed to justify a grant of actual or compensatory damages;
speculations, conjectures, assertions or guesswork are not sufficient.
47

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be
recovered only if such damages were reasonably foreseen or have been brought within the contemplation
of the parties as the probable result of a breach at the time of or prior to contracting.
48
Considering the
nature of the obligation in the instant case, respondent ABB, at the time it agreed to repair petitioners
Kiln Drive Motor, could not have reasonably foreseen that it would be made liable for production loss,
labor cost and rental of the crane in case it fails to repair the motor or incurs delay in delivering the
same, especially since the motor under repair was a spare motor.
49

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental
of the crane.
Petitioner is not entitled to attorneys fees
Neither is petitioner entitled to the award of attorneys fees. Jurisprudence requires that the factual basis
for the award of attorneys fees must be set forth in the body of the decision and not in the dispositive
portion only.
50
In this case, no explanation was given by the RTC in awarding attorneys fees in favor of
petitioner. In fact, the award of attorneys fees was mentioned only in the dispositive portion of the
decision.
Respondent Eriksson cannot be made jointly and severally liable for the penalties
Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is no
showing that respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or that he
is guilty of bad faith or gross negligence in directing the affairs of respondent ABB. It is a basic principle
that a corporation has a personality separate and distinct from the persons composing or representing it;
hence, personal liability attaches only in exceptional cases, such as when the director, trustee, or officer
is guilty of bad faith or gross negligence in directing the affairs of the corporation.
51

In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30, 1990
up to January 7, 1991 (131 days) or a total amount of P129,329.75 for the delay caused by respondent
ABB. Finally, we impose interest at the rate of six percent (6%) on the total amount due from the date of
filing of the complaint until finality of this Decision. However, from the finality of judgment until full
payment of the total award, the interest rate of twelve percent (12%) shall apply.
52

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the
Resolution dated February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby
REVERSED and SET ASIDE. Respondent ABB is ORDERED to pay petitioner the amount of P129,329.75,
with interest at 6% per annum to be computed from the date of the filing of the complaint until finality of
this Decision and 12% per annum thereafter until full payment.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
DIOSDADO M. PERALTA
*

Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*
In lieu of Associate Justice Lucas P. Bersamin, per Special Order No. 1110 (Revised) dated
September 30, 2011.
**
Sometimes referred as Tord B. Eriksson in some parts of the records.
1
Civil Code, Article 2199.
2
Rollo, pp. 30-166 with Annexes "A" to "M" inclusive.
3
Id. at 54-64; penned by Associate Justice Vicente Q. Roxas and concurred in by Associate
Justices Portia Alio-Hormachuelos and Juan Q. Enriquez, Jr.
4
Id. at 66-67.
5
Id. at 30.
6
The two corporations merged on June 10, 1988, with Asea Brown Boveri, Inc. as the surviving
entity. (Id. at 88).
7
Id. at 55.
8
Id. at 79-81.
9
Id. at 90.
10
Id. at 79-81.
11
Id. at 95. Clause 7 provides:
Clause 7. GENERAL LIABILITY AND MAINTENANCE GUARANTEE
All machinery and apparatus for our manufacture is guaranteed to be of high grade
material and of good and careful workmanship and we undertake to correct and make
good any defect or defects which may develop under normal and proper use within the
guarantee period and which are due solely to faulty design, material, or workmanship,
provided always that we are notified immediately after the defect is discovered and that
such defective parts are promptly returned. The repaired or new parts will be delivered
free or in the case of goods for exports f.o.b. Defective parts thus replaced remain our
property. Unless otherwise stated in the tender or order confirmation the guarantee
period is twelve months for all ordinary machinery and apparatus operated under normal
conditions. The guarantee period is reckoned from the date delivery is made, or if
delivery cannot be made on account of delays caused by circumstances beyond our
control, from the date the goods are ready for dispatch at our premises. All liability on
our part ceases at the termination of the guarantee period.
Our liability is in all cases limited as provided in these conditions and does not extend to
consequential loss either direct or indirect, nor to expenses for repair or replacements or
otherwise paid or incurred without our written authority.
12
Id. at 93-94.
13
Id. at 95.
14
Id. at 90-91.
15
Id. at 97-107; penned by Judge Pedro T. Santiago.
16
Id. at 106.
17
Id.
18
Id.
19
Id. at 59-63.
20
Id. at 54-64
21
Id. at 63.
22
Id. at 68-78.
23
Id. at 66-67.
24
Id. at 276.
25
Id. at 277-279.
26
Id. at 279.
27
Id.
28
Id. at 280-282.
29
Id. at 248.
30
Id.
31
Id. at 255.
32
Id. at 259.
33
Id. at 82-83.
34
Down payment was made on July 18, 1990; TSN dated July 27, 1994, Direct Examination of
Jessica Alonzo, p. 12.
35
Rollo, p. 89.
36
TSN dated June 15, 1994, Direct Examination of Engr. Juanito Fernando, p. 9.
37
Records, p. 391.
38
Id.
39
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
40
Rollo, pp. 81 and 88.
41
Civil Code, Article 1174.
42
TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, p. 9.
43
Records, p. 343.
44
TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, pp.4-11.
45
Id.
46
Records, pp. 340-342.
47
Citytrust Banking Corporation v. Villanueva, 413 Phil. 776, 787 (2001).
48
Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836, 844 (1952), citing Chapman v. Fargo, L.R.A.
(1918 F) p. 1049.
49
TSN dated June 15, 1994, Direct Examination of Engr. Juanito Fernando, pp. 4-5.
50
Mercury Drug Corporation v. Baking, G.R. No. 156037, May 25, 2007, 523 SCRA 184, 192.


51
Queensland-Tokyo Commodities, Inc. v. George, G.R. No. 172727, September 8, 2010, 630
SCRA 304, 315.
52
Duarte v. Duran, G.R. No. 173038, September 14, 2011, citing Tropical Homes, Inc. v. Court of
Appeals, 338 Phil. 930, 943-943 (1997), and Eastern Shipping Lines, Inc. v. Court of Appeals,
G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95-97.

The Lawphil Project - Arellano Law Foundation


























Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22359 November 28, 1924
JULIO DE LA ROSA, plaintiff-appellant,
vs.
THE BANK OF THE PHILIPPINE ISLANDS, defendant-appellant.
Ramon Sotelo for plaintiff-appellant.
Araneta and Zaragoza for defendant-appellant.

ROMUALDEZ, J.:
This action was instituted on June 11, 1923, by means of a complaint on the ground that the
defendant bank started a contest of designs and plans for the construction of a building, announcing that
the prizes would be awarded not later that on November 30, 1921; that the plaintiff took part in said
contest, having performed work and incurred expenses for that purpose; that said bank refrained from
naming judges and awarding the prizes in accordance with the conditions stipulated. The plaintiff prays
that judgment be rendered in his favor for the sum of P30,000 as damages, with interest and the costs.
The defendant bank answered denying the facts contained in the second and following paragraphs
of the complaint.
After the trial, the court rendered judgment ordering the defendant bank to pay the plaintiff an
indemnity of P4,000 and the costs.
Both parties appealed from this judgment, the plaintiff assigning the following errors as committed
by the trial court:
1. In holding that the sum of P4,000 was a just and reasonable indemnity to the plaintiff.
2. In not ordering the defendant bank to pay the P30,000 prayed for in the complaint.
The defendant bank, in turn, assigned the following errors as committed by the trial court:
1. In holding that the date set for the award of prizes is essential in the contract.
2. In ordering that the sum of P4,000 be paid to the plaintiff.
The fundamental question on which the plaintiff's action depends is raised in the first assignment
of error made by the defendant bank, or, whether or not the date set for the award of the prizes was
essential in the contract and, therefore, whether or not the failure to award the prizes on said date was
breach of contract on the part of the defendant.
First of all, we find that due to the fact that the bank started and advertised the said contest,
offering prizes under certain conditions, and the plaintiff prepared, by labor and expense, and took part
in said contest, the bank is bound to comply with the promise made in the rules and conditions prepared
and advertised by it.
A binding obligation may even originate in advertisements addressed to the general
public. (6 R. C. L., 600.)
It is an elementary principle that where a party publishes an offer to the world, and
before it is withdrawn another acts upon it, the party making the offer is bound to perform his
promise. This principle is frequently applied in cases of the offer of rewards, . . . (6 R. C. L., 607.)
What is to be determined is whether or not the defendant bank was in default in not awarding the
prizes on November, 30, 1921.
The plaintiff contends that it was, according to paragraph 2 of article 1100 of the Civil Code, the
complete text of which is as follows:
Persons obliged to deliver or to do something are in default from the moment the creditor
demands of them judicially or extrajudicially the fulfillment of their obligation.
Nevertheless, the demand of the creditor shall not be necessary in order that the default
may arise
1. When the obligator or the law expressly so provides;
2. When by reason of the nature and circumstances of the obligation it shall appear that
the designation of the time at which the thing was to be delivered or the service
rendered was the principal inducement to the creation of the obligation.
In reciprocal obligations neither of the obligators shall be in default if the other does not
fulfill or does not submit to the fulfillment of that which is incumbent upon him. From the time on
the obliges performs his obligation the default begins for the other party.
And the party plaintiff contends that the said date was the principal inducement because the
current cost of concrete buildings at the time was fixed. The fixation of said price cannot be considered
as the principal inducement of the contract, but undoubtedly only for the uniformity of the designs to be
presented and to secure greater justice in the appreciation of the relative merits of each work submitted.
Such fixation of price, naturally, was not the principal inducement for the contestants. Neither was
it for the bank which could not certain that said price would continue to be current price when it desired
to construct the building designed.
We do not find sufficient reason for considering that the date set for the reward of the prizes was
the principal inducement to the creation of the obligation. And, taking into consideration the criterion that
must be followed in order to judge whether or not the time for the performance of the obligation is the
principal inducement in a given case, we hold that it was not in the instant case.
The distinguished Manresa explains the matter in the following terms: 1awphi1.net
These words ("principal inducement" in paragraph 2 of article 1100 of the Civil Code)
whose special meaning in connection with this article and the circumstances of each obligation
does not permit of their being confused with the permanent general idea, and the distinct
clearness of consideration of contracts, may give rise to serious doubts by reason of the breadth
of expression, and must be judged in each particular case, it being impossible to give a general
rule to explain them. It will for instance, be unquestionable that the hypothesis implied in this
exception is affected when the matter, for instance, is the delivery of things of the rendition of
services to be employed in agricultural work, and the time of said work has been designated as
the date for the fulfillment of the obligation; it will also exist when, for instance, fruits or any
objects are to be delivered which might be used by the creditor in industrial operations having a
determinate period for carrying them out and designated for their delivery; and, finally, it will
also assist whenever, as in these cases, it appears that the obligation would not have been
created for a date other than that fixed.
The defendant bank cannot be held to have been in default through the mere lapse of time. For
this judicial or extrajudicial demand was necessary for the performance of the obligation, and it was not
alleged here, nor does it appear that before bringing this action the plaintiff had ever demanded it from
the defendant bank in any manner whatsoever. The defendant bank, therefore, was not in default.
The plaintiff's allegation that the defendant bank abstained from continuing the contest was not
proven. On the contrary, it was proved, and so stated in the decision appealed from, that during the trial
of this case in the Court of First Instance the designs were on the way to New York where they were sent
to a technical committee.
This committee, according to the new evidence before us presented by the defendant bank and
which we now hold admissibe and admit, was appointed by the defendant bank for the study and
determination of the designs presented and entitled to the prizes advertised, and which rendered its
report and awarded the prizes in accordance with the rules and conditions of the contract, except in
regard to the date of such award of prizes which, as we have found, is not essential to the contract in
question.
It appearing that the defendant bank was not in default it is needles to discuss the other
questions raised, all depending upon the existence of said default.
We find the plaintiff has no cause of action in this case,
The judgment appealed from is reversed and the defendant is entirely absolved from the
complaint, without any express finding as to costs. So ordered.
Johnson, Street, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-59919 November 26, 1986
MALAYAN INSURANCE CO., INC., petitioner-appellant,
vs.
THE HONORABLE COURT OF APPEALS and AURELIO LACSON, respondents-appellees.
Edgardo Elumba, Yulo, Sedonio, Alejandro and Associates for petitioner-appellant.
Filomeno B. Tan, Jr., Soberrano, Leong, Amihan, Tan, Escuerte, Parel and Associates for private
respondent-appellee.

PARAS, J.:
This is an appeal by certiorari, for the review of the Decision of the respondent Court of Appeals (C.A.) in
CA-G.R. No. 63398-R, entitled "Aurelio Lacson, (appellee) vs. Malayan Insurance Co., Inc., (appellant),
which affirmed the decision of the Court of First Instance (CFI) of Negros Occidental holding petitioner
liable to pay private respondent Aurelio Lacson the amount of P20,000.00, less deductible franchise,
which is the maximum coverage of the insurance policy, with legal interest thereon from the date of filing
of the complaint, the amount of P5,000.00 as attorney's fees and expenses in litigation, and to pay the
costs.
Plaintiff Aurelio Lacson (private respondent herein) is the owner of a Toyota NP Land Cruiser, Model
1972, bearing Plate No. NY-362 and with engine Number F-374325. Said vehicle was insured with
defendant company (petitioner herein) under "private car comprehensive" policy No. BIFC/PV-0767 for a
one year period, from Dec. 3, 1974 to Dec. 3, 1975. On Dec. 1, 1975 plaintiff caused the delivery of
subject vehicle to the shop of Carlos Jamelo for repair. On Dec. 2, 1975 while the vehicle was in Carlos
Jamelo's shop, a certain Rogelio Mahinay, together with his other co-employees in the shop, namely
Johnny Mahinay, Rogelio Macapagong and Rogelio Francisco took and drove the Toyota Land Cruiser, as
a result of which it met with an accident at Bo. Taculing Bacolod City, causing damage thereto, in an
estimated amount of P21,849.62. Shop-owner Carlos Jamelo reported the incident to the police and later
on instituted a criminal case for Qualified Theft against his employees who had taken plaintiff's vehicle.
Plaintiff sought indemnification under his insurance policy from defendant company but the latter refused
to pay on the ground that the claim is not covered by the policy inasmuch as the driver of the insured
vehicle at the time of the accident was not a duly licensed driver. This act of defendant company
prompted Plaintiff to file a civil case for damages docketed as Civil Case No. 12447 of the CFI of Negros
Occidental. Defendant in its answer raised among other things as affirmative and special defenses that
plaintiff has no cause of action, claim is not covered by the insurance policy, and non-joinder of
indispensable party. After trial the Court a quo rendered a favorable judgment for the plaintiff. On appeal
the Court of Appeals affirmed said decision and denied a motion for reconsideration of the same. Hence,
the instant petition by defendant company relying on the following grounds:
1. the respondent Court of Appeals erred in holding that conviction of theft is not
necessary for claim to be compensable under the "theft" coverage of the insurance
policy, which ruling establishes a bad and dangerous precedent to the detriment and
prejudice of insurance industry.
2. the respondent Court of Appeals erred in holding petitioner liable for actual damage of
the vehicle without sufficient and come tent evidentiary basis.
3. the respondent Court of Appeals erred in holding petitioner liable to private
respondent Aurelio Lacson in disregard of the real party in interest BIFC in violation of
the principle embodied in the Rules of Court, that every action must be prosecuted in the
name of the real party in interest.
4. the respondent Court of Appeals erred in holding petitioner liable for interest from
firing of the complaint and not from the date of decision or its finality, also in disregard
of established doctrines laid down by the Honorable Supreme Court.
Petitioner's contentions hold no water. The first assignment of error was satisfactorily disposed of by the
trial court as well as by the appellate court as shown by the ruling that "the taking of the vehicle by
another person without permission or authority from the owner or person-in-charge thereof is sufficient
to place it within the ambit of the word theft as contemplated in the policy, and is therefore,
compensable." The fact that one of the accused persons in the criminal case (filed against those who
took the jeep from the repair shop) pleaded guilty to the charge of having unlawfully taken the insured
vehicle did away with the necessity of a final disposition of the criminal case in order for plaintiff to
recover under his insurance policy. At any rate, accused Rogelio Mahinay was convicted of Theft after he
pleaded guilty to the charge.
There is no question that the vehicle of private respondent was damaged because the unlawful taker,
accused Rogelio Mahinay, drove it and met with a vehicular accident. The damages therefore were
sustained in the course of the unlawful taking. The testimonies of plaintiff and his witness in this respect
remain unrebutted. The fact remains that plaintiff's claim is substantiated by competent evidence. The
appellate court ruled:
Appellant contends that the trial court erred in awarding the amount of P20,000.00
actual damage without sufficient evidentiary basis and imposing interest from date of
filing of the complaint. We do not see anything erroneous with this finding of the trial
court. As estimated by a reputed motor company, Fidelity Motor Company, the damage
which the insured vehicle sustained amounts to P21,849,62. Actual repair is not
necessary for the purpose, as the insured has the option, either to advance expenses for
the repair of or to wait for the proceeds of the insurance.
Likewise in the very insurance policy (Exh. "A") covering the damaged vehicle, petitioner's liability is fixed
at P20,000 less deductible franchise of P800.00. As borne out by the evidence, private respondent before
instituting the present action against petitioner wrote a letter of demand (Exh. "H") to petitioner for the
payment of his claim in the amount of P21,849.62 as estimated by Fidelity Motor Company. This
notwithstanding, petitioner failed and refused to pay respondent's claim prompting the latter to file the
present action in court.
As to petitioner's third assignment of error, after considering the facts and circumstances of the case as
found by the trial court and the respondent appellate court, We cannot see any reason to depart from the
ruling set down by the respondent Court of Appeals. In this connection, the CA said:
the memorandum on the policy states LOSS on DAMAGE, IF ANY, under this policy shall be payable to
the Bacolod IFC
1
as their interest may appear, subject otherwise to the terms and conditions, clauses
and warranties of this policy. Since as testified to by plaintiff-appellee,
2
Bacolod IFCs interest in the
insured vehicle was in the amount of P2,000.00 only compared to plaintiff's P26,000.00 it is well to
presume that Bacolod IFC did not deem it wise to be impleaded as party-plaintiff in this case. Had
Bacolod IFC been interested in the insurance proceeds, it could thru its duly authorized office, have taken
the initiative to join plaintiff in the suit, but it did not. As a matter of fact, as testified to by the plaintiff,
Atty. Morravilla of the BIFC knew fully well that he (plaintiff) was pursuing a claim for insurance from
defendant-appellant. This inaction on the part of BIFC will only show that it was not really interested to
intervene.
Petitioner's fourth assignment of error is untenable. Respondent has sufficiently established his demand
for the award of damages plus interest as sanctioned under Arts. 1169, 1170 and 2209 of the Civil Code.
Thus, a debtor who is in delay (default) is liable for damages (Art. 1170) generally from extrajudicial or
judicial demand (Art. 1169) in the form of interest. (See Art. 2209, Civil Code).
WHEREFORE, premises considered, the present petition is hereby DENIED for lack of merit and the
judgment appealed from AFFIRMED in toto.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

Footnotes
1 Bacolod IFC-Bacolod Industrial Finance Corporation.
2 Private respondent herein, Mr. Aurelio Lacson.

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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6291 April 29, 1954
THE SAN PEDRO BUS LINE, PAULINO DE LA CRUZ, and TEODOLO LACDAN, doing business
under the name of "THE SAN PEDRO BUS LINE," petitioners,
vs.
NICOLAS NAVARRO, and the HON. ASSOCIATE JUSTICES OF THE FIRST DIVISION, COURT
OF APPEALS, respondents.
Estanislao R. Bayot for petitioners.
Antonio Enrile Inton and Camilo V. Pea for respondents.
PARAS, C.J.:
Nicolas Navarro filed a complaint in the court of First Instance of Rizal against the San Pedro Bus Line,
Paulino de la Cruz and Teodulo Lacdan, doing business in the name of the San Pedro Bus Line, alleging
that the plaintiff, on April 21, 1943, rode as a passenger in Manila bound bus No. TPU-7654 owned and
operated by the defendants; that while on its way the bus collided with another vehicle, causing serious
physical injuries to the plaintiff, with subsequent post-traumatic psychosis which might incapacitate him
for life; that as a result thereof the plaintiff suffered damages, for actual medical and hospital expenses
and loss of earning power, in the total sum of P4,500 which the plaintiff sought to recover from the
defendants. In their answer the defendants admitted the occurrence of the accident and the injuries
received the plaintiff, but disclaimed responsibility for the accident. After trial, the court dismissed the
complaint on the ground that there was "no proof whatsoever of the relation of the defendants San
Pedro Bus Line and Paulino de la Cruz with the damages claimed by the plaintiff." The plaintiff appealed
to the Court of Appeals which, on part of which reads as follows: "WHEREFORE, it appearing that the trial
court erred as charged, and that the facts and the lawfully warrant a recovery by the appellant, the
judgment appealed in the total sum of P9,500, with interests thereon from the date this action was
commenced. Costs are charged against the appellees." The defendants have elevated the case by way of
a petition for certiorari.
It is contended for the herein petitioners that they cannot be held civilly liable to respondents Nicolas
Navarro, for the reason that the Court of First Instance of Rizal had dismissed the criminal charge against
petitioner Paulino de la Cruz, driver of the bus involved in the accident, citing the case of Martinez vs.
Barredo,
*
Off. Gaz., 4922. In answer to this contention, it is enough to advert to the conclusion of the
Court of Appeals which is correct that the action was not based on tort or quasi delict, but was one
for breach of a carrier's contract, there being a clear distinction between culpa as a source and creator of
obligations (aquiliana) and culpa in the performance of an already existing obligation (contractual). As
already held in the case of Castro vs. Acro Taxicab Co.
**
46 Off. Gaz., 2023, "para que prosperase la
accion del demandante pidiendo indemnizacion de daos y perjuicios bastaba que probase la existencia
del contrato de pasaje esto es, que causo lesiones y daos en el pasajero. De acuerdo con la doctrina
enunciada, para el exito de la accion de daos no era necesario que se probase la culpa, desuido a
negligencia del chofer que guiaba el taximetro No. 962." The case of Martinez vs. Barredo is not
controlling, since it referred to an action based on criminal negligence.
The other contention of the petitioners is that it was erroneous for the Court of Appeals to award in favor
of respondent Navarro damages in the amount of P9,500, his claim in the complaint being only for
P4,500. It appears, however, that the complaint prayed for "such further relief as may be deemed just
and equitable," and this of course warranted the granting in the complaint. Indeed, under section 9, Rule
35, of the Rules of Court, "the judgment shall grant the relief to which the party in whose favor it is
rendered is entitled, even if the party has not demanded such relief in his pleadings."
It is also urged by counsel for the petitioners that the finding of the Court of Appeals that respondent
Navarro is insane, is not supported by any evidence, and that on the other hand, in the motion for new
trial filed by the petitioners, accompanied by the affidavits of Marcelo Legaspi and Ceferino Terello,
respondent Navarro is shown not to be insane, with the result that there is no basis for awarding the
additional amount of P5,000. However, apart from the fact that the finding of the Court of Appeals is
factual and therefore conclusive, the said sum was granted by the Court of Appeals, not only for the
resulting insanity of respondent Navarro but for his pain and suffering in general; and we are not
prepared to hold that the award is excessive as compensation for moral damages.
Wherefore, the decision complained of is affirmed, and it is so ordered with costs against petitioners.
Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, and Concepcion, JJ., concur.

Footnotes
*
81 Phil., 1.
**
82 Phil., 359.

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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-48006 July 8, 1942
FAUSTO BARREDO, petitioner,
vs.
SEVERINO GARCIA and TIMOTEA ALMARIO, respondents.
Celedonio P. Gloria and Antonio Barredo for petitioner.
Jose G. Advincula for respondents.
BOCOBO, J.:
This case comes up from the Court of Appeals which held the petitioner herein, Fausto Barredo, liable in
damages for the death of Faustino Garcia caused by the negligence of Pedro Fontanilla, a taxi driver
employed by said Fausto Barredo.
At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas,
Province of Rizal, there was a head-on collision between a taxi of the Malate Taxicab driven by Pedro
Fontanilla and a carretela guided by Pedro Dimapalis. The carretela was overturned, and one of its
passengers, 16-year-old boy Faustino Garcia, suffered injuries from which he died two days later. A
criminal action was filed against Fontanilla in the Court of First Instance of Rizal, and he was convicted
and sentenced to an indeterminate sentence of one year and one day to two years of prision
correccional. The court in the criminal case granted the petition that the right to bring a separate civil
action be reserved. The Court of Appeals affirmed the sentence of the lower court in the criminal case.
Severino Garcia and Timotea Almario, parents of the deceased on March 7, 1939, brought an action in
the Court of First Instance of Manila against Fausto Barredo as the sole proprietor of the Malate Taxicab
and employer of Pedro Fontanilla. On July 8, 1939, the Court of First Instance of Manila awarded
damages in favor of the plaintiffs for P2,000 plus legal interest from the date of the complaint. This
decision was modified by the Court of Appeals by reducing the damages to P1,000 with legal interest
from the time the action was instituted. It is undisputed that Fontanilla 's negligence was the cause of the
mishap, as he was driving on the wrong side of the road, and at high speed. As to Barredo's
responsibility, the Court of Appeals found:
... It is admitted that defendant is Fontanilla's employer. There is proof that he exercised the
diligence of a good father of a family to prevent damage. (See p. 22, appellant's brief.) In fact it
is shown he was careless in employing Fontanilla who had been caught several times for violation
of the Automobile Law and speeding (Exhibit A) violation which appeared in the records of the
Bureau of Public Works available to be public and to himself. Therefore, he must indemnify
plaintiffs under the provisions of article 1903 of the Civil Code.
The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal
Code; hence, his liability is only subsidiary, and as there has been no civil action against Pedro Fontanilla,
the person criminally liable, Barredo cannot be held responsible in the case. The petitioner's brief states
on page 10:
... The Court of Appeals holds that the petitioner is being sued for his failure to exercise all the
diligence of a good father of a family in the selection and supervision of Pedro Fontanilla to
prevent damages suffered by the respondents. In other words, The Court of Appeals insists on
applying in the case article 1903 of the Civil Code. Article 1903 of the Civil Code is found in
Chapter II, Title 16, Book IV of the Civil Code. This fact makes said article to a civil liability arising
from a crime as in the case at bar simply because Chapter II of Title 16 of Book IV of the Civil
Code, in the precise words of article 1903 of the Civil Code itself, is applicable only to "those
(obligations) arising from wrongful or negligent acts or commission not punishable by law.
The gist of the decision of the Court of Appeals is expressed thus:
... We cannot agree to the defendant's contention. The liability sought to be imposed upon him in
this action is not a civil obligation arising from a felony or a misdemeanor (the crime of Pedro
Fontanilla,), but an obligation imposed in article 1903 of the Civil Code by reason of his
negligence in the selection or supervision of his servant or employee.
The pivotal question in this case is whether the plaintiffs may bring this separate civil action against
Fausto Barredo, thus making him primarily and directly, responsible under article 1903 of the Civil Code
as an employer of Pedro Fontanilla. The defendant maintains that Fontanilla's negligence being
punishable by the Penal Code, his (defendant's) liability as an employer is only subsidiary, according to
said Penal code, but Fontanilla has not been sued in a civil action and his property has not been
exhausted. To decide the main issue, we must cut through the tangle that has, in the minds of many
confused and jumbled together delitos and cuasi delitos, or crimes under the Penal Code and fault or
negligence under articles 1902-1910 of the Civil Code. This should be done, because justice may be lost
in a labyrinth, unless principles and remedies are distinctly envisaged. Fortunately, we are aided in our
inquiry by the luminous presentation of the perplexing subject by renown jurists and we are likewise
guided by the decisions of this Court in previous cases as well as by the solemn clarity of the
consideration in several sentences of the Supreme Tribunal of Spain.
Authorities support the proposition that a quasi-delict or "culpa aquiliana " is a separate legal institution
under the Civil Code with a substantivity all its own, and individuality that is entirely apart and
independent from delict or crime. Upon this principle and on the wording and spirit article 1903 of the
Civil Code, the primary and direct responsibility of employers may be safely anchored.
The pertinent provisions of the Civil Code and Revised Penal Code are as follows:
CIVIL CODE
ART. 1089 Obligations arise from law, from contracts and quasi-contracts, and from acts and
omissions which are unlawful or in which any kind of fault or negligence intervenes.
x x x x x x x x x
ART. 1092. Civil obligations arising from felonies or misdemeanors shall be governed by the
provisions of the Penal Code.
ART. 1093. Those which are derived from acts or omissions in which fault or negligence, not
punishable by law, intervenes shall be subject to the provisions of Chapter II, Title XVI of this
book.
x x x x x x x x x
ART 1902. Any person who by an act or omission causes damage to another by his fault or
negligence shall be liable for the damage so done.
ART. 1903. The obligation imposed by the next preceding article is enforcible, not only for
personal acts and omissions, but also for those of persons for whom another is responsible.
The father and in, case of his death or incapacity, the mother, are liable for any damages caused
by the minor children who live with them.
Guardians are liable for damages done by minors or incapacitated persons subject to their
authority and living with them.
Owners or directors of an establishment or business are equally liable for any damages caused by
their employees while engaged in the branch of the service in which employed, or on occasion of
the performance of their duties.
The State is subject to the same liability when it acts through a special agent, but not if the
damage shall have been caused by the official upon whom properly devolved the duty of doing
the act performed, in which case the provisions of the next preceding article shall be applicable.
Finally, teachers or directors of arts trades are liable for any damages caused by their pupils or
apprentices while they are under their custody.
The liability imposed by this article shall cease in case the persons mentioned therein prove that
they are exercised all the diligence of a good father of a family to prevent the damage.
ART. 1904. Any person who pays for damage caused by his employees may recover from the
latter what he may have paid.
REVISED PENAL CODE
ART. 100. Civil liability of a person guilty of felony. Every person criminally liable for a felony is
also civilly liable.
ART. 101. Rules regarding civil liability in certain cases. The exemption from criminal liability
established in subdivisions 1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of article 11 of this
Code does not include exemption from civil liability, which shall be enforced to the following
rules:
First. In cases of subdivision, 1, 2 and 3 of article 12 the civil liability for acts committed by any
imbecile or insane person, and by a person under nine years of age, or by one over nine but
under fifteen years of age, who has acted without discernment shall devolve upon those having
such person under their legal authority or control, unless it appears that there was no fault or
negligence on their part.
Should there be no person having such insane, imbecile or minor under his authority, legal
guardianship, or control, or if such person be insolvent, said insane, imbecile, or minor shall
respond with their own property, excepting property exempt from execution, in accordance with
the civil law.
Second. In cases falling within subdivision 4 of article 11, the person for whose benefit the harm
has been prevented shall be civilly liable in proportion to the benefit which they may have
received.
The courts shall determine, in their sound discretion, the proportionate amount for which each one shall
be liable.
When the respective shares can not be equitably determined, even approximately, or when the liability
also attaches to the Government, or to the majority of the inhabitants of the town, and, in all events,
whenever the damage has been caused with the consent of the authorities or their agents,
indemnification shall be made in the manner prescribed by special laws or regulations.
Third. In cases falling within subdivisions 5 and 6 of article 12, the persons using violence or causing the
fear shall be primarily liable and secondarily, or, if there be no such persons, those doing the act shall be
liable, saving always to the latter that part of their property exempt from execution.
ART. 102. Subsidiary civil liability of innkeepers, tavern keepers and proprietors of establishment.
In default of persons criminally liable, innkeepers, tavern keepers, and any other persons or
corporation shall be civilly liable for crimes committed in their establishments, in all cases where
a violation of municipal ordinances or some general or special police regulation shall have been
committed by them or their employees.
Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within
their houses lodging therein, or the person, or for the payment of the value thereof, provided
that such guests shall have notified in advance the innkeeper himself, or the person representing
him, of the deposit of such goods within the inn; and shall furthermore have followed the
directions which such innkeeper or his representative may have given them with respect to the
care of and vigilance over such goods. No liability shall attach in case of robbery with violence
against or intimidation against or intimidation of persons unless committed by the innkeeper's
employees.
ART. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the
next preceding article shall also apply to employers, teachers, persons, and corporations engaged
in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties.
x x x x x x x x x
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 minimum period; if it would
have constituted a less grave felony, the penalty of arresto mayor in its minimum and medium
periods 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."
It will thus be seen that while the terms of articles 1902 of the Civil Code seem to be broad enough to
cover the driver's negligence in the instant case, nevertheless article 1093 limits cuasi-delitos to acts or
omissions "not punishable by law." But inasmuch as article 365 of the Revised Penal Code punishes not
only reckless but even simple imprudence or negligence, the fault or negligence under article 1902 of the
Civil Code has apparently been crowded out. It is this overlapping that makes the "confusion worse
confounded." However, a closer study shows that such a concurrence of scope in regard to negligent acts
does not destroy the distinction between the civil liability arising from a crime and the responsibility for
cuasi-delitos or culpa extra-contractual. The same negligent act causing damages may produce civil
liability arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasi-
delito or culpa extra-contractual under articles 1902-1910 of the Civil Code.
The individuality of cuasi-delito or culpa extra-contractual looms clear and unmistakable. This legal
institution is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In
fact, in Spanish legal terminology, this responsibility is often referred to as culpa aquiliana. The Partidas
also contributed to the genealogy of the present fault or negligence under the Civil Code; for instance,
Law 6, Title 15, of Partida 7, says: "Tenudo es de fazer emienda, porque, como quier que el non fizo a
sabiendas en dao al otro, pero acaescio por su culpa."
The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five
sources of obligations is this legal institution of cuasi-delito or culpa extra-contractual: "los actos . . . en
que intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of
obligation shall be governed by Chapter II of Title XVI of Book IV, meaning articles 1902-0910. This
portion of the Civil Code is exclusively devoted to the legal institution of culpa aquiliana.
Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito
under the Civil Code are:
1. That crimes affect the public interest, while cuasi-delitos are only of private concern.
2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by
means of indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal
law clearly covering them, while the latter, cuasi-delitos, include all acts in which "any king of fault or
negligence intervenes." However, it should be noted that not all violations of the penal law produce civil
responsibility, such as begging in contravention of ordinances, violation of the game laws, infraction of
the rules of traffic when nobody is hurt. (See Colin and Capitant, "Curso Elemental de Derecho Civil," Vol.
3, p. 728.)
Let us now ascertain what some jurists say on the separate existence of quasi-delicts and the employer's
primary and direct liability under article 1903 of the Civil Code.
Dorado Montero in his essay on "Responsibilidad" in the "Enciclopedia Juridica Espaola" (Vol. XXVII, p.
414) says:
El concepto juridico de la responsabilidad civil abarca diversos aspectos y comprende a diferentes
personas. Asi, existe una responsabilidad civil propiamente dicha, que en ningun casl lleva
aparejada responsabilidad criminal alguna, y otra que es consecuencia indeclinable de la penal
que nace de todo delito o falta."
The juridical concept of civil responsibility has various aspects and comprises different persons.
Thus, there is a civil responsibility, properly speaking, which in no case carries with it any criminal
responsibility, and another which is a necessary consequence of the penal liability as a result of
every felony or misdemeanor."
Maura, an outstanding authority, was consulted on the following case: There had been a collision
between two trains belonging respectively to the Ferrocarril Cantabrico and the Ferrocarril del Norte. An
employee of the latter had been prosecuted in a criminal case, in which the company had been made a
party as subsidiarily responsible in civil damages. The employee had been acquitted in the criminal case,
and the employer, the Ferrocarril del Norte, had also been exonerated. The question asked was whether
the Ferrocarril Cantabrico could still bring a civil action for damages against the Ferrocarril del Norte.
Maura's opinion was in the affirmative, stating in part (Maura, Dictamenes, Vol. 6, pp. 511-513):
Quedando las cosas asi, a proposito de la realidad pura y neta de los hechos, todavia menos
parece sostenible que exista cosa juzgada acerca de la obligacion civil de indemnizar los
quebrantos y menoscabos inferidos por el choque de los trenes. El titulo en que se funda la
accion para demandar el resarcimiento, no puede confundirse con las responsabilidades civiles
nacidas de delito, siquiera exista en este, sea el cual sea, una culpa rodeada de notas
agravatorias que motivan sanciones penales, mas o menos severas. La lesion causada por delito
o falta en los derechos civiles, requiere restituciones, reparaciones o indemnizaciones, que cual la
pena misma ataen al orden publico; por tal motivo vienen encomendadas, de ordinario, al
Ministerio Fiscal; y claro es que si por esta via se enmiendan los quebrantos y menoscabos, el
agraviado excusa procurar el ya conseguido desagravio; pero esta eventual coincidencia de los
efectos, no borra la diversidad originaria de las acciones civiles para pedir indemnizacion.
Estas, para el caso actual (prescindiendo de culpas contractuales, que no vendrian a cuento y
que tiene otro regimen), dimanan, segun el articulo 1902 del Codigo Civil, de toda accion u
omision, causante de daos o perjuicios, en que intervenga culpa o negligencia. Es trivial que
acciones semejantes son ejercitadas ante los Tribunales de lo civil cotidianamente, sin que la
Justicia punitiva tenga que mezclarse en los asuntos. Los articulos 18 al 21 y 121 al 128 del
Codigo Penal, atentos al espiritu y a los fines sociales y politicos del mismo, desenvuelven y
ordenan la materia de responsabilidades civiles nacidas de delito, en terminos separados del
regimen por ley comun de la culpa que se denomina aquiliana, por alusion a precedentes
legislativos del Corpus Juris. Seria intempestivo un paralelo entre aquellas ordenaciones, y la de
la obligacion de indemnizar a titulo de culpa civil; pero viene al caso y es necesaria una de las
diferenciaciones que en el tal paralelo se notarian.
Los articulos 20 y 21 del Codigo Penal, despues de distribuir a su modo las responsabilidades
civiles, entre los que sean por diversos conceptos culpables del delito o falta, las hacen
extensivas a las empresas y los establecimientos al servicio de los cuales estan los delincuentes;
pero con caracter subsidiario, o sea, segun el texto literal, en defecto de los que sean
responsables criminalmente. No coincide en ello el Codigo Civil, cuyo articulo 1903, dice; La
obligacion que impone el articulo anterior es exigible, no solo por los actos y omisiones propios,
sino por los de aquellas personas de quienes se debe responder; personas en la enumeracion de
las cuales figuran los dependientes y empleados de los establecimientos o empresas, sea por
actos del servicio, sea con ocasion de sus funciones. Por esto acontece, y se observa en la
jurisprudencia, que las empresas, despues de intervenir en las causas criminales con el caracter
subsidiario de su responsabilidad civil por razon del delito, son demandadas y condenadas directa
y aisladamente, cuando se trata de la obligacion, ante los tribunales civiles.
Siendo como se ve, diverso el titulo de esta obligacion, y formando verdadero postulado de
nuestro regimen judicial la separacion entre justicia punitiva y tribunales de lo civil, de suerte que
tienen unos y otros normas de fondo en distintos cuerpos legales, y diferentes modos de
proceder, habiendose, por aadidura, abstenido de asistir al juicio criminal la Compaia del
Ferrocarril Cantabrico, que se reservo ejercitar sus acciones, parece innegable que la de
indemnizacion por los daos y perjuicios que le irrogo el choque, no estuvo sub judice ante el
Tribunal del Jurado, ni fue sentenciada, sino que permanecio intacta, al pronunciarse el fallo de
21 de marzo. Aun cuando el veredicto no hubiese sido de inculpabilidad, mostrose mas arriba,
que tal accion quedaba legitimamente reservada para despues del proceso; pero al declararse
que no existio delito, ni responsabilidad dimanada de delito, materia unica sobre que tenian
jurisdiccion aquellos juzgadores, se redobla el motivo para la obligacion civil ex lege, y se
patentiza mas y mas que la accion para pedir su cumplimiento permanece incolume, extraa a la
cosa juzgada.
As things are, apropos of the reality pure and simple of the facts, it seems less tenable that there
should be res judicata with regard to the civil obligation for damages on account of the losses
caused by the collision of the trains. The title upon which the action for reparation is based
cannot be confused with the civil responsibilities born of a crime, because there exists in the
latter, whatever each nature, a culpa surrounded with aggravating aspects which give rise to
penal measures that are more or less severe. The injury caused by a felony or misdemeanor
upon civil rights requires restitutions, reparations, or indemnifications which, like the penalty
itself, affect public order; for this reason, they are ordinarily entrusted to the office of the
prosecuting attorney; and it is clear that if by this means the losses and damages are repaired,
the injured party no longer desires to seek another relief; but this coincidence of effects does not
eliminate the peculiar nature of civil actions to ask for indemnity.
Such civil actions in the present case (without referring to contractual faults which are not
pertinent and belong to another scope) are derived, according to article 1902 of the Civil Code,
from every act or omission causing losses and damages in which culpa or negligence intervenes.
It is unimportant that such actions are every day filed before the civil courts without the criminal
courts interfering therewith. Articles 18 to 21 and 121 to 128 of the Penal Code, bearing in mind
the spirit and the social and political purposes of that Code, develop and regulate the matter of
civil responsibilities arising from a crime, separately from the regime under common law, of culpa
which is known as aquiliana, in accordance with legislative precedent of the Corpus Juris. It
would be unwarranted to make a detailed comparison between the former provisions and that
regarding the obligation to indemnify on account of civil culpa; but it is pertinent and necessary
to point out to one of such differences.
Articles 20 and 21 of the Penal Code, after distriburing in their own way the civil responsibilities
among those who, for different reasons, are guilty of felony or misdemeanor, make such civil
responsibilities applicable to enterprises and establishments for which the guilty parties render
service, but with subsidiary character, that is to say, according to the wording of the Penal Code,
in default of those who are criminally responsible. In this regard, the Civil Code does not coincide
because article 1903 says: "The obligation imposed by the next preceding article is demandable,
not only for personal acts and omissions, but also for those of persons for whom another is
responsible." Among the persons enumerated are the subordinates and employees of
establishments or enterprises, either for acts during their service or on the occasion of their
functions. It is for this reason that it happens, and it is so observed in judicial decisions, that the
companies or enterprises, after taking part in the criminal cases because of their subsidiary civil
responsibility by reason of the crime, are sued and sentenced directly and separately with regard
to the obligation, before the civil courts.
Seeing that the title of this obligation is different, and the separation between punitive justice
and the civil courts being a true postulate of our judicial system, so that they have different
fundamental norms in different codes, as well as different modes of procedure, and inasmuch as
the Compaa del Ferrocarril Cantabrico has abstained from taking part in the criminal case and
has reserved the right to exercise its actions, it seems undeniable that the action for
indemnification for the losses and damages caused to it by the collision was not sub judice before
the Tribunal del Jurado, nor was it the subject of a sentence, but it remained intact when the
decision of March 21 was rendered. Even if the verdict had not been that of acquittal, it has
already been shown that such action had been legitimately reserved till after the criminal
prosecution; but because of the declaration of the non-existence of the felony and the non-
existence of the responsibility arising from the crime, which was the sole subject matter upon
which the Tribunal del Jurado had jurisdiction, there is greater reason for the civil obligation ex
lege, and it becomes clearer that the action for its enforcement remain intact and is not res
judicata.
Laurent, a jurist who has written a monumental work on the French Civil Code, on which the Spanish Civil
Code is largely based and whose provisions on cuasi-delito or culpa extra-contractual are similar to those
of the Spanish Civil Code, says, referring to article 1384 of the French Civil Code which corresponds to
article 1903, Spanish Civil Code:
The action can be brought directly against the person responsible (for another), without including
the author of the act. The action against the principal is accessory in the sense that it implies the
existence of a prejudicial act committed by the employee, but it is not subsidiary in the sense
that it can not be instituted till after the judgment against the author of the act or at least, that it
is subsidiary to the principal action; the action for responsibility (of the employer) is in itself a
principal action. (Laurent, Principles of French Civil Law, Spanish translation, Vol. 20, pp. 734-
735.)
Amandi, in his "Cuestionario del Codigo Civil Reformado" (Vol. 4, pp. 429, 430), declares that the
responsibility of the employer is principal and not subsidiary. He writes:
Cuestion 1. La responsabilidad declarada en el articulo 1903 por las acciones u omisiones de
aquellas personas por las que se debe responder, es subsidiaria? es principal? Para contestar a
esta pregunta es necesario saber, en primer lugar, en que se funda el precepto legal. Es que
realmente se impone una responsabilidad por una falta ajena? Asi parece a primera vista; pero
semejante afirmacion seria contraria a la justicia y a la maxima universal, segun la que las faltas
son personales, y cada uno responde de aquellas que le son imputables. La responsabilidad de
que tratamos se impone con ocasion de un delito o culpa, pero no por causa de ellos, sino por
causa del causi delito, esto es, de la imprudencia o de la negligencia del padre, del tutor, del
dueo o director del establecimiento, del maestro, etc. Cuando cualquiera de las personas que
enumera el articulo citado (menores de edad, incapacitados, dependientes, aprendices) causan
un dao, la ley presume que el padre, el tutor, el maestro, etc., han cometido una falta de
negligencia para prevenir o evitar el dao. Esta falta es la que la ley castiga. No hay, pues,
responsabilidad por un hecho ajeno, sino en la apariencia; en realidad la responsabilidad se exige
por un hecho propio. La idea de que esa responsabilidad sea subsidiaria es, por lo tanto,
completamente inadmisible.
Question No. 1. Is the responsibility declared in article 1903 for the acts or omissions of those
persons for who one is responsible, subsidiary or principal? In order to answer this question it is
necessary to know, in the first place, on what the legal provision is based. Is it true that there is
a responsibility for the fault of another person? It seems so at first sight; but such assertion
would be contrary to justice and to the universal maxim that all faults are personal, and that
everyone is liable for those faults that can be imputed to him. The responsibility in question is
imposed on the occasion of a crime or fault, but not because of the same, but because of the
cuasi-delito, that is to say, the imprudence or negligence of the father, guardian, proprietor or
manager of the establishment, of the teacher, etc. Whenever anyone of the persons enumerated
in the article referred to (minors, incapacitated persons, employees, apprentices) causes any
damage, the law presumes that the father, guardian, teacher, etc. have committed an act of
negligence in not preventing or avoiding the damage. It is this fault that is condemned by the
law. It is, therefore, only apparent that there is a responsibility for the act of another; in reality
the responsibility exacted is for one's own act. The idea that such responsibility is subsidiary is,
therefore, completely inadmissible.
Oyuelos, in his "Digesto: Principios, Doctrina y Jurisprudencia, Referentes al Codigo Civil Espaol," says in
Vol. VII, p. 743:
Es decir, no responde de hechos ajenos, porque se responde solo de su propia culpa, doctrina del
articulo 1902; mas por excepcion, se responde de la ajena respecto de aquellas personas con las
que media algun nexo o vinculo, que motiva o razona la responsabilidad. Esta responsabilidad, es
directa o es subsidiaria? En el orden penal, el Codigo de esta clase distingue entre menores e
incapacitados y los demas, declarando directa la primera (articulo 19) y subsidiaria la segunda
(articulos 20 y 21); pero en el orden civil, en el caso del articulo 1903, ha de entenderse directa,
por el tenor del articulo que impone la responsabilidad precisamente "por los actos de aquellas
personas de quienes se deba responder."
That is to say, one is not responsible for the acts of others, because one is liable only for his own
faults, this being the doctrine of article 1902; but, by exception, one is liable for the acts of those
persons with whom there is a bond or tie which gives rise to the responsibility. Is this
responsibility direct or subsidiary? In the order of the penal law, the Penal Code distinguishes
between minors and incapacitated persons on the one hand, and other persons on the other,
declaring that the responsibility for the former is direct (article 19), and for the latter, subsidiary
(articles 20 and 21); but in the scheme of the civil law, in the case of article 1903, the
responsibility should be understood as direct, according to the tenor of that articles, for precisely
it imposes responsibility "for the acts of those persons for whom one should be responsible."
Coming now to the sentences of the Supreme Tribunal of Spain, that court has upheld the principles
above set forth: that a quasi-delict or culpa extra-contractual is a separate and distinct legal institution,
independent from the civil responsibility arising from criminal liability, and that an employer is, under
article 1903 of the Civil Code, primarily and directly responsible for the negligent acts of his employee.
One of the most important of those Spanish decisions is that of October 21, 1910. In that case, Ramon
Lafuente died as the result of having been run over by a street car owned by the "compaia Electric
Madrilea de Traccion." The conductor was prosecuted in a criminal case but he was acquitted.
Thereupon, the widow filed a civil action against the street car company, paying for damages in the
amount of 15,000 pesetas. The lower court awarded damages; so the company appealed to the Supreme
Tribunal, alleging violation of articles 1902 and 1903 of the Civil Code because by final judgment the non-
existence of fault or negligence had been declared. The Supreme Court of Spain dismissed the appeal,
saying:
Considerando que el primer motivo del recurso se funda en el equivocado supuesto de que el
Tribunal a quo, al condonar a la compaia Electrica Madrilea al pago del dao causado con la
muerte de Ramon La fuente Izquierdo, desconoce el valor y efectos juridicos de la sentencia
absolutoria deictada en la causa criminal que se siguio por el mismo hecho, cuando es lo cierto
que de este han conocido las dos jurisdicciones bajo diferentes as pectos, y como la de lo
criminal declrao dentro de los limites de su competencia que el hecho de que se trata no era
constitutivo de delito por no haber mediado descuido o negligencia graves, lo que no excluye,
siendo este el unico fundamento del fallo absolutorio, el concurso de la culpa o negligencia no
califacadas, fuente de obligaciones civiles segun el articulo 1902 del Codigo, y que alcanzan,
segun el 1903, netre otras perosnas, a los Directores de establecimientos o empresas por los
daos causados por sus dependientes en determinadas condiciones, es manifesto que la de lo
civil, al conocer del mismo hehco baho este ultimo aspecto y al condenar a la compaia
recurrente a la indemnizacion del dao causado por uno de sus empleados, lejos de infringer los
mencionados textos, en relacion con el articulo 116 de la Ley de Enjuciamiento Criminal, se ha
atenido estrictamente a ellos, sin invadir atribuciones ajenas a su jurisdiccion propia, ni contrariar
en lo mas minimo el fallo recaido en la causa.
Considering that the first ground of the appeal is based on the mistaken supposition that the trial
court, in sentencing the Compaia Madrilea to the payment of the damage caused by the death
of Ramon Lafuente Izquierdo, disregards the value and juridical effects of the sentence of
acquittal rendered in the criminal case instituted on account of the same act, when it is a fact
that the two jurisdictions had taken cognizance of the same act in its different aspects, and as
the criminal jurisdiction declared within the limits of its authority that the act in question did not
constitute a felony because there was no grave carelessness or negligence, and this being the
only basis of acquittal, it does no exclude the co-existence of fault or negligence which is not
qualified, and is a source of civil obligations according to article 1902 of the Civil Code, affecting,
in accordance with article 1903, among other persons, the managers of establishments or
enterprises by reason of the damages caused by employees under certain conditions, it is
manifest that the civil jurisdiccion in taking cognizance of the same act in this latter aspect and in
ordering the company, appellant herein, to pay an indemnity for the damage caused by one of its
employees, far from violating said legal provisions, in relation with article 116 of the Law of
Criminal Procedure, strictly followed the same, without invading attributes which are beyond its
own jurisdiction, and without in any way contradicting the decision in that cause. (Emphasis
supplied.)
It will be noted, as to the case just cited:
First. That the conductor was not sued in a civil case, either separately or with the street car company.
This is precisely what happens in the present case: the driver, Fontanilla, has not been sued in a civil
action, either alone or with his employer.
Second. That the conductor had been acquitted of grave criminal negligence, but the Supreme Tribunal
of Spain said that this did not exclude the co-existence of fault or negligence, which is not qualified, on
the part of the conductor, under article 1902 of the Civil Code. In the present case, the taxi driver was
found guilty of criminal negligence, so that if he had even sued for his civil responsibility arising from the
crime, he would have been held primarily liable for civil damages, and Barredo would have been held
subsidiarily liable for the same. But the plaintiffs are directly suing Barredo, on his primary responsibility
because of his own presumed negligence which he did not overcome under article 1903. Thus,
there were two liabilities of Barredo: first, the subsidiary one because of the civil liability of the taxi driver
arising from the latter's criminal negligence; and, second, Barredo's primary liability as an employer under
article 1903. The plaintiffs were free to choose which course to take, and they preferred the second
remedy. In so doing, they were acting within their rights. It might be observed in passing, that the
plaintiff choose the more expeditious and effective method of relief, because Fontanilla was either in
prison, or had just been released, and besides, he was probably without property which might be seized
in enforcing any judgment against him for damages.
Third. That inasmuch as in the above sentence of October 21, 1910, the employer was held liable civilly,
notwithstanding the acquittal of the employee (the conductor) in a previous criminal case, with greater
reason should Barredo, the employer in the case at bar, be held liable for damages in a civil suit filed
against him because his taxi driver had been convicted. The degree of negligence of the conductor in the
Spanish case cited was less than that of the taxi driver, Fontanilla, because the former was acquitted in
the previous criminal case while the latter was found guilty of criminal negligence and was sentenced to
an indeterminate sentence of one year and one day to two years of prision correccional.
(See also Sentence of February 19, 1902, which is similar to the one above quoted.)
In the Sentence of the Supreme Court of Spain, dated February 14, 1919, an action was brought against
a railroad company for damages because the station agent, employed by the company, had unjustly and
fraudulently, refused to deliver certain articles consigned to the plaintiff. The Supreme Court of Spain
held that this action was properly under article 1902 of the Civil Code, the court saying:
Considerando que la sentencia discutida reconoce, en virtud de los hechos que consigna con
relacion a las pruebas del pleito: 1., que las expediciones facturadas por la compaia ferroviaria
a la consignacion del actor de las vasijas vacias que en su demanda relacionan tenian como fin el
que este las devolviera a sus remitentes con vinos y alcoholes; 2., que llegadas a su destino
tales mercanias no se quisieron entregar a dicho consignatario por el jefe de la estacion sin
motivo justificado y con intencion dolosa, y 3., que la falta de entrega de estas expediciones al
tiempo de reclamarlas el demandante le originaron daos y perjuicios en cantidad de bastante
importancia como expendedor al por mayor que era de vinos y alcoholes por las ganancias que
dejo de obtener al verse privado de servir los pedidos que se le habian hecho por los remitentes
en los envases:
Considerando que sobre esta base hay necesidad de estimar los cuatro motivos que integran este
recurso, porque la demanda inicial del pleito a que se contrae no contiene accion que nazca del
incumplimiento del contrato de transporte, toda vez que no se funda en el retraso de la llegada
de las mercancias ni de ningun otro vinculo contractual entre las partes contendientes,
careciendo, por tanto, de aplicacion el articulo 371 del Codigo de Comercio, en que
principalmente descansa el fallo recurrido, sino que se limita a pedir la reparaction de los daos y
perjuicios producidos en el patrimonio del actor por la injustificada y dolosa negativa del
porteador a la entrega de las mercancias a su nombre consignadas, segun lo reconoce la
sentencia, y cuya responsabilidad esta claramente sancionada en el articulo 1902 del Codigo
Civil, que obliga por el siguiente a la Compaia demandada como ligada con el causante de
aquellos por relaciones de caracter economico y de jurarquia administrativa.
Considering that the sentence, in question recognizes, in virtue of the facts which it declares, in
relation to the evidence in the case: (1) that the invoice issued by the railroad company in favor
of the plaintiff contemplated that the empty receptacles referred to in the complaint should be
returned to the consignors with wines and liquors; (2) that when the said merchandise reached
their destination, their delivery to the consignee was refused by the station agent without
justification and with fraudulent intent, and (3) that the lack of delivery of these goods when
they were demanded by the plaintiff caused him losses and damages of considerable importance,
as he was a wholesale vendor of wines and liquors and he failed to realize the profits when he
was unable to fill the orders sent to him by the consignors of the receptacles:
Considering that upon this basis there is need of upholding the four assignments of error, as the
original complaint did not contain any cause of action arising from non-fulfillment of a contract of
transportation, because the action was not based on the delay of the goods nor on any
contractual relation between the parties litigant and, therefore, article 371 of the Code of
Commerce, on which the decision appealed from is based, is not applicable; but it limits to asking
for reparation for losses and damages produced on the patrimony of the plaintiff on account of
the unjustified and fraudulent refusal of the carrier to deliver the goods consigned to the plaintiff
as stated by the sentence, and the carrier's responsibility is clearly laid down in article 1902 of
the Civil Code which binds, in virtue of the next article, the defendant company, because the
latter is connected with the person who caused the damage by relations of economic character
and by administrative hierarchy. (Emphasis supplied.)
The above case is pertinent because it shows that the same act may come under both the Penal Code
and the Civil Code. In that case, the action of the agent was unjustified and fraudulent and therefore
could have been the subject of a criminal action. And yet, it was held to be also a proper subject of a civil
action under article 1902 of the Civil Code. It is also to be noted that it was the employer and not the
employee who was being sued.
Let us now examine the cases previously decided by this Court.
In the leading case of Rakes vs. Atlantic Gulf and Pacific Co. (7 Phil., 359, 362-365 [year 1907]), the trial
court awarded damages to the plaintiff, a laborer of the defendant, because the latter had negligently
failed to repair a tramway in consequence of which the rails slid off while iron was being transported, and
caught the plaintiff whose leg was broken. This Court held:
It is contended by the defendant, as its first defense to the action that the necessary conclusion
from these collated laws is that the remedy for injuries through negligence lies only in a criminal
action in which the official criminally responsible must be made primarily liable and his employer
held only subsidiarily to him. According to this theory the plaintiff should have procured the
arrest of the representative of the company accountable for not repairing the track, and on his
prosecution a suitable fine should have been imposed, payable primarily by him and secondarily
by his employer.
This reasoning misconceived the plan of the Spanish codes upon this subject. Article 1093 of the
Civil Code makes obligations arising from faults or negligence not punished by the law, subject to
the provisions of Chapter II of Title XVI. Section 1902 of that chapter reads:
"A person who by an act or omission causes damage to another when there is fault or
negligence shall be obliged to repair the damage so done.
"SEC. 1903. The obligation imposed by the preceeding article is demandable, not only for
personal acts and omissions, but also for those of the persons for whom they should be
responsible.
"The father, and on his death or incapacity, the mother, is liable for the damages caused
by the minors who live with them.
x x x x x x x x x
"Owners or directors of an establishment or enterprise are equally liable for the damages
caused by their employees in the service of the branches in which the latter may be
employed or in the performance of their duties.
x x x x x x x x x
"The liability referred to in this article shall cease when the persons mentioned therein
prove that they employed all the diligence of a good father of a family to avoid the
damage."
As an answer to the argument urged in this particular action it may be sufficient to point out that
nowhere in our general statutes is the employer penalized for failure to provide or maintain safe
appliances for his workmen. His obligation therefore is one 'not punished by the laws' and falls
under civil rather than criminal jurisprudence. But the answer may be a broader one. We should
be reluctant, under any conditions, to adopt a forced construction of these scientific codes, such
as is proposed by the defendant, that would rob some of these articles of effect, would shut out
litigants against their will from the civil courts, would make the assertion of their rights
dependent upon the selection for prosecution of the proper criminal offender, and render
recovery doubtful by reason of the strict rules of proof prevailing in criminal actions. Even if these
articles had always stood alone, such a construction would be unnecessary, but clear light is
thrown upon their meaning by the provisions of the Law of Criminal Procedure of Spain (Ley de
Enjuiciamiento Criminal), which, though never in actual force in these Islands, was formerly given
a suppletory or explanatory effect. Under article 111 of this law, both classes of action, civil and
criminal, might be prosecuted jointly or separately, but while the penal action was pending the
civil was suspended. According to article 112, the penal action once started, the civil remedy
should be sought therewith, unless it had been waived by the party injured or been expressly
reserved by him for civil proceedings for the future. If the civil action alone was prosecuted,
arising out of a crime that could be enforced only on private complaint, the penal action
thereunder should be extinguished. These provisions are in harmony with those of articles 23 and
133 of our Penal Code on the same subject.
An examination of this topic might be carried much further, but the citation of these articles
suffices to show that the civil liability was not intended to be merged in the criminal nor even to
be suspended thereby, except as expressly provided in the law. Where an individual is civilly
liable for a negligent act or omission, it is not required that the injured party should seek out a
third person criminally liable whose prosecution must be a condition precedent to the
enforcement of the civil right.
Under article 20 of the Penal Code the responsibility of an employer may be regarded as
subsidiary in respect of criminal actions against his employees only while they are in process of
prosecution, or in so far as they determine the existence of the criminal act from which liability
arises, and his obligation under the civil law and its enforcement in the civil courts is not barred
thereby unless by the election of the injured person. Inasmuch as no criminal proceeding had
been instituted, growing our of the accident in question, the provisions of the Penal Code can not
affect this action. This construction renders it unnecessary to finally determine here whether this
subsidiary civil liability in penal actions has survived the laws that fully regulated it or has been
abrogated by the American civil and criminal procedure now in force in the Philippines.
The difficulty in construing the articles of the code above cited in this case appears from the
briefs before us to have arisen from the interpretation of the words of article 1093, "fault or
negligence not punished by law," as applied to the comprehensive definition of offenses in
articles 568 and 590 of the Penal Code. It has been shown that the liability of an employer
arising out of his relation to his employee who is the offender is not to be regarded as derived
from negligence punished by the law, within the meaning of articles 1902 and 1093. More than
this, however, it cannot be said to fall within the class of acts unpunished by the law, the
consequence of which are regulated by articles 1902 and 1903 of the Civil Code. The acts to
which these articles are applicable are understood to be those not growing out of pre-existing
duties of the parties to one another. But where relations already formed give rise to duties,
whether springing from contract or quasi contract, then breaches of those duties are subject to
articles 1101, 1103, and 1104 of the same code. A typical application of this distinction may be
found in the consequences of a railway accident due to defective machinery supplied by the
employer. His liability to his employee would arise out of the contract of employment, that to the
passengers out of the contract for passage, while that to the injured bystander would originate in
the negligent act itself.
In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the mother of the 8 of 9-year-old child Salvador
Bona brought a civil action against Moreta to recover damages resulting from the death of the child, who
had been run over by an automobile driven and managed by the defendant. The trial court rendered
judgment requiring the defendant to pay the plaintiff the sum of P1,000 as indemnity: This Court in
affirming the judgment, said in part:
If it were true that the defendant, in coming from the southern part of Solana Street, had to stop
his auto before crossing Real Street, because he had met vehicles which were going along the
latter street or were coming from the opposite direction along Solana Street, it is to be believed
that, when he again started to run his auto across said Real Street and to continue its way along
Solana Street northward, he should have adjusted the speed of the auto which he was operating
until he had fully crossed Real Street and had completely reached a clear way on Solana Street.
But, as the child was run over by the auto precisely at the entrance of Solana Street, this
accident could not have occurred if the auto had been running at a slow speed, aside from the
fact that the defendant, at the moment of crossing Real Street and entering Solana Street, in a
northward direction, could have seen the child in the act of crossing the latter street from the
sidewalk on the right to that on the left, and if the accident had occurred in such a way that after
the automobile had run over the body of the child, and the child's body had already been
stretched out on the ground, the automobile still moved along a distance of about 2 meters, this
circumstance shows the fact that the automobile entered Solana Street from Real Street, at a
high speed without the defendant having blown the horn. If these precautions had been taken by
the defendant, the deplorable accident which caused the death of the child would not have
occurred.
It will be noticed that the defendant in the above case could have been prosecuted in a criminal case
because his negligence causing the death of the child was punishable by the Penal Code. Here is
therefore a clear instance of the same act of negligence being a proper subject-matter either of a criminal
action with its consequent civil liability arising from a crime or of an entirely separate and independent
civil action for fault or negligence under article 1902 of the Civil Code. Thus, in this jurisdicti on, the
separate individually of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly
recognized, even with regard to a negligent act for which the wrongdoer could have been prosecuted and
convicted in a criminal case and for which, after such a conviction, he could have been sued for this civil
liability arising from his crime.
Years later (in 1930) this Court had another occasion to apply the same doctrine. In Bernal and Enverso
vs. House and Tacloban Electric & Ice Plant, Ltd., 54 Phil., 327, the parents of the five-year-old child,
Purificacion Bernal, brought a civil action to recover damages for the child's death as a result of burns
caused by the fault and negligence of the defendants. On the evening of April 10, 1925, the Good Friday
procession was held in Tacloban, Leyte. Fortunata Enverso with her daughter Purificacion Bernal had
come from another municipality to attend the same. After the procession the mother and the daughter
with two others were passing along Gran Capitan Street in front of the offices of the Tacloban Electric &
Ice Plant, Ltd., owned by defendants J. V. House, when an automobile appeared from the opposite
direction. The little girl, who was slightly ahead of the rest, was so frightened by the automobile that she
turned to run, but unfortunately she fell into the street gutter where hot water from the electric plant was
flowing. The child died that same night from the burns. The trial courts dismissed the action because of
the contributory negligence of the plaintiffs. But this Court held, on appeal, that there was no
contributory negligence, and allowed the parents P1,000 in damages from J. V. House who at the time of
the tragic occurrence was the holder of the franchise for the electric plant. This Court said in part:
Although the trial judge made the findings of fact hereinbefore outlined, he nevertheless was led
to order the dismissal of the action because of the contributory negligence of the plaintiffs. It is
from this point that a majority of the court depart from the stand taken by the trial judge. The
mother and her child had a perfect right to be on the principal street of Tacloban, Leyte, on the
evening when the religious procession was held. There was nothing abnormal in allowing the
child to run along a few paces in advance of the mother. No one could foresee the coincidence of
an automobile appearing and of a frightened child running and falling into a ditch filled with hot
water. The doctrine announced in the much debated case of Rakes vs. Atlantic Gulf and Pacific
Co. ([1907]), 7 Phil., 359), still rule. Article 1902 of the Civil Code must again be enforced. The
contributory negligence of the child and her mother, if any, does not operate as a bar to
recovery, but in its strictest sense could only result in reduction of the damages.
It is most significant that in the case just cited, this Court specifically applied article 1902 of the Civil
Code. It is thus that although J. V. House could have been criminally prosecuted for reckless or simple
negligence and not only punished but also made civilly liable because of his criminal negligence,
nevertheless this Court awarded damages in an independent civil action for fault or negligence under
article 1902 of the Civil Code.
In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year 1915), the action was for damages for the death of
the plaintiff's daughter alleged to have been caused by the negligence of the servant in driving an
automobile over the child. It appeared that the cause of the mishap was a defect in the steering gear.
The defendant Leynes had rented the automobile from the International Garage of Manila, to be used by
him in carrying passengers during the fiesta of Tuy, Batangas. Leynes was ordered by the lower court to
pay P1,000 as damages to the plaintiff. On appeal this Court reversed the judgment as to Leynes on the
ground that he had shown that the exercised the care of a good father of a family, thus overcoming the
presumption of negligence under article 1903. This Court said:
As to selection, the defendant has clearly shown that he exercised the care and diligence of a
good father of a family. He obtained the machine from a reputable garage and it was, so far as
appeared, in good condition. The workmen were likewise selected from a standard garage, were
duly licensed by the Government in their particular calling, and apparently thoroughly competent.
The machine had been used but a few hours when the accident occurred and it is clear from the
evidence that the defendant had no notice, either actual or constructive, of the defective
condition of the steering gear.
The legal aspect of the case was discussed by this Court thus:
Article 1903 of the Civil Code not only establishes liability in cases of negligence, but also
provides when the liability shall cease. It says:
"The liability referred to in this article shall cease when the persons mentioned therein
prove that they employed all the diligence of a good father of a family to avoid the
damage."
From this article two things are apparent: (1) That when an injury is caused by the negligence of
a servant or employee there instantly arises a presumption of law that there was negligence on
the part of the matter or employer either in the selection of the servant or employee, or in
supervision over him after the selection, or both; and (2) that presumption is juris tantum and
not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the
employer shows to the satisfaction of the court that in selection and supervision he has exercised
the care and diligence of a good father of a family, the presumption is overcome and he is relieve
from liability.
This theory bases the responsibility of the master ultimately on his own negligence and not on
that of his servant.
The doctrine of the case just cited was followed by this Court in Cerf vs. Medel (33 Phil., 37 [year 1915]).
In the latter case, the complaint alleged that the defendant's servant had so negligently driven an
automobile, which was operated by defendant as a public vehicle, that said automobile struck and
damaged the plaintiff's motorcycle. This Court, applying article 1903 and following the rule in Bahia vs.
Litonjua and Leynes, said in part (p. 41) that:
The master is liable for the negligent acts of his servant where he is the owner or director of a
business or enterprise and the negligent acts are committed while the servant is engaged in his
master's employment as such owner.
Another case which followed the decision in Bahia vs. Litonjua and Leynes was Cuison vs. Norton &
Harrison Co., 55 Phil., 18 (year 1930). The latter case was an action for damages brought by Cuison for
the death of his seven-year-old son Moises. The little boy was on his way to school with his sister
Marciana. Some large pieces of lumber fell from a truck and pinned the boy underneath, instantly killing
him. Two youths, Telesforo Binoya and Francisco Bautista, who were working for Ora, an employee of
defendant Norton & Harrison Co., pleaded guilty to the crime of homicide through reckless negligence
and were sentenced accordingly. This Court, applying articles 1902 and 1903, held:
The basis of civil law liability is not respondent superior but the relationship of pater familias. This
theory bases the liability of the master ultimately on his own negligence and not on that of his
servant. (Bahia vs. Litonjua and Leynes [1915], 30 Phil., 624; Cangco vs. Manila Railroad Co.
[1918], 38 Phil., 768.)
In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517 (year 1930) the plaintiff
brought an action for damages for the demolition of its wharf, which had been struck by the steamer
Helen C belonging to the defendant. This Court held (p. 526):
The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly
licensed captain, authorized to navigate and direct a vessel of any tonnage, and that the appellee
contracted his services because of his reputation as a captain, according to F. C. Cadwallader.
This being so, we are of the opinion that the presumption of liability against the defendant has
been overcome by the exercise of the care and diligence of a good father of a family in selecting
Captain Lasa, in accordance with the doctrines laid down by this court in the cases cited above,
and the defendant is therefore absolved from all liability.
It is, therefore, seen that the defendant's theory about his secondary liability is negatived by the six cases
above set forth. He is, on the authority of these cases, primarily and directly responsible in damages
under article 1903, in relation to article 1902, of the Civil Code.
Let us now take up the Philippine decisions relied upon by the defendant. We study first, City of Manila
vs. Manila Electric Co., 52 Phil., 586 (year 1928). A collision between a truck of the City of Manila and a
street car of the Manila Electric Co. took place on June 8, 1925. The truck was damaged in the amount of
P1,788.27. Sixto Eustaquio, the motorman, was prosecuted for the crime of damage to property and
slight injuries through reckless imprudence. He was found guilty and sentenced to pay a fine of P900, to
indemnify the City of Manila for P1,788.27, with subsidiary imprisonment in case of insolvency. Unable to
collect the indemnity from Eustaquio, the City of Manila filed an action against the Manila Electric
Company to obtain payment, claiming that the defendant was subsidiarily liable. The main defense was
that the defendant had exercised the diligence of a good father of a family to prevent the damage. The
lower court rendered judgment in favor of the plaintiff. This Court held, in part, that this case was
governed by the Penal Code, saying:
With this preliminary point out of the way, there is no escaping the conclusion that the provisions
of the Penal Code govern. The Penal Code in easily understandable language authorizes the
determination of subsidiary liability. The Civil Code negatives its application by providing that civil
obligations arising from crimes or misdemeanors shall be governed by the provisions of the Penal
Code. The conviction of the motorman was a misdemeanor falling under article 604 of the Penal
Code. The act of the motorman was not a wrongful or negligent act or omission not punishable
by law. Accordingly, the civil obligation connected up with the Penal Code and not with article
1903 of the Civil Code. In other words, the Penal Code affirms its jurisdiction while the Civil Code
negatives its jurisdiction. This is a case of criminal negligence out of which civil liability arises and
not a case of civil negligence.
x x x x x x x x x
Our deduction, therefore, is that the case relates to the Penal Code and not to the Civil Code.
Indeed, as pointed out by the trial judge, any different ruling would permit the master to escape
scot-free by simply alleging and proving that the master had exercised all diligence in the
selection and training of its servants to prevent the damage. That would be a good defense to a
strictly civil action, but might or might not be to a civil action either as a part of or predicated on
conviction for a crime or misdemeanor. (By way of parenthesis, it may be said further that the
statements here made are offered to meet the argument advanced during our deliberations to
the effect that article 0902 of the Civil Code should be disregarded and codal articles 1093 and
1903 applied.)
It is not clear how the above case could support the defendant's proposition, because the Court of
Appeals based its decision in the present case on the defendant's primary responsibility under article
1903 of the Civil Code and not on his subsidiary liability arising from Fontanilla's criminal negligence. In
other words, the case of City of Manila vs. Manila Electric Co., supra, is predicated on an entirely different
theory, which is the subsidiary liability of an employer arising from a criminal act of his employee,
whereas the foundation of the decision of the Court of Appeals in the present case is the employer's
primary liability under article 1903 of the Civil Code. We have already seen that this is a proper and
independent remedy.
Arambulo vs. Manila Electric Co. (55 Phil., 75), is another case invoked by the defendant. A motorman in
the employ of the Manila Electric Company had been convicted o homicide by simple negligence and
sentenced, among other things, to pay the heirs of the deceased the sum of P1,000. An action was then
brought to enforce the subsidiary liability of the defendant as employer under the Penal Code. The
defendant attempted to show that it had exercised the diligence of a good father of a family in selecting
the motorman, and therefore claimed exemption from civil liability. But this Court held:
In view of the foregoing considerations, we are of opinion and so hold, (1) that the exemption
from civil liability established in article 1903 of the Civil Code for all who have acted with the
diligence of a good father of a family, is not applicable to the subsidiary civil liability provided in
article 20 of the Penal Code.
The above case is also extraneous to the theory of the defendant in the instant case, because the action
there had for its purpose the enforcement of the defendant's subsidiary liability under the Penal Code,
while in the case at bar, the plaintiff's cause of action is based on the defendant's primary and direct
responsibility under article 1903 of the Civil Code. In fact, the above case destroys the defendant's
contention because that decision illustrates the principle that the employer's primary responsibility under
article 1903 of the Civil Code is different in character from his subsidiary liability under the Penal Code.
In trying to apply the two cases just referred to, counsel for the defendant has failed to recognize the
distinction between civil liability arising from a crime, which is governed by the Penal Code, and the
responsibility for cuasi-delito or culpa aquiliana under the Civil Code, and has likewise failed to give the
importance to the latter type of civil action.
The defendant-petitioner also cites Francisco vs. Onrubia (46 Phil., 327). That case need not be set forth.
Suffice it to say that the question involved was also civil liability arising from a crime. Hence, it is as
inapplicable as the two cases above discussed.
The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana
under the Civil Code. Specifically they show that there is a distinction between civil liability arising from
criminal negligence (governed by the Penal Code) and responsibility for fault or negligence under articles
1902 to 1910 of the Civil Code, and that the same negligent act may produce either a civil liability arising
from a crime under the Penal Code, or a separate responsibility for fault or negligence under articles
1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable to
conclude that the employer in this case the defendant-petitioner is primarily and directly liable
under article 1903 of the Civil Code.
The legal provisions, authors, and cases already invoked should ordinarily be sufficient to dispose of this
case. But inasmuch as we are announcing doctrines that have been little understood in the past, it might
not be inappropriate to indicate their foundations.
Firstly, the Revised Penal Code in article 365 punishes not only reckless but also simple negligence. If we
were to hold that articles 1902 to 1910 of the Civil Code refer only to fault or negligence not punished by
law, according to the literal import of article 1093 of the Civil Code, the legal institution of culpa aquiliana
would have very little scope and application in actual life. Death or injury to persons and damage to
property through any degree of negligence even the slightest would have to be indemnified only
through the principle of civil liability arising from a crime. In such a state of affairs, what sphere would
remain for cuasi-delito or culpa aquiliana? We are loath to impute to the lawmaker any intention to bring
about a situation so absurd and anomalous. Nor are we, in the interpretation of the laws, disposed to
uphold the letter that killeth rather than the spirit that giveth life. We will not use the literal meaning of
the law to smother and render almost lifeless a principle of such ancient origin and such full-grown
development as culpa aquiliana or cuasi-delito, which is conserved and made enduring in articles 1902 to
1910 of the Spanish Civil Code.
Secondly, to find the accused guilty in a criminal case, proof of guilt beyond reasonable doubt is required,
while in a civil case, preponderance of evidence is sufficient to make the defendant pay in damages.
There are numerous cases of criminal negligence which can not be shown beyond reasonable doubt, but
can be proved by a preponderance of evidence. In such cases, the defendant can and should be made
responsible in a civil action under articles 1902 to 1910 of the Civil Code. Otherwise, there would be
many instances of unvindicated civil wrongs. Ubi jus ibi remedium.
Thirdly, to hold that there is only one way to make defendant's liability effective, and that is, to sue the
driver and exhaust his (the latter's) property first, would be tantamount to compelling the plaintiff to
follow a devious and cumbersome method of obtaining relief. True, there is such a remedy under our
laws, but there is also a more expeditious way, which is based on the primary and direct responsibility of
the defendant under article 1903 of the Civil Code. Our view of the law is more likely to facilitate remedy
for civil wrongs, because the procedure indicated by the defendant is wasteful and productive of delay, it
being a matter of common knowledge that professional drivers of taxis and similar public conveyance
usually do not have sufficient means with which to pay damages. Why, then, should the plaintiff be
required in all cases to go through this roundabout, unnecessary, and probably useless procedure? In
construing the laws, courts have endeavored to shorten and facilitate the pathways of right and justice.
At this juncture, it should be said that the primary and direct responsibility of employers and their
presumed negligence are principles calculated to protect society. Workmen and employees should be
carefully chosen and supervised in order to avoid injury to the public. It is the masters or employers who
principally reap the profits resulting from the services of these servants and employees. It is but right
that they should guarantee the latter's careful conduct for the personnel and patrimonial safety of others.
As Theilhard has said, "they should reproach themselves, at least, some for their weakness, others for
their poor selection and all for their negligence." And according to Manresa, "It is much more equitable
and just that such responsibility should fall upon the principal or director who could have chosen a careful
and prudent employee, and not upon the injured person who could not exercise such selection and who
used such employee because of his confidence in the principal or director." (Vol. 12, p. 622, 2nd Ed.)
Many jurists also base this primary responsibility of the employer on the principle of representation of the
principal by the agent. Thus, Oyuelos says in the work already cited (Vol. 7, p. 747) that before third
persons the employer and employee "vienen a ser como una sola personalidad, por refundicion de la del
dependiente en la de quien le emplea y utiliza." ("become as one personality by the merging of the
person of the employee in that of him who employs and utilizes him.") All these observations acquire a
peculiar force and significance when it comes to motor accidents, and there is need of stressing and
accentuating the responsibility of owners of motor vehicles.
Fourthly, because of the broad sweep of the provisions of both the Penal Code and the Civil Code on this
subject, which has given rise to the overlapping or concurrence of spheres already discussed, and for lack
of understanding of the character and efficacy of the action for culpa aquiliana, there has grown up a
common practice to seek damages only by virtue of the civil responsibility arising from a crime, forgetting
that there is another remedy, which is by invoking articles 1902-1910 of the Civil Code. Although this
habitual method is allowed by our laws, it has nevertheless rendered practically useless and nugatory the
more expeditious and effective remedy based on culpa aquiliana or culpa extra-contractual. In the
present case, we are asked to help perpetuate this usual course. But we believe it is high time we
pointed out to the harm done by such practice and to restore the principle of responsibility for fault or
negligence under articles 1902 et seq. of the Civil Code to its full rigor. It is high time we caused the
stream of quasi-delict or culpa aquiliana to flow on its own natural channel, so that its waters may no
longer be diverted into that of a crime under the Penal Code. This will, it is believed, make for the better
safeguarding of private rights because it re-establishes an ancient and additional remedy, and for the
further reason that an independent civil action, not depending on the issues, limitations and results of a
criminal prosecution, and entirely directed by the party wronged or his counsel, is more likely to secure
adequate and efficacious redress.
In view of the foregoing, the judgment of the Court of Appeals should be and is hereby affirmed, with
costs against the defendant-petitioner.
Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.

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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15805 February 28, 1961
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,
vs.
JESUS VERANO, defendant-appellant.
Office of the Solicitor General for plaintiff-appellant.
Cecilio P. Luminarias for defendant-appellant.
PAREDES, J.:
On June 22, 1953, TPU Truck bearing plate No. 555, of the Mindanao Bus Company, then driven by Jesus
Verano, figured in a vehicular accident resulting in the death of Dominador Paras and injuries of twenty-
three (23) others, all passengers of said truck. On various dates after the accident, the Mindanao Bus
Company paid the victims certain sums of money and all of them including the heirs of the deceased
Dominador Paras, waived and/or renounced their rights to recover damages (Exhibits 2-11, or 2a, 3a, 6a,
7a, 8a, 9a, 10a and 11-a). Verano was subsequently charged be more the CFI of Lanao, for Homicide
with multiple physical injuries, thru reckless imprudence. After trial, the lower court rendered judgment,
the dispositive portion of which reads:
WHEREFORE, the Court finds the accused GUILTY beyond reasonable doubt of the crime charged
which is penalized with prision correccional in its medium and maximum period to be imposed in
its medium period in view of the absence of any modifying circumstance, or three (3) years, six
(6) months and twenty-one (21) days, to four (4) years, nine (9) months and ten (10) days of
prision correccional. Applying the Indeterminate Sentence Law, as amended, the herein accused
is hereby sentenced to suffer an indeterminate penalty the minimum of which should not be less
than one (1) year and one (1) day nor more than three (3) years, six (6) months and twenty-one
(21) days of prision correccional to indemnify the heirs of the deceased Dominador Paras in the
sum of FIVE THOUSAND (P5,000.00) PESOS, with subsidiary imprisonment in case of insolvency;
and to pay the costs.
As stated above, no indemnity is herein awarded in favor of Rufina Ventura, Ignacio Ventura,
Fiargilio Ventura, Antonio Ventura and Uldarico Alta in view of the fact that according to Exhibits
"2" and "5" they had already waived their rights to said indemnity. The herein accused should be
credited with one-half of his preventive imprisonment.
Defendant Verano presented a Motion for Reconsideration, not contesting the finding of guilt, but the
propriety or legality of the indemnity award of P5,000.00 to the heirs of the deceased Dominador Paras
and his liability for subsidiary imprisonment in case of insolvency. The movant contended that the civil
liability arising from the offense had already been erased, the heirs of the deceased having waived and
renounced such right upon payment to them by the Mindanao Bus Company of P3,000.00 (Exhs. 3 or 3-
a). Denying the motion, the trial court voiced its opinion, thus:
Now in the issue brought forth in the motion for reconsideration the point is, whether or not the
civil liability attached to the commission of the crime as provided for in Art. 100 of the Revised
Penal Code, can be waived.
Unlike those damages provided for in the new Civil Code as moral damages and those other
forms of damages provided therein which can be waived, the civil liability of the accused arising
from the effects of the crime cannot be waived.
An appeal from the decision was perfected to the Court of Appeals. However, in its Resolution dated June
25, 1959, the appellate court certified the case to this Court, on purely questions of law, to wit:
(1) "Whether or not the right to recover upon the civil liability of an accused arising from the
crime, may be waived;
(2) "Whether or not such waiver may be made in behalf of the minor heirs by their mother, who
is not their judicial guardian;
(3) "Whether or not the waiver in favor of the Mindanao Bus Company, as employer of the
appellant, wipes out his personal civil liability for the crime, and
(4) "Whether or not liability to subsidiary imprisonment "attaches in case of insolvency and failure
of the accused to pay the indemnity awarded in the judgment.
The law provides that one criminally liable for a felony is also civilly liable (Art. 100, Revised Penal Code);
that employers engaged in any kind of industry are subsidiarily liable (civilly) for felonies committed by
their employees in the discharge of their duties (Art. 103) and that civil liability includes, among others,
indemnification for consequential damages (Art. 104). It is also provided that when a criminal action is
instituted, the civil action for recovery of civil liability arising from the offense charged is impliedly
instituted with the criminal action, unless the offended party expressly waives the civil action or reserves
his right to institute it separately (See. 1, a, Rule 107, Rules of Court).
In the case at bar, the heirs of the deceased Dominador Paras executed a "Deed of Waiver and
Renunciation of All Right to Ask Damages" (Exh. 3 or 3-a), which contains the following:
That for and in consideration of the money which is Three Thousand Pesos (P3,000.00) Philippine
Currency which we have requested as payment for damages and indemnization for the accidental
death of my husband and the father of my children; and paid to me by Mindanao Bus Company
thru its manager Mr. Felix R. Acero; and our receipt of the same amount is hereby
acknowledged; in this I have waived and renounced all my right and all our right to ask for
whatever more kind of damages proper for me and for us in connection with and due to the
accidental death of my husband and the father of my children against the same company,
Mindanao Bus Company.
That by virtue hereof, the same Mindanao Bus Company has no more obligation with me and
with us the heirs of the late Dominador Paras and it is now free from all obligations to me and to
us the heirs of the late Dominador Paras, and I have and we have no more right to ask for any
more kind of damages regarding the death of Dominador Paras because we have already been
justly and duly paid the amount to our complete satisfaction.
There can hardly be any doubt that this is a waiver in favor of the Mindanao Bus Company. The query
posed is: Does this waiver embrace also the civil liability of appellant Verano? The person principally liable
is the driver appellant, since it is he who committed the criminal act. However, since the Mindanao Bus
Company is admittedly his employer, the law makes it (Bus Company) subsidiarily liable for the civil
obligation arising from the accident, and in default of the person criminally liable (Verano), responsible
for the civil liability. Clearly enough, if the Court sustains the award of P5,000.00 in favor of the heirs of
deceased Dominador Paras, ultimately said heirs, in the event that Verano fails to pay, will have to look
upon the Mindanao Bus Company for the enforcement of appellant's civil liability, which has already been
satisfied or partly extinguished by the payment of P3,000.00 by the said company (Section 112, Revised
Penal Code). The award against appellant Verano, would tend to provide the heirs of deceased Paras
double indemnity, which is violative of the tenet "not to eat the cake and have it too". While it is true that
in the waiver (Exhibit 3 or 3-a), the name of the appellant does not appear, it is believed that the same
necessarily includes him because, as has heretofore been stated, the bus company will, in the final
analysis, have to pay. The contention that the right to recover civil liability, whether arising from an
offense or otherwise, cannot be waived, is unmeritorious. The Rules of Court specifically provides that
same is waivable. It should, however, be noted that the waiver in question was signed by the victim's
widow on her behalf and "in the name of my being their (the minor children's) mother and guardian"
(par. 1), While under Article 320 of the new Civil Code, the widow (Mrs. Paras) is the legal administratrix
of the property pertaining to the children under parental authority, said article gave her no authority, as
such legal administratrix, to compromise their claims for indemnity arising from their father's death, "for a
compromise has always been deemed equivalent to an alienation (transigere est alienare) and is an act
of strict ownership that goes beyond mere administration" (Visaya, et al. v. Suguitan, et al., G.R. No. L-
8300, November 18, 1955). Moreover, the court's approval, necessary in compromises entered into by
guardians or parents (Art. 2032, New Civil Code,), is wanting in the case at bar. In view hereof, and
considering that of the P5,000 indemnity awarded by the trial court, only the sum of P3,000 was paid
pursuant to the compromise, it would seem that the heirs of the deceased Dominador Paras were still
entitled to the sum of P2,000, with subsidiary imprisonment in case of insolvency, subject to the
limitation imposed of Art. 39, par. 1 of the Revised Penal Code. In other words, the amount of indemnity
granted by the trial court is reduced to P2,000.00.
All other portions of the decision appealed from, not contrary to the terms of this decision, remain in full
force and effect. Without costs.
Bengzon, Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur.

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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7664 August 29, 1958
MR. AND MRS. AMADOR C. ONG, plaintiffs-appellants,
vs.
METROPOLITAN WATER DISTRICT, defendant-appellee.
Tomas Tria Tirona for appellants.
Government Corporate Counsel Ambrosio Padilla and Juan C. Jimenez for appellee.
BAUTISTA ANGELO, J.:
Plaintiffs spouses seek to recover from defendant, a government-owned corporation, the sum of P50,000
as damages, P5,000 as funeral expenses, and P11,000 as attorneys' fees, for the death of their son
Dominador Ong in one of the swimming pools operated by defendant.
Defendant admits the fact that plaintiffs' son was drowned in one of its swimming pools but avers that his
death was caused by his own negligence or by unavoidable accident. Defendant also avers that it had
exercised due diligence in the selection of, and supervision over, its employees and that it had observed
the diligence required by law under the circumstances.
After trial, the lower court found that the action of plaintiffs is untenable and dismissed the complaint
without pronouncement as to costs. Plaintiffs took the case on appeal directly to this Court because the
amount involved exceeds the sum of P50,000.
Defendant owns and operates three recreational swimming pools at its Balara filters, Diliman, Quezon
City, to which people are invited and for which a nominal fee of P0.50 for adults and P0.20 for children is
charged. The main pool it between two small pools of oval shape known as the "Wading pool" and the
"Beginners Pool." There are diving boards in the big pools and the depths of the water at different parts
are indicated by appropriate marks on the wall. The care and supervision of the pools and the users
thereof is entrusted to a recreational section composed of Simeon Chongco as chief, Armando Rule, a
male nurse, and six lifeguards who had taken the life-saving course given by the Philippine Red Cross at
the YMCA in Manila. For the safety of its patrons, defendant has provided the pools with a ring buoy, toy
roof, towing line, saving kit and a resuscitator. There is also a sanitary inspector who is in charge of a
clinic established for the benefit of the patrons. Defendant has also on display in a conspicuous place
certain rules and regulations governing the use of the pools, one of which prohibits the swimming in the
pool alone or without any attendant. Although defendant does not maintain a full-time physician in the
swimming pool compound, it has however a nurse and a sanitary inspector ready to administer injections
or operate the oxygen resuscitator if the need should arise.
In the afternoon of July 5, 1952, at about 1:00 o'clock, Dominador Ong, a 14-year old high school
student and boy scout, and his brothers Ruben and Eusebio, went to defendant's swimming pools. This
was not the first time that the three brothers had gone to said natatorium for they had already been
there four or five times before. They arrived at the natatorium at about 1:45 p.m. After paying the
requisite admission fee, they immediately went to one of the small pools where the water was shallow. At
about 4:35 p.m., Dominador Ong told his brothers that he was going to the locker room in an adjoining
building to drink a bottle of coke. Upon hearing this, Ruben and Eusebio went to the bigger pool leaving
Dominador in the small pool and so they did not see the latter when he left the pool to get a bottle of
coke. In that afternoon, there were two lifeguards on duty in the pool compound, namely, Manuel Abao
and Mario Villanueva. The tour of duty of Abao was from 8:00 to 12:00 in the morning and from 2:00 to
6:00 in the afternoon, and of Villanueva from 7:30 to 11:30 a.m. and from 12:30 to 4:30 p.m. Between
4:00 to 5:00 that afternoon, there were about twenty bathers inside the pool area and Manuel Abao
was going around the pools to observe the bathers in compliance with the instructions of his chief.
Between 4:40 to 4:45 p.m., some boys who were in the pool area informed a bather by the name of
Andres Hagad, Jr., that somebody was swimming under water for quite a long time. Another boy
informed lifeguard Manuel Abao of the same happening and Abao immediately jumped into the big
swimming pool and retrieved the apparently lifeless body of Dominador Ong from the bottom. The body
was placed at the edge of the pool and Abao immediately applied manual artificial respiration. Soon
after, male nurse Armando Rule came to render assistance, followed by sanitary inspector Iluminado
Vicente who, after being called by phone from the clinic by one of the security guards, boarded a jeep
carrying with him the resuscitator and a medicine kit, and upon arriving he injected the boy with
camphorated oil. After the injection, Vicente left on a jeep in order to fetch Dr. Ayuyao from the
University of the Philippines. Meanwhile, Abao continued the artificial manual respiration, and when this
failed to revive him, they applied the resuscitator until the two oxygen tanks were exhausted. Not long
thereafter, Dr. Ayuyao arrived with another resuscitator, but the same became of no use because he
found the boy already dead. The doctor ordered that the body be taken to the clinic.
In the evening of the same day, July 5, 1952, the incident was investigated by the Police Department of
Quezon City and in the investigation boys Ruben Ong and Andres Hagad, Jr. gave written statements. On
the following day, July 6, 1952, an autopsy was performed by Dr. Enrique V. de los Santos, Chief, Medico
Legal Division, National Bureau of Investigation, who found in the body of the deceased the following: an
abrasion on the right elbow lateral aspect; contusion on the right forehead; hematoma on the scalp,
frontal region, right side; a congestion in the brain with petechial subcortical hemorrhage, frontal lobe;
cyanosis on the face and on the nails; the lung was soggy with fine froth in the bronchioles; dark fluid
blood in the heart; congestion in the visceral organs, and brownish fluid in the stomach. The death was
due to asphyxia by submersion in water.
The issue posed in this appeal is whether the death of minor Dominador Ong can be attributed to the
negligence of defendant and/or its employees so as to entitle plaintiffs to recover damages.
The present action is governed by Article 2176 in relation to Article 2080 of the new Civil Code. The first
article provides that "whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damages done." Such fault or negligence is called quasi-delict. Under
the second article, this obligation is demandable not only for one's own acts or omissions but also for
those of persons for whom one is responsible. In addition, we may quote the following authorities cited in
the decision of the trial court:
"The rule is well settled that the owners of resorts to which people generally are expressly or by
implication invited are legally bound to exercise ordinary care and prudence in the management
and maintenance of such resorts, to the end of making them reasonably safe for visitors" (Larkin
vs. Saltair Beach Co., 30 Utah 86, 83 Pac. 686).
"Although the proprietor of a natatorium is liable for injuries to a patron, resulting from lack of
ordinary care in providing for his safety, without the fault of the patron, he is not, however, in
any sense deemed to be the insurer of the safety of patrons. And the death of a patron within his
premises does not cast upon him the burden of excusing himself from any presumption of
negligence" (Bertalot vs. Kinnare. 72 Ill. App. 52, 22 A. L. R. 635; Flora vs. Bimini Water Co., 161
Cal. 495, 119 Pac. 661). Thus in Bertalot vs. Kinnare, supra, it was held that there could be no
recovery for the death by drowning of a fifteen-year boy in defendant's natatorium, where it
appeared merely that he was lastly seen alive in water at the shallow end of the pool, and some
ten or fifteen minutes later was discovered unconscious, and perhaps lifeless, at the bottom of
the pool, all efforts to resuscitate him being without avail.
Since the present action is one for damages founded on culpable negligence, the principle to be observed
is that the person claiming damages has the burden of proving that the damage is caused by the fault or
negligence of the person from whom the damage is claimed, or of one of his employees (Walter A. Smith
& Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517). The question then that arises is: Have
appellants established by sufficient evidence the existence of fault or negligence on the part of appellee
so as to render it liable for damages for the death of Dominador Ong?
There is no question that appellants had striven to prove that appellee failed to take the necessary
precaution to protect the lives of its patrons by not placing at the swimming pools efficient and
competent employees who may render help at a moment's notice, and they ascribed such negligence to
appellee because the lifeguard it had on the occasion minor Ong was drowning was not available or was
attending to something else with the result that his help came late. Thus, appellants tried to prove
through the testimony of Andres Hagad, Jr. and Ruben Ong that when Eusebio Ong and Hagad, Jr.
detected that there was a drowning person in the bottom of the big swimming pool and shouted to the
lifeguard for help, lifeguard Manuel Abao did not immediately respond to the alarm and it was only upon
the third call that he threw away the magazine he was reading and allowed three or four minutes to
elapse before retrieving the body from the water. This negligence of Abao, they contend, is attributable
to appellee.
But the claim of these two witnesses not only was vehemently denied by lifeguard Abao, but is belied by
the written statements given by them in the investigation conducted by the Police Department of Quezon
City approximately three hours after the happening of the accident. Thus, these two boys admitted in the
investigation that they narrated in their statements everything they knew of the accident, but, as found
by the trial, nowhere in said statements do they state that the lifeguard was chatting with the security
guard at the gate of the swimming pool or was reading a comic magazine when the alarm was given for
which reason he failed to immediately respond to the alarm. On the contrary, what Ruben Ong
particularly emphasized therein was that after the lifeguard heard the shouts for help, the latter
immediately dived into the pool to retrieve the person under water who turned out to be his brother. For
this reason, the trial court made this conclusion: "The testimony of Ruben Ong and Andres Hagad, Jr. as
to the alleged failure of the lifeguard Abao to immediately respond to their call may therefore be
disregarded because they are belied by their written statements. (Emphasis supplied.)
On the other hand, there is sufficient evidence to show that appellee has taken all necessary precautions
to avoid danger to the lives of its patrons or prevent accident which may cause their death. Thus, it has
been shown that the swimming pools of appellee are provided with a ring buoy, toy roof, towing line,
oxygen resuscitator and a first aid medicine kit. The bottom of the pools is painted with black colors so as
to insure clear visibility. There is on display in a conspicuous place within the area certain rules and
regulations governing the use of the pools. Appellee employs six lifeguards who are all trained as they
had taken a course for that purpose and were issued certificates of proficiency. These lifeguards work on
schedule prepared by their chief and arranged in such a way as to have two guards at a time on duty to
look after the safety of the bathers. There is a male nurse and a sanitary inspector with a clinic provided
with oxygen resuscitator. And there are security guards who are available always in case of emergency.
The record also shows that when the body of minor Ong was retrieved from the bottom of the pool, the
employees of appellee did everything possible to bring him back to life. Thus, after he was placed at the
edge of the pool, lifeguard Abao immediately gave him manual artificial respiration. Soon thereafter,
nurse Armando Rule arrived, followed by sanitary inspector Iluminado Vicente who brought with him an
oxygen resuscitator. When they found that the pulse of the boy was abnormal, the inspector immediately
injected him with camphorated oil. When the manual artificial respiration proved ineffective they applied
the oxygen resuscitator until its contents were exhausted. And while all these efforts were being made,
they sent for Dr. Ayuyao from the University of the Philippines who however came late because upon
examining the body he found him to be already dead. All of the foregoing shows that appellee has done
what is humanly possible under the circumstances to restore life to minor Ong and for that reason it is
unfair to hold it liable for his death.
Sensing that their former theory as regards the liability of appellee may not be of much help, appellants
now switch to the theory that even if it be assumed that the deceased is partly to be blamed for the
unfortunate incident, still appellee may be held liable under the doctrine of "last clear chance" for the
reason that, having the last opportunity to save the victim, it failed to do so.
We do not see how this doctrine may apply considering that the record does not show how minor Ong
came into the big swimming pool. The only thing the record discloses is that minor Ong informed his
elder brothers that he was going to the locker room to drink a bottle of coke but that from that time on
nobody knew what happened to him until his lifeless body was retrieved. The doctrine of last clear
chance simply means that the negligence of a claimant does not preclude a recovery for the negligence
of defendant where it appears that the latter, by exercising reasonable care and prudence, might have
avoided injurious consequences to claimant notwithstanding his negligence. Or, "As the doctrine usually
is stated, a person who has the last clear chance or opportunity of avoiding an accident, notwithstanding
the negligent acts of his opponent or the negligence of a third person which is imputed to his opponent,
is considered in law solely responsible for the consequences of the accident." (38 Am. Jur. pp. 900-902)
It goes without saying that the plaintiff himself was not free from fault, for he was guilty of
antecedent negligence in planting himself in the wrong side of the road. But as we have already
stated, the defendant was also negligent; and in such case the problem always is to discover
which agent is immediately and directly responsible. It will be noted that the negligent acts of the
two parties were not contemporaneous, since the negligence of the defendant succeeded the
negligence of the plaintiff by an appreciable interval. Under these circumstances, the law is that a
person who has the last clear chance to avoid the impending harm and fails to do so is
chargeable with the consequences, without reference to the prior negligence of the other party.
(Picart vs. Smith, 37 Phil., 809)
Since it is not known how minor Ong came into the big swimming pool and it being apparent that he
went there without any companion in violation of one of the regulations of appellee as regards the use of
the pools, and it appearing that lifeguard Aba__o responded to the call for help as soon as his attention
was called to it and immediately after retrieving the body all efforts at the disposal of appellee had been
put into play in order to bring him back to life, it is clear that there is no room for the application of the
doctrine now invoked by appellants to impute liability to appellee..
The last clear chance doctrine can never apply where the party charged is required to act
instantaneously, and if the injury cannot be avoided by the application of all means at hand after
the peril is or should have been discovered; at least in cases in which any previous negligence of
the party charged cannot be said to have contributed to the injury. O'Mally vs. Eagan, 77 ALR
582, 43 Wyo. 233, 350, 2, P2d 1063. (A.L.R. Digest, Vol. 8, pp. 955-956)
Before closing, we wish to quote the following observation of the trial court, which we find supported by
the evidence: "There is (also) a strong suggestion coming from the expert evidence presented by both
parties that Dominador Ong might have dived where the water was only 5.5 feet deep, and in so doing
he might have hit or bumped his forehead against the bottom of the pool, as a consequence of which he
was stunned, and which to his drowning. As a boy scout he must have received instructions in swimming.
He knew, or have known that it was dangerous for him to dive in that part of the pool."
Wherefore, the decision appealed from being in accordance with law and the evidence, we hereby affirm
the same, without pronouncement as to costs.
Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Concepcion, Reyes, J. B. L., Endencia and Felix,
JJ., concur.

The Lawphil Project - Arellano Law Foundation



















Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 131622 November 27, 1998
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR. doing
lending business under the trade name and style "GONZALES CREDIT ENTERPRISES",
respondents.

PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of
Court, seeking to set aside the decision of the Court of Appeals,
1
and its resolution denying
reconsideration,
2
the dispositive portion of which decision reads as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are
hereby-ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month
interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of
the total amount due and demandable as penalty charges effective August 23, 1986,
until the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.
SO ORDERED.
3

The Court required the respondents to comment on the petition,
4
which was filed on April 3, 1998,
5
and
the petitioners to reply thereto, which was filed on May 29, 1998.
6
We now resolve to give due course to
the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and
conclusive on the parties herein, as the appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a
loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months.
Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servando and Leticia executed a promissory note for
P50,000.00, to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to
evidence the loan, maturing on Janaury 19, 1986. They received only P84,000.00, out of the proceeds of
the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of
P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to
Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel,
authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of
Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of
P275.000.00, was given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They
executed a promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT
ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag,
Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service
charge per annum from date hereof until fully paid according to the amortization
schedule contained herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and payable and
I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per
month of the amount due and demandable as penalty charges in the form of liquidated
damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereof
in full, without deductions as Attorney's Fee whether actually incurred or not, of the total
amount due and demandable, exclusive of costs and judicial or extra judicial expenses.
(Emphasis supplied).
I, WE further agree that in the event the present rate of interest on loan is increased by
law or the Central Bank of the Philippines, the holder shall have the option to apply and
collect the increased interest charges without notice although the original interest have
already been collected wholly or partially unless the contrary is required by law.
It is also a special condition of this contract that the parties herein agree that the amount
of peso-obligation under this agreement is based on the present value of the peso, and if
there be any change in the value thereof, due to extraordinary inflation or deflation, or
any other cause or reason, then the peso-obligation herein contracted shall be adjusted
in accordance with the value of the peso then prevailing at the time of the complete
fulfillment of the obligation.
Demand and notice of dishonor waived. Holder may accept partial payments and grant
renewals of this note or extension of payments, reserving rights against each and all
indorsers and all parties to this note.
IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all
his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and
penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the
Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full
amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that
he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who
borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited
therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and
that he (Servando Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that the
loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a
parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month
with additional service charge of 2% per annum, and penalty charge of 1% per month; that the
stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and
that substantial payments made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four promissory
notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest
charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the
trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or
forbearance of money, goods or credit is 12% per annum."
7

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to
pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7,
1985 and 1% per month as penalty, until the entire amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and
severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per
month as penalty from November 19, 1985 until the whole amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of
P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11,
1986, until the whole amount is fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of
P50,000.00 as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.
8

In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid
loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of
the Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at
12% per annum, applies only in the absence of a stipulation on interest rate, but not when the parties
agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having
become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the
lender and borrower could agree on any interest that may be charged on the loan".
9
The Court of
Appeals further held that "the imposition of 'an additional amount equivalent to 1% per month of the
amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was
allowed by
law".
10

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the
Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are
hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month
interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of
the total amount due and demandable as penalty charges effective August 24, 1986,
until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.
SO ORDERED.
11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By
resolution dated November 25, 1997, the Court of Appeals denied the motion.
12

Hence, defendants interposed the present recourse via petition for review on certiorari.
13

We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question
presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still
effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982,
pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan
is excessive, iniquitous, unconscionable and exorbitant.
13
However, we can not consider the rate
"usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law
14
and that
the Usury Law is now "legally inexistent".
15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61
16
the Court held that
CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the
latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law
can repeal another law."
17
In the recent case of Florendo vs. Court of Appeals
18
, the Court reiterated
the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has
been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon."
19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos
mores"), if not against the law.
20
The stipulation is void.
21
The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.
22

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree
with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a
month penalty charge as liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render
judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of
Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED.
Narvasa, C.J., Romero, Kapunan and Purisima, JJ., concur.
Footnotes
1 CA-G.R. CV No. 36096, promulgated on March 21, 1997.
2 Issued on November 25, 1995.
3 Rollo, pp. 22-78.
4 Resolution dated February 23, 1998, p. 44, Rollo.
5 Rollo, pp. 45-48.
6 Rollo, pp. 53-56.
7 Petition, Rollo, pp. 8-21, 17.
8 Rollo, pp. 36-A-43.
9 Citing Verdejo v. Court of Appeals, 157 SCRA 743 ( 1988); Liam Law v. Olympic
Sawmill Co., 129 SCRA 439 (1984).
10 Citing Article 2209, Civil Code, and State Investment House, Inc. v. Court of Appeals,
198 SCRA 390.
11 Rollo, p. 27.
12 Rollo, p. 36.
13 Rollo, pp. 8-21.
13 Petition, pp. 15-17, Rollo.
14 People v. Dizon, 379 Phil. 687 [1996].
15 Liam Law v. Olympic Sawmill Co., 129 SCRA 439, 442.
16 331 Phil. 787 [1996].
17 Palanca v. Court of Appeals, 238 SCRA 593, 601 [1994].
18 333 Phil. 535 [1996].
19 People v. Dizon, supra, citing other cases.
20 Art. 1306, Civil Code.
21 Cf. Ibarra v. Aveyro, 37 Phil. 274; Almeda v. Court of Appeals, 256 SCRA 292 [1996].
22 Art. 2227, Civil Code; Joe's Radio and Electrical Supply v. Alto Electronics Corp., 104
Phil. 33 [1958]; Social Security Commission v. Almeda, 168 SCRA 474 [1988]; Palmares
v. Court of Appeals, G.R. No. 126490, March 31, 1998, reported in The Court Systems
Journal, Special Edition I, October, 1998, pp. 79-93.

The Lawphil Project - Arellano Law Foundation








Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-56487 October 21, 1991
REYNALDA GATCHALIAN, petitioner,
vs.
ARSENIO DELIM and the HON. COURT OF APPEALS, respondents.
Pedro G. Peralta for petitioner.
Florentino G. Libatique for private respondent.

FELICIANO, J.:p
At noon time on 11 July 1973, petitioner Reynalda Gatchalian boarded, as a paying passenger,
respondent's "Thames" mini bus at a point in San Eugenio, Aringay, La Union, bound for Bauang, of the
same province. On the way, while the bus was running along the highway in Barrio Payocpoc, Bauang,
Union, "a snapping sound" was suddenly heard at one part of the bus and, shortly thereafter, the vehicle
bumped a cement flower pot on the side of the road, went off the road, turned turtle and fell into a ditch.
Several passengers, including petitioner Gatchalian, were injured. They were promptly taken to Bethany
Hospital at San Fernando, La Union, for medical treatment. Upon medical examination, petitioner was
found to have sustained physical injuries on the leg, arm and forehead, specifically described as follows:
lacerated wound, forehead; abrasion, elbow, left; abrasion, knee, left; abrasion, lateral surface, leg, left.
1
On 14 July 1973, while injured. passengers were confined in the hospital, Mrs. Adela Delim, wife of
respondent, visited them and later paid for their hospitalization and medical expenses. She also gave
petitioner P12.00 with which to pay her transportation expense in going home from the hospital.
However, before Mrs. Delim left, she had the injured passengers, including petitioner, sign an already
prepared Joint Affidavit which stated, among other things:
That we were passengers of Thames with Plate No. 52-222 PUJ Phil. 73 and victims after
the said Thames met an accident at Barrio Payocpoc Norte, Bauang, La Union while
passing through the National Highway No. 3;
That after a thorough investigation the said Thames met the accident due to mechanical
defect and went off the road and turned turtle to the east canal of the road into a creek
causing physical injuries to us;
xxx xxx xxx
That we are no longer interested to file a complaint, criminal or civil against the said
driver and owner of the said Thames, because it was an accident and the said driver and
owner of the said Thames have gone to the extent of helping us to be treated upon our
injuries.
xxx xxx xxx 2
(Emphasis supplied)
Notwithstanding this document, petitioner Gathalian filed with the then Court of First Instance of La
Union an action extra contractu to recover compensatory and moral damages. She alleged in the
complaint that her injuries sustained from the vehicular mishap had left her with a conspicuous white
scar measuring 1 by 1/2 inches on the forehead, generating mental suffering and an inferiority complex
on her part; and that as a result, she had to retire in seclusion and stay away from her friends. She also
alleged that the scar diminished her facial beauty and deprived her of opportunities for employment. She
prayed for an award of: P10,000.00 for loss of employment and other opportunities; P10,000.00 for the
cost of plastic surgery for removal of the scar on her forehead; P30,000.00 for moral damages; and
P1,000.00 as attorney's fees.
In defense, respondent averred that the vehicular mishap was due to force majeure, and that petitioner
had already been paid and moreover had waived any right to institute any action against him (private
respondent) and his driver, when petitioner Gatchalian signed the Joint Affidavit on 14 July 1973.
After trial, the trial court dismissed the complaint upon the ground that when petitioner Gatchalian signed
the Joint Affidavit, she relinquished any right of action (whether criminal or civil) that she may have had
against respondent and the driver of the mini-bus.
On appeal by petitioner, the Court of Appeals reversed the trial court's conclusion that there had been a
valid waiver, but affirmed the dismissal of the case by denying petitioner's claim for damages:
We are not in accord, therefore, of (sic) the ground of the trial court's dismissal of the
complaint, although we conform to the trial court's disposition of the case its
dismissal.
IN VIEW OF THE FOREGOING considerations, there being no error committed by the
lower court in dismissing the plaintiff-appellant's complaint, the judgment of dismissal is
hereby affirmed.
Without special pronouncement as to costs.
SO ORDERED. 3
In the present Petition for Review filed in forma pauperis, petitioner assails the decision of the Court of
Appeals and ask this Court to award her actual or compensatory damages as well as moral damages.
We agree with the majority of the Court of Appeals who held that no valid waiver of her cause of action
had been made by petitioner. The relevant language of the Joint Affidavit may be quoted again:
That we are no longer interested to file a complaint, criminal or civil against the said
driver and owner of the said Thames, because it was an accident and the said driver and
owner of the said Thames have gone to the extent of helping us to be treated upon our
injuries. (Emphasis supplied)
A waiver, to be valid and effective, must in the first place be couched in clear and unequivocal
terms which leave no doubt as to the intention of a person to give up a right or benefit which
legally pertains to him. 4 A waiver may not casually be attributed to a person when the terms
thereof do not explicitly and clearly evidence an intent to abandon a right vested in such person.
The degree of explicitness which this Court has required in purported waivers is illustrated in Yepes and
Susaya v. Samar Express Transit (supra), where the Court in reading and rejecting a purported waiver
said:
. . . It appears that before their transfer to the Leyte Provincial Hospital, appellees were
asked to sign as, in fact, they signed the document Exhibit I wherein they stated that "in
consideration of the expenses which said operator has incurred in properly giving us the
proper medical treatment, we hereby manifest our desire to waive any and all claims
against the operator of the Samar Express Transit."
xxx xxx xxx
Even a cursory examination of the document mentioned above will readily show that
appellees did not actually waive their right to claim damages from appellant for the
latter's failure to comply with their contract of carriage. All that said document proves is
that they expressed a "desire" to make the waiver which obviously is not the same as
making an actual waiver of their right. A waiver of the kind invoked by appellant must be
clear and unequivocal (Decision of the Supreme Court of Spain of July 8, 1887) which
is not the case of the one relied upon in this appeal. (Emphasis supplied)
If we apply the standard used in Yepes and Susaya, we would have to conclude that the terms of
the Joint Affidavit in the instant case cannot be regarded as a waiver cast in "clear and
unequivocal" terms. Moreover, the circumstances under which the Joint Affidavit was signed by
petitioner Gatchalian need to be considered. Petitioner testified that she was still reeling from the
effects of the vehicular accident, having been in the hospital for only three days, when the
purported waiver in the form of the Joint Affidavit was presented to her for signing; that while
reading the same, she experienced dizziness but that, seeing the other passengers who had also
suffered injuries sign the document, she too signed without bothering to read the Joint Affidavit
in its entirety. Considering these circumstances there appears substantial doubt whether
petitioner understood fully the import of the Joint Affidavit (prepared by or at the instance of
private respondent) she signed and whether she actually intended thereby to waive any right of
action against private respondent.
Finally, because what is involved here is the liability of a common carrier for injuries sustained by
passengers in respect of whose safety a common carrier must exercise extraordinary diligence, we must
construe any such purported waiver most strictly against the common carrier. For a waiver to be valid
and effective, it must not be contrary to law, morals, public policy or good
customs. 5 To uphold a supposed waiver of any right to claim damages by an injured passenger, under
circumstances like those exhibited in this case, would be to dilute and weaken the standard of
extraordinary diligence exacted by the law from common carriers and hence to render that standard
unenforceable. 6 We believe such a purported waiver is offensive to public policy.
Petitioner Gatchalian also argues that the Court of Appeals, having by majority vote held that there was
no enforceable waiver of her right of action, should have awarded her actual or compensatory and moral
damages as a matter of course.
We have already noted that a duty to exercise extraordinary diligence in protecting the safety of its
passengers is imposed upon a common carrier. 7 In case of death or injuries to passengers, a statutory
presumption arises that the common carrier was at fault or had acted negligently "unless it proves that it
[had] observed extraordinary diligence as prescribed in Articles 1733 and 1755." 8 In fact, because of
this statutory presumption, it has been held that a court need not even make an express finding of fault
or negligence on the part of the common carrier in order to hold it liable. 9 To overcome this
presumption, the common carrier must slow to the court that it had exercised extraordinary diligence to
prevent the injuries. 10 The standard of extraordinary diligence imposed upon common carriers is
considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a good
paterfamilias established in respect of the ordinary relations between members of society. A common
carrier is bound to carry its passengers safely" as far as human care and foresight can provide, using the
utmost diligence of a very cautious person, with due regard to all the circumstances". 11
Thus, the question which must be addressed is whether or not private respondent has successfully
proved that he had exercised extraordinary diligence to prevent the mishap involving his mini-bus. The
records before the Court are bereft of any evidence showing that respondent had exercised the
extraordinary diligence required by law. Curiously, respondent did not even attempt, during the trial
before the court a quo, to prove that he had indeed exercised the requisite extraordinary diligence.
Respondent did try to exculpate himself from liability by alleging that the mishap was the result of force
majeure. But allegation is not proof and here again, respondent utterly failed to substantiate his defense
of force majeure. To exempt a common carrier from liability for death or physical injuries to passengers
upon the ground of force majeure, the carrier must clearly show not only that the efficient cause of the
casualty was entirely independent of the human will, but also that it was impossible to avoid. Any
participation by the common carrier in the occurrence of the injury will defeat the defense of force
majeure. In Servando v. Philippine Steam Navigation Company, 12 the Court summed up the essential
characteristics of force majeure by quoting with approval from the Enciclopedia Juridica Espaola:
Thus, where fortuitous event or force majeure is the immediate and proximate cause of
the loss, the obligor is exempt from liability non-performance. The Partidas, the
antecedent of Article 1174 of the Civil Code, defines "caso fortuito" as 'an event that
takes place by accident and could not have been foreseen. Examples of this are
destruction of houses, unexpected fire, shipwreck, violence of robber.
In its dissertation on the phrase "caso fortuito" the Enciclopedia Juridica Espaola says:
'In legal sense and, consequently, also in relation to contracts, a "caso fortuito" presents
the following essential characteristics: (1) the cause of the unforeseen and unexpected
occurence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will; (2) it must be impossible to foresee the event which
constitutes the "caso fortuito", or if it can be foreseen, it must be impossible to avoid; (3)
the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (4) the obligor must be free from any participation in
the aggravation of the injury resulting to the creditor.
Upon the other hand, the record yields affirmative evidence of fault or negligence on the part of
respondent common carrier. In her direct examination, petitioner Gatchalian narrated that shortly before
the vehicle went off the road and into a ditch, a "snapping sound" was suddenly heard at one part of the
bus. One of the passengers, an old woman, cried out, "What happened?" ("Apay addan samet
nadadaelen?"). The driver replied, nonchalantly, "That is only normal" ("Ugali ti makina dayta"). The
driver did not stop to check if anything had gone wrong with the bus. Moreover, the driver's reply
necessarily indicated that the same "snapping sound" had been heard in the bus on previous occasions.
This could only mean that the bus had not been checked physically or mechanically to determine what
was causing the "snapping sound" which had occurred so frequently that the driver had gotten
accustomed to it. Such a sound is obviously alien to a motor vehicle in good operating condition, and
even a modicum of concern for life and limb of passengers dictated that the bus be checked and
repaired. The obvious continued failure of respondent to look after the roadworthiness and safety of the
bus, coupled with the driver's refusal or neglect to stop the mini-bus after he had heard once again the
"snapping sound" and the cry of alarm from one of the passengers, constituted wanton disregard of the
physical safety of the passengers, and hence gross negligence on the part of respondent and his driver.
We turn to petitioner's claim for damages. The first item in that claim relates to revenue which petitioner
said she failed to realize because of the effects of the vehicular mishap. Petitioner maintains that on the
day that the mini-bus went off the road, she was supposed to confer with the district supervisor of public
schools for a substitute teacher's job, a job which she had held off and on as a "casual employee." The
Court of Appeals, however, found that at the time of the accident, she was no longer employed in a
public school since, being a casual employee and not a Civil Service eligible, she had been laid off. Her
employment as a substitute teacher was occasional and episodic, contingent upon the availability of
vacancies for substitute teachers. In view of her employment status as such, the Court of Appeals held
that she could not be said to have in fact lost any employment after and by reason of the accident. 13
Such was the factual finding of the Court of Appeals, a finding entitled to due respect from this Court.
Petitioner Gatchalian has not submitted any basis for overturning this finding of fact, and she may not be
awarded damages on the basis of speculation or conjecture. 14
Petitioner's claim for the cost of plastic surgery for removal of the scar on her forehead, is another
matter. A person is entitled to the physical integrity of his or her body; if that integrity is violated or
diminished, actual injury is suffered for which actual or compensatory damages are due and assessable.
Petitioner Gatchalian is entitled to be placed as nearly as possible in the condition that she was before
the mishap. A scar, especially one on the face of the woman, resulting from the infliction of injury upon
her, is a violation of bodily integrity, giving raise to a legitimate claim for restoration to her conditio ante.
If the scar is relatively small and does not grievously disfigure the victim, the cost of surgery may be
expected to be correspondingly modest. In Araneta, et al. vs. Areglado, et al., 15 this Court awarded
actual or compensatory damages for, among other things, the surgical removal of the scar on the face of
a young boy who had been injured in a vehicular collision. The Court there held:
We agree with the appellants that the damages awarded by the lower court for the
injuries suffered by Benjamin Araneta are inadequate. In allowing not more than
P1,000.00 as compensation for the "permanent deformity and something like an
inferiority complex" as well as for the "pathological condition on the left side of the jaw"
caused to said plaintiff, the court below overlooked the clear evidence on record that to
arrest the degenerative process taking place in the mandible and restore the injured boy
to a nearly normal condition, surgical intervention was needed, for which the doctor's
charges would amount to P3,000.00, exclusive of hospitalization fees, expenses and
medicines. Furthermore, the operation, according to Dr. Dio, would probably have to be
repeated in order to effectuate a complete cure, while removal of the scar on the face
obviously demanded plastic surgery.
xxx xxx xxx
The father's failure to submit his son to a plastic operation as soon as possible does not
prove that such treatment is not called for. The damage to the jaw and the existence of
the scar in Benjamin Araneta's face are physical facts that can not be reasoned out of
existence. That the injury should be treated in order to restore him as far as possible to
his original condition is undeniable. The father's delay, or even his negligence, should not
be allowed to prejudice the son who has no control over the parent's action nor impair
his right to a full indemnity.
. . . Still, taking into account the necessity and cost of corrective measures to fully repair
the damage; the pain suffered by the injured party; his feelings of inferiority due to
consciousness of his present deformity, as well as the voluntary character of the injury
inflicted; and further considering that a repair, however, skillfully conducted, is never
equivalent to the original state, we are of the opinion that the indemnity granted by the
trial court should be increased to a total of P18,000.00. (Emphasis supplied)
Petitioner estimated that the cost of having her scar surgically removed was somewhere between
P10,000.00 to P15,000.00. 16 Upon the other hand, Dr. Fe Tayao Lasam, a witness presented as an
expert by petitioner, testified that the cost would probably be between P5,000.00 to P10,000.00. 17 In
view of this testimony, and the fact that a considerable amount of time has lapsed since the mishap in
1973 which may be expected to increase not only the cost but also very probably the difficulty of
removing the scar, we consider that the amount of P15,000.00 to cover the cost of such plastic surgery is
not unreasonable.
Turning to petitioner's claim for moral damages, the long-established rule is that moral damages may be
awarded where gross negligence on the part of the common carrier is shown. 18 Since we have earlier
concluded that respondent common carrier and his driver had been grossly negligent in connection with
the bus mishap which had injured petitioner and other passengers, and recalling the aggressive
manuevers of respondent, through his wife, to get the victims to waive their right to recover damages
even as they were still hospitalized for their injuries, petitioner must be held entitled to such moral
damages. Considering the extent of pain and anxiety which petitioner must have suffered as a result of
her physical injuries including the permanent scar on her forehead, we believe that the amount of
P30,000.00 would be a reasonable award. Petitioner's claim for P1,000.00 as atttorney's fees is in fact
even more modest. 19
WHEREFORE, the Decision of the Court of Appeals dated 24 October 1980, as well as the decision of the
then Court of First Instance of La Union dated 4 December 1975 are hereby REVERSED and SET
ASIDE.Respondent is hereby ORDERED to pay petitioner Reynalda Gatchalian the following sums: 1)
P15,000.00 as actual or compensatory damages to cover the cost of plastic surgery for the removal of
the scar on petitioner's forehead; 2) P30,000.00 as moral damages; and 3) P1,000.00 as attorney's fees,
the aggregate amount to bear interest at the legal rate of 6% per annum counting from the promulgation
of this decision until full payment thereof. Costs against private respondent.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

# Footnotes
1 TSN, 19 December 1974, p. 8.
2 Record on Appeal, p. 10.
3 Annex A of Petition; Rollo, pp. 16-26. The Decision was split; Coquia, J. joined the
ponente Asunsion, J.; Cuevas, J. concurred in the result, stating that there was a valid
waiver of the civil but not of the criminal liability involved; German and Gopengco, JJ.,
dissented, holding that there was no valid waiver and the claim for damages should be
granted.
4 Fernandez vs. Sebido, 70 Phil. 151 (1940); Lang v. Provincial Sheriff of Surigao, et al.,
93 Phil. 661 (1953); Andres v. Crown Life Insurance Co., 102 Phil. 919 (1958); Yepes
and Susaya v. Samar Express Transit, 17 SCRA 91 (1966).
5 Article 6, Civil Code.
6 See e.g., Maniego v. Castelo, 101 Phil. 293 (1957); Cui v. Arellano University, 2 SCRA
205 (1961).
7 Article 1733 and 1755, Civil Code.
8 Article 1756, Civil Code.
9 Brito Sy v. Malate Taxicab & Garage, Inc., 102 Phil. 482 (1957).
10 Landingin v. Pangasinan Transportation Co., 33 SCRA 284 (1970).
11 Article 1755, Civil Code.
12 117 SCRA 832, 837 (1982).
13 Rollo, p. 18.
14 Article 2199, Civil Code of the Philippines; Suntay Tanjangco vs. Jovellanos, 108 Phil.
713 (1960).
15 104 Phil. 529 (1958).
16 TSN, 15 July 1975, p. 10.
17 Id., 19 December 1974, p. 7.
18 See, e.g., Mecenas v. Court of Appeals, 180 SCRA 83 (1989); Kapalaran Bus Line v.
Coronado, 176 SCRA 792 (1989); Sweet Lines, Inc. v. Court of Appeals, 121 SCRA 769
(1983); Ortigas, Jr. v. Lufthansa German Airlines, 64 SCRA 610 (1975); Air France v.
Carrascoso, 18 SCRA 155 (1966); La Mallorca and Pampanga Bus Co. v. De Jesus, et al.,
17 SCRA 23 (1966); Laguna Tayabas Bus Co. v. Tiongson, et al., 16 SCRA 940 (1966);
Lopez, et al. v. Pan American World Airways, 16 SCRA 431 (1966); Laguna Tayabas Bus
Co. v. Cornista, 11 SCRA 181 (1964); Verzosa v. Baytan, et al., 107 Phil. 1010 (1960);
Layda v. Court of Appeals and Brillantes, 90 Phil. 724 (1952).
19 Article 2208(2) and (11) Civil Code.

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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 85322 April 30, 1991
ALFREDO M. ALMEDA, LEONARDO M. ALMEDA and ERNESTO M. ALMEDA, petitioners,
vs.
HON. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, representative represented
by THE DIRECTOR OF LANDS, respondents.
Leonardo M. Almeda for petitioners.

GRIO-AQUINO, J.:p
This petition for review assails the Court of Appeals' decision dated May 9, 1988 in CA-G.R. No. 09309-CV
reversing the judgment dated January 6, 1986 of the Regional Trial Court in LRC Case No. N-10771
entitled, "Alfredo M. Almeda, Leonardo M. Almeda and Ernesto M. Almeda, Applicants versus Republic of
the Philippines, represented by the Director of Lands, Oppositor."
The case involves a parcel of land with an area of 1,208 square meters located in Barrio Pampangin
Pateros, Rizal, and described in Survey Plan Psu-128539. It was originally owned and possessed by
Emiliano Almeda, father of the petitioners, by virtue of an "Escritura de Particion Extrajudicial" (Exh. G)
executed on June 15, 1935, between him and his brother Adriano wherein they attested the fact that the
land in question was inherited from their parents, Vedasto Almeda and Josefa C. Concepcion, who had
inherited the same from their own parents (great-grandparents of herein petitioners).
After Emiliano's death on May 1, 1948 at the age of 67, his wife, Ana Menguito and their children
received the produce of the land and rented out to third persons portions of the property where Emiliano
had three houses built. Upon Ana's death on April 3, 1950, her children with Emiliano inherited the
property and the lessees moved out. On June 9, 1980, the brothers Alfredo, Leonardo and Ernesto
executed an extrajudicial partition adjudicating the land to themselves (Exh. J).
On September 12, 1984, the Almeda brothers applied for the registration of the land in the Regional Trial
Court of Pasig, Branch CLVI, where the case was docketed as LRC Case No. N-10771, LRC Record No. N-
58761 entitled, "Alfredo M. Almeda, Leonardo M. Almeda and Ernesto M. Almeda, Applicants." Their
application was set for hearing on December 20, 1984. The notice of hearing dated October 10, 1984
was duly published in the Official Gazette and posted by the deputy sheriff.
On the date of the hearing, no one appeared to oppose the application except the Director of Lands,
through the Solicitor General, who had earlier filed a formal opposition. An order of general default was
issued against the whole world, except the aforementioned oppositor, and the case was set for hearing.
The report of the Bureau of Lands stated that the land is not included in any military area or naval
reservation nor is it covered by any land patent or public land application. The Land Registration
Commission Report also stated that Plan Psu-128539, when plotted in the Municipal Index map, does not
overlap with any previously plotted titled properties under Act 496 as amended by PD 1525, and that the
survey books do not show that the subject lot had been applied for except in this case.
The Director of Lands, through the Office of the Solicitor General, presented Corazon Calamno senior
forester of the Bureau of Forest Development, who stated that she prepared the inspection report on
November 26, 1984; that the land fags within the alienable and disposable land under Project No. 29 of
Pateros, Metro Manila, as per BFD Map LC 2623, certified and declared as such on January 23, 1968.
The Court found that the applicants' possession of the parcel of land sought to be registered, together
with that of their predecessors-in-interest, has been public, peaceful, continuous, adverse to the whole
world and in the concept of an owner for a period of more than thirty (30) years, and, that the land is not
located within any forest reservation nor mortgaged or encumbered in favor of any person or lending
institution.
In a decision dated January 18, 1986, the trial court affirmed the order of general default and confirmed
the title of the applicants to the parcel of land covered by the plan, Psu-128539, and ordered its
registration in the names of Alfredo, Leonardo and Ernesto Almeda pro-indiviso (pp. 42-45, Rollo).
From that decision, the Republic of the Philippines, represented by the Solicitor General, appealed to the
Court of Appeals in CA-G.R. CV No. 09309, alleging that the applicants-appellees have not met the
statutory requirements on possession under Section 48(b) of CA 141, mainly because the land applied for
was inalienable forest land before its release as alienable and disposable land on January 3, 1968. The
applicants' possession thereof prior to January 3, 1968 was invalid for purposes of a grant under Section
48(b) of the Public Land Act.
The Court of Appeals, in a decision dated May 9, 1988, reversed the lower court and denied the
application for registration. It held that private respondents had not qualified for a grant under Section
48(b) of Commonwealth Act 141 which requires public, peaceful, continuous, adverse possession by the
applicants in the concept of an owner, for a period of at least 30 years. They have to their credit only
seventeen (17) years possession and occupation of the land, counted from January 23, 1968, when it
was declared alienable and disposable, up to September 12, 1984, when their application for registration
was filed.
After their motion for reconsideration was denied by the Court of Appeals, the applicants filed this
petition for review under Rule 45 of the Rules of Court.
Petitioners allege that the Court of Appeals erred:
1. in not holding that the land, classification made by the Director of Forestry (Bureau of Forest
Development) could not affect the vested rights of the applicants and their predecessors-in-interest who
had continuously occupied and profited from the land since 1918 or very much earlier, as in this case;
and
2. in denying the motion for reconsideration despite the ruling in "The Director of Lands vs. The
Honorable Court of Appeals and Iglesia ni Cristo," 158 SCRA 568 promulgated on March 14, 1988, which
allowed registration even when the land applied for was within the proposed alienable or disposable block
of a proposed LC project.
There is no merit in the petition.
The Court of Appeals correctly ruled that the private respondents had not qualified for a grant under
Section 48(b) of the Public Land Act because their possession of the land while it was still inalienable
forest land, or before it was declared alienable and disposable land of the public domain on January 13,
1968, could not ripen into private ownership, and should be excluded from the computation of the 30-
year open and continuous possession in concept of owner required under Section 48(b) of Com. Act 141.
It accords with our ruling in Director of Lands vs. Court of Appeals, Ibarra Bishar et al., 178 SCRA 708,
that:
Unless and until the land classified as forest is released in an official proclamation to that
effect so that it may form part of the disposable agricultural lands of the public domain,
the rules on confirmation of imperfect title do not apply Amunategai vs. Director of
Forestry, 126 SCRA 69; Director of Lands vs. Court of Appeals, 129 SCRA 689; Director of
Lands vs. Court of Appeals, 133 SCRA 701; Republic vs. Court of Appeals, 148 SCRA 480;
Vallarta vs. Intermediate Appellate Court, 151 SCRA 679).
Thus, possession of forest lands, however long, cannot ripen into private ownership
(Vamo vs. Government, 41 Phil. 161 [1920]; Adorable vs. Director of Forestry, 107 Phil.
401 [1960]). A parcel of forest land is within the exclusive jurisdiction of the Bureau of
Forestry and beyond the power and jurisdiction of the cadastral court to register under
the Torrens System (Republic vs. Court of Appeals, 89 SCRA 648; Republic vs. Vera, 120
SCRA 210 [19831; Director of Lands vs. Court of Appeals, 129 SCRA 689 [1984]).
The petitioners have erroneously cited our decisions in Director of Forestry vs. Villareal, 170 SCRA 598
and Republic vs. Court of Appeals, Miguel Marcelo, et al., 168 SCRA 77, in support of their position in this
case. In those cases, the applicants' possession of the land antedated its classification as forest land. We
held that such lands could not be retroactively legislated or classified as forest lands because it would
violate previously acquired property lights protected by the due process clause of the Constitution.
The situation of the land in this case is the reverse of the Villareal and Marcelo cases. The land here was
already forest land when occupied by the petitioners but it was later released on January 23, 1968 from
its forest classification. In other words, the petitioners here occupied forest land before it was released as
alienable and disposable, while the applicants in the Villareal and Marcelo cases possessed parcels of land
long before they were reserved as forest land. The subsequent reservation did not prejudice their vested
rights therein.
Petitioner's recourse to the decision of this Court in Director of Lands vs. Court of appeals and Iglesia Ni
Cristo, 158 SCRA 568, is inappropriate. That case did not involve forest land, but agricultural land of the
public domain within the proposed alienable or disposable block.
WHEREFORE, the petition for review is denied for lack of merit. Costs against the petitioners.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44100 April 28, 1983
SPECIAL SERVICES CORPORATION, petitioner,
vs.
CENTRO LA PAZ (SAMAHANG ESPIRITISTA SA LUNDUYANG LA PAZ), A CHAPTER OF UNION
ESPIRITISTA CRISTIANA DE FILIPINAS, INC., respondents.

MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision promulgated on May 11, 1976 by respondent
Court of Appeals
1
in CA-G.R. No. 56582-R, entitled "Centro La Paz (Samahang Espiritista sa Lunduyang
La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc. vs. The Sheriff of Manila and the Special
Services Corporation." The Union Espiritista Cristiana de Filipinas, Inc., is a semi-religious and charitable
organization.
2

The antecedental facts follow:
On October 10, 1972, judgment was rendered in favor of petitioner Special Services Corporation by the
Court of First Instance, Branch IV, Manila, against one Alejandro Estudillo in the amount of P94,727.52,
more or less, in an action for Replevin with Sum of Money (Civil Case No. 85819). A writ of execution was
thereafter issued but which has remained unsatisfied.
By virtue of an alias writ of execution issued on December 15, 1972, the Sheriff of Manila caused the
annotation of a notice of levy on Transfer Certificate of Title No. 51837, in respect of the rights, interest
and participation of said Alejandro Estudillo, one of the registered owners indicated in said title. That title
covers two parcels of land situated in Sampaloc, Manila, consisting of three hundred forty eight (348)
square meters and registered in the names of Alejandro Estudillo, married to Primitiva Victoria; Joaquina
de la Rosa, widow; Pedro Paguio, married to Amor Jose and Maximo Victoria, married to Juliana Roberto,
all Chapter members.
The public auction sale of Estudillo's rights and interests in said properties was scheduled on July 23,
1973.
On June 27, 1973, Alejandro Estudillo filed a "Motion to Dissolve and/or Cancel the Notice of Levy"
alleging that he and the other registered owners indicated on the title merely held in trust the properties
and improvements thereon in favor of respondent Centro La Paz (Samahang Espiritista Sa Lunduyang La
Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc. (hereinafter referred to as CENTRO, for
brevity), as evidenced by "Acknowledgments" executed by them on October 20, 1961 and October 2,
1971. Estudillo further alleged that CENTRO's ownership was also evidenced by letters dated February
15, 1963, November 29, 1963 and August 8, 1966 sent to the City Assessor by him and Crispulo Romero,
President of CENTRO, long before the filing of the replevin case on December 28, 1971 praying for the
revocation of tax assessments on said properties as the same, were used for religious purposes.
3

On July 21, 1973, CENTRO submitted a third party claim to the Sheriff of Manila likewise averring
exclusive ownership of the properties in question .
4

On July 23, 1973, "Centro La Paz (Samahang Espiritista sa Lunduyang La Paz) a Chapter of Union
Espiritista Cristiana de Filipinas, Inc.," as plaintiff, instituted Civil Case No. 91412 for Damages and
Preliminary Injunction against herein petitioner and the Sheriff of Manila with the Court of First Instance,
Branch IV, Manila, the same Court which rendered judgment in the replevin case. CENTRO reiterated
ownership of the properties in question and emphasized that the registered owners thereof had publicly
acknowledged their possession of said properties in the concept of trustees.
5

In its "Opposition to Petition for Preliminary Injunction and Answer," petitioner averred that a Torrens
Title issued in favor of an owner is conclusive of all matters stated therein and that the
"Acknowledgments" of the registered owners not being annotated on Transfer Certificates of Title No.
51837 could not bind anyone.
6

On August 27, 1973, a writ of preliminary injunction was issued by the lower Court enjoining the public
auction sale of Estudillo's interest in the properties in question,
7
conditioned upon CENTRO's posting a
bond of P30,000.00.
In a judgment rendered on August 30, 1974, the Court a quo decreed in the dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in favor
of the plaintiff, against the defendants, enjoining the latter from proceeding with the
public auction sale of the real property, pursuant to the notice of sale on execution of
real property, with costs against the defendant.
The writ of preliminary injunction issued in connection with this case is, as it is hereby
made permanent.
Defendant's counterclaim is, as it is hereby ordered dismissed for lack of merit.
SO ORDERED.
8

The lower Court held that by a preponderance of evidence CENTRO had established that it was "really
and true and lawful owner of the property in dispute, and that the persons registered therein as its
owners are merely trustees of the plaintiff," thus:
The evidence on hand clearly preponderates in favor of the plaintiff. The series of
documents executed even as early as 1957, long before the issue of whether Alejandro
Estudillo really has an interest and/or participation in the property in dispute, attest to
plaintiff's ownership of the property in question. The Deed of Donation dated March 13,
1957 (Exh. A), Deed of Absolute Sale (Exh. E) executed by Joaquina dela Rosa in favor of
Alejandro Estudillo, Pedro Paguio and Maximo Victoria of the same property covered by
the Deed of Donation, Exhibit A; Deed of Sale (Exh. F) of two parcels in dispute
described under T.C.T. No. 51837 executed by Sta. Mesa Realty, Inc. in favor of
Alejandro Estudillo, Joaquina dela Rosa, Pedro Q. Paguio and Maximo Victoria, Deed of
Acknowledgment dated October 30, 1961 (Exh. G) also executed by the same Estudillo
de la Rosa and Victoria acknowledging that the property described under the
aforementioned T.C.T. No. 51837, together with the improvements thereon are being
possessed by them only as trustees; another Deed of Acknowledgment executed on
October 22, 1971, jointly by Amor Jose, widow of Paguio and the latter's daughters,
Sumilang Paguio and Filipina Paguio (co-registered owner of Estudillo) likewise declaring
that their possession of the said property is merely that of trustees and not as owners;
the petitions for revocation of tax assessments Nos. 3187 and 3188 (Exhs. I and J); the
petition to exempt said parcels from taxation, being owned by a religious organization
(Exh. K) and the follow-up letters addressed to the City Assessor of Manila, dated
February 15, 1963 (Exh. L), December 29,1963 (Exh. M) and May 29, 1962 (Exh N)
respectively, plus the Deed of Sale (Exh. 0) executed by Estudillo, heirs of dela Rosa and
Paguio of the two parcels in favor of Centro La Paz, indubitably point to one and
inescapable conclusion that the plaintiff is really the true and lawful owner of the
property in dispute and that persons registered therein as its owners, are merely trustees
of the plaintiff.
While it may be true that the declaration of Estudillo subsequent to the levy upon his
interest in the aforesaid property may be self-serving, which could be for the purpose of
avoiding liability, his declaration and that of his co-owners, however, taking place years
before the instant controversy, could hardly be said to have been motivated by a similar
purpose (to evade responsibility) since at that time, none as yet exist in favor of the
defendant nor anybody elm against the Estudillo. (Record on Appeal, pp. 54-55) 9
Faced with that adverse judgment, petitioner appealed to respondent Appellate Court, which affirmed the
Court a quo's Decision on May 11, 1976, and subsequently denied reconsideration.
Petitioner then availed of the instant Petition, raising the following issues:
l) Whether or not Centro La Paz which is merely a Chapter of Union Espiritista de
Filipinas, Inc. has a juridical personality of its own in accordance with the provisions of
our laws;
2) Whether or not Centro La Paz, as claimed by it and the respondent Court of Appeals,
can validly be conferred upon ownership of Transfer Certificate of Title No. 51837 by
virtue of documents executed allegedly in its favor.
We affirm the judgment appealed from.
For one thing, the issues now raised were not directly litigated in the Court below. For another, it is
evident from the Complaint that the plaintiff was the mother organization, thus:
Centro La Paz (Samahang Espiritista sa Lunduyang La Paz), A Chapter of Union Espiritista
Cristiana de Filipinas, Inc., Plaintiff.
Paragraph 1 of the Complaint likewise reads:
1. That the plaintiff is a juridical person duly organized and existing under and by virtue
of the laws of the Republic of the Philippines, a semi-religious and charitable
organization, with a right to sue and be sued, ...
In the Offer of Evidence filed before the Trial Court, the purpose of presenting Exhibit "A", the Deed of
Donation dated March 13, 1957, was "to establish or prove the following":
(a) That the plaintiff "CENTRO LA PAZ" as a chapter of the association of spiritista
commonly known as 'UNION ESPIRITISTA CRISTIANA DE FILIPINAS, INC., 'which is a
duly registered corporation or entity with the Office of the Securities and Exchange
Commission, is a Juridical Person with the right to sue and be sued;
xxx xxx xxx
10

In the Memorandum of CENTRO before the Trial Court, the following allegation also appears:
That the plaintiff is a Chapter of the UNION ESPIRITISTA CRISTIANA DE FlLIPINAS,
INC., a semi-religious and charitable organization duly registered with the Securities and
Exchange Commission as per Certificate of Registration No. 15147, dated March 19,
1959, ...
11

And in the Decision of the Trial Court, it found:
The evidence for the plaintiff disclosed that it is a chapter of the Union Espiritista
Christiana de Filipinas, Inc., a semi-religious and charitable organization duly registered
with the Securities and Exchange Commission per Certificate of Registration No. 15147
dated March 19, 1959.
xxx xxx xxx
12

Evident from all the foregoing is that although it was CENTRO that was actively prosecuting the case, in
substance, it was representing the mother organization, the Union Espiritista Cristiana de Filipinas, Inc.,
which is the real party in interest and is itself named in the Complaint. It is an organization that is duly
registered with the Securities and Exchange Commission, and thus possessed of a juridical personality to
sue and be sued.
13

As found by both the Trial Court and respondent Appellate Court, the evidence sufficiently establishes
that the registered owners of the parcels of land covered by TCT 51837, all of whom are members of
CENTRO, hold the properties in trust for CENTRO by virtue of the indubitable documents executed even
before the institution of suit. In the same manner that the real property, registered solely in the name of
a husband, can be proven to be conjugal property with his wife, the fact of registration in the name of
Alejandro Estudillo and others does not bar evidence to show that the registered owners hold the
properties in trust for CENTRO.
14

Admittedly, the trust was not registered in accordance with section 65 of Act 496 (the former Land
Registration Law). The absence of said registration, however, cannot be taken against CENTRO inasmuch
as, if the public auction sale had actually been held, with petitioner as the successful buyer, petitioner
could not have been considered a purchaser for value and in good faith at said sale since it had
knowledge of CENTRO's claim, particularly when the latter had filed a third-party-claim with the Sheriff of
Manila before the scheduled auction sale, which knowledge was equivalent to registration of the several
"Acknowledgments" in the Registry of Deeds.
15

The conclusion follows that inasmuch as Estudillo has no interest in the properties in question, there is
nothing that petitioner can levy upon. The power of a Court in the execution of its judgment extends only
over properties unquestionably belonging to the judgment debtor.
16

WHEREFORE, the judgment of respondent Court of Appeals (now Intermediate Appellate Court) affirming
that of the Trial Court, which enjoined petitioner "from proceeding with the public auction sale of the
properties in question, pursuant to the notice of sale on execution of real property" and made the writ of
preliminary injunction permanent, is hereby affirmed.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Footnotes
1 Justice Ramon C. Fernandez, ponente, concurred in by Justice Ricardo C. Puno and
Delfin Fl. Batacan.
2 Complaint, p. 1, Record on Appeal.
3 Exhibit "P", pp. 24-26, Folder of Exhibits.
4 Exhibit "R", pp. 29-31, Ibid.
5 pp. 1-4, Record on Appeal.
6 pp. 7-10, Ibid.
7 p. 15, Ibid.
8 p. 55, Ibid.
9 pp. 23-24, Rollo.
10 p. 18, Ibid.
11 p. 38, Ibid.
12 p. 53, Ibid.
13 see Alonso vs. Villamor, 16 Phil. 315 (1910).
14 Bucoy vs. Paulino, 23 SCRA 248 (1968).
15 Parsons Hardware Co., Inc. vs. Court of Appeals, 69 Phil. 411 (1940).
16 Bayer, Phil., Inc. vs. Hon. Agana, 63 SCRA 355 (1975); Sampaguita Pictures, Inc.
vs.Jalwindor Manufacturers, Inc., 93 SCRA 420 (1979).

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