G.R. No.

117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners,
vs.
COURT OF APPEALS and YSMAEL C. FERRER, respondents.

Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The
trial court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to
pay:
a) P259,417.23 for the increase in price of labor and materials
plus 12% interest thereon per annumfrom 15 August 1980
until fully paid;
b) P24,000.00 as actual damages;

PADILLA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioners seek a
review and reversal of the decision* of respondent Court of Appeals in CA-G.R.
CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company,
et. al." dated 31 August 1994, which affirmed the decision ** of the Regional
Trial Court, Branch 63, Makati in Civil Case No. 42712, a complaint for breach of
contract with damages.
Private respondent Ysmael C. Ferrer was contracted by herein petitioners
Security Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the
building of SBTC in Davao City for the price of P1,760,000.00. The contract
dated 4 February 1980 provided that Ferrer would finish the construction in two
hundred (200) working days. Respondent Ferrer was able to complete the
construction of the building on 15 August 1980 (within the contracted period)
but he was compelled by a drastic increase in the cost of construction materials
to incur expenses of about P300,000.00 on top of the original cost. The
additional expenses were made known to petitioner SBTC thru its Vice-President
Fely Sebastian and Supervising Architect Rudy de la Rama as early as March
1980. Respondent Ferrer made timely demands for payment of the increased
cost. Said demands were supported by receipts, invoices, payrolls and other
documents proving the additional expenses.
In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a
representative of an architectural firm consulted by SBTC, verified Ferrer's
claims for additional cost. A recommendation was then made to settle Ferrer's
claim but only for P200,000.00. SBTC, instead of paying the recommended
additional amount, denied ever authorizing payment of any amount beyond the
original contract price. SBTC likewise denied any liability for the additional cost
based on Article IX of the building contract which states:
If at any time prior to the completion of the work to be
performed hereunder, increase in prices of construction
materials and/or labor shall supervene through no fault on the
part of the contractor whatsoever or any act of the
government and its instrumentalities which directly or
indirectly affects the increase of the cost of the project,
OWNER shall equitably make the appropriate adjustment on
mutual agreement of both parties.

c) P20,000.00 as moral damages;

d) P20,000.00 as exemplary damages;
e) attorney's fees equivalent to 25% of the principal amount
due; and
f) costs of suit.
On appeal, the Court of Appeals affirmed the trial court decision.
In the present petition for review, petitioners assign the following errors to the
appellate court:
. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY
PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS
CLAIM AGAINST THE DEFENDANTS-APPELLANTS.
. . . IN INTERPRETING AN OTHERWISE CLEAR AND
UNAMBIGUOUS
PROVISION
OF
THE
CONSTRUCTION
CONTRACT.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE
CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED
DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF
NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1
Petitioners argue that under the aforequoted Article IX of the building contract,
any increase in the price of labor and/or materials resulting in an increase in
construction cost above the stipulated contract price will not automatically
make petitioners liable to pay for such increased cost, as any payment above
the stipulated contract price has been made subject to the condition that the
"appropriate adjustment" will be made "upon mutual agreement of both
parties". It is contended that since there was no mutual agreement between the
parties, petitioners' obligation to pay amounts above the original contract price
never materialized.

Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the
arguments raised by petitioners. It is of note however that the pleadings filed
with this Court by counsel for Ferrer hardly refute the arguments raised by
petitioners, as the contents of said pleadings are mostly quoted portions of the
decision of the Court of Appeals, devoid of adequate discussion of the merits of
respondent's case. The Court, to be sure, expects more diligence and legal
know-how from lawyers than what has been exhibited by counsel for respondent
in the present case. Under these circumstances, the Court had to review the
entire records of this case to evaluate the merits of the issues raised by the
contending parties.
Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius
incommodo debet lecupletari (no man ought to be made rich out of another's
injury) states:
Art. 22. Every person who through an act of performance by
another, or any other means, acquires or comes into
possession of something at the expense of the latter without
just or legal ground, shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human
Relations, the provisions of which were formulated as "basic principles to be
observed for the rightful relationship between human beings and for the stability
of the social order, . . . designed to indicate certain norms that spring from the
fountain of good conscience, . . . guides for human conduct [that] should run as
golden threads through society to the end that law may approach its supreme
ideal which is the sway and dominance of justice." 2
In the present case, petitioners' arguments to support absence of liability for the
cost of construction beyond the original contract price are not persuasive.
Under the previously quoted Article IX of the construction contract, petitioners
would make the appropriate adjustment to the contract price in case the cost of
the project increases through no fault of the contractor (private respondent).
Private respondent informed petitioners of the drastic increase in construction
cost as early as March 1980.
Petitioners in turn had the increased cost evaluated and audited. When private
respondent demanded payment of P259,417.23, petitioner bank's Vice-President
Rosito C. Manhit and the bank's architectural consultant were directed by the
bank to verify and compute private respondent's claims of increased cost. A
recommendation was then made to settle private respondent's claim for
P200,000.00. Despite this recommendation and several demands from private
respondent, SBTC failed to make payment. It denied authorizing anyone to make
a settlement of private respondent's claim and likewise denied any liability,
contending that the absence of a mutual agreement made private respondent's
demand premature and baseless.
Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in

constructing petitioner bank's building due to a drastic and unexpected increase
in construction cost. In fact, petitioner bank admitted liability for increased cost
when a recommendation was made to settle private respondent's claim for
P200,000.00. Private respondent's claim for the increased amount was
adequately proven during the trial by receipts, invoices and other supporting
documents.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its
fulfillment depends upon the sole will of the debtor. In the present case, the
mutual agreement, the absence of which petitioner bank relies upon to support
its non-liability for the increased construction cost, is in effect a condition
dependent on petitioner bank's sole will, since private respondent would
naturally and logically give consent to such an agreement which would allow
him recovery of the increased cost.
Further, it cannot be denied that petitioner bank derived benefits when private
respondent completed the construction even at an increased cost.
Hence, to allow petitioner bank to acquire the constructed building at a price far
below its actual construction cost would undoubtedly constitute unjust
enrichment for the bank to the prejudice of private respondent. Such unjust
enrichment, as previously discussed, is not allowed by law.
Finally, with respect to the award of attorney's fees to respondent, the Court has
previously held that, "even with the presence of an agreement between the
parties, the court may nevertheless reduce attorney's fees though fixed in the
contract when the amount thereof appears to be unconscionable or
unreasonable." 3 As previously noted, the diligence and legal know-how
exhibited by counsel for private respondent hardly justify an award of 25% of
the principal amount due, which would be at least P60,000.00. Besides, the
issues in this case are far from complex and intricate. The award of attorney's
fees is thus reduced to P10,000.00.
WHEREFORE, with the above modification in respect of the amount of attorney's
fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is
AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

G.R. No. 98273 October 28, 1991

CLARITA
V.
CRUZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PHILIPPINE
OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), EMS MANPOWER &
PLACEMENT SERVICE (PHIL.), ABDUL KARIM AL YAHYA, and
TRAVELLERS INSURANCE, respondents.

3. That I am no longer interested in further continuance of the

above case against EMS Manpower & Placement Services
either criminal, civil or administrative or whatever nature as I
hereby desist now and hereafter;
4. That I am executing this affidavit of desistance to attest to
the truth of the foregoing facts and circumstances and for the
purpose of asking the dismissal of my said complaint against
EMS Manpower & Placement Services.

Public Attorney's Office for petitioner.

Manuel T. Collado for private respondent.

CRUZ, J.:p
Clarita V. Cruz** went abroad pursuant to an employment contract that she
hoped would improve her future. Although a high school graduate, she agreed to
work as a domestic helper in Kuwait in consideration of an attractive salary and
vacation leave benefits she could not expect to earn in this country. But her
foreign adventure proved to be a bitter disappointment. On March 18,1988, after
completing her two-year engagement, she was back home in the Philippines
with her dead dreams and an angry grievance.
On March 23,1988, she filed a complaint against EMS Manpower and Placement
Services (Phil.) and its foreign principal, Abdul Karim Al Yahya, for underpayment
of her salary and non-payment of her vacation leave. She also claimed that she
was charged a placement fee of P7,000.00 instead of the legal maximum of only
P5,000.00. She alleged that her foreign employer treated her as a slave and
required her to work 18 hours a day. She was beaten up and suffered facial
deformity, head trauma and decreased sensation in the right portion of her
body. On top of all this, she was paid only $120 per month and her total salaries
were given to her only three hours before her flight back to Manila. This was
after the plane she was supposed to take had left and she had to stay in the
airport for 24 hours before her employer finally heard her pleas and delivered
her passport and ticket to her.

On the basis of this affidavit, the Philippine Overseas Employment

Administration (POEA) dismissed her complaint in a decision dated May 16,
1989. This was affirmed by the National Labor Relations Commission (NLRC) in
its resolution dated December 28, 1990, reconsideration of which was denied on
February 21, 1991.
The petition now before us faults the POEA and the NLRC with grave abuse of
discretion for having upheld the Affidavit of Desistance. Cruz rejects the
settlement as having been obtained from her under duress and false pretenses
and insists on her original claim for the balance of her salaries and vacationleave pay at the agreed rate of P250.00 per month.
Her contention is that she was inveigled into signing the Affidavit of Desistance
without the assistance of counsel. The "Attorney" Alvarado who assisted her was
not really a lawyer but only a helper in the Overseas Workers Welfare
Administration. Atty. Biolena, on the other hand, merely acknowledged the
document. Moreover, when she signed the affidavit, she was under the
impression when she was agreeing to settle only her claim for one month unpaid
vacation leave, as the wording of the receipt she issued on the same date
showed, to wit:
June 21, 1988
Receipt
This is to certify that I received the amount of P2,400.00 from
EMS Manpower & Placement Services in settlement of 1 month
unpaid vacation leave.

In its answer and position paper, the private respondent raised the principal
defense of settlement as evidenced by the Affidavit of Desistance executed by
the complainant on June 21, 1988. In this document, she declared inter aliathat

(Sgd.)
CLARITA
V. CRUZ

xxx xxx xxx

IN THE PRESENCE OF:

2. Thereafter going thoroughly over the facts of the case by

reconciling our records, we came to discover that it was only a
plain case of misunderstanding on our part, and that we have
already settled our differences;

(Sgd.) O.G. ALVARADO

OWWA Legal Dept.

For its part, the private respondent argues that the petitioner is bound by her
Affidavit of Desistance, which she freely and knowingly executed. After all, she
was not an ignorant and illiterate person but a high school graduate who
understood what she was signing. The due execution of the instrument must
also be sustained on the basis of the presumptions of regularity of official
functions and of good faith.
Significantly, neither the private respondent nor the Solicitor General refuted the
petitioner's submission that the person who allegedly assisted her in the
execution of the Affidavit of Desistance and explained to her its content and
meaning was not a lawyer but a mere employee in the OWWA. His status was
merely assumed but not established by the respondents although it was directly
questioned. The comments of the public and private respondents did not meet
this challenge squarely.
It is no less noteworthy that the receipt the petitioner issued on the same day
was only for "P2,400.00 . . . in settlement of 1 month unpaid vacation." This
clearly shows that she was not waiving the rest of her demands in exchange for
that measly amount (which did not even really represent the commutable value
of the 1 month vacation leave at the rate of $250.00). In fact, the total claim of
the petitioner is for P88,840.00, itemized as follows:
a) P84,240.00, representing the salary differentials of $130 for
24 months (US $3,120.00 x P27.00).
b) P2,600.00, representing the balance of her vacation leave
pay.
c) P2,000.00, representing her excess placement fee.
In Principe v. Philippine-Singapore Transport Service, Inc., 1 this Court held:
Even assuming for the sake of argument that the quitclaim
had foreclosed petitioner's right over the death benefits of her
husband, the fact that the consideration given in exchange
thereof was very much less than the amount petitioner is
claiming renders the quitclaim null and void for being contrary
to public policy. The State must be firm in affording protection
to labor. The quitclaim wherein the consideration is
scandalously low and inequitable cannot be an obstacle to
petitioner's pursuing her legitimate claim. Equity dictates that
the compromise agreement should be voided in this instance.
(Emphasis supplied.)
The following guidelines were likewise set in Periquet v. NLRC: 2
Not all waivers and quitclaims are invalid as against public
policy. If the agreement was voluntarily entered into and
represents a reasonable settlement, it is binding on the parties
and may not later be disowned simply because of a change of

mind. It is only where there is clear proof that the waiver was
wangled from an unsuspecting or gullible person, or the terms
of settlement are unconscionable on its face, that the law will
step in to annul the questionable transaction. (Emphasis
supplied.)
The Court is convinced that the petitioner was not fully aware of the import and
consequences of the Affidavit of Desistance when she executed it, allegedly with
the assistance of counsel. Except for the disputable presumptions invoked by
the private respondent, such assistance has not been established against the
petitioner's allegation that the "Attorney" Alvarado who supposedly counseled
her was not even a lawyer. Indeed, even assuming that such assistance had
been duly given, there is still the question of the intrinsic validity of the
quitclaim in view of the gross disparity between the amount of the settlement
and the petitioner's original claim. It is difficult to believe that the petitioner
would agree to waive her total claim of P88,840.00 for the unseemly settlement
of only P2,400.00. And even if she did, the waiver would still be null and void as
violative of public policy.
It remains to state that, contrary to the contention of the private respondent in
the proceedings below that it has no privity of contract with the petitioner, we
have held in a long line of cases that the local recruiter is solidarily liable with
the foreign principal for all damages sustained by the overseas worker in
connection with his contract of employment. Such liability is provided for in
Section 1, Rule II, Book II, of the POEA Rules and Regulations, which we have
consistently sustained.
This decision demonstrates once again the tenderness of the Court toward the
worker subjected to the lawless exploitation and impositions of his employer.
The protection of our overseas workers is especially necessary because of the
inconveniences and even risks they have to undergo in their quest for a better
life in a foreign land away from their loved ones and their own government.
The domestic helper is particularly susceptible to abuse because she usually
works only by herself in a private household unlike other workers employed in
an open business concern who are able to share and discuss their problems and
bear or solve them together. The domestic helper is denied that comfort. She
has no companions in her misery. She usually broods alone. There is no one to
turn to for help. That is why we must carefully listen to her when she is finally
able to complain against those who would rob her of her just rewards and even
of her dignity as a human being.
WHEREFORE, the resolutions of the NLRC dated December 28, 1990, and
February 21, 1991, are SET ASIDE, and the Affidavit of Desistance is DECLARED
null and void. POEA Case No. 88-03-255 is REMANDED to the POEA for further
proceedings and expeditious resolution.
SO ORDERED.
Narvasa, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. L-30745 January 18, 1978

PHILIPPINE
MATCH
vs.
THE
CITY
OF
CEBU
and
Treasurer, defendants-appellees.

CO.,
JESUS

LTD., plaintiff-appellant,
E.

ZABATE,

Acting

City

Pelaez, Pelaez & Pelaez for appellant.

Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.

AQUINO, J.:
This case is about the legality of the tax collected by the City of Cebu on sales of
matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to
customers outside of the City.
Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and
also approved by the provincial board) is "an ordinance imposing a quarterly tax
on gross sales or receipts of merchants, dealers, importers and manufacturers of
any commodity doing business" in Cebu City. It imposes a sales tax of one
percent (1%) on the gross sales, receipts or value of commodities sold, bartered,
exchanged or manufactured in the city in excess of P2,000 a quarter.
Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries
of goods or commodities stored in the City of Cebu, or if not stored are sold" in
that city, "shall be considered as sales" in the city and shall be taxable.

Thus, it would seem that under the tax ordinance sales of matches
consummated outside of the city are taxable as long as the matches sold are
taken from the company's stock stored in Cebu City.
The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in
the manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It
ships cases or cartons of matches from Manila to its branch office in Cebu City
for storage, sale and distribution within the territories and districts under its
Cebu branch or the whole Visayas-Mindanao region. Cebu City itself is just one
of the eleven districts under the company's Cebu City branch office.
The company does not question the tax on the matches of matches
consummated in Cebu City, meaning matches sold and delivered within the city.
It assails the legality of the tax which the city treasurer collected on out-of- town
deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu
City but shipped directly to customers outside of the city; (2) transfers of
matches to newsmen assigned to different agencies outside of the city and (3)
shipments of matches to provincial customers pursuant to salesmen's
instructions.
The company paid under protest to the city t the sum of P12,844.61 as one
percent sales tax on those three classes of out-of-town deliveries of matches for
the second quarter of 1961 to the second quarter of 1963.
In paying the tax the company accomplished the verified forms furnished by the
city treasurers office. It submitted a statement indicating the four kinds of
transactions enumerated above, the total sales, and a summary of the deliveries
to the different agencies, as well as the invoice numbers, names of customers,
the value of the sales, the transfers of matches to salesmen outside of Cebu
City, and the computation of taxes.
Sales of matches booked and paid for in Cebu City but shipped directly to
customers outside of the city refer to orders for matches made in the city by the
company's customers, by means of personal or phone calls, for which sales
invoices are issued, and then the matches are shipped from the bodega in the
city, where the matches had been stored, to the place of business or residences
of the customers outside of the city, duly covered by bills of lading The matches
are used and consumed outside of the city.
Transfers of matches to salesmen assigned to different agencies outside of the
city embrace equipments of matches from the branch office in the city to the
salesmen (provided with panel cars) assigned within the province of Cebu and in
the different districts in the Visayas and Mindanao under the jurisdiction or
supervision of the Cebu City branch office. The shipments are covered by bills of
lading. No sales invoices whatever are issued. The matches received by the
salesmen constitute their direct cash accountability to the company. The
salesmen sell the matches within their respective territories. They issue cash
sales invoices and remit the proceeds of the sales to the company's Cebu
branch office. The value of the unsold matches constitutes their stock liability.
The matches are used and consumed outside of the city.

Shipments of matches to provincial customers pursuant to newsmens

instructions embrace orders, by letter or telegram sent to the branch office by
the company's salesmen assigned outside of the city. The matches are shipped
from the company's bodega in the city to the customers residing outside of the
city. The salesmen issue the sales invoices. The proceeds of the sale, for which
the salesmen are accountable are remitted to the branch office. As in the first
and seconds of transactions above-mentioned, the matches are consumed and
used outside of the city.
The company in its letter of April 15, 1961 to the city treasurer sought the
refund of the sales tax paid for out-of-town deliveries of matches. It invoked
Shell Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines
Sur, 105 Phil. 1263. In that case sales of oil and petroleum products effected
outside the territorial limits of Sipocot, were held not to be subject to the tax
imposed by an ordinance of that municipality.
The city treasurer denied the request. His stand is that under section 9 of the
ordinance all out-of-town deliveries of latches stored in the city are subject to
the sales tax imposed by the ordinance.
On August 12, 1963 the company filed the complaint herein, praying that the
ordinance be d void insofar as it taxed the deliveries of matches outside of Cebu
City, that the city be ordered to refund to the company the said sum of
P12,844.61 as excess sales tax paid, and that the city treasurer be ordered to
pay damages.
After hearing, the trial court sustained the tax on the sales of matches booked
and paid for in Cebu City although the matches were shipped directly to
customers outside of the city. The lower court held that the said sales were
consummated in Cebu City because delivery to the carrier in the city is deemed
to be a delivery to the customers outside of the city.
But the trial court invalidated the tax on transfers of matches to salesmen
assigned to different agencies outside of the city and on shipments of matches
to provincial customers pursuant to the instructions of the newsmen It ordered
the defendants to refund to the plaintiff the sum of P8,923.55 as taxes paid out
the said out-of-town deliveries with legal rate of interest from the respective
dates of payment.
The trial court characterized the tax on the other two transactions as a "storage
tax" and not a sales tax. It assumed that the sales were consummated outside
of the city and, hence, beyond the city's taxing power.
The city did not appeal from that decision. The company appealed from that
portion of the decision upholding the tax on sales of matches to customers
outside of the city but which sales were booked and paid for in Cebu City, and
also from the dismissal of its claim for damages against the city treasurer.

The issue is whether the City of Cebu can tax sales of matches which were
perfected and paid for in Cebu City but the matches were delivered to
customers outside of the City.
We hold that the appeal is devoid of merit bemuse the city can validly tax the
sales of matches to customers outside of the city as long as the orders were
booked and paid for in the company's branch office in the city. Those matches
can be regarded as sold in the city, as contemplated in the ordinance, because
the matches were delivered to the carrier in Cebu City. Generally, delivery to the
carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs.
Yangco, 38 Phil. 602).
A different interpretation would defeat the tax ordinance in question or
encourage tax evasion through the simple expedient of arranging for the
delivery of the matches at the out. skirts of the city through the purchase were
effected and paid for in the company's branch office in the city.
The municipal board of Cebu City is empowered "to provide for the levy and
collection of taxes for general and purposes in accordance with law" (Sec. 17[a],
Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of
Cebu city).
The taxing power validly delegated to cities and municipalities is defined in the
Local Autonomy Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the
Philippines, Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976,
69 SCRA 460), which took effect on June 19, 1959 and which provides:
SEC. 2. Taxation. Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation
or business, or exercising privileges in chartered cities,.
municipalities or municipal districts by requiring them to
secure licenses at rates fixed by the municipal board or city
council of the city, the municipal council of the municipality, or
the municipal district council of the municipal district; to
collect fees and charges for services rendered by the city,
municipality or municipal district; to regulate and impose
reasonable fees for services rendered in connection with any
business, profession or occupation being conducted within the
city, municipality or municipal district and otherwise to levy
for public purposes, just and uniform taxes, licenses or fees;
Provided, That municipalities and municipal districts shall, in
no case, impose any percentage tax on sales or other taxes in
any form based thereon nor impose taxes on articles subject
to specific tax, except gasoline, under the provisions of the
National International Revenue Code;

Provided, however, That no city, municipality or municipal

districts may levy or impose any of the following: (here follows
an enumeration of internal revenue taxes)
xxx xxx xxx *
Note that the prohibition against the imposition of percentage taxes (formerly
provided for in section 1 of Commonwealth Act No. 472) refers to municipalities
and municipal districts but not to chartered cities. (See Local Tax Code, P.D. No.
231. Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan
Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L23794, February 17, 1968, 22 SCRA 603).
Note further that the taxing power of cities, municipalities and municipal
districts may be used (1) "upon any person engaged in any occupation or
business, or exercising any privilege" therein; (2) for services rendered by those
political subdivisions or rendered in connection with any business, profession or
occupation being conducted therein, and (3) to levy, for public purposes, just
and uniform taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City
of Iloilo, 117 Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City).
Applying that jurisdictional test to the instant case, it is at once obvious that
sales of matches to customers outside oil Cebu City, which sales were booked
and paid for in the company's branch office in the city, are subject to the city's
taxing power. The instant case is easily distinguishable from the Shell
Company case where the price of the oil sold was paid outside of the
municipality of Sipocot, the entity imposing the tax.
On the other hand, the ruling in Municipality of Jose Panganiban, Province of
Camarines Norte vs. Shell Company of the Philippines, Ltd., L-18349, July 30,
1966, 17 SCRA 778 that the place of delivery determines the taxable situs of the
property to be taxed cannot properly be invoked in this case. Republic Act No.
1435, the law which enabled the Municipality of Jose Panganiban to levy the
sales tax involved in that case, specifies that the tax may be levied upon oils
"distributed within the limits of the city or municipality", meaning the place
where the oils were delivered. That feature of the Jose Panganiban case
distinguished it from this case.
The sales in the instant case were in the city and the matches sold were stored
in the city. The fact that the matches were delivered to customers, whose places
of business were outside of the city, would not place those sales beyond the
city's taxing power. Those sales formed part of the merchandising business
being assigned on by the company in the city. In essence, they are the same as
sales of matches fully consummated in the city.
Furthermore, because the sellers place of business is in Cebu City, it cannot be
sensibly argued that such sales should be considered as transactions subject to
the taxing power of the political subdivisions where the customers resided and
accepted delivery of the matches sold.

The company in its second assignment of error contends that the trial court
erred in not ordering defendant acting city treasurer to pay exemplary damages
of P20,000 and attorney's fees.
The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the
Civil Code. It is argued that the city treasurer refused and neglected without just
cause to perform his duty and to act with justice and good faith. The company
faults the city treasurer for not following the opinion of the city fiscals, as legal
adviser of the city, that all out-of-town deliveries of matches are not subject to
sales tax because such transactions were effected outside of the city's territorial
limits.
In reply, it is argued for defendant city treasurer that in enforcing the tax
ordinance in question he was simply complying with his duty as collector of
taxes (Sec. 50, Revised Charter of Cebu City). Moreover, he had no choice but to
enforce the ordinance because according to section 357 of the Revised Manual
of Instruction to Treasurer's "a tax ordinance win be enforced in accordance with
its provisions" until d illegal or void by a competent court, or otherwise revoked
by the council or board from which it originated.
Furthermore, the Secretary of Finance had reminded the city treasurer that a tax
ordinance approved by the provincial board is operative and must be enforced
without prejudice to the right of any affected taxpayer to assail its legality in the
judicial forum. The fiscals opinion on the legality of an ordinance is merely
advisory and has no binding effect.
Article 27 of the Civil Code provides that "any person suffering material or moral
lose because a public servant or employee refuses or neglects, without just
cause, to perform his official duty may file an action for damages and other
relief against the latter, without prejudice to any disciplinary administrative
action that may be taken."

official authority, and in the line of his official duty." "Where an officer is invested
with discretion and is empowered to exercise his judgment in matters brought
before him. he is sometimes called a quasi-judicial officer, and when so acting
he is usually given immunity from liability to persons who may be injured as the
result or an erroneous or mistaken decision, however erroneous his judgment
may be. provided the acts complained of are done within the scope of the
officer's authority and without malice, or corruption." (63 Am Jur 2nd 798, 799
cited in Philippine Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241).
It has been held that an erroneous interpretation of an ordinance does not
constitute nor does it amount to bad faith that would entitle an aggrieved party
to an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That
salutary in addition to moral temperate, liquidated or compensatory damages
(Art. 2229, Civil Code). Attorney's fees are being claimed herein as actual
damages. We find that it would not be just and equitable to award attorney's
fees in this case against the City of Cebu and its (See Art. 2208, Civil Code).
G.R. No. L-22554 August 29, 1975
DELFIN
LIM
and
JIKIL
TAHA, plaintiffs-appellants,
vs.
FRANCISCO PONCE DE LEON AND ORLANDO MADDELA, defendantsappellees.
Ricardo L. Manalilig for plaintiffs-appellants.
Iigo R. Pea for defendants-appellees.

MARTIN, J.:
Article 27 presupposes that the refuse or omission of a public official is
attributable to malice or inexcusable negligence. In this case, it cannot be said
that the city treasurer acted wilfully or was grossly t in not refunding to the
plaintiff the taxes which it paid under protest on out-of-town sales of matches.
The record clearly reveals that the city treasurer honestly believed that he was
justified under section 9 of the tax ordinance in collecting the sales tax on outof-town deliveries, considering that the company's branch office was located in
Cebu City and that all out-of-town purchase order for matches were filled up by
the branch office and the sales were duly reported to it.
The city treasurer acted within the scope of his authority and in consonance with
his bona fide interpretation of the tax ordinance. The fact that his action was not
completely sustained by the courts would not him liable for We have upheld his
act of taxing sales of matches booked and paid for in the city.
"As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y
liable to one injured in consequence of an act performed within the scope of his

Appeal on a question of law from the decision of the Court of First Instance of
Palawan in Civil Case No. 416, entitled "Delfin Lim and Jikil Taha vs. Francisco
Ponce de Leon and Orlando Maddela", dismissing the complaint of the plaintiffs
and ordering them to pay each of the defendants jointly and severally the sum
of P500.00 by way of actual damages; P500.00 by way of attorney's fees; and
P1,000.00 by way of exemplary damages.
On April 29, 1961, plaintiff-appellant Jikil Taha sold to a certain Alberto
Timbangcaya of Brooke's Point, Palawan a motor launch named M/L "SAN
RAFAEL". A year later or on April 9, 1962 Alberto Timbangcaya filed a complaint
with the Office of the Provincial Fiscal of Palawan alleging that after the sale Jikil
Taha forcibly took away the motor launch from him.
On May 14, 1962, after conducting a preliminary investigation, Fiscal Francisco
Ponce de Leon in his capacity as Acting Provincial Fiscal of Palawan, filed with
the Court of First Instance of Palawan the corresponding information for Robbery

the Force and Intimidation upon Persons against Jikil Taha. The case was
docketed as Criminal Case No. 2719.
On June 15, 1962, Fiscal Francisco Ponce de Leon, upon being informed that the
motor launch was in Balabac, Palawan, wrote the Provincial Commander of
Palawan requesting him to direct the detachment commander-in Balabac to
impound and take custody of the motor launch. 1
On June 26, 1962, Fiscal Ponce de Leon reiterated his request to the Provincial
Commander to impound the motor launch, explaining that its subsequent sale to
a third party, plaintiff-appellant Delfin Lim, cannot prevent the court from taking
custody of the same. 2 So, on July 6, 1962 upon order of the Provincial
Commander, defendant-appellee Orlando Maddela, Detachment Commander of
Balabac, Palawan, seized the motor launch "SAN RAFAEL" from plaintiffappellant Delfin Lim and impounded it.
On July 15, 1962 plaintiff-appellant Delfin Lim pleaded with Orlando Maddela to
return the motor launch but the latter refused. Likewise, on September 20,
1962, Jikil Taha through his counsel made representations with Fiscal Ponce de
Leon to return the seized property to plaintiff-appellant Delfin Lim but Fiscal
Ponce de Leon refused, on the ground that the same was the subject of a
criminal offense.
All efforts to recover the motor launch going to naught, plaintiffs-appellants
Delfin Lim and Jikil Taha, on November 19, 1962, filed with the Court of First
Instance of Palawan a complaint for damages against defendants-appellees
Fiscal Francisco Ponce de Leon and Orlando Maddela, alleging that on July 6,
1962 Orlando Maddela entered the premises of Delfin Lim without a search
warrant and then and there took away the hull of the motor launch without his
consent; that he effected the seizure upon order of Fiscal Ponce de Leon who
knew fully well that his office was not vested with authority to order the seizure
of a private property; that said motor launch was purchased by Delfin Lim from
Jikil Taha in consideration of Three Thousand Pesos (P3,000.00), Two Thousand
Pesos (P2,000.00) of which has been given to Jikil Taha as advance payment;
that as a consequence of the unlawful seizure of the motor launch, its sale did
not materialize; and that since July 6, 1962, the said motor launch had been
moored at the Balabac Bay, Palawan and because of exposure to the elements it
had become worthless and beyond repair. For the alleged violation of their
constitutional rights, plaintiffs-appellants prayed that defendants-appellees be
ordered to pay jointly and severally each of them the sum of P5,750.00
representing actual, moral and exemplary damages and attorney's fees.
In their answer, defendants-appellees denied the material allegations of the
complaint and as affirmative defenses alleged that the motor launch in question
which was sold by Jikil Taha to Alberto Timbangcaya on April 29, 1961 was
sometime in April 1962, forcibly taken with violence upon persons and with
intent to gain by Jikil Taha from Alfredo Timbangcaya without the latter's
knowledge and consent, thus giving rise to the filing of a criminal charge of
robbery against Jikil Taha; that Fiscal Ponce de Leon, in his capacity as Acting
Provincial Fiscal of Palawan ordered Orlando Maddela to seize and impound the
motor launch "SAN RAFAEL", for being the corpus delicti of the robbery; and that
Orlando Maddela merely obeyed the orders of his superior officer to impound

said launch. By way of counterclaim, defendants-appellees alleged that because

of the malicious and groundless filing of the complaint by plaintiffs-appellants,
they were constrained to engage the services of lawyers, each of them paying
P500.00 as attorney's fees; and that they suffered moral damages in the
amount of P5,000.00 each and actual damages in the amount of P500.00 each.
They also prayed that each of them awarded exemplary damages in the amount
of P1,000.00.
On September 13, 1965, the trial court rendered its decision, upholding the
validity of the seizure of the motor launch on the ground that "the authority to
impound evidences or exhibits or corpus delicti in a case pending investigation
is inherent in the Provincial Fiscal who controls the prosecution and who
introduces those exhibits in the court." Accordingly, the trial court dismissed the
complaint of plaintiffs-appellants and ordered them to pay jointly and severally
each of the defendants-appellees the amount of P500.00 by way of actual
damages another amount of P500.00 for attorney's fees and P1,000.00 as
exemplary damages.
Hence, this appeal.
Two vital issues call for resolution by this Court. First, whether or not defendantappellee Fiscal Ponce de Leon had the power to order the seizure of the motor
launch in question without a warrant of search and seizure even if the same was
admittedly the corpus delicti of the crime. Second, whether or not defendantsappellees are civilly liable to plaintiffs-appellants for damages allegedly suffered
by them granting that the seizure of the motor launch was unlawful.
The gravamen of plaintiffs-appellants' argument is that the taking of the motor
launch on July 6, 1962 by Orlando Maddela upon the order of Fiscal Ponce de
Loon was in violation of the constitutional guarantee against unreasonable
searches and seizures since it was done without a warrant.
The pertinent provision of the Constitution then in force reads:
3) The right of the people to be secure in their persons,
houses, papers and effects against unreasonable searches and
seizures shall not be violated, and no warrants shall issue but
upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and
the witnesses he may produce, and particularly describing the
place to be searched, and the persons or things to be seized. 3
A cursory reading of the above provision easily brings into focus the
unreasonableness of the seizure of the aforementioned motor launch. A search
and seizure to be reasonable, must be effected by means of a valid search
warrant. And for a search warrant to be valid: (1) it must be issued upon
probable cause; (2) the probable cause must be determined by the judge
himself and not by the applicant or any other person; (3) in the determination of
probable cause, the judge must examine, under oath or affirmation, the
complainant and such witnesses as the latter may produce; and (4) the warrant
issued must particularly describe the place to be searched and persons or things

to be seized. 4 Thus in a long line of decisions, this Court has declared invalid
search warrants which were issued in utter disregard of the constitutional
injunction. 5

door of the home be it palace or hovel even bloodhounds must

wait till the law, by authoritative process, bids it open.
(Emphasis supplied.)

Defendants-appellees admitted that when Orlando Maddela entered the

premises of Delfin Lim and impounded the motor launch he was not armed with
a search warrant; that he effected the seizure of the motor launch in the
absence of and without the consent of Delfin Lim. There can be no question that
without the proper search warrant, no public official has the right to enter the
premises of another without his consent for the purpose of search and
seizure. 6 And since in the present case defendants-appellees seized the motor
launch without a warrant, they have violated the constitutional right of plaintiffsappellants against unreasonable search and seizure.

Defendant-appellee Fiscal Ponce de Leon would also invoke lack of time to

procure a search warrant as an excuse for the seizure of the motor launch
without one. He claimed that the motor launch had to be seized immediately in
order to preserve it and to prevent its removal out of the locality, since Balabac,
Palawan, where the motor launch was at the time, could only be reached after
three to four days' travel by boat. 12 The claim cannot be sustained. The records
show that on June 15, 1962 13 Fiscal Ponce de Leon made the first request to the
Provincial Commander for the impounding of the motor launch; and on June 26,
1962 14 another request was made. The seizure was not effected until July 6,
1962. In short, Fiscal Ponce de Leon had all the time to procure a search warrant
had he wanted to and which he could have taken in less than a day, but he did
not. Besides, there is no basis for the apprehension that the motor launch might
be moved out of Balabac because even prior to its seizure the motor launch was
already without its engine. 15 In sum, the fact that there was no time to secure a
search warrant would not legally justify a search without one. 16

Defendants-appellees however would want to justify the seizure of the motor

launch even without a warrant because of Fiscal Ponce de Leon's alleged
inherent power to order the seizure of a personal property which is the corpus
delicti of a crime, he being a quasi judicial officer who has the control of the
prosecution and the presentation of the evidence in the criminal case. They
argue that inasmuch as the motor launch in question was allegedly stolen by
Jikil Taha from Timbangcaya, Fiscal Ponce de Leon could order its seizure even
without a search warrant. We cannot agree. Under the old Constitution 7 the
power to issue a search warrant is vested in a judge or magistrate and in no
other officer and no search and seizure can be made without a proper warrant.
At the time the act complained of was committed, there was no law or rule that
recognized the authority of Provincial Fiscals to issue a search warrant. In his
vain attempt to justify the seizure of the motor launch in question without a
warrant Fiscal Ponce de Leon invoked the provisions of Republic Act No. 732,
which amended Sections 1674 and 1687 of the Revised Administrative Code.
But there is nothing in said law which confers upon the provincial fiscal; the
authority to issue warrants, much less to order without warrant the seizure of a
personal property even if it is the corpus delicti of a crime. True, Republic Act
No. 732 has broadened the power of provincial fiscals to conduct preliminary
investigations, but said law did not divest the judge or magistrate of its power to
determine, before issuing the corresponding warrant, whether or not probable
cause exists therefor. 8
Moreover, under Sections 2 and 3 of Rule 122 of the Rules of Court 9 which
complement the constitutional provision earlier cited, two principles are made
clear, namely: (1) that in the seizure of a stolen property search warrant is still
necessary; and (2) that in issuing a search warrant the judge alone determines
whether or not there is a probable cause. The fact that a thing is a corpus
delicti of a crime does not justify its seizure without a warrant. As held in U.S. v.
de los Reyes and Esguerra, 10 citing McClurg v. Brenton: 11
The mere fact that a man is an officer, whether of high or low
degree, gives him no more right than is possessed by the
ordinary private citizen to break in upon the privacy of a home
and subject its occupant to the indignity of a search for the
evidence of crime, without a legal warrant procured for that
purpose. No amount of incriminating evidence whatever its
source, will supply the place of such warrant. At the closed

As to whether or not they are entitled to damages, plaintiffs-appellants anchor

their claim for damages on Articles 32 and 2219 of the New Civil Code which
provide in part as follows:
ART. 32. Any public officer or employee, or any private
individual, who directly or indirectly obstructs, defeats,
violates or in any manner impedes or impairs any of the
following rights and liberties of another person shall be liable
to the latter for damages.
xxx xxx xxx
(9) The rights to be secure in one's person, house, papers, and
effects against unreasonable searches and seizures.
xxx xxx xxx
The indemnity shall include moral damages. Exemplary
damages may also be adjudicated.
ART. 2219. Moral damages may be recovered in the following
and analogous cases:
xxx xxx xxx
(6) Illegal search;
xxx xxx xxx

(1) Acts and action referred to in Articles 21, 26, 27, 28, 29,
30, 32, 34 and 35.
Pursuant to the foregoing provisions, a person whose constitutional rights have
been violated or impaired is entitled to actual and moral damages from the
public officer or employee responsible therefor. In addition, exemplary damages
may also be awarded. In the instant case, plaintiff-appellant Delfin Lim claimed
that he purchased the motor launch from Jikil Taha in consideration of
P3,000.00, having given P2,000.00 as advanced payment; that since or seizure
on July 6, 1962 the motor launch had been moored at Balabac Bay and because
of exposure to the elements it has become worthless at the time of the filing of
the present action; that because of the illegality of the seizure of the motor
launch, he suffered moral damages in the sum of P1,000.00; and that because
of the violation of their constitutional rights they were constrained to engage the
services of a lawyer whom they have paid P1,500.00 for attorney's fees. We find
these claims of Delfin Lim amply supported by the evidence and therefore
should be awarded the sum of P3,000.00 as actual damages; P1,000.00 as
moral damages and P750.00 for attorney's fees. However, with respect co
plaintiff Jikil Taha, he is not entitled to recover any damage which he alleged he
had suffered from the unlawful seizure of the motor launch inasmuch as he had
already transferred the ownership and possession of the motor launch to Delfin
Lim at the time it was seized and therefore, he has no legal standing to question
the validity of the seizure. Well settled is the rule that the legality of a seizure
can be contested only by the party whose rights have been impaired thereby,
and that the objection to an unlawful search and seizure is purely personal and
cannot be availed of by third parties. 17 Consequently, one who is not the owner,
lessee, or lawful occupant of the premise searched cannot raise the question of
validity of the search and seizure. 18 Jikil Taha is not without recourse though. He
can still collect from his co-plaintiff, Delfin Lim the unpaid balance of P1,000.00.
Defendant-appellee Fiscal Ponce de Leon wanted to wash his hands of the
incident by claiming that "he was in good faith, without malice and without the
slightest intention of inflicting injury to plaintiff-appellant, Jikil Taha" 19when he
ordered the seizure of the motor launch. We are not prepared to sustain his
defense of good faith. To be liable under Article 32 of the New Civil Code it is
enough that there was a violation of the constitutional rights of the plaintiffs and
it is not required that defendants should have acted with malice or bad faith. Dr.
Jorge Bocobo, Chairman of the Code Commission, gave the following reasons
during the public hearings of the Joint Senate and House Committees, why good
faith on the part of the public officer or employee is immaterial. Thus:
DEAN BOCOBO. Article 32, regarding individual rights;
Attorney Cirilo Paredes proposes that Article 32 be so
amended as to make a public official liable for violation of
another person's constitutional rights only if the public official
acted maliciously or in bad faith. The Code Commission
opposes this suggestion for these reasons:
The very nature of Article 32 is that the wrong may be civil or
criminal. It is not necessary therefore that there should be
malice or bad faith. To make such a requisite would defeat the
main purpose of Article 32 which is the effective protection of

individual rights. Public officials in the past have abused their

powers on the pretext of justifiable motives or good faith in
the performance of their duties. Precisely, the object of the
Article is to put an end to official abuse by the plea of good
faith. In the United States this remedy is in he nature of a tort.
Mr. Chairman, this article is firmly one of the fundamental
articles introduced in the New Civil Code to implement
democracy. There is no real democracy if a public official is
abusing, and we made the article so strong and so
comprehensive that it concludes an abuse of individual rights
even if done in good faith, that official is liable. As a matter of
fact, we know that there are very few public officials who
openly and definitely abuse the individual rights of the
citizens. In most cases, the abuse is justified on a plea of
desire to enforce the law to comply with one's duty. And so, if
we should limit the scope of this article, that would practically
nullify the object of the article. Precisely, the opening object of
the article is to put an end to abuses which are justified by a
plea of good faith, which is in most cases the plea of officials
abusing individual rights. 20
But defendant-appellee Orlando Maddela cannot be held accountable because
he impounded the motor launch upon the order of his superior officer. While a
subordinate officer may be held liable for executing unlawful orders of his
superior officer, there are certain circumstances which would warrant Maddela's
exculpation from liability. The records show that after Fiscal Ponce de Leon made
his first request to the Provincial Commander on June 15, 1962 Maddela was
reluctant to impound the motor launch despite repeated orders from his superior
officer. 21 It was only after he was furnished a copy of the reply of Fiscal Ponce
de Leon, dated June 26, 1962, to the letter of the Provincial Commander,
justifying the necessity of the seizure of the motor launch on the ground that the
subsequent sale of the launch to Delfin Lim could not prevent the court from
taking custody of the same, 22 that he impounded the motor launch on July 6,
1962. With said letter coming from the legal officer of the province, Maddela
was led to believe that there was a legal basis and authority to impound the
launch. Then came the order of his superior officer to explain for the delay in the
seizure of the motor launch. 23 Faced with a possible disciplinary action from his
Commander, Maddela was left with no alternative but to seize the vessel. In the
light of the above circumstances. We are not disposed to hold Maddela
answerable for damages.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby reversed and
another one entered declaring the seizure illegal and ordering defendantappellee Fiscal Francisco Ponce de Leon to pay to plaintiff-appellant Delfin Lim
the sum of P3,000.00 as actual damages, plus P1,000.00 moral damages, and,
in addition, P750.00 for attorney's fees. With costs against defendant-appellee
Fiscal Ponce de Leon.
SO ORDERED.
Castro (Chairman), Teehankee, Makasiar and Esguerra, JJ., concur.

Muoz Palma, J, is on leave.

G.R. No. 117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners,
vs.
COURT OF APPEALS and YSMAEL C. FERRER, respondents.

PADILLA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioners seek a
review and reversal of the decision* of respondent Court of Appeals in CA-G.R.
CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company,
et. al." dated 31 August 1994, which affirmed the decision ** of the Regional
Trial Court, Branch 63, Makati in Civil Case No. 42712, a complaint for breach of
contract with damages.
Private respondent Ysmael C. Ferrer was contracted by herein petitioners
Security Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the
building of SBTC in Davao City for the price of P1,760,000.00. The contract
dated 4 February 1980 provided that Ferrer would finish the construction in two
hundred (200) working days. Respondent Ferrer was able to complete the
construction of the building on 15 August 1980 (within the contracted period)
but he was compelled by a drastic increase in the cost of construction materials
to incur expenses of about P300,000.00 on top of the original cost. The
additional expenses were made known to petitioner SBTC thru its Vice-President
Fely Sebastian and Supervising Architect Rudy de la Rama as early as March
1980. Respondent Ferrer made timely demands for payment of the increased
cost. Said demands were supported by receipts, invoices, payrolls and other
documents proving the additional expenses.
In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a
representative of an architectural firm consulted by SBTC, verified Ferrer's
claims for additional cost. A recommendation was then made to settle Ferrer's
claim but only for P200,000.00. SBTC, instead of paying the recommended
additional amount, denied ever authorizing payment of any amount beyond the
original contract price. SBTC likewise denied any liability for the additional cost
based on Article IX of the building contract which states:

If at any time prior to the completion of the work to be

performed hereunder, increase in prices of construction
materials and/or labor shall supervene through no fault on the
part of the contractor whatsoever or any act of the
government and its instrumentalities which directly or
indirectly affects the increase of the cost of the project,
OWNER shall equitably make the appropriate adjustment on
mutual agreement of both parties.
Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The
trial court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to
pay:
a) P259,417.23 for the increase in price of labor and materials
plus 12% interest thereon per annumfrom 15 August 1980
until fully paid;
b) P24,000.00 as actual damages;
c) P20,000.00 as moral damages;

construction cost above the stipulated contract price will not automatically
make petitioners liable to pay for such increased cost, as any payment above
the stipulated contract price has been made subject to the condition that the
"appropriate adjustment" will be made "upon mutual agreement of both
parties". It is contended that since there was no mutual agreement between the
parties, petitioners' obligation to pay amounts above the original contract price
never materialized.
Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the
arguments raised by petitioners. It is of note however that the pleadings filed
with this Court by counsel for Ferrer hardly refute the arguments raised by
petitioners, as the contents of said pleadings are mostly quoted portions of the
decision of the Court of Appeals, devoid of adequate discussion of the merits of
respondent's case. The Court, to be sure, expects more diligence and legal
know-how from lawyers than what has been exhibited by counsel for respondent
in the present case. Under these circumstances, the Court had to review the
entire records of this case to evaluate the merits of the issues raised by the
contending parties.
Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius
incommodo debet lecupletari (no man ought to be made rich out of another's
injury) states:

d) P20,000.00 as exemplary damages;

e) attorney's fees equivalent to 25% of the principal amount
due; and
f) costs of suit.
On appeal, the Court of Appeals affirmed the trial court decision.
In the present petition for review, petitioners assign the following errors to the
appellate court:
. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY
PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS
CLAIM AGAINST THE DEFENDANTS-APPELLANTS.
. . . IN INTERPRETING AN OTHERWISE CLEAR AND
UNAMBIGUOUS
PROVISION
OF
THE
CONSTRUCTION
CONTRACT.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE
CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED
DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF
NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1
Petitioners argue that under the aforequoted Article IX of the building contract,
any increase in the price of labor and/or materials resulting in an increase in

Art. 22. Every person who through an act of performance by

another, or any other means, acquires or comes into
possession of something at the expense of the latter without
just or legal ground, shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human
Relations, the provisions of which were formulated as "basic principles to be
observed for the rightful relationship between human beings and for the stability
of the social order, . . . designed to indicate certain norms that spring from the
fountain of good conscience, . . . guides for human conduct [that] should run as
golden threads through society to the end that law may approach its supreme
ideal which is the sway and dominance of justice." 2
In the present case, petitioners' arguments to support absence of liability for the
cost of construction beyond the original contract price are not persuasive.
Under the previously quoted Article IX of the construction contract, petitioners
would make the appropriate adjustment to the contract price in case the cost of
the project increases through no fault of the contractor (private respondent).
Private respondent informed petitioners of the drastic increase in construction
cost as early as March 1980.
Petitioners in turn had the increased cost evaluated and audited. When private
respondent demanded payment of P259,417.23, petitioner bank's Vice-President
Rosito C. Manhit and the bank's architectural consultant were directed by the
bank to verify and compute private respondent's claims of increased cost. A
recommendation was then made to settle private respondent's claim for
P200,000.00. Despite this recommendation and several demands from private

respondent, SBTC failed to make payment. It denied authorizing anyone to make

a settlement of private respondent's claim and likewise denied any liability,
contending that the absence of a mutual agreement made private respondent's
demand premature and baseless.

Footnotes
* Justice Lourdes K. Tayao-Jaguros, ponente, with Justices Jesus
M. Elbias and Bernardo Ll. Salas, concurring.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in
constructing petitioner bank's building due to a drastic and unexpected increase
in construction cost. In fact, petitioner bank admitted liability for increased cost
when a recommendation was made to settle private respondent's claim for
P200,000.00. Private respondent's claim for the increased amount was
adequately proven during the trial by receipts, invoices and other supporting
documents.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its
fulfillment depends upon the sole will of the debtor. In the present case, the
mutual agreement, the absence of which petitioner bank relies upon to support
its non-liability for the increased construction cost, is in effect a condition
dependent on petitioner bank's sole will, since private respondent would
naturally and logically give consent to such an agreement which would allow
him recovery of the increased cost.
Further, it cannot be denied that petitioner bank derived benefits when private
respondent completed the construction even at an increased cost.
Hence, to allow petitioner bank to acquire the constructed building at a price far
below its actual construction cost would undoubtedly constitute unjust
enrichment for the bank to the prejudice of private respondent. Such unjust
enrichment, as previously discussed, is not allowed by law.
Finally, with respect to the award of attorney's fees to respondent, the Court has
previously held that, "even with the presence of an agreement between the
parties, the court may nevertheless reduce attorney's fees though fixed in the
contract when the amount thereof appears to be unconscionable or
unreasonable." 3 As previously noted, the diligence and legal know-how
exhibited by counsel for private respondent hardly justify an award of 25% of
the principal amount due, which would be at least P60,000.00. Besides, the
issues in this case are far from complex and intricate. The award of attorney's
fees is thus reduced to P10,000.00.
WHEREFORE, with the above modification in respect of the amount of attorney's
fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is
AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

** Penned by Judge Julio R. Logarta.

G.R. No. 86720 September 2, 1994

MHP GARMENTS, INC., and LARRY C. DE GUZMAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, AGNES VILLA CRUZ, MIRASOL
LUGATIMAN, and GERTRUDES GONZALES, respondents.
Benjamin M. Dacanay for petitioners.
Emmanuel O. Tansingco for private respondents.

PUNO, J.:
The constitutional protection of our people against unreasonable search and
seizure is not merely a pleasing platitude. It vouchsafes our right to privacy and
dignity against undesirable intrusions committed by any public officer or private
individual. An infringement of this right justifies an award for damages.
On February 22, 1983, petitioner MHP Garments, Inc., was awarded by the Boy
Scouts of the Philippines, the exclusive franchise to sell and distribute official
Boy Scouts uniforms, supplies, badges, and insignias. In their Memorandum
Agreement, petitioner corporation was given the authority to "undertake or
cause to be undertaken the prosecution in court of all illegal sources of scout
uniforms and other scouting supplies." 1
Sometime in October 1983, petitioner corporation received information that
private respondents Agnes Villa Cruz, Mirasol Lugatiman, and Gertrudes
Gonzales were selling Boy Scouts items and paraphernalia without any authority.
Petitioner de Guzman, an employee of petitioner corporation, was tasked to
undertake the necessary surveillance and to make a report to the Philippine
Constabulary (PC).
On October 25, 1983, at about 10:30 A.M., petitioner de Guzman, Captain
Renato M. Peafiel, and two (2) other constabulary men of the Reaction Force
Battalion, Sikatuna Village, Diliman, Quezon City went to the stores of
respondents at the Marikina Public Market. Without any warrant, they seized the
boy and girl scouts pants, dresses, and suits on display at respondents' stalls.

The seizure caused a commotion and embarrassed private respondents.

Receipts were issued for the seized items. The items were then turned over by
Captain Peafiel to petitioner corporation for safekeeping.

Judgment is hereby rendered in favor of plaintiffs (private

respondents) and against defendants (petitioners), ordering
the latter jointly and severally;

A criminal complaint for unfair competition was then filed against private
respondents. 2 During its pendency, petitioner de Guzman exacted from private
respondent Lugatiman the sum of THREE THOUSAND ONE HUNDRED PESOS
(P3,100.00) in order to be dropped from the complaint. On December 6, 1983,
after a preliminary investigation, the Provincial Fiscal of Rizal dismissed the
complaint against all the private respondents. On February 6, 1984, he also
ordered the return of the seized items. The seized items were not immediately
returned despite demands. 3 Private respondents had to go personally to
petitioners' place of business to recover their goods. Even then, not all the
seized items were returned. The other items returned were of inferior quality.

1. To return the amount of P3,100.00 to plaintiff (respondent)

Mirasol Lugatiman and cancel her application for distributor's
license;

Private respondents then filed Civil Case No. 51144 against the petitioners for
sums of money and damages. 4 In its Decision dated January 9, 1987, the trial
court ruled for the private respondents, thus:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs
and against defendants, ordering the latter jointly and
severally:
1. To return the amount of P3,100.00 to plaintiff Mirasol
Lugatiman with interest at 12% per annum from January 12,
1984, the date of the last receipt issued, until fully paid;
2. To pay plaintiff Agnes Villa Cruz the sum of P2,000.00 for
the 26 pieces of girl scout items not returned;
3. To pay plaintiffs the amount of P50,000.00 for and as moral
damages and P15,000.00 for and as exemplary damages; and

2. To pay plaintiff (respondent) Agnes Villa Cruz the sum of

P2,000.00 for the unreturned 26 pieces of girl scouts items
with interest at 12% per annum from June 4, 1984 (date the
complaint was filed) until it is fully paid;
3. To pay plaintiffs (respondents) the amount of P10,000.00
each, or a total of P30,000.00, for and as moral damages; and
P5,000.00 each, or a total of P15,000.00, for and as exemplary
damages; and
4. To pay plaintiffs (respondents) P5,000.00 for and as
attorney's fees and litigation expenses.
Costs of the case a quo and the instant appeal are assessed
jointly
and
severally
against
defendants-appellants
(petitioners) MHP Garments, Inc. and Larry de Guzman.
SO ORDERED.
In this petition for certiorari, petitioners contend:
FIRST ASSIGNMENT OF ERROR

4. P5,000.00 for and as attorney's fees and litigation

expenses.

THE COURT OF APPEALS ERRED IN IMPUTING LIABILITY FOR

DAMAGES TO THE PETITIONERS WHO DID NOT EFFECT THE
SEIZURE OF THE SUBJECT MERCHANDISE.

Costs against the defendants.

SECOND ASSIGNMENT OF ERROR

SO ORDERED.

THE COURT OF APPEALS ERRED WHEN IT MADE A FINDING

THAT THE MANNER WITH WHICH THE CONFISCATION OF
PRIVATE RESPONDENTS WAS TORTIOUS BUT PENALIZED
INSTEAD THE PETITIONERS WHO DID NOT COMMIT THE ACT
OF CONFISCATION.

The decision was appealed to the respondent court. On January 18, 1989, its
Fifth Division, 5 affirmed the Decision with modification, thus:
WHEREFORE, the decision appealed from is AFFIRMED with
MODIFICATION; and, as modified, the dispositive portion
thereof now reads as follows:

THIRD ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED WHEN IT FOUND FOR THE
PRIVATE RESPONDENTS AND AGAINST THE PETITIONERS.

We affirm.
Article III, section 2, of the Constitution protects our people from unreasonable
search and seizure. It provides:
The right of the people to be secure in their persons, houses,
papers, and effects against unreasonable searches and
seizures of whatever nature for any purpose shall be
inviolable, and no search warrant or warrant of arrest shall
issue except upon probable cause to be determined personally
by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the
persons or things to be seized.
This provision protects not only those who appear to be innocent but also those
who appear to be guilty but are nevertheless to be presumed innocent until the
contrary is proved. 6 In the case at bench, the seizure was made without any
warrant. Under the Rules of Court, 7 a warrantless search can only be
undertaken under the following circumstance:
Sec. 12. Search incident to a lawful arrest. - A person lawfully
arrested may be searched for dangerous weapons or anything
which may be used as proof of the commission of an offense,
without a search warrant.
We hold that the evidence did not justify the warrantless search and seizure of
private respondents' goods. Petitioner corporation received information that
private respondents were illegally selling Boy Scouts items and paraphernalia in
October 1983. The specific date and time are not established in the evidence
adduced by the parties. Petitioner de Guzman then made a surveillance of the
stores of private respondents. They reported to the Philippine Constabulary and
on October 25, 1983, the raid was made on the stores of private respondents
and the supposed illicit goods were seized. The progression of time between the
receipt of the information and the raid of the stores of private respondents
shows there was sufficient time for petitioners and the PC raiding party to apply
for a judicial warrant. Despite the sufficiency of time, they did not apply for a
warrant and seized the goods of private respondents. In doing so, they took the
risk of a suit for damages in case the seizure would be proved to violate the
right of private respondents against unreasonable search and seizure. In the
case at bench, the search and seizure were clearly illegal. There was no
probable cause for the seizure. Probable cause for a search has been defined as
"such facts and circumstances which would lead a reasonably discreet and
prudent man to believe that an offense has been committed and that the
objects sought in connection with the offense are in the place sought to be
searched." 8 These facts and circumstances were not in any way shown by the
petitioners to justify their warrantless search and seizure. Indeed, after a
preliminary investigation, the Provincial Fiscal of Rizal dismissed their complaint
for unfair competition and later ordered the return of the seized goods.

Petitioners would deflect their liability with the argument that it was the
Philippine Constabulary that conducted the raid and their participation was only
to report the alleged illegal activity of private respondents.
While undoubtedly, the members of the PC raiding team should have been
included in the complaint for violation of the private respondents' constitutional
rights, still, the omission will not exculpate petitioners.
In the case of Lim vs. Ponce de Leon, 9 we ruled for the recovery of damages for
violation of constitutional rights and liberties from public officer or private
individual, thus:
Art. 32. Any public officer or employee, or any private
individual, who directly or indirectly obstructs, defeats,
violates or in any manner impedes or impairs any of the
following rights and liberties of another person shall be liable
to the latter for damages.
xxx xxx xxx
(9) The rights to be secure in one's person, house, papers, and
effects against unreasonable searches and seizures.
xxx xxx xxx
The indemnity shall include moral damages. Exemplary
damages may also be adjudged.
Art. 2219. Moral damages may be recovered in the following
and analogous cases:
xxx xxx xxx
(6) Illegal search;
(1) Acts and actions referred to in Articles 21, 26, 27, 28, 29,
30, 32, 34, and 35.
Pursuant to the foregoing provisions, a person whose
constitutional rights have been violated or impaired is entitled
to actual and moral damages from the public officer
or employee responsible therefor. In addition, exemplary
damages may also be awarded.
xxx xxx xxx

The very nature of Article 32 is that the wrong may be civil or

criminal. It is not necessary therefore that there should be
malice or bad faith. To make such a requisite would defeat the
main purpose of Article 32 which is the effective protection of
individual rights. Public officials in the past have abused their
powers on the pretext of justifiable motives or good faith in
the performance of their duties. Precisely, the object of the
Article is to put an end to official abuse by plea of the good
faith. In the United States this remedy is in the nature of a
tort. (emphasis supplied)
In the subsequent case of Aberca vs. Ver,
liability of persons indirectly responsible,viz:

10

the Court En Banc explained the

[T]he decisive factor in this case, in our view, is the language

of Article 32. The law speaks of an officer or employee or
person "directly or indirectly" responsible for the violation of
the constitutional rights and liberties of another. Thus, it is not
the actor alone (i.e., the one directly responsible) who must
answer for damages under Article 32; the person indirectly
responsible has also to answer for the damages or injury
caused to the aggrieved party.

criminal complaint for unfair competition against appellees

(respondents) were for the protection and benefit of appellant
(petitioner) corporation. Such being the case, it is, thus,
reasonably fair to infer from those acts that it was upon
appellant (petitioner) corporation's instance that the PC
soldiers conducted the raid and effected the illegal seizure.
These circumstances should answer the trial court's query
posed in its decision now under consideration as to why the
PC soldiers immediately turned over the seized merchandise
to appellant (petitioner) corporation. 12
The raid was conducted with the active participation of their employee. Larry de
Guzman did not lift a finger to stop the seizure of the boy and girl scouts items.
By standing by and apparently assenting thereto, he was liable to the same
extent as the officers themselves. 13 So with the petitioner corporation which
even received for safekeeping the goods unreasonably seized by the PC raiding
team and de Guzman, and refused to surrender them for quite a time despite
the dismissal of its complaint for unfair competition.
Secondly, Letter of Instruction No. 1299 was precisely crafted on March 9, 1983
to safeguard not only the privilege of franchise holder of scouting items but also
the citizen's constitutional rights, to wit:

xxx xxx xxx

While it would certainly be too naive to expect that violators of
human rights would easily be deterred by the prospect of
facing damages suits, it should nonetheless be made clear in
no uncertain terms that Article 32 of the Civil Code makes the
persons who are directly, as well as indirectly, responsible for
the transgression joint tortfeasors.
xxx xxx xxx
[N]either can it be said that only those shown to have
participated "directly" should be held liable. Article 32 of the
Civil Code encompasses within the ambit of its provisions
those directly, as well as indirectly, responsible for its
violations. (emphasis supplied)
Applying the aforecited provisions and leading cases, the respondent court
correctly
granted
damages
to
private
respondents.
Petitioners
were indirectly involved in transgressing the right of private respondents against
unreasonable search and seizure. Firstly, they instigated the raid pursuant to
their covenant in the Memorandum Agreement to undertake the prosecution in
court of all illegal sources of scouting supplies. 11 As correctly observed by
respondent court:
Indeed, the acts committed by the PC soldiers of unlawfully
seizing appellees' (respondents') merchandise and of filing the

TITLE:
APPREHENSION
OF
UNAUTHORIZED MANUFACTURERS
AND DISTRIBUTORS OF SCOUT
PARAPHERNALIA AND IMPOUNDING
OF SAID PARAPHERNALIA.
ABSTRACT:
Directs all law enforcement agencies of the Republic of the
Philippines,
to
apprehend
immediately
unauthorized
manufacturers and distributors of Scout paraphernalia, upon
proper application by the Boy Scouts of the Philippines and/or
Girl Scouts of the Philippines for warrant of arrest and/or
search warrant with a judge, or such other responsible officer
as may be authorized by law; and to impound the said
paraphernalia to be used as evidence in court or other
appropriate administrative body. Orders the immediate and
strict compliance with the Instructions. 14
Under the above provision and as aforediscussed, petitioners miserably failed to
report the unlawful peddling of scouting goods to the Boy Scouts of the
Philippines for the proper application of a warrant. Private respondents' rights
are immutable and cannot be sacrificed to transient needs. 15 Petitioners did not
have the unbridled license to cause the seizure of respondents' goods without
any warrant.
And thirdly, if petitioners did not have a hand in the raid, they should have filed
a third-party complaint against the raiding team for contribution or any other

relief, 16 in respect of respondents' claim for Recovery of Sum of Money with

Damages. Again, they did not.

(6%), on the said amount upon finality of this Decision until the payment
thereof. 22 Costs against petitioners.

We have consistently ruled that moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may have
suffered. 17 Conformably with our ruling in Lim vs. Ponce de Leon, op. cit., moral
damages can be awarded in the case at bench. There can be no doubt that
petitioners must have suffered sleepless nights, serious anxiety, and wounded
feelings due the tortious raid caused by petitioners. Private respondents'
avowals of embarrassment and humiliation during the seizure of their
merchandise were supported by their testimonies. Respondent Cruz declared:

SO ORDERED.

I felt very nervous. I was crying to loss (sic) my goods and

capital because I am doing business with borrowed money
only, there was commotion created by the raiding team and
they even stepped on some of the pants and dresses on
display for sale. All passersby stopped to watch and stared at
me with accusing expressions. I was trembling and terribly
ashamed, sir. 18
Respondent Lugatiman testified:
I felt very nervous. I was crying and I was very much ashamed
because many people have been watching the PC soldiers
hauling my items, and many/I (sic) heard say "nakaw pala ang
mga iyan" for which I am claiming P25,000.00 for damages. 19
While respondent Gonzalez stated thus:
I do not like the way the raid was conducted by the team sir
because it looked like that what I have been selling were
stolen items that they should be confiscated by uniformed
soldiers. Many people were around and the more the
confiscation was made in a scandalous manner; every clothes,
T-shirts, pants and dresses even those not wrapped dropped
to the ground. I was terribly shamed in the presence of market
goers that morning. 20
Needles to state, the wantonness of the wrongful seizure justifies the award of
exemplary damages. 21 It will also serve as a stern reminder to all and sundry
that the constitutional protection against unreasonable search and seizure is a
virile reality and not a mere burst of rhetoric. The all encompassing protection
extends against intrusions directly done both by government and indirectly by
private entities.
IN VIEW WHEREOF, the appealed decision is AFFIRMED WITH MODIFICATION. We
impose a SIX PERCENT (6%) interest from January 9, 1987 on the TWO
THOUSAND PESOS (P2,000.00) for the unreturned twenty-six (26) pieces of girl
scouts items and a TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT

Narvasa, Padilla, Regalado, and Mendoza, JJ., concur.

G.R. No. L-13505

February 4, 1919

GEO.
W.
vs.
LA CORPORACION DE LOS
AL., defendants-appellees.

DAYWALT, plaintiff-appellant,
PADRES

C.
C.
Cohn
and
Thos.
Crossfield & O'Brien for appellee.

D.

AGUSTINOS

Aitken

RECOLETOS,

for

ET

appellant.

STREET, J.:
In the year 1902, Teodorica Endencia, an unmarried woman, resident in the
Province of Mindoro, executed a contract whereby she obligated herself to
convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin,
municipality of Bulalacao, now San Jose, in said province. It was agreed that a
deed should be executed as soon as the title to the land should be perfected by
proceedings in the Court of Land Registration and a Torrens certificate should be
produced therefore in the name of Teodorica Endencia. A decree recognizing the
right of Teodorica as owner was entered in said court in August 1906, but the
Torrens certificate was not issued until later. The parties, however, met
immediately upon the entering of this decree and made a new contract with a
view to carrying their original agreement into effect. This new contract was
executed in the form of a deed of conveyance and bears date of August 16,
1906. The stipulated price was fixed at P4,000, and the area of the land
enclosed in the boundaries defined in the contract was stated to be 452
hectares and a fraction.
The second contract was not immediately carried into effect for the reason that
the Torrens certificate was not yet obtainable and in fact said certificate was not
issued until the period of performance contemplated in the contract had
expired. Accordingly, upon October 3, 1908, the parties entered into still another
agreement, superseding the old, by which Teodorica Endencia agreed upon
receiving the Torrens title to the land in question, to deliver the same to the
Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National
Bank in San Francisco, where it was to be delivered to the plaintiff upon
payment of a balance of P3,100.
The Torrens certificate was in time issued to Teodorica Endencia, but in the
course of the proceedings relative to the registration of the land, it was found by
official survey that the area of the tract inclosed in the boundaries stated in the
contract was about 1.248 hectares of 452 hectares as stated in the contract. In
view of this development Teodorica Endencia became reluctant to transfer the

whole tract to the purchaser, asserting that she never intended to sell so large
an amount of land and that she had been misinformed as to its area.
This attitude of hers led to litigation in which Daywalt finally succeeded, upon
appeal to the Supreme Court, in obtaining a decree for specific performance;
and Teodorica Endencia was ordered to convey the entire tract of land to
Daywalt pursuant to the contract of October 3, 1908, which contract was
declared to be in full force and effect. This decree appears to have become
finally effective in the early part of the year 1914. 1
The defendant, La Corporacion de los Padres Recoletos, is a religious
corporation, with its domicile in the city of Manila. Said corporation was formerly
the owner of a large tract of land, known as the San Jose Estate, on the island of
Mindoro, which was sold to the Government of the Philippine Islands in the year
1909. The same corporation was at this time also the owner of another estate
on the same island immediately adjacent to the land which Teodorica Endencia
had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had
maintained large herds of cattle on the farms referred to. Their representative,
charged with management of these farms, was father Isidoro Sanz, himself a
members of the order. Father Sanz had long been well acquainted with Teodorica
Endencia and exerted over her an influence and ascendency due to his religious
character as well as to the personal friendship which existed between them.
Teodorica appears to be a woman of little personal force, easily subject to
influence, and upon all the important matters of business was accustomed to
seek, and was given, the advice of father Sanz and other members of his order
with whom she came in contact.
Father Sanz was fully aware of the existence of the contract of 1902 by which
Teodorica Endencia agreed to sell her land to the plaintiff as well as of the later
important developments connected with the history of that contract and the
contract substituted successively for it; and in particular Father Sanz, as well as
other members of the defendant corporation, knew of the existence of the
contract of October 3, 1908, which, as we have already seen finally fixed the
rights of the parties to the property in question. When the Torrens certificate
was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for
safekeeping to the defendant corporation, and it was then taken to Manila where
it remained in the custody and under the control of P. Juan Labarga the
procurador and chief official of the defendant corporation, until the deliver
thereof to the plaintiff was made compulsory by reason of the decree of the
Supreme Court in 1914.
When the defendant corporation sold the San Jose Estate, it was necessary to
bring the cattle off of that property; and, in the first half of 1909, some 2,368
head were removed to the estate of the corporation immediately adjacent to the
property which the plaintiff had purchased from Teodorica Endencia. As
Teodorica still retained possession of said property Father Sanz entered into an
arrangement with her whereby large numbers of cattle belonging to the
defendant corporation were pastured upon said land during a period extending
from June 1, 1909, to May 1, 1914.
Under the first cause stated in the complaint in the present action the plaintiff
seeks to recover from the defendant corporation the sum of P24,000, as

damages for the use and occupation of the land in question by reason of the
pasturing of cattle thereon during the period stated. The trial court came to the
conclusion that the defendant corporation was liable for damages by reason of
the use and occupation of the premises in the manner stated; and fixed the
amount to be recovered at P2,497. The plaintiff appealed and has assigned error
to this part of the judgment of the court below, insisting that damages should
have been awarded in a much larger sum and at least to the full extent of
P24,000, the amount claimed in the complaint.
As the defendant did not appeal, the property of allowing damages for the use
and occupation of the land to the extent o P2,497, the amount awarded, is not
now in question an the only thing here to be considered, in connection with this
branch of the case, is whether the damages allowed under this head should be
increased. The trial court rightly ignored the fact that the defendant corporation
had paid Teodorica Endencia of ruse and occupation of the same land during the
period in question at the rate of P425 per annum, inasmuch as the final decree
of this court in the action for specific performance is conclusive against her
right, and as the defendant corporation had notice of the rights of the plaintiff
under this contract of purchase, it can not be permitted that the corporation
should escape liability in this action by proving payment of rent to a person
other than the true owner.
With reference to the rate of which compensation should be estimated the trial
court came to the following conclusion:
As to the rate of the compensation, the plaintiff contends that the
defendant corporation maintained at leas one thousand head of cattle
on the land and that the pasturage was of the value of forty centavos
per head monthly, or P4,800 annually, for the whole tract. The court
can not accept this view. It is rather improbable that 1,248 hectares of
wild Mindoro land would furnish sufficient pasturage for one thousand
head of cattle during the entire year, and, considering the locality, the
rate of forty centavos per head monthly seems too high. The evidence
shows that after having recovered possession of the land the plaintiff
rented it to the defendant corporation for fifty centavos per hectares
annually, the tenant to pay the taxes on the land, and this appears to
be a reasonable rent. There is no reason to suppose that the land was
worth more for grazing purposes during the period from 1909 to 1913,
than it was at the later period. Upon this basis the plaintiff is entitled to
damages in the sum of p2,497, and is under no obligation to reimburse
the defendants for the land taxes paid by either of them during the
period the land was occupied by the defendant corporation. It may be
mentioned in this connection that the Lontok tract adjoining the land in
question and containing over three thousand hectares appears to have
been leased for only P1,000 a year, plus the taxes.
From this it will be seen that the trial court estimated the rental value of the
land for grazing purposes at 50 centavos per hectare per annum, and roughly
adopted the period of four years as the time for which compensation at that rate
should be made. As the court had already found that the defendant was liable
for these damages from June, 1, 1909, to May 1, 1914, or a period of four years
and eleven months, there seems some ground for the contention made in the

appellant's first assignment of error that the court's computation was erroneous,
even accepting the rule upon which the damages were assessed, as it is
manifest that at the rate of 50 centavos per hectare per annum, the damages
for four years and eleven months would be P3,090.
Notwithstanding this circumstance, we are of the opinion that the damages
assessed are sufficient to compensate the plaintiff for the use and occupation of
the land during the whole time it was used. There is evidence in the record
strongly tending to show that the wrongful use of the land by the defendant was
not continuous throughout the year but was confined mostly to the reason when
the forage obtainable on the land of the defendant corporation was not
sufficient to maintain its cattle, for which reason it became necessary to allow
them to go over to pasture on the land in question; and it is not clear that the
whole of the land was used for pasturage at any time. Considerations of this
character probably led the trial court to adopt four years as roughly being the
period during which compensation should be allowed. But whether this was
advertently done or not, we see no sufficient reason, in the uncertainty of the
record with reference to the number of the cattle grazed and the period when
the land was used, for substituting our guess for the estimate made by the trial
court.
In the second cause of action stated in the complaint the plaintiff seeks to
recover from the defendant corporation the sum of P500,000, as damages, on
the ground that said corporation, for its own selfish purposes, unlawfully induced
Teodorica Endencia to refrain from the performance of her contract for the sale
of the land in question and to withhold delivery to the plaintiff of the Torrens
title, and further, maliciously and without reasonable cause, maintained her in
her defense to the action of specific performance which was finally decided in
favor of the plaintiff in this court. The cause of action here stated is based on
liability derived from the wrongful interference of the defendant in the
performance of the contract between the plaintiff and Teodorica Endencia; and
the large damages laid in the complaint were, according to the proof submitted
by the plaintiff, incurred as a result of a combination of circumstances of the
following nature: In 1911, it appears, the plaintiff, as the owner of the land
which he had bought from Teodorica Endencia entered into a contract (Exhibit C)
with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a
sugar growing and milling enterprise, the successful launching of which
depended on the ability of Daywalt to get possession of the land and the Torrens
certificate of title. In order to accomplish this end, the plaintiff returned to the
Philippine Islands, communicated his arrangement to the defendant,, and made
repeated efforts to secure the registered title for delivery in compliance with
said agreement with Wakefield. Teodorica Endencia seems to have yielded her
consent to the consummation of her contract, but the Torrens title was then in
the possession of Padre Juan Labarga in Manila, who refused to deliver the
document. Teodorica also was in the end contract with the plaintiff, with the
result that the plaintiff was kept out of possession until the Wakefield project for
the establishment of a large sugar growing and milling enterprise fell through. In
the light of what has happened in recent years in the sugar industry, we feel
justified in saying that the project above referred to, if carried into effect, must
inevitably have proved a great success.
The determination of the issue presented in this second cause of action requires
a consideration of two points. The first is whether a person who is not a party to

a contract for the sale of land makes himself liable for damages to the vendee,
beyond the value of the use and occupation, by colluding with the vendor and
maintaining him in the effort to resist an action for specific performance. The
second is whether the damages which the plaintiff seeks to recover under this
head are too remote and speculative to be the subject of recovery.
As preliminary to a consideration of the first of these questions, we deem it well
it dispose of the contention that the members of the defendants corporation, in
advising and prompting Teodorica Endencia not to comply with the contract of
sale, were actuated by improper and malicious motives. The trial court found
that this contention was not sustained, observing that while it was true that the
circumstances pointed to an entire sympathy on the part of the defendant
corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim
to the land, the fact that its officials may have advised her not to carry the
contract into effect would not constitute actionable interference with such
contract. It may be added that when one considers the hardship that the
ultimate performance of that contract entailed on the vendor, and the doubt in
which the issue was involved to the extent that the decision of the Court of
the First Instance was unfavorable to the plaintiff and the Supreme Court itself
was divided the attitude of the defendant corporation, as exhibited in the
conduct of its procurador, Juan Labarga, and other members of the order of the
Recollect Fathers, is not difficult to understand. To our mind a fair conclusion on
this feature of the case is that father Juan Labarga and his associates believed in
good faith that the contract cold not be enforced and that Teodorica would be
wronged if it should be carried into effect. Any advice or assistance which they
may have given was, therefore, prompted by no mean or improper motive. It is
not, in our opinion, to be denied that Teodorica would have surrendered the
documents of title and given possession of the land but for the influence and
promptings of members of the defendants corporation. But we do not credit the
idea that they were in any degree influenced to the giving of such advice by the
desire to secure to themselves the paltry privilege of grazing their cattle upon
the land in question to the prejudice of the just rights of the plaintiff.
The attorney for the plaintiff maintains that, by interfering in the performance of
the contract in question and obstructing the plaintiff in his efforts to secure the
certificate of tittle to the land, the defendant corporation made itself a coparticipant with Teodorica Endencia in the breach of said contract; and inasmuch
as father Juan Labarga, at the time of said unlawful intervention between the
contracting parties, was fully aware of the existence of the contract (Exhibit C)
which the plaintiff had made with S. B. Wakefield, of San Francisco, it is insisted
that the defendant corporation is liable for the loss consequent upon the failure
of the project outlined in said contract.
In this connection reliance is placed by the plaintiff upon certain American and
English decisions in which it is held that a person who is a stranger to contract
may, by an unjustifiable interference in the performance thereof, render himself
liable for the damages consequent upon non-performance. It is said that the
doctrine of these cases was recognized by this court in Gilchrist vs. Cuddy (29
Phil. Rep., 542); and we have been earnestly pressed to extend the rule there
enunciated to the situation here presente.

Somewhat more than half a century ago the English Court of the Queen's Bench
saw its way clear to permit an action for damages to be maintained against a
stranger to a contract wrongfully interfering in its performance. The leading case
on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that
the plaintiff, as manager of a theatre, had entered into a contract with Miss
Johanna Wagner, an opera singer,, whereby she bound herself for a period to
sing in the plaintiff's theatre and nowhere else. The defendant, knowing of the
existence of this contract, and, as the declaration alleged, "maliciously intending
to injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's
employment. It was held that the plaintiff was entitled to recover damages. The
right which was here recognized had its origin in a rule, long familiar to the
courts of the common law, to the effect that any person who entices a servant
from his employment is liable in damages to the master. The master's interest in
the service rendered by his employee is here considered as a distinct subject of
juridical right. It being thus accepted that it is a legal wrong to break up a
relation of personal service, the question now arose whether it is illegal for one
person to interfere with any contract relation subsisting between others. Prior to
the decision of Lumley vs. Gye [supra] it had been supposed that the liability
here under consideration was limited to the cases of the enticement of menial
servants, apprentices, and others to whom the English Statutes of Laborers were
applicable. But in the case cited the majority of the judges concurred in the
opinion that the principle extended to all cases of hiring. This doctrine was
followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333);
and in Temperton vs. Russell ([1893], Q. B., 715), it was held that the right of
action for maliciously procuring a breach of contract is not confined to contracts
for personal services, but extends to contracts in general. In that case the
contract which the defendant had procured to be breached was a contract for
the supply of building material.
Malice in some form is generally supposed to be an essential ingredient in cases
of interference with contract relations. But upon the authorities it is enough if
the wrong-doer, having knowledge of the existence of the contract relations, in
bad faith sets about to break it up. Whether his motive is to benefit himself or
gratify his spite by working mischief to the employer is immaterial. Malice in the
sense of ill-will or spite is not essential.
Upon the question as to what constitutes legal justification, a good illustration
was put in the leading case. If a party enters into contract to go for another
upon a journey to a remote and unhealthful climate, and a third person, with
abona fide purpose of benefiting the one who is under contract to go, dissuades
him from the step, no action will lie. But if the advice is not disinterested and the
persuasion is used for "the indirect purpose of benefiting the defendant at the
expense of the plaintiff," the intermedler is liable if his advice is taken and the
contract broken.
The doctrine embodied in the cases just cited has sometimes been found useful,
in the complicated relations of modern industry, as a means of restraining the
activities of labor unions and industrial societies when improperly engaged in
the promotion of strikes. An illustration of the application of the doctrine in
question in a case of this kind is found in South Wales Miners
Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there appeared that
certain miners employed in the plaintiff's collieries, acting under the order of the
executive council of the defendant federation, violated their contract with the

plaintiff by abstaining from work on certain days. The federation and council
acted without any actual malice or ill-will towards the plaintiff, and the only
object of the order in question was that the price of coal might thereby be kept
up, a factor which affected the miner's wage scale. It was held that no sufficient
justification was shown and that the federation was liable.
In the United States, the rule established in England by Lumley vs. Gye [supra]
and subsequent cases is commonly accepted, though in a few of the States the
broad idea that a stranger to a contract can be held liable upon its is rejected,
and in these jurisdictions the doctrine, if accepted at all, is limited to the
situation where the contract is strictly for personal service. (Boyson vs. Thorn,
98 Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121; Bourliervs. Macauley,
91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co., 138 Mo.,
439.)
It should be observed in this connection that, according to the English and
American authorities, no question can be made as to the liability to one who
interferes with a contract existing between others by means which, under
known legal cannons, can be denominated an unlawful means. Thus, if
performance is prevented by force, intimidation, coercion, or threats, or by false
or defamatory statements, or by nuisance or riot, the person using such
unlawful means is, under all the authorities, liable for the damage which ensues.
And in jurisdictions where the doctrine of Lumley vs. Gye [supra] is rejected, no
liability can arise from a meddlesome and malicious interference with a contract
relation unless some such unlawful means as those just indicated are used. (See
cases last above cited.)
This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil.
Rep., 542). It there appeared that one Cuddy, the owner of a cinematographic
film, let it under a rental contract to the plaintiff Gilchrist for a specified period
of time. In violation of the terms of this agreement, Cuddy proceeded to turn
over the film also under a rental contract, to the defendants Espejo and
Zaldarriaga. Gilchrist thereupon restored to the Court of First Instance and
produced an injunction restraining the defendants from exhibiting the film in
question in their theater during the period specified in the contract of Cuddy
with Gilchrist. Upon appeal to this court it was in effect held that the injunction
was not improperly granted, although the defendants did not, at the time their
contract was made, know the identity of the plaintiff as the person holding the
prior contract but did know of the existence of a contract in favor of someone. It
was also said arguendo, that the defendants would have been liable in damages
under article 1902 of the Civil Code, if the action had been brought by the
plaintiff to recover damages. The force of the opinion is, we think, somewhat
weakened by the criticism contain in the concurring opinion, where it is said that
the question of breach of contract by inducement was not really involved in the
case. Taking the decision upon the point which was rally decided, it is authority
for the proposition that one who buys something which he knows has been sold
to some other person can be restrained from using that thing to the prejudice of
the person having the prior and better right.
Translated into terms applicable to the case at bar, the decision in
Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the defendant corporation,
having notice of the sale of the land in question to Daywalt, might have been

enjoined by the latter from using the property for grazing its cattle thereon. That
the defendant corporation is also liable in this action for the damage resulting to
the plaintiff from the wrongful use and occupation of the property has also been
already determined. But it will be observed that in order to sustain this liability it
is not necessary to resort to any subtle exegesis relative to the liability of a
stranger to a contract for unlawful interference in the performance thereof. It is
enough that defendant use the property with notice that the plaintiff had a prior
and better right.
Article 1902 of the Civil Code declares that any person who by an act or
omission, characterized by fault or negligence, causes damage to another shall
be liable for the damage so done. Ignoring so much of this article as relates to
liability for negligence, we take the rule to be that a person is liable for damage
done to another by any culpable act; and by "culpable act" we mean any act
which is blameworthy when judged by accepted legal standards. The idea thus
expressed is undoubtedly broad enough to include any rational conception of
liability for the tortious acts likely to be developed in any society. Thus
considered, it cannot be said that the doctrine of Lumleyvs. Gye [supra] and
related cases is repugnant to the principles of the civil law.
Nevertheless, it must be admitted that the codes and jurisprudence of the civil
law furnish a somewhat uncongenial field in which to propagate the idea that a
stranger to a contract may sued for the breach thereof. Article 1257 of the Civil
Code declares that contracts are binding only between the parties and their
privies. In conformity with this it has been held that a stranger to a contract has
no right of action for the nonfulfillment of the contract except in the case
especially contemplated in the second paragraph of the same article. (Uy Tam
and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila
Railroad Co. vs. Compaia Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a
contract, when effectually entered into between certain parties, determines not
only the character and extent of the liability of the contracting parties but also
the person or entity by whom the obligation is exigible. The same idea should
apparently be applicable with respect to the person against whom the obligation
of the contract may be enforced; for it is evident that there must be a certain
mutuality in the obligation, and if the stranger to a contract is not permitted to
sue to enforce it, he cannot consistently be held liable upon it.
If the two antagonistic ideas which we have just brought into juxtaposition are
capable of reconciliation, the process must be accomplished by distinguishing
clearly between the right of action arising from the improper interference with
the contract by a stranger thereto, considered as an independent act generate
of civil liability, and the right of action ex contractu against a party to the
contract resulting from the breach thereof. However, we do not propose here to
pursue the matter further, inasmuch as, for reasons presently to be stated, we
are of the opinion that neither the doctrine of Lumley vs. Gye [supra] nor the
application made of it by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542),
affords any basis for the recovery of the damages which the plaintiff is supposed
to have suffered by reason of his inability to comply with the terms of the
Wakefield contract.
Whatever may be the character of the liability which a stranger to a contract
may incur by advising or assisting one of the parties to evade performance,

there is one proposition upon which all must agree. This is, that the stranger
cannot become more extensively liable in damages for the nonperformance of
the contract than the party in whose behalf he intermeddles. To hold the
stranger liable for damages in excess of those that could be recovered against
the immediate party to the contract would lead to results at once grotesque and
unjust. In the case at bar, as Teodorica Endencia was the party directly bound by
the contract, it is obvious that the liability of the defendant corporation, even
admitting that it has made itself coparticipant in the breach of the contract, can
in no even exceed hers. This leads us to consider at this point the extent of the
liability of Teodorica Endencia to the plaintiff by reason of her failure to
surrender the certificate of title and to place the plaintiff in possession.
It should in the first place be noted that the liability of Teodorica Endencia for
damages resulting from the breach of her contract with Daywalt was a proper
subject for adjudication in the action for specific performance which Daywalt
instituted against her in 1909 and which was litigated by him to a successful
conclusion in this court, but without obtaining any special adjudication with
reference to damages. Indemnification for damages resulting from the breach of
a contract is a right inseparably annexed to every action for the fulfillment of
the obligation (art. 1124, Civil Code); and its is clear that if damages are not
sought or recovered in the action to enforce performance they cannot be
recovered in an independent action. As to Teodorica Endencia, therefore, it
should be considered that the right of action to recover damages for the breach
of the contract in question was exhausted in the prior suit. However, her
attorneys have not seen fit to interpose the defense of res judicata in her behalf;
and as the defendant corporation was not a party to that action, and such
defense could not in any event be of any avail to it, we proceed to consider the
question of the liability of Teodorica Endencia for damages without refernce to
this point.
The most that can be said with refernce to the conduct of Teodorica Endencia is
that she refused to carry out a contract for the sale of certain land and resisted
to the last an action for specific performance in court. The result was that the
plaintiff was prevented during a period of several years from exerting that
control over the property which he was entitled to exert and was meanwhile
unable to dispose of the property advantageously. Now, what is the measure of
damages for the wrongful detention of real property by the vender after the
time has come for him to place the purchaser in possession?

The damages ordinarily and normally recoverable against a vendor for failure to
deliver land which he has contracted to deliver is the value of the use and
occupation of the land for the time during which it is wrongfully withheld. And of
course where the purchaser has not paid the purchaser money, a deduction may
be made in respect to the interest on the money which constitutes the purchase
price. Substantially the same rule holds with respect to the liability of a landlord
who fails to put his tenant in possession pursuant to contract of lease. The
measure of damages is the value of the leasehold interest, or use and
occupation, less the stipulated rent, where this has not been paid. The rule that
the measure of damages for the wrongful detention of land is normally to be
found in the value of use and occupation is, we believe, one of the things that
may be considered certain in the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick
on Damages, Ninth ed., sec. 185.) almost as wellsettled, indeed, as the rule
that the measure of damages for the wrongful detention of money is to be found
in the interest.
We recognize the possibility that more extensive damages may be recovered
where, at the time of the creation of the contractual obligation, the vendor, or
lessor, is aware of the use to which the purchaser or lessee desires to put the
property which is the subject of the contract, and the contract is made with the
eyes of the vendor or lessor open to the possibility of the damage which may
result to the other party from his own failure to give possession. The case before
us is not this character, inasmuch as at the time when the rights of the parties
under the contract were determined, nothing was known to any to them about
the San Francisco capitalist who would be willing to back the project portrayed
in Exhibit C.
The extent of the liability for the breach of a contract must be determined in the
light of the situation in existence at the time the contract is made; and the
damages ordinarily recoverable are in all events limited to such as might be
reasonable are in all events limited to such as might be reasonably foreseen in
the light of the facts then known to the contracting parties. Where the purchaser
desires to protect himself, in the contingency of the failure of the vendor
promptly to give possession, from the possibility of incurring other damages
than such as the incident to the normal value of the use and occupation, he
should cause to be inserted in the contract a clause providing for stipulated
amount to the paid upon failure of the vendor to give possession; and not case
has been called to our attention where, in the absence of such a stipulation,
damages have been held to be recoverable by the purchaser in excess of the
normal value of use and occupation. On the contrary, the most fundamental
conceptions of the law relative to the assessment of damages are inconsistent
with such idea.
The principles governing this branch of the law were profoundly considered in
the case Hadley vs. Baxendale (9 Exch., 341), decided in the English Court of
Exchequer in 1854; and a few words relative to the principles governing will
here be found instructive. The decision in that case is considered a leading
authority in the jurisprudence of the common law. The plaintiffs in that case
were proprietors of a mill in Gloucester, which was propelled by steam, and
which was engaged in grinding and supplying meal and flour to customers. The
shaft of the engine got broken, and it became necessarily that the broken shaft
be sent to an engineer or foundry man at Greenwich, to serve as a model for
casting or manufacturing another that would fit into the machinery. The broken

shaft could be delivered at Greenwich on the second day after its receipts by the
carrier it. It was delivered to the defendants, who were common carriers
engaged in that business between these points, and who had told plaintiffs it
would be delivered at Greenwich on the second day after its delivery to them, if
delivered at a given hour. The carriers were informed that the mill was stopped,
but were not informed of the special purpose for which the broken shaft was
desired to forwarded, They were not told the mill would remain idle until the new
shaft would be returned, or that the new shaft could not be manufactured at
Greenwich until the broken one arrived to serve as a model. There was delay
beyond the two days in delivering the broken shaft at Greenwich, and a
corresponding delay in starting the mill. No explanation of the delay was offered
by the carriers. The suit was brought to recover damages for the lost profits of
the mill, cause by the delay in delivering the broken shaft. It was held that the
plaintiff could not recover.
The discussion contained in the opinion of the court in that case leads to the
conclusion that the damages recoverable in case of the breach of a contract are
two sorts, namely, (1) the ordinary, natural, and in a sense necessary damage;
and (2) special damages.
Ordinary damages is found in all breaches of contract where the are no special
circumstances to distinguish the case specially from other contracts. The
consideration paid for an unperformed promise is an instance of this sort of
damage. In all such cases the damages recoverable are such as naturally and
generally would result from such a breach, "according to the usual course of
things." In case involving only ordinary damage no discussion is ever indulged
as to whether that damage was contemplated or not. This is conclusively
presumed from the immediateness and inevitableness of the damage, and the
recovery of such damage follows as a necessary legal consequence of the
breach. Ordinary damage is assumed as a matter of law to be within the
contemplation of the parties.
Special damage, on the other hand, is such as follows less directly from the
breach than ordinary damage. It is only found in case where some external
condition, apart from the actual terms to the contract exists or intervenes, as it
were, to give a turn to affairs and to increase damage in a way that the
promisor, without actual notice of that external condition, could not reasonably
be expected to foresee. Concerning this sort of damage, Hadley vs.Baxendale
(1854) [supra] lays down the definite and just rule that before such damage can
be recovered the plaintiff must show that the particular condition which made
the damage a possible and likely consequence of the breach was known to the
defendant at the time the contract was made.
The statement that special damages may be recovered where the likelihood of
such damages flowing from the breach of the contract is contemplated and
foreseen by the parties needs to be supplemented by a proposition which,
though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from
subsequent cases. This is that where the damage which a plaintiff seeks to
recover as special damage is so far speculative as to be in contemplation of law
remote, notification of the special conditions which make that damage possible
cannot render the defendant liable therefor. To bring damages which would
ordinarily be treated as remote within the category of recoverable special

damages, it is necessary that the condition should be made the subject of

contract in such sense as to become an express or implied term of the
engagement. Horne vs. Midland R. Co. (L. R., 8 C. P., 131) is a case where the
damage which was sought to be recovered as special damage was really
remote, and some of the judges rightly places the disallowance of the damage
on the ground that to make such damage recoverable, it must so far have been
within the contemplation of the parties as to form at least an implied term of the
contract. But others proceeded on the idea that the notice given to the
defendant was not sufficiently full and definite. The result was the same in
either view. The facts in that case were as follows: The plaintiffs, shoe
manufacturers at K, were under contract to supply by a certain day shoes to a
firm in London for the French government. They delivered the shoes to a carrier
in sufficient time for the goods to reach London at the time stipulated in the
contract and informed the railroad agent that the shoes would be thrown back
upon their hands if they did not reach the destination in time. The defendants
negligently failed to forward the good in due season. The sale was therefore
lost, and the market having fallen, the plaintiffs had to sell at a loss.
In the preceding discussion we have considered the plaintiff's right chiefly
against Teodorica Endencia; and what has been said suffices in our opinion to
demonstrate that the damages laid under the second cause of action in the
complaint could not be recovered from her, first, because the damages laid
under the second cause of action in the complaint could not be recovered from
her, first, because the damages in question are special damages which were not
within contemplation of the parties when the contract was made, and secondly,
because said damages are too remote to be the subject of recovery. This
conclusion is also necessarily fatal to the right of the plaintiff to recover such
damages from the defendant corporation, for, as already suggested, by advising
Teodorica not to perform the contract, said corporation could in no event render
itself more extensively liable than the principle in the contract.
Our conclusion is that the judgment of the trial court should be affirmed, and it
is so ordered, with costs against the appellant.
Arellano, C.J., Torres, Carson, Araullo, Malcolm, Avancea and Moir, JJ., concur.

G.R. No. L-50911 August 21, 1987

MIGUEL
PEREZ
RUBIO, petitioner,
vs.
COURT OF APPEALS, ROBERTO O. PHILLIPS & SONS, INC., MAGDALENA
YSMAEL PHILLIPS, MANUFACTURERS BANK & TRUST CO., INC.,
HACIENDA BENITO, INC., ET AL., respondents.
Daniel M. Malabonga for petitioner.
Argel-Guevarra & Associates for respondent Hacienda Benito, Inc.
Meer, Meer & Meer Law Office for respondent Victoria Valley.
Magtanggol C. Gunigundo for respondents Robert O. Phillips & Sons, Inc.,
Magdalena Ysmael Phillips and Heirs of Robert Phillips.
Ambrosia Padilla, Mempin & Reyes Law Office for respondent Manufacturers
Bank & Trust Co Inc.

GUTIERREZ, JR., J.:

Footnotes
1

Daywalt vs. Endencia, R. G. No. 7331, decided November 16, 1912,

not published.

Before us for reconsideration are the various motions for reconsideration of the
March 12, 1986 decision, the dispositive portion of which reads:
WHEREFORE, the petition is GRANTED. The decision of the
former Court of Appeals is hereby REVERSED and SET ASIDE.
The respondents Phillips and Sons and the Phillips spouses are
declared to be jointly and severally liable to the petitioner for
the outstanding debt of Phillips and Sons in the amount of
FOUR MILLION TWO HUNDRED FIFTY THOUSAND PESOS
(P4,250,000.00) with interest at the rate of eight (8%) percent
per annum from April 30, 1964 until fully paid as provided for

in the parties' agreement dated August 13, 1963. Costs

against the respondents. (p. 869, rollo)
The petitioner asks that the decision be reconsidered insofar as it makes no
finding against respondent Phillips for moral and exemplary damages as well as
attorney's fees and to the extent that the same decision absolves from joint and
solidary liability respondents Manufacturers Bank and Trust Company
(hereinafter called MBTC), Hacienda Benito (hereinafter called HB, and Victoria
Valley Development Corporation (hereinafter called VVDC).
The petitioner restates his position that the respondents conspired amongst
themselves to put the properties of Hacienda Benito beyond his reach and thus
make it impossible for him to collect the sum of P4,250,000.00 still unpaid on
the purchase price of his shares of stock in Hacienda Benito.
It may be recalled that on June 5, 1965, respondent Hacienda Benito, Inc.,
represented by Robert O. Phillips, president and Victoria Valley Development
Corporation which was in the process of incorporation and represented by
Alfonso Yuchengco with the conformity of Manufacturers Bank and Trust
Company represented by Galicano Calapatia executed a "MEMORANDUM
AGREEMENT. (Exhibit "31" Miguel Perez Rubio).
The thrust of the agreement is that respondent VVDC will acquire under
conditions stated therein 134.1668 hectares of land including account
receivables belonging to respondent HBI Moreover, it was specifically provided
in the agreement that " ... HB warrants that the properties to be acquired by
VVDC are not subject to any other obligations, liens, encumbrances, charges or
claims of whatever nature than those mentioned herein, including real estate
taxes up to the first semester of 1965." (Memorandum Agreement, supra, pp. 34).
Included in this 134.1668 hectares are the 78 hectares mortgaged to MBTC.
These parcels of land were mortgaged to MBTC to secure obligation and
liabilities incurred by HBI and other affiliate companies owned by the Phillips. Of
the P7,419,130.19 amount due from these companies, only P1,456,276.48 was
the liability of HBI.
Under this agreement, MBTC will institute judicial foreclosure of mortgage after
which all the companies would confess judgment and enter into a compromise
agreement in full satisfaction of the claim of MBTC under the several deeds of
mortgage. It was further provided that HBI will convey all the 78 hectares in
favor of MBTC after which VVDC will purchase from MBTC the same parcels of
land together with the receivables. A final proviso was to the effect that VVDC
and HBI will enter into a separate agreement whereby HBI will expressly assign
in favor of VVDC its right to redeem the properties foreclosed by MBTC.
The consideration of the agreement amounted to Pl1,621,889.11 which VVDC
agreed to assume in order to settle the obligations of HBI and the other Phillips
companies.

The Memorandum Agreement was executed under the following factual

background: (1) Respondent ROPSI had still to pay its outstanding
P4,250.000.00 debt to the petitioner as the result of the latter's sale of his
shares of stock of HBI; (2) Negotiations had broken down between the Phillips
spouses, ROPSI and Alfonso Yuchengco as regards the sale of the shares of stock
of Hacienda Benito, Inc.; and (3) Petitioner had threatened to rescind the
contract of sale of his shares of stock of Hacienda Benito.
Obviously, Hacienda Benito through Robert O. Phillips, and VVDC through
Alfonso Yuchengco were fully aware of the petitioner's still being unpaid the
P4,250,000.00 balance on his shares of stocks of Hacienda Benito sold to ROPSI.
MBTC, too, because of the unrebutted evidence that its top officers are also the
top officers of VVDC is conclusively presumed to know the petitioner's
predicament. These same personalities figures prominently in the negotiations
involving the shares of stock of Hacienda Benito including the unpaid
P4,250,000.00 collectibles of the petitioner from the ROPSI as full payment for
the sale of his shares of stock in Hacienda Benito.
Hence, the scheme provided for in the Memorandum Agreement wherein all the
properties of Hacienda Benito will be ultimately transferred to VVDC without any
mention at all and completely ignoring the petitioner's interest in said Hacienda
placed the petitioner's rightful claim to the payment of his shares of stock in
clear jeopardy.
The fact that the Memorandum Agreement was not fully implemented is
immaterial. The intent to defraud the petitioner and the damage which led to
the filing of this case was present in the execution of the Memorandum
Agreement.
Therefore, an award for damages in favor of the petitioner is in order against
respondents Hacienda Benito, VVDC and MBTC.
Article 19 of the New Civil Code provides that:
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.
while Article 20 thereof provides that:
Every person who, contrary to law, wilfully or negligently
causes damage to another shall indemnify the latter for the
same.
Parenthetically, these respondents did not observe honesty and good faith in
dealing with the rightful claim of the petitioner to the still unpaid P4,250,000.00
collectibles from ROPSI. The respondents' acts are tortious pursuant to Articles
19 and 20 of the New Civil Code. Hence, these respondents are obliged to pay
for the damage done to the petitioner. (See Article 2176, New Civil Code).

In the case at bar, the tortious and fraudulent scheme of the private
respondents made it impossible for the petitioner to collect the P4,250,000.00
still unpaid purchase price of his shares of stock in Hacienda Benito. All the
respondents are, therefore, solidarity liable for these actual damages suffered
by the petitioner. (See Article 2194 of the New Civil Code).
Consequently, we rule that Hacienda Benito, VVDC and MBTC together with
ROPSI and the Phillips spouses are solidarity liable to the petitioner for the
outstanding debt of ROPSI in the amount of P14,250,000.00 with interest at the
rate of eight (8 % per cent per annum from April 30, 1964 until fully paid as
provided for in the parties' agreement dated August 13,1963.
Also, an award for moral damages in favor of the petitioner is in order against
respondents Hacienda Benito, VVDC and MBTC. The planned transfer of all the
assets of Hacienda Benito to VVDC which the respondents sought to accomplish
through the Memorandum Agreement created further anguish and anxiety on
the part of the petitioner who at that time was still trying to collect the
P4,250,000.00 full payment of his shares of stock in Hacienda Benito.
Considering the circumstances under which the respondents executed the
Memorandum Agreement and the social status of the parties herein, the amount
of P100,000.00 as moral damages in favor of the petitioner is awarded.
However, we find no reasonable ground to set aside our findings in the March
12, 1986 decision that respondents Phillips spouses are not liable for moral and
exemplary damages and attorney's fees.
Juan Miguel Phillips also filed a motion to intervene in the instant case stating
therein that Robert O. Phillips had died leaving as heirs respondent Magdalena
Ysmael Phillips and four legitimate children; that he is one of the four (4)
children; that as such legal heir, he has a legal interest in the subject matter of
the instant case and will be favored or prejudiced in his interest depending on
the final outcome of the instant case. He cites Rule 12, Section 2, Rules of Court.
The right of the movant-intervenor proceeds only from the fact of heirship.
Hence his interest to specific portions of the property of the deceased is, if not
conjectural, stin contingent and expectant. At this point, he cannot specify any
property nor segregate any as his own before the liquidation of the estate is
completed. This is in accordance with Article 657 of the Civil Code (Article 777,

Civil Code) which provides that the rights to succession of a person are
transmitted from the moment of death.
Thus, the heir has the right to impugn the validity of the decedent's transaction
only when he is made answerable or when his specific right or property would
be affected thereby. The instant case is a personal action against Robert O.
Phillips, filed while he was still alive. It is Robert O. Phillips and his estate which
are sought to be made liable, not the movant-intervenor or any of his legal
heirs.
WHEREFORE, the petitioners motion for reconsideration is GRANTED in that
respondent's Hacienda Benito, Victoria Valley Development Corporation and
Manufacturers Bank and Trust Company (now Filipinas Bank) together with
respondents Robert 0. Phillips & Sons and the Phillips spouses are declared to be
jointly and severally liable to the petitioner for the outstanding debt of Phillips
and Sons in the amount of FOUR MILLION TWO HUNDRED FIFTY THOUSAND
PESOS (P4,250,000.00) with interest at the rate of eight (8%) per cent per
annum from April 30, 1964 until fully paid as provided for in the parties'
agreement dated August 13, 1963; that respondents Hacienda Benito, Inc.,
Victoria Valley Development Corporation and Manufacturers Bank and Trust
Company (now Filipinas Bank) are jointly and severally liable to the petitioner in
the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral
damages. Juan Miguel Phillips' motion for reconsideration is DENIED for lack of
merit. The motions for reconsideration filed by Robert O. Phillips and Sons,
Magdalena Ysmael Phillips and the heirs of Robert O. Phillips, Hacienda Benito,
Inc., and Manufacturers Bank and Trust Company are DENIED it appearing that
no new substantial reasons have been invoked to warrant reconsideration of the
said decision as far as these parties' motions are concerned, and this DENIAL is
FINAL.
SO ORDERED.
Fernan (Chairman), Paras, Bidin and Cortes, JJ., concur.
Padilla, J., took no part.