Torts Sample Cases in Full Text

Page 1 of 76
respondent Manaog did not present any evidence for his
FIRST DIVISION
defense to prove non-delivery. When the trial court
[G.R. No. 66641. March 6, 1992.]
rendered judgment in favor of petitioner Filinvest,
FILINVEST CREDIT CORPORATION, petitioner, vs.

INTERMEDIATE APPELLATE COURT and JOVITO Z.
MANAOG, respondents.
REMEDIAL LAW; CIVIL PROCEDURE; EFFECT
OF JUDGMENT; TWO ASPECTS OF RES JUDICATA;

CONSTRUED. The doctrine of res judicata has two
aspects. The first is the effect of a judgment as a bar to
the prosecution of a second action upon the same
claim, demand or cause of action. The second aspect is
that it precludes relitigation of a particular fact or
issues in another action between the same parties on a
different claim or cause of action (Lopez v. Reyes, G.R.
No. L-29498, March 31, 1977, 76 SCRA 179). Thus, a
party by varying the form of action or method of case
presentation cannot escape the effect of the principle of
res judicata nor can a party avoid an estoppel of a
former judgment by bringing forward in a second action
new or additional grounds in support of his case or
defense or new arguments to sustain it, the facts
remaining the same at least where such additional
matter could have been pleaded and adjudicated in the
prior action.
subsequent action for damages that the judgment
3.
ID.; ID.; ID.; REMEDY OF PARTY WHO IS NOT
SATISFIED FROM A JUDGMENT RENDERED. If

respondent Manaog was not satisfied with the judgment
of the trial court, he should have appealed the case to
the Court of Appeals within the reglementary period of
fifteen days after receipt of the decision before the
judgment of the trial court becomes final and executory.
However, if the judgment had become final and
executory, there are only three ways under the law by
which said judgment may be questioned: 1) by petition
for relief 2) by direct action to annul and enjoin the
enforcement of the judgment where the alleged defect is
not apparent on its face or from the recitals contained
in the judgment, and 3) by direct action, as certiorari,
or by
a collateral attack
against the
challenged
judgment which is void upon its face or that the nullity

of the judgment is apparent from its own recitals
(People v. Pareja, G.R. No. 59979, August 30, 1990, 189
SCRA 143). Respondent Manaog's action for damages
which was founded on the alleged wrong judgment of
ID.; ID.; ID.; ALLOWING THE JUDGMENT TO
BECOME FINAL AND EXECUTORY; A PARTY IS

PRECLUDED FROM CLAIMING SUBSEQUENT ACTION
FOR DAMAGES FROM AN ERRONEOUS JUDGMENT.
It is worthy to note that the complaint filed by
petitioner Filinvest against respondent Manaog in Civil
Case No. 242126 was for recovery of sum of money
representing unpaid monthly installments for two
airconditioning units bought by respondent Manaog.
The latter filed an answer, as shown by the facts of the
alleging
case. Hence, he is now precluded from claiming in a
the airconditioning units from petitioner.
SYLLABUS
case,
enforced before disclosing certain fats which should
against him was erroneous because he did not receive
Eduardo F. Elizalde for private respondent.
2.
final and executory and the execution thereof be fully

have been raised and proven during the hearing of the
Labaguis, Loyola, Angara & Associates for petitioner.
1.
respondent Manaog allowed the judgment to become
that
the
airconditioning
units
are
defective. Respondent Manaog did not however raise as

defense the non-delivery of the said units. In fact,
the trial court in Civil Case No. 242126 does not fall
within any of the ways enumerated above. Although the
action was titled as one for damages, respondent
Manaog, was in effect, alleging the nullity of the
judgment against him as being without factual basis,
which is the reason why he sought damages before the
trial court. This is a collateral attack upon a final
judgment which cannot be done if the said judgment is
valid and regular upon its face, as in the case at bar.
DECISION
MEDIALDEA, J p:
Page 2 of 76
This is a petition for review on certiorari of the decision
On November 11, 1977, respondent Manaog filed a
of the respondent appellate court (now Court of
motion to suspend execution of judgment, which was
Appeals) affirming the decision of the court which
granted by the trial court. It appears however that the
awarded damages to private respondent arising from
sale at public auction had already been conducted.
the alleged wrongful execution of a final judgment.

Cdpr
April
28,
1978,
respondent
Manaog
filed
complaint before the Court of First Instance (CFI) of
The antecedent facts of the case are as follows:

On
On
April
24,
1975,
petitioner
Rizal (now Regional Trial Court) for damages alleging
Filinvest
Credit
Corporation (Filinvest for brevity) filed a complaint with

the Court of First Instance of Manila (now Regional Trial
Court) against respondent Jovito Manaog and a certain
John Doe, for replevin and/or recovery of sum of money
representing
arrearages
in
the
payment
of
that the judgment which was made the basis of the

execution was wrong because the airconditioning units
subject of the contract of sale were not in fact delivered,
and hence, respondent Manaog was not indebted to
petitioner.
two
After trial, the CFI of Rizal rendered its decision, in
airconditioners bought by respondent Manaog from
favor of respondent Manaog, the dispositive portion of
Heritage Mercantile Corporation. The latter as vendor
which states:
assigned the contract of "sale with reservation of title"

to petitioner Filinvest. The contract of sale provided
among others for a down payment in the amount of
P2,100.00 by respondent Manaog upon execution of the
contract and the balance in installments of P538.00
each month; and that the failure of respondent Manaog
to pay two installments will make the whole obligation
due and demandable.
"Premises considered, it is the finding of this Court that

the defendant acted in utmost bad faith, and utilized all
means within its control to harass, humiliate and
embarrass the plaintiff. The preponderance of evidence
supports the claim of plaintiff and the court finds the
defendant liable for having acted high handedly and in
bad faith. The Court hereby sentences the defendant to
pay the plaintiff the amount of P10,099.00 with interest
Because respondent Manaog failed to pay the monthly
thereon at the rate of 14% starting September 24, 1977
amortization, petitioner Filinvest sent letters of demand
until fully paid; to pay plaintiff the amount of
to respondent Manaog demanding payment. The latter
P20,000.00 as exemplary damages and to pay plaintiff
did not respond however to any of the demands, thus,
attorney's fees in the amount of P5,000.00 as well as
prompting petitioner Filinvest to file the aforementioned
costs of suit.
complaint.
counterclaim
Respondent
to
the
filed
complaint
his
answer
alleging
that
and
the
airconditioners are defective (p. 39, Rollo) On October 3,

1975, the date of the scheduled hearing, respondent
Manaog failed to appear. Hence, petitioner was allowed
to present its evidence ex-parte.
On November 25, 1975, the trial court rendered a
decision in favor of the petitioner and dismissed
respondent Manaog's counterclaim. The trial court
subsequently issued a writ of execution which was duly
"SO ORDERED." (p. 38, Rollo).

Not satisfied with the decision of the trial court,
petitioner Filinvest appealed to the Court of Appeals. On
January 16, 1984, the Court of Appeals rendered a
decision which affirmed in toto the ruling of the trial
court.
Hence this petition was filed with the petitioner
assigning the following errors:
served upon respondent Manaog. By virtue of the said
"a.
The Honorable Intermediate Appellate Court
writ of execution, a sale by public auction was
gravely abused its discretion in not holding private
conducted by the sheriff on October 5, 1977 and a
respondent a joint fraudfeasor even when the facts
return thereof was made on October 27, 1977.
clearly show him to be so;
Page 3 of 76
"b.
already settled in Civil Case No. 242126 cannot be
erred in not holding that private respondent had no
reopened by respondent Manaog in his action for
cause of action against petitioners;
damages; that if it were true that no delivery was made
"c.
erred in reopening the question of delivery as private

respondent admitted delivery before the City Court of
to respondent Manaog, the latter should have disclosed

this fact when Civil Case No. 242126 for sum of money
was filed against him.
Manila; further such issue is barred by prior judgment;
We find the petition impressed with merit.
"d.
Section 49 of Rule 39 of the Rules of Court, as
erred in not holding that the lower court had no

jurisdiction over the subject of the action as the
complaint is in reality a collateral attack upon;
1)
amended, provides:
"Sec. 49.
Effect of Judgment. The effect of a
judgment or final order rendered by a court or judge of
a final judgment of a court of competent
the Philippines, having jurisdiction to pronounce the
jurisdiction; and
judgment or order may be as follows:
2)
xxx
a writ of execution validly issued by a Court of
competent jurisdiction;
"e.
xxx
"b)
xxx
In other cases the judgment or order is, with
respect to the matter directly adjudged or as to any
erred in allowing private respondent recovery even when
other matter that could have been raised in relation
it
thereto, conclusive between the parties and their
conceded
the
latter's
gross
negligence
in
the
protection of his alleged rights;

"f.
successors in interest by title subsequent to the
erred in applying the principle of abuse of right in the

instant case;
"g.
erred in not holding the third-party defendant Badere

liable to Petitioner for indemnification or reimbursement
of
what
the
latter
was
ordered
to
pay
private
respondent." (pp. 7-8, Rollo)

The assigned errors boil down to the basic issue of
whether or not the losing party may file an action for
damages based on the same facts and issues involved in
the first action where judgment rendered therein had
become final and had been fully executed. llcd
Petitioner contends that although respondent Manaog's
complaint is one for damages arising from the wrongful
execution of the judgment in Civil Case No. 242126 filed
by petitioner for recovery of sum of money, the subject
of the action for damages is in reality, the validity of the
judgment in the said civil case which should be
properly attacked in a direct action to annul judgment.
It also contends that the question of delivery, which was
commencement of the action or special proceeding,

litigating for the same thing and under the same title
and in the same capacity;
"c)
In any other litigation between the same parties
or their successors in interest, that only is deemed to

have been adjudged in a former judgment which
appears upon its face to have been so adjudged, or
which was actually and necessarily included therein or
necessary thereto." (emphasis supplied)
The
aforequoted
legal
provision
contains
the
fundamental principles of res judicata, finality of

judgment
and
estoppel
by
judgment
which
are
interchangeable in meaning. They embody the same

rule that once a judgment has become final and
executory, the issues therein should be laid at rest.
The doctrine of res judicata has two aspects. The first is
the effect of a judgment as a bar to the prosecution of a
second action upon the same claim, demand or cause of
action.
The
second
aspect
is
that
it
precludes
relitigation of a particular fact or issues in another

action between the same parties on a different claim or
Page 4 of 76
cause of action (Lopez v. Reyes, G.R. No. L-29498,
against the challenged judgment which is void upon its
March 31, 1977, 76 SCRA 179). Thus, a party by
face or that the nullity of the judgment is apparent from
varying
case
its own recitals (People v. Pareja, G.R. No. 59979,
presentation cannot escape the effect of the principle of
the
form
of
action
or
method
of
August 30, 1990, 189 SCRA 143). Respondent Manaog's
res judicata nor can a party avoid an estoppel of a
action for damages which was founded on the alleged
former judgment by bringing forward in a second action
wrong judgment of the trial court in Civil Case No.
new or additional grounds in support of his case or
242126 does not fall within any of the ways enumerated
defense or new arguments to sustain it, the facts
above. Although the action was titled as one for
remaining the same at least where such additional
damages, respondent Manaog, was in effect, alleging
matter could have been pleaded and adjudicated in the
the nullity of the judgment against him as being
prior action.
without factual basis, which is the reason why he
It is worthy to note that the complaint filed by petitioner

Filinvest against respondent Manaog in Civil Case No.
242126 was for recovery of sum of money representing
unpaid monthly installments for two airconditioning
sought damages before the trial court. This is a

collateral attack upon a final judgment which cannot be
done if the said judgment is valid and regular upon its
face, as in the case at bar. LLphil
units bought by respondent Manaog. The latter filed an
In view of the foregoing, We find that the respondent
answer, as shown by the facts of the case, alleging that
appellate court committed reversible error in affirming
the airconditioning units are defective. Respondent
the ruling of the trial court which disregarded the final
Manaog did not however raise as defense the non-
judgment in Civil Case No. 242126 as a bar to a
delivery of the said units. In fact, respondent Manaog
relitigation in a subsequent action of the facts and
did not present any evidence for his defense to prove
issues raised therein. Reasons of public policy, judicial
non-delivery. When the trial court rendered judgment in
orderliness, economy and judicial time and interest of
favor of petitioner Filinvest, respondent Manaog allowed
litigants as well as the peace and order of society all
the judgment to become final and executory and the
require that stability be accorded the solemn and final
execution thereof be fully enforced before disclosing
judgments of the courts or tribunals of competent
certain facts which should have been raised and proven
jurisdiction (Lee Bun Ting, et al. v. Aligaen, et al., G.R.
during the hearing of the case. Hence, he is now
No. L-30523, April 22, 1977, 76 SCRA 416).
precluded from claiming in a subsequent action for

damages that the judgment against him was erroneous
because he did not receive the airconditioning units
from petitioner.
If respondent Manaog was not satisfied with the
judgment of the trial court, he should have appealed
the
case
to
the
Court
of
Appeals
within
the
reglementary period of fifteen days after receipt of the

decision before the judgment of the trial court becomes
final and executory. However, if the judgment had
ACCORDINGLY, the petition is GRANTED and the

assailed decision of the Court of Appeals dated January
16, 1984 is REVERSED and SET ASIDE.
SO ORDERED.
SECOND DIVISION
[G.R. No. 55613. December 10, 1990.]
ERNESTO
DICHOSO,
petitioner,
vs.
The
become final and executory, there are only three ways
HONORABLE COURT OF APPEALS and TEODOLFO
under the law by which said judgment may be
RAMOS, respondents.
questioned: 1) by petition for relief 2) by direct action to

annul and enjoin the enforcement of the judgment
where the alleged defect is not apparent on its face or
from the recitals contained in the judgment, and 3) by
direct action, as certiorari, or by a collateral attack
Pardalis Law Office for petitioner.

Felipe, Sibulo & Associates and Marciano H. Canuto
for private respondent.
Page 5 of 76
In 1955, Vivencia Prila sold her 4/6 portion with an
DECISION
area of 11.2477 hectares to the petitioner Ernesto
PARAS, J p:
Dichoso who had been, ever since, in actual physical
This is a petition for certiorari of the July 8, 1980

decision
** of the Court of Appeals which affirmed the
November 3, 1975 decision
*** of the then Court of
First Instance of Camarines Sur, the dispositive portion

of which reads, as follows:
the plaintiff owner of the land described in paragraph 2

of the complaint; and ordering the defendants, Ernesto
and
Marcelino
thereon.
On the other hand, in a Deed of Sale dated June 17,
1948, Asuncion Pacamara sold to the wife of private
respondent Teodolfo Ramos her 1/6 share, but the deed
"WHEREFORE, judgment is hereby rendered declaring
Dichoso
possession thereof, exercising various acts of ownership
Enciso,
to
restitute
the
possession of the land to the plaintiff and to deliver to

the plaintiff 40 cavans of palay for every year from 1964
until the land in question is returned to the latter or
their equivalent value of P15.00 per cavan of palay. With
costs against the said defendants.
SO ORDERED."
(CA Decision, Rollo, p. 14). llcd
The facts of the case are as follows:
The spouses Gaspar Prila and Maria Beldad, owned a
16.8716 hectare parcel of land at Cagmanaba, Ocampo,
Camarines Sur, surveyed in the name of Gaspar Prila
under Plan Psu-61453 (Exhibit "2"). Upon the death of
Maria Beldad in 1925, the eastern half thereof was
mentions the area of the lot sold as 4.1250 hectares;

obviously in excess of Pacamara's 1/6 share in the
property of 2.8119 hectares. Hence, aforesaid 4.1250
hectares which Ramos claims to have possessed, is now
the land in question.
As described in Ramos' Deed of Sale dated June 17,
1948, the land bought by his wife is as follows:
"Cogon land situated in the barrio of Cagmanaba,
Municipality of Pili, Province of Camarines Sur, with an
area of approximately 4 hectares, 12 ares, and 50
centares, and is bounded on the North by a dam,
limited by the same dam, measuring 120 meters; on the
East, Cagmanaba River, limited by the same river,
measuring 200 meters; on the South, heirs of Gaspar
Prila and Mariano Rodriguez, limited by an irrigation
ditch, measuring 200 meters; on the West, heirs of
Gaspar Prila and limited by a big stone, measuring 350
meters." (Exhibit "A", Original Records)
given to Vivencia Prila, their only daughter, and when
The said Deed of Absolute Sale was notarized and
Gaspar Prila died in 1943, the 1/2 portion pertaining to
registered with the Register of Deeds of Camarines Sur
him was divided into three: one third to Vivencia Prila,
on August 2, 1948. Realty taxes for the years 1956-
one third to Asuncion Pacamara and the other one-
1960 were paid on July 22, 1960 and for the years
third to Custodia Parcia, as reflected in the Extra-
1961-1962 on November 18, 1964 (CA Decision, Rollo,
judicial Settlement of Estate executed on November 22,
p. 15).
1945. Under the terms of said settlement, 4/6 of the

entire land or 11.2477 hectares was adjudicated to
Vivencia Prila, 1/6 or 2.8119 hectares to Asuncion
Pacamara and another 1/6 or 2.8119 hectares to
Custodio Parcia. This stipulation was reiterated by both
Vivencia Prila and Asuncion Pacamara in an agreement
dated March 29, 1947 duly registered with the Register
of Deeds on June 22, 1947 and was furthermore
confirmed judicially by the Court of First Instance of
Camarines Sur, in Civil Cases Nos. 3370 and 4468.
Herein respondent Teodolfo Ramos took possession of

the contested riceland upon its purchase. It yielded an
average harvest of 20 sacks of palay per planting which
was twice a year. One-third of the harvest went to
Ramos and the remaining two-thirds was the tenant's
share (Rollo, pp. 15-16).
On the other hand, petitioner Ernesto Dichoso claims
that the disputed land is inside his property of 11.2477
hectares which he acquired from Vivencia Prila for
P2,000.00 and evidenced by a Deed of Absolute Sale
Page 6 of 76
dated February 9, 1955, which was more particularly
On appeal, the Court of Appeals, on July 8, 1980,
described as follows:
affirmed the decision of the trial court (CA Decision,
"BEING
the
eastern
portion
of
Plan
PSU-61453
BOUNDED on the North by Joaquin Interino before,

now Mariano Rodriguez; on the East by Cagdaga Creek,
on the other side of which is Mariano Rodriguez, before
heirs of Mariano Fuentebella; on the South by heirs of
Mariano Fuentebella before, now Mariano Rodriguez; on
Rollo, p. 14).
Hence, this petition.
Petitioner assigned two (2) errors, namely:
I
the West by the rest of Plan PSU-61453, namely
THE HONORABLE COURT OF APPEALS ERRED IN
Asuncion
Ramos.
FINDING THAT PRIVATE RESPONDENT TEODOLFO
CONTAINING an area exactly ELEVEN (11) hectares,
RAMOS IS THE OWNER OF THE 4.1250 HECTARE
TWENTY-FOUR (24) ares, and SEVENTY-SEVEN (77)
LAND IN QUESTION.
Pacamara
before,
now
Rodolfo
centares. DECLARED under Tax Declaration No. 1648

in the name of Alejandro Casin and assessed at
P3,450.00. All boundaries are marked and delimited by
B.L. and P.L.S. concrete cylindrical monuments. The
foregoing property is not registered under Act No. 496
nor under the Spanish Mortgage Law; wherefore, the
parties herein have agreed to register this instrument
under the provisions of Act No. 3344, as amended."
(Exhibit "1", Original Records). prLL
Sometime in 1962, Teodolfo Ramos, in the company of a
II
REQUIRING THE PETITIONER TO DELIVER FORTY
(40) CAVANS ANNUALLY TO PRIVATE RESPONDENT
DESPITE ITS FINDING THAT ONLY ONE-THIRD (1/3)
OF
THE
PRODUCE
"WENT
TO"
THE
PLAINTIFF
(RAMOS), TWO-THIRDS (2/3) BEING FOR HIS TENANT.

The petition is impressed with merit.
constabulary soldier and two policemen from Ocampo,
It is undisputed that the land in question is part of the
allegedly seized the produce of the land consisting of 50
bigger mass of land measuring 16.8716 hectares
cavans of palay from the tenant of herein petitioner.
originally owned by the spouses Gaspar Prila and Maria
In retaliation, petitioner Dichoso also brought along

with
him
in
1963,
constabulary
soldier
and
appropriated 6 cavans of the produce (CA Decision,

Rollo, p. 17).
On December 12, 1967, respondent Ramos filed a
complaint for quieting of title over the 4.1250 hectare
riceland before the then Court of First Instance of
Camarines Sur which was docketed as Civil Case No. P20. A commissioner was appointed by the Court on
March 17, 1970 to determine the area and boundaries
of the respective claims of the parties in accordance
with their monuments of title. He submitted his report
on March 31, 1970 which was approved by the Court in
its Order dated April 13, 1970.
As aforestated, the trial court rendered its decision on
November 3, 1975 in favor of Ramos and against
Dichoso (Rollo, pp. 14-15).
Beldad, and that this mass of land was adjudicated

among the heirs in the proportion aforementioned. And
that Dichoso derived his title from Vivencia Prila while
Ramos acquired his title from Asuncion Pacamara.
Dichoso contends that his claim is limited to 11.2477
hectares portion sold to him by Vivencia Prila which is
exactly
four-sixth
originally
owned
(4/6)
by
of
their
the
16.8716
common
hectares
predecessor-in
interest. Ramos acquired his title from Asuncion

Pacamara, who inherited one-sixth (1/6) of the 16.8716
hectares mass of land. Inasmuch as the share of
Asuncion Pacamara is limited to one-sixth (1/6) of the
16.8716 hectares, or 2.8119 hectares, she cannot
legally transmit to Ramos an area in excess thereof.
Ramos, on the other hand, argues that while it is true
that Asuncion Pacamara's share is one-sixth (1/6)
pursuant to the Extra-Judicial Settlement Agreement,
but on a subsequent agreement (Exhibit "13"), Vivencia
Page 7 of 76
Prila ceded to Asuncion Pacamara one hectare more
scrutiny of Exhibit "11" shows that the area being
located on the northern portion of the land covered by
claimed by Ramos, which was enclosed by a red line,
Original Certificate of Title No. 1176. In effect, Asuncion
went beyond the irrigation ditch. This is contrary to the
Pacamara owns at least six (6) hectares of land.
technical description in the deed of sale in favor of
Furthermore, the Deed of Conveyance was registered on
Ramos' wife as to the boundary on the southern portion
August 2, 1948 and the property has been declared for
of the property (Original Exhibits, Exhibit "11").
tax purposes in the name of Ramos' wife. Above all

these, the question raised by Dichoso is purely a
question of fact. LexLib
While the jurisdiction of this Court in cases brought

from the Court of Appeals is limited to the review of
errors of law, said appellate court's finding of facts
The records show, however, that the one hectare ceded
being conclusive, there are exceptions, among which
by Vivencia Prila to Asuncion Pacamara on the
are: (1) when the conclusion is a finding grounded
northern portion of the land supposed to be covered by
entirely on speculation, surmises or conjectures; (2)
Original Certificate of Title No. 1176, is not the same
when
land covered by said Original Certificate of Title
mistaken, or impossible; (3) . . .; (4) when the judgment
(Original Exhibits, Exhibit "3", p. 1) Therefore, while it
is premised on a misapprehension of facts; (5) . . . (Rizal
may be true that Asuncion Pacamara may have been
Cement, Co., Inc. vs. Villareal, 135 SCRA 15, February
adjudicated a total of six (6) hectares of land, but what
28, 1985).
is covered by Original Certificate of Title No. 1176

pursuant to the Extra-Judicial Settlement Agreement
and the agreement subsequent thereto insofar as
Vivencia Prila's share is concerned, remains to be onesixth (1/6) or 2.8119 hectares (Original Exhibits,
Exhibit "3", p. 4).
the
inference
made
is
manifestly
absurd,
This Court has held that in cases of conflict between

areas and boundaries, it is the latter which should
prevail. What really defines a piece of ground is not the
area, calculated with more or less certainty, mentioned
in its description, but the boundaries therein laid down,
as enclosing the land and indicating its limits (Erico v.
The striking similarities in the boundaries between the
Chigas, 98 SCRA 575, July 16, 1980). In a contract of
parcel of land in dispute and the property of Ramos'
sale of land in a mass, it is well established that the
wife, particularly the boundaries on the North, which is
specific boundaries stated in the contract must control
the dam, and on the East, which is the Cagmanaba
over any statement with respect to the area contained
River, and the fact that the deed of sale in favor of
within its boundaries. It is not of vital consequence that
Ramos' wife was executed and registered ahead of that
a deed or contract of sale of land should disclose the
of Dichoso's deed of sale, led the trial court to conclude
area with mathematical accuracy. It is sufficient if its
that the property in dispute tallies with the land bought
extent is objectively indicated with sufficient precision
by Ramos' wife. It must be pointed out, however, that
to enable one to identify it. An error as to the superficial
the deed of sale in favor of Ramos' wife explicitly
area is immaterial. (Loyola v. Bartolome, 39 Phil. 544,
described the property as being bounded "on the South
January 24, 1919 reiterated in Erico v. Chigas, supra).
(by) heirs of Gaspar Prila and Mariano Rodriguez,

limited by an irrigation ditch, measuring 200 meters; on
the West (by) heirs of Gaspar Prila, limited by a big
stone, measuring 350 meters." The commissioner's
report (Exhibit "11") identified the land claimed by
Ramos and indicated in the sketch as the portion
surrounded by a red line inside Lot-3, the portion
pertaining to Dichoso. As indicated in the said sketch
the land of Dichoso is labelled as Lots-1 and 3 and the
portion labelled as Lot-2 is the land of Ramos. A further
With reference to the second error, petitioner alleged

that since respondent's share of the harvest is only onethird (1/3), the remaining two-thirds (2/3) representing
his tenant's share, only the one-third (1/3) of the
annual harvest must be awarded to Ramos.
Ramos, on the other hand, argues that his tenant will
be deprived of his share if only one-third (1/3) of the
harvest will be awarded to him.
Page 8 of 76
Actual or compensatory damages cannot be presumed,
1.
but must be duly proved, and proved with reasonable
EXECUTION
degree of certainty. A court cannot rely on speculation,
UNAVAILING WHERE DEFENDANT'S AVERMENT OF
conjecture or guesswork as to the fact and amount of
IGNORANCE IS TO THE KNOWLEDGE OF THE COURT
damages, but must depend upon competent proof that
PALPABLY UNTRUE. Utassco had alleged in its
they have suffered and on evidence of the actual
answer that it had no knowledge or information
amount thereof (Dee Hua Liong Electrical Corporation
sufficient to form a belief as to the truth of the
v. Reyes, 145 SCRA 713, November 25, 1986). prcd
allegations made by PNB in its complaint. Utassco, in
It is undisputed that the land in question yields an

average of twenty (20) sacks of palay per planting and
that it is planted to palay twice a year. Ramos' share of
the harvest is only one-third (1/3). In view of his
dispossession from 1964 and the fact that his tenant
has vacated the land that same year (TSN, Hearing of
February 10, 1971, pp. 2-3), he cannot allege that his
tenant is entitled to his two-thirds (2/3) share.
CIVIL PROCEDURE; ANSWER; DENIAL IN THE

OF
DOCUMENT
SUED
UPON;
other words, purported to deny those allegations and

hence now contends that it had generated an issue of
fact which the trial court should have first passed upon.
Utassco, however, cannot be deemed to have denied the
allegations of the amended complaint, considering that
the truth of those allegations relating to the execution
of the surety bond and the contents thereof was
peculiarly within the knowledge of Utassco being the
issuer of the bond and Endorsement No. B-60-3 itself.
PREMISES CONSIDERED, the decision appealed from

is hereby SET ASIDE and the area of the land awarded
to herein respondent Ramos is hereby LIMITED to
2.8119 hectares in accordance with the boundaries
indicated in the deed of sale in favor of his wife, and the
award of actual damages is hereby REDUCED in
proportion to the area that may be awarded to Ramos
and to his one-third (1/3) participation in the harvests,
from 1964 up to the time the land appurtenant thereto
is returned to the respondent.
In Equitable Banking Corporation v. Liwanag, it has

been held that said mode of denial is unavailing 'where
the fact as to which want of knowledge is asserted is to
the knowledge of the court so plainly and necessarily
within the defendant's knowledge that his averment of
ignorance must be palpably untrue.'
2.
ID.; ID.; ANSWER FAILED TO RAISE GENUINE
ISSUES OF FACT; JUDGMENT ON THE PLEADINGS,

PROPER. At the same time that Utassco pretended to
have
denied
the
allegations
of
PNB's
amended
SO ORDERED.
complaint, it admitted in the affirmative defense section
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ.,
Bond and Endorsement No. B-60-3 in favor of PNB;
concur.
Utassco must be deemed thereby to have admitted the
of its answer that it had indeed executed the Surety
due execution of the Bond and the Endorsement. Its
THIRD DIVISION
affirmative defense in fact consisted of pleading the very

provisions of the Surety Bond upon which PNB based
[G.R. No. L-39215. September 1, 1989.]
its cause of action. Thus, the issues raised by the
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.

UTILITY
ASSURANCE
&
SURETY
CO.,
INC.,
amended complaint and the answer were not genuine

issues of fact on which evidence would have had to be
defendant-appellant.
submitted. Those pleadings raised, rather, questions
The Chief and Asst. Chief Legal Counsel for plaintiff-
the Surety Bond and Endorsement No. B-60-3, Under
appellee.
these circumstances, the trial court correctly rendered
Ceferino M. Carpio, Jr. for defendant-appellant.

SYLLABUS
concerning the proper interpretation of the provisions of
judgment on the pleadings.

3.
ID.; ID.; ID.; JUDGMENT ON THE PLEADINGS;
ISSUANCE NOT PREMATURE. Utassco claims that
Page 9 of 76
the trial court should have withheld judgment on the
they should have done. "In other words the surety is
pleadings until after the third party action brought by
made to pay interest, not by reason of the contract, but
Utassco against the owner of Lanuza Lumber on the
by reason of its failure to pay when demanded and for
indemnity agreement executed between them, had gone
having compelled the plaintiff to resort to the courts to
forward to judgment. The third party complaint could,
obtain payment.
of course, have been prosecuted quite separately from

the principal action between PNB and Utassco. Indeed,
there was no reason at all why the trial court should
have deferred rendering judgment on the pleadings in
the principal action, considering that the PNB was not
interested at all in the outcome of the third party
complaint. Under Section 12, Rule 6 of the Revised
Rules of Court, the purpose of a third party complaint
is to enable a defending party to obtain contribution,
indemnity, subrogation or other relief from a person not
a party to the action. Thus, notwithstanding the
judgment on the pleadings, Utassco could still proceed
with the prosecution of its third party complaint.
4.
OBLIGATIONS AND CONTRACTS; CONTRACT
6.
ATTORNEY'S FEES; AWARD ALLOWED UNDER
THE CIVIL CODE. The New Civil Code permits

recovery of attorney's fees in eleven cases enumerated
in Article 2208, among them 'where the court deem it
just and equitable that attorney's fees and expenses of
litigation should be recovered' or 'when the defendant
acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable
claim.' This gives the courts discretion in apportioning
attorney's fees.
RESOLUTION
FELICIANO, J p:
INTERPRETATION; PRINCIPLE OF EFFECTIVENESS.
The Kangyo Bank Ltd., Tokyo, Japan, issued Letter of
The principle of effectiveness is basic in contract
Credit No. 14-10272 in the amount of US$28,150.00 in
interpretation: where two (2) interpretations of the same
favor of the Pedro Bartolome Enterprises of Manila to
contract language are possible, one interpretation
cover an export shipment of logs to Japan. The
having the effect of rendering the contract meaningless
beneficiary of the Letter of Credit assigned its rights to
(and one of the parties merely dishonest for receiving
Lanuza Lumber. On 29 March 1960, Procopio Caderao,
consideration thereunder without parting with any),
doing business under the trade name "Lanuza Lumber,"
while the other interpretation would give effect to the
obtained a loan of P25,000.00 from plaintiff-appellee
contract as a whole, the latter interpretation must be
Philippine National Bank (PNB) as evidenced by a
adopted.
promissory note on the security, among other things, of
5.
CREDIT TRANSACTION; SURETY'S LIABILITY
TO INTEREST NOT IN VIOLATION OF CONTRACT OF

SURETYSHIP. The objections that the trial court
should not have granted interest and attorneys' fees in
favor of PNB, considering the clause in the indorsement
limiting the liability of UTASSCO to P25,000.00. "The
objection has to be overruled, because as far back as
the year 1922 this Court held in Tagawa vs. Aldanese,
43 Phil. 852, that creditors suing on a suretyship bond
may recover from the surety as part of their damages,
interest at the legal rate even if the surety would
thereby become liable to pay more than the total
amount stipulated in the bond. 'The theory is that
interest is allowed only by way of damages for delay
upon the part of the sureties in making payment after
the proceeds of the Letter of Credit. The PNB in addition

required Lanuza Lumber to submit a surety bond.
Defendant-Appellant Utility Assurance & Surety Co.,
Inc. ("Utassco"), accordingly, executed Surety Bond No.
B-123 in favor of PNB. It is useful to quote the terms of
the Surety Bond in their entirety:
"SURETY BOND
Know All Men By These Presents:
That we, LANUZA LUMBER of Surigao, Surigao (532
Rosario St., Manila) as Principal, and the UTILITY
ASSURANCE & SURETY CO., INC., a corporation duly
organized and existing under and by virtue of the laws
of the Philippines, with Head Office in the City of
Manila, as Surety, are held and firmly bound unto
Page 10 of 76
PHILIPPINE NATIONAL BANK in the penal sum of
expiration, unless Surety is notified of any existing
TWENTY
obligations thereunder.
FIVE
THOUSAND
ONLY
PESOS
(P25,000.00) Philippine Currency, for the payment of

which, well and truly to be made, we bind ourselves,
our heirs, executors, administrators and successors
and assigns, jointly and severally, firmly by these
presents:
The conditions of this obligation are as follows:
Whereas, the Kangyo Bank, Ltd., Tokyo, Japan has
granted a letter of credit No. 14-10272 in the amount of
$28,150.00 in favor of Pedro Bartolome Enterprises of
302 Salvacion Apt., 2504 Pennsylvania, Manila, to cover
shipment of 500,000 board feet of logs to Shin
Asshigawa Co., Ltd., Tokyo, Japan;
Whereas, on January 21, 1960 the beneficiary, Pedro
Bartolome Enterprises assigned the aforementioned
letter of credit to Lanuza Lumber of Surigao per
attached Deed of Assignment;
Whereas, the correspondent Bank, Philippine National
Bank requires the Lanuza Lumber to post a surety bond
in the sum of Twenty Five Thousand (P25,000.00)
Pesos, Philippine Currency, to guarantee full and
faithful compliance by the beneficiary of the terms and
In Witness Whereof, we have set our hands and signed

our names at Manila on March 17, 1960.
Utility Assurance & Surety Co., Inc.
S/Dalmacio Urtula, Jr.
DALMACIO URTULA, JR.
AUTHORIZED SIGNATURE
LANUZA LUMBER
S/ Procopio O. Caderao
General Manager
SIGNED IN THE PRESENCE OF:
(Sgd) ILLEGIBLE
(Sgd) ILLEGIBLE." (Emphasis supplied)
The surety bond was accompanied by an Endorsement
No. B-60-3 which provided as follows:
"In lieu of the last paragraph of this bond, it is hereby
conditions of the said letter of credit.
declared and agreed that the following condition be
It is a special provision of this undertaking to guarantee
thereof:
the full payment of a loan not to exceed TWENTY FIVE

THOUSAND PESOS (P25,000.00) that may be granted
incorporated in said bond and made an integral part
That, if the above bounden principal and surety shall,
by the Philippine National Bank to Lanuza Lumber.
in all respects, duly and fully observe and perform all
Whereas, said contract requires said Principal to give a
aforementioned Letter of Credit, then this obligation
good and sufficient bond in the above-stated sum to

secure the full and faithful performance on his part of
said contract;
Now Therefore, if the Principal shall well and truly
perform and fulfill all the undertakings, covenants,
terms, conditions and agreements stipulated in said
contract, then this obligation shall be null and void;
otherwise to remain in full force and effect.
The liability of the UTILITY ASSURANCE & SURETY
CO., INC., on this bond will expire on March 17, 1961
and said bond will be cancelled TEN DAYS after its
and
singular
terms
and
conditions
of
the
shall be and become null and of no further force nor

effect; in the contrary case, the same shall continue in
full effect and be enforceable, as a joint and several
obligation of the parties hereto in the manner provided
by law so long as the account remains unpaid and
outstanding in the books of the Bank either thru noncollection, extension, renewals or plans of payment with
or without consent of the surety.
It is a special condition of this bond that the liability of
the surety thereon shall, at all times, be enforceable
simultaneously with that of the principal without the
necessity of having the assets of the principal resorted
Page 11 of 76
to, or exhausted by, the creditor; Provided, however, that
Its Motion for Reconsideration of the trial court's
the liability of the surety shall be limited to the sum of
judgment on the pleadings having been denied, Utassco
TWENTY-FIVE
appealed that judgment to the Court of Appeals.
THOUSAND
PESOS
(P25,000),
Philippine Currency. Nothing herein contained shall be

held to vary, alter, waive or change any of the terms,
limits or conditions of the bond, except as herein-above
set forth." (Emphasis supplied)
The promissory note executed by Lanuza Lumber
became due and payable. Neither Lanuza Lumber nor
Utassco paid the loan despite repeated demands by
PNB for payment. Accordingly, PNB filed in the then
Court of First Instance of Manila an action to recover
The Court of Appeals, by a Resolution dated 31 July

1974, certified the appeal to us as involving only
questions of law.
Both before the Court of Appeals and this Court,
Utassco claims that the trial court fell into error:
(1)
in
granting
the
plaintiff-appellee's
motion for judgment on the pleadings;
the amount of the promissory note with interest as
(2)
provided thereon plus attorney's fees. 1
on the pleadings, in doing so prematurely; and
In its Answer to PNB's complaint, Utassco stated that it
(3)
had "no knowledge or information sufficient to form a
of plaintiff-appellee PNB.
belief as to the truth of the allegations contained in

[paragraphs 2, 3, 4 and 5] of the amended complaint
and perforce [denied] the same." 2 At the same time,
however, in setting out its affirmative defense, Utassco
admitted that it had executed the surety bond and
simultaneously
Endorsement
pointed
No.
to
B-60-3.
the
In
provisions
particular,
of
Utassco
contended that its obligation under the Surety Bond

was to secure the performance of all the terms and
conditions of the US$28,150.00 Letter of Credit issued
by Kangyo Bank Ltd. and had not guaranteed the
performance of Lanuza Lumber's obligation under its
P25,000.00 loan from PNB.
(PNB's)
assuming the trial court could render judgment
in awarding interest and attorney's fees in favor
We turn to the first alleged error. As noted earlier,

Utassco had alleged in its answer that it had no
knowledge or information sufficient to form a belief as
to the truth of the allegations made by PNB in its
complaint. Utassco, in other words, purported to deny
those allegations and hence now contends that it had
generated an issue of fact which the trial court should
have first passed upon. Utassco, however, cannot be
deemed to have denied the allegations of the amended
complaint,
considering
that
the
truth
of
those
allegations relating to the execution of the surety bond

and the contents thereof was peculiarly within the
knowledge of Utassco being the issuer of the bond and
On 14 January 1971, upon motion of PNB, the trial
Endorsement No. B-60-3 itself. In Equitable Banking
court
Corporation v. Liwanag, 3 the Supreme Court rejected
rendered
judgment
on
the
pleadings.
The
out of hand the same argument which Utassco now
dispositive part of the judgment reads as follows:

"WHEREFORE,
in
the
light
of
the
foregoing
seeks to make:
considerations, judgment is hereby rendered ordering
"This pretense is manifestly devoid of merit. Although
the
of
the Rules of Court permit a litigant to file an answer
P25,000.00 plus 6% interest per annum counted from
alleging lack of knowledge to form a belief as to the
May 19, 1962, the date of the filing of the original
truth of certain allegations in the complaint, this form
complaint
fees
of denial 'must be availed of with sincerity and in good
equivalent to 10% of the principal obligation and the
faith, certainly neither for the purpose of delay.'
costs of the suit."
Indeed, it has been held that said mode of denial is
defendant
until
to
pay
fully
the
paid,
plaintiff
plus
the
sum
attorney's
unavailing 'where the fact as to which want of

knowledge is asserted is to the knowledge of the court
so plainly and necessarily within the defendant's
Page 12 of 76
knowledge that his averment of ignorance must be
consisted of pleading the very provisions of the Surety
palpably
almost
Bond upon which PNB based its cause of action. Thus,
identical to those obtaining in the case at bar, this
the issues raised by the amended complaint and the
Court, speaking through Mr. Justice Villamor, upheld a
answer were not genuine issues of fact on which
judgment on the pleadings in Capitol Motors vs.
evidence would have had to be submitted. Those
Nemesio L. Yabut (G.R. No. L-28140, March 19, 1970)
pleadings raised, rather, questions concerning the
from which we quote:
proper interpretation of the provisions of the Surety
untrue.'
Thus,
under
conditions
"'We agree with the defendant-appellant that one of the

modes of specific denial contemplated in Section 10,
Rule 8, is a denial by stating that the defendant is
without knowledge or information sufficient to form a
belief as to the truth of a material averment in the
complaint. The question, however, is whether paragraph
2 of defendant-appellant's answer constitutes a specific
denial under the said rule. We do not think so. In
Warner Barnes & Co. Ltd. vs. Reyes, et al. G.R. No. L9531, May 14, 1958 (103 Phil. 662), this Court said
that the rule authorizing an answer to the effect that
the
defendant
has
no
knowledge
or
Bond
and
Endorsement
No.
B-60-3,
i.e.,
the
determination of whether the surety bond and the

endorsement
had,
as
contended
by
the
PNB,
guaranteed the payment by Lanuza Lumber of its

P25,000.00 loan from PNB; or whether, as maintained
by Utassco, the surety bond and its endorsement
served merely to secure the performance of the terms
and conditions of the Letter of Credit No. 14-10272. We
hold, therefore, that under these circumstances, the
trial
court
correctly
rendered
judgment
on
the
pleadings.
information
We turn to the second error imputed by Utassco to the
sufficient to form a belief as to the truth of an averment
trial court: that the judgment on the pleadings, while it
and giving such answer the effect of a denial, does not
may have been within the jurisdiction of the trial court,
apply where the fact as to which want of knowledge is
was prematurely issued. This argument appears to us
asserted, is so plainly and necessarily within the
even more tenuous than the first assigned error.
defendant's knowledge that his averment of ignorance
Utassco claims that the trial court should have
must be palpably untrue.
withheld judgment on the pleadings until after the third
In said case the suit was one for foreclosure of

mortgage, and a copy of the deed of mortgage was
attached to the complaint: thus, according to this
Court, it would have been easy for the defendants to
specifically allege in their answer whether or not they
had executed the alleged mortgage. The same thing can
be said in the present case, where a copy of the
promissory note sued upon was attached to the
complaint. The doctrine in Warner Barnes & Co. Ltd.
was reiterated in J.P. Juan & Sons, Inc. v. Lianga
Industries, Inc., G.R. No. L-25137, July 28, 1969 (28
SCRA 807) . . . .'" (Emphasis supplied)
At the same time that Utassco pretended to have denied
the allegations of PNB's amended complaint, it admitted
in the affirmative defense section of its answer that it
had indeed executed the Surety Bond and Endorsement
No. B-60-3 in favor of PNB; Utassco must be deemed
thereby to have admitted the due execution of the Bond
and the Endorsement. Its affirmative defense in fact
party action brought by Utassco against the owner of

Lanuza Lumber on the indemnity agreement executed
between them, had gone forward to judgment. The third
party complaint could, of course, have been prosecuted
quite separately from the principal action between PNB
and Utassco. Indeed, there was no reason at all why the
trial court should have deferred rendering judgment on
the pleadings in the principal action, considering that
the PNB was not interested at all in the outcome of the
third party complaint. Under Section 12, Rule 6 of the
Revised Rules of Court, the purpose of a third party
complaint is to enable a defending party to obtain
contribution, indemnity, subrogation or other relief from
a
person
not
notwithstanding
a
the
party
to
judgment
the
action.
on
the
Thus,
pleadings,
Utassco could still proceed with the prosecution of its

third party complaint.
Before passing on to the third error assigned by
Utassco, it is important to note that Utassco did not
Page 13 of 76
really dispute the correctness of the conclusion reached
paragraph limited the life of the bond to one year from
by the trial court in respect of the substantive issue
issuance. The endorsement had the important effect of
raised before it: whether the bond issued by Utassco
giving the bond continuing life so long as "the account"
secured the obligations of Lanuza Lumber to repay the
remained unpaid and outstanding on the books of PNB.
P25,000.00 loan obtained from PNB, or whether the
The term "account" here could only refer to the account
bond had secured the Letter of Credit. The trial court
of the principal debtor, Lanuza Lumber, with PNB. The
held that the surety bond was intended to secure the
endorsement also made it clear that the liability of
repayment of Lanuza Lumber's loan from PNB. We
Lanuza Lumber and Utassco was joint and several in
believe and so hold that the trial court was correct in so
nature, and that Utassco had waived any benefit of
holding. In the first place, the surety bond explicitly
excussion that it might otherwise have had. Finally, on
stated that the P25,000.00 loan was being secured by
a very practical level, it is difficult to understand how
the bond: cdrep
Utassco could have reasonably supposed that its bond
"It is a special provision of this undertaking to

guarantee the full payment of a loan not to exceed
TWENTY FIVE THOUSAND PESOS (P25,000,00) that
may be granted by the Philippine National Bank to
Lanuza Lumber."
In
the
second
place,
while
the
bond
and
the
endorsement had referred to the Letter of Credit,

Lanuza Lumber had no obligations under the Letter of
Credit.
As
noted
earlier,
Lanuza
Lumber
was
beneficiary-assignee of the Letter of Credit. Thus,

Utassco's view would reduce the terms and conditions
of the Surety Bond to nonsense. Such view would also
mean that Utassco, in its own reading of the bond, was
never at risk since there were no obligations to secure
in the amount of RPP25,000.00 was intended only (or

even
principally)
to
secure
performance
of
the
obligations of the issuer Kangyo Bank under the

Letter
of
Credit
which
had
face
value
of
US$28,150.00, many times the face value of the bond.

We come to the final error assigned by Utassco: that the
trial court should not have granted interest and
attorney's fees in favor of PNB, considering the clause in
the endorsement limiting the liability of Utassco to
P25,000.00. The issue here presented is not a new one.
It was extensively discussed and Utassco's submission
decisively rejected by this Court in Plaridel Surety and
Insurance Co., Inc. v. P.L. Galang Machinery Co., Inc. 5
There, the Court held: prcd
and that Utassco was in fact collecting premiums for
"Petitioner objects to the payment of interest and
issuing the bond under which it had no liabilities. The
attorney's fees because: (1) they were not mentioned in
principle
contract
the bond; and (2) the surety would become liable for
interpretation: where two (2) interpretations of the same
more than the amount stated in the contract of
contract language are possible, one interpretation
suretyship.
of
effectiveness
is
basic
in
having the effect of rendering the contract meaningless

(and one of the parties merely dishonest for receiving
consideration thereunder without parting with any),
while the other interpretation would give effect to the
contract as a whole, the latter interpretation must be
adopted. 4
In the instant case, the reference to the Letter of Credit
in the surety bond and the endorsement was either
merely inadvertent surplusage or, alternatively, merely
indication of ineptness on the part of the draftsman of
the bond and the endorsement. It is not disputed by
Utassco that the endorsement was intended to replace
the final paragraph of the original bond, which
"In support of its objection petitioner dwells on the

proposition that a surety's liability can not be extended
beyond the terms of his undertaking, citing articles
1956 and 2208 of the New Civil Code which provide as
follows:
'ART. 1956.
No interest shall be due unless it has
been expressly stipulated in writing.'

'ART. 2208.
In the absence of stipulation, attorney's
fees and expenses of litigation, other than judicial costs,

cannot be recovered, except: . . .'
Page 14 of 76
"The objection has to be overruled, because as far back
"Now, considering, in this case, that the principal
as the year 1922 this Court held in Tagawa vs.
debtor had openly and expressly admitted his liability
Aldanese, 43 Phil. 852, that creditors suing on a
under the bond, and the surety knew it (p. 123 R.A.),
suretyship bond may recover from the surety as part of
we can not say there was abuse of lower court's
their damages, interest at the legal rate even if the
discretion in the way of awarding fees, specially when
surety would thereby become liable to pay more than
the indemnity agreement . . . afforded the surety
the total amount stipulated in the bond. 'The theory is
adequate protection. (100 Phil. 681-682." (Emphasis
that interest is allowed only by way of damages for delay
supplied)
upon the part of the sureties in making payment after

they should have done. In some states, the interest has
been charged from the date of the judgment of the
appellate court. In this jurisdiction, we rather prefer to
follow the general practice which is to order that
interest begin to run from the date when the complaint
was filed in court, . . .'
Such theory aligned with Sec. 510 of the Code of Civil
Procedure which was subsequently recognized in the
Rules of Court (Rule 53, Section 6) and with Article
1108 of the Civil Code (now Art. 2209 of the New Civil
WHEREFORE, the Court Resolved to DISMISS the

appeal by defendant-appellant Utility Assurance &
Surety Co., Inc. for lack of merit, and to AFFIRM the
judgment of the trial court dated 14 January 1971. No
pronouncement
as
to
costs.
is
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ.,

concur.
FIRST DIVISION
"In other words the surety is made to pay interest, not
[G.R. No. 82808. July 11, 1991.]
pay when demanded and for having compelled the
Resolution
SO ORDERED.
Code).
by reason of the contract, but by reason of its failure to
This
immediately executory.
DENNIS L. LAO, petitioner, vs. HON. COURT OF
plaintiff to resort to the courts to obtain payment. It
APPEALS, JUDGE FLORENTINO FLOR, Regional
should be observed that interest does not run from the
Trial Court, Branch 89 of Morong, Rizal BENJAMIN
time the obligation became due, but from the filing of
L. ESPIRITU, MANUEL QUERUBIN and CHAN TONG,
the complaint.
respondents.
"As to attorneys fees. Before the enactment of the New
F. Sumulong & Associates Law Offices for petitioner.
Civil Code, successful litigants could not recover

attorney's fees as part of the damages they suffered by
reason of the litigation. Even if the party paid
thousands of pesos to his lawyers, he could not charge
Manuel LL. Querubin for and in his own behalf.

Enrique M. Basa for private respondent.
the amount to his opponent.
SYLLABUS
"However, the New Civil Code permits recovery of
1.
attorney's fees in eleven cases enumerated in Article

2208, among them 'where the court deem it just and
equitable that attorney's fees and expenses of litigation
should be recovered' or 'when the defendant acted in
gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim.'
This
gives
the
attorney's fees.
courts
discretion
in
apportioning
CIVIL LAW; SPECIAL CONTRACTS; AGENCY;
AGENT NOT PERSONALLY LIABLE TO THE PARTY

WITH WHOM HE CONTRACTED. Lao has a valid
defense to the action for malicious prosecution (Civil
Case No. 84-M) because it was his employer, St. Joseph
Lumber, not himself, that was the complainant in the
estafa case against Espiritu. It was
Chan Tong, the
owner of the St. Joseph Lumber, who, upon advice of

his counsel, filed the criminal complaint against
Espiritu. Lao was only a witness in the case. He had no
Page 15 of 76
personal interest in the prosecution of Espiritu for he
due to the gross ignorance, negligence, and dereliction
was not the party defrauded by Espiritu. He executed
of duty of Attorney Manuel Querubin whom his
the affidavit which was used as basis of the criminal
employer had hired to act as counsel for him and the St.
charge against Espiritu because he was the salesman
Joseph Lumber. However, Attorney Querubin neglected
who sold the construction materials to Espiritu. He was
to defend Lao. He concentrated on the defense of the
only an agent of St. Joseph Lumber, hence, not
company and completely forgot his duty to defend Lao
personally liable to the party with whom he contracted
as well. He never informed Lao about the pre-trial
(Art. 1897, Civil Code; Philippine Products Co. vs.
conferences. In fact, he (Attorney Querubin) neglected
Primateria Societe Anonyme, 122 Phil. 698).
to attend other pre-trial conferences set by the court.
2.
ID.;
ACTION FOR DAMAGES BASED ON
MALICIOUS
PROSECUTION;
ELEMENTS.
"To
maintain an action for damages based on malicious

prosecution, three elements must be present: First, the
fact of the prosecution and the further fact that the
defendant
was himself the prosecutor, and that the
action was finally terminated with an acquittal; second,

that in bringing the action, the prosecution acted
without probable cause; and third, the prosecutor was
actuated or impelled by legal malice" (Ferrer vs. Vergara,
52 O.G. 291).
3.
ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR.
Lao was only a witness, not the prosecutor in the estafa

case. The prosecutor was his employer, Chan Tong or
the St. Joseph Lumber. There was probable cause for
the charge of estafa against Espiritu, as found and
certified by the investigating fiscal himself. Lao was not
motivated by malice in making the affidavit upon which
the fiscal based the filing of the information against
Espiritu. He executed it as an employee, a salesman of
the St. Joseph Lumber from whom Espiritu made his
purchases of construction materials and who, therefore,
had personal knowledge of the transaction. Although
the prosecution of Espiritu for estafa did not prosper,
the unsuccessful prosecution may not be labelled as
malicious. "Sound principles of justice and public policy
dictate that persons shall have free resort to the courts
for redress of wrongs and vindication of their rights
without later having to stand trial for instituting
prosecutions in good faith" (Buenaventura vs. Sto.
Domingo, 103 Phil. 239).
4.
CONSTITUTIONAL LAW; DUE PROCESS OF
LAW; DENIED IN CASE AT BAR; EFFECT. There is

merit in petitioner's contention that he was deprived of
his day in court in the damage suit filed by Espiritu,
When adverse judgment was entered by the court

against
Lao
and
the
lumber
company,
Attorney
Querubin did not file a motion for reconsideration of the

decision. He allowed it to become final, because anyway
Espiritu would not be able to satisfy his judgment
against Chan Tong who had informed his lawyer that
the St. Joseph Lumber was insolvent, had gone out of
business, and did not have any leviable assets. As a
result, Espiritu levied on the petitioner's car to satisfy
the judgment in his favor since the company itself had
no more assets that he could seize. In view of the
foregoing circumstances, the judgment against Lao was
a nullity and should be set aside. Its execution against
the petitioner cannot be allowed to proceed.
DECISION
GRIO-AQUINO, J p:
For being a witness in an unsuccessful estafa case
which his employer filed against a debtor who had
defaulted in paying his just obligation, the petitioner
was sued, together with his employer, for damages for
malicious prosecution. The issue in this case is whether
the damages awarded to the defaulting debtor may be
satisfied by execution against the employee's property
since his employer's business has already folded up.
Petitioner Dennis Lao was an employee of the New St.
Joseph Lumber & Hardware Supply, hereinafter called
St. Joseph Lumber, owned by the private respondent,
Chan Tong. In January 1981, St. Joseph Lumber filed a
collection
suit
against
customer,
the
private
respondent, Benjamin Espiritu, for unpaid purchases of

construction materials from St. Joseph Lumber.
In November 1981, upon the advice of its lawyer, St.
Joseph Lumber filed a criminal complaint for estafa
Page 16 of 76
against Espiritu, based on the same transaction. Since
to Espiritu the sums of P100,000 as moral damages,
the
P5,000 as attorney's fees, and costs.
petitioner
was
the
employee
who
transacted
business with Espiritu, he was directed by his employer,

the firm's owner, Chan Tong, to sign the affidavit or
complaint prepared by the firm's lawyer, Attorney
Manuel Querubin.
investigation of the charge, the investigating fiscal filed

an information for estafa in the Court of First Instance
of Quezon City against Espiritu. The case was however
dismissed
because
the
court
believed
that
Espiritu's liability was only civil, not criminal.
malicious prosecution against the petitioner and St.

Joseph Lumber, praying that the defendants be ordered
to pay him P500,000 as moral damages, P10,000 as
actual damages, and P100,000 as attorney's fees.
In his answer to the complaint, the petitioner alleged
that he acted only as agent or employee of St. Joseph
Lumber when he executed the affidavit which his
employer submitted to the investigating fiscal who
the
preliminary
investigation
on the ground of accident and insufficiency of evidence,

but it was denied by the trial court.
He appealed to the Court of Appeals (CA-G.R. CV No.
06796, "Benjamin L. Espiritu, plaintiff-appellee vs.
Dennis Lao and New St. Joseph Lumber and Hardware
Supply, defendants-appellant"). The appellate court
On April 12, 1984, Espiritu filed a complaint for
conducted
was denied by the trial court.

On February 25, 1985, Lao filed a motion for new trial
Finding probable cause after conducting a preliminary
later
Petitioner's motion for reconsideration of the decision
of
his
employer's estafa charge against Espiritu. prLL

The pre-trial of the case was set on October 30, 1984.
Since the defendants and their counsel failed to appear
in court, they were declared in default.
On November 11, 1984, the defendants filed a motion
for reconsideration of the order of default.
On November 13, 1984, the motion was granted, and
the order of default was set aside.
On January 16, 1985, the defendants, including herein
petitioner Lao, and their counsel, again failed to attend
the pre-trial despite due notice to the latter who,
however, failed to notify Lao. They were once more
declared in default. The private respondent was allowed
to present his evidence ex parte.
dismissed his appeal on May 21, 1987. He filed this

special civil action of certiorari and prohibition to
partially annul the appellate court's decision and to
enjoin the execution of said decision against him. The
petitioner avers that the Court of Appeals erred:
1.
in not holding that he (petitioner Lao) has a valid
defense to the action for malicious prosecution in Civil

Case No. 84-M;
2.
in not holding that he was deprived of a day in
court due to the gross ignorance, negligence and

dereliction of duty of the lawyer whom his employer
hired as his and the company's counsel, but who failed
to protect his interest and even acted in a manner
inimical to him; and
3.
in not partially annulling the decision of the trial
court dated January 22, 1985 insofar as he is

concerned.
The petition is meritorious.
Lao had a valid defense to the action for malicious
prosecution (Civil Case No. 84-M) because it was his
employer, St. Joseph Lumber, not himself, that was the
complainant in the estafa case against Espiritu. It was
Chan Tong, the owner of the St. Joseph Lumber, who,
upon advice of his counsel, filed the criminal complaint
against Espiritu. Lao was only a witness in the case. He
On January 22, 1985, a decision was rendered by the
had no personal interest in the prosecution of Espiritu
trial court in favor of Espiritu ordering the defendants
for he was not the party defrauded by Espiritu. He
Lao and St. Joseph Lumber to pay jointly and severally
executed the affidavit which was used as basis of the

criminal charge against Espiritu because he was the
Page 17 of 76
salesman who sold the construction materials to
of the company and completely forgot his duty to defend
Espiritu. He was only an agent of St. Joseph Lumber,
Lao as well. He never informed Lao about the pre-trial
hence, not personally liable to the party with whom he
conferences. In fact, he (Attorney Querubin) neglected
contracted (Art. 1897, Civil Code; Philippine Products
to attend other pre-trial conferences set by the court.
Co. vs. Primateria Societe Anonyme, 122 Phil. 698).

LexLib
When adverse judgment was entered by the court

against
Lao
and
the
lumber
company,
Attorney
"To maintain an action for damages based on malicious
Querubin did not file a motion for reconsideration of the
prosecution, three elements must be present: First, the
decision. He allowed it to become final, because anyway
fact of the prosecution and the further fact that the
Espiritu would not be able to satisfy his judgment
defendant was himself the prosecutor, and that the
against Chan Tong who had informed his lawyer that
action was finally terminated with an acquittal; second,
the St. Joseph Lumber was insolvent, had gone out of
that in bringing the action, the prosecutor acted
business, and did not have any leviable assets. As a
without probable cause; and third, the prosecutor was
result Espiritu levied on the petitioner's car to satisfy
actuated or impelled by legal malice" (Ferrer vs. Vergara,
the judgment in his favor since the company itself had
52 O.G. 291).
no more assets that he could seize. cdphil
Lao was only a witness, not the prosecutor in the estafa
In view of the foregoing circumstances, the judgment
case. The prosecutor was his employer, Chan Tong or
against Lao was a nullity and should be set aside. Its
the St. Joseph Lumber.
execution against the petitioner cannot be allowed to
There was probable cause for the charge of estafa

against
Espiritu,
as
found
and
certified
by
the
investigating fiscal himself.

Lao was not motivated by malice in making the affidavit
upon which the fiscal based the filing of the information
against Espiritu. He executed it as an employee, a
salesman of the St. Joseph Lumber from whom Espiritu
made his purchases of construction materials and who,
therefore, had personal knowledge of the transaction.
Although the prosecution of Espiritu for estafa did not
prosper, the unsuccessful prosecution may not be
labelled as malicious. "Sound principles of justice and
public policy dictate that persons shall have free resort
to the courts for redress of wrongs and vindication of
their rights without later having to stand trial for
instituting prosecutions in good faith" (Buenaventura
proceed.
WHEREFORE, judgment is hereby rendered partially
setting aside the decision of the Court of Appeals dated
May 21, 1987, insofar as it declared the petitioner,
Dennis Lao, solidarily liable with St. Joseph Lumber to
pay the damages awarded to the private respondent
Benjamin Espiritu. Said petitioner is hereby absolved
from any liability to the private respondent arising from
the unsuccessful prosecution of Criminal Case No. Q20086 for estafa against said private respondent. Costs
against the private respondent.
SO ORDERED.
Narvasa, Cruz and Medialdea, JJ ., concur.
Gancayco, J ., is on leave.
vs. Sto. Domingo, 103 Phil. 239).

There is merit in petitioner's contention that he was
deprived of his day in court in the damage suit filed by
Espiritu, due to the gross ignorance, negligence, and
dereliction of duty of Attorney Manuel Querubin whom
his employer had hired to act as counsel for him and
the St. Joseph Lumber. However, Attorney Querubin
neglected to defend Lao. He concentrated on the defense
FIRST DIVISION
[G.R. No. 101706. September 23, 1992.]
CONSOLIDATED PLYWOOD INDUSTRIES INC. AND
HENRY LEE, petitioners, vs. THE HONORABLE
COURT OF APPEALS, WILLIE KHO AND ALFRED
C.H. KHO, respondents.
Page 18 of 76
its hauler trucks from the jobsite and abandoning its
Villaraza & Cruz Law Offices for petitioner.

Leonido C. Delante and Peter Nugas for private
respondents.
in its stipulation to liquidate the cash advance obtained

from Equitable Bank, for the law would not permit said
CIVIL
LAW;
DAMAGES;
TEMPERATE
OR
MODERATE DAMAGES; MAY BE RECOVERED WHEN

SOME PECUNIARY LOSS HAS BEEN SUFFERED; NOT
WARRANTED IN CASE AT BAR. Article 2224 of the
Civil Code provides: "Temperate or moderate damages,
which
are
more
than
nominal
but
less
than
compensatory damages, may be recovered when the

Court finds that some pecuniary loss has been suffered
but is amount can not, from the nature of the case, be
proved with certainty." The grant thereof is proper
under the provision of Article 2205 of the Civil Code,
which provides that damages may be recovered. In this
case however, there was no showing nor proof that
petitioner was entitled to an award of this kind of
damages in addition to the actual damages it suffered
as a direct consequence of private respondents' act. The
nature of the contract between the parties is such that
damages which the innocent party may have incurred
can be substantiated by evidence.
2.
ID.;
violation of its obligation, under the contract, a neglect

to perform its obligation in bad faith more particularly,
SYLLABUS
1.
obligation of hauling the logs is indubitably a wanton
ID.;
MORAL
defendants to enrich themselves at the expense of the

plaintiffs."
DECISION
MEDIALDEA, J p:
of the Court of Appeals in CA-G.R. No. 02784 entitled,
"Consolidated Plywood Industries, Inc. and Henry Wee
v. Willie Kho and Alfred C.H. Kho," which modified the
decision of the Court of First Instance (now Regional
Trial Court) of Baganga, Davao Oriental, by deleting the
award for moral damages, attorneys fees and actual
damages in the sum of P350,000.00 for the unfulfilled
import of logs, which were granted by the trial court.
Consolidated Plywood Industries, Inc. (Corporation) and
Henry Wee filed an action for breach of contract and
damages against Willie Kho and Alfred C.H. Kho with
the Court of First Instance (now Regional Trial Court) of
DAMAGES;
MAY
BE
RECOVERED IF A PARTY NEGLECTED TO PERFORM

ITS OBLIGATION IN BAD FAITH; CASE AT BAR. It
should be stated here that the hauling agreement
Baganga, Davao Oriental. The facts as summarized by

the trial court are as follows: LLjur
"xxx
xxx
xxx
between the petitioners and the private respondent had
"Sometime in February, 1978, the plaintiff Corporation
no fixed date of termination. It was a verbal agreement
of which the plaintiff Henry Wee is the President, being
where the private respondents bound themselves until
in the business of logging and manufacturing timber
the loan with Equitable Bank in the personal account of
products at its logging concession at Baganga and
petitioners had been fully paid. There was substantial
Caraga,
compliance
their
defendants, father and son, who are operating a fleet of
obligations in the contract for about a year. The record
hauling trucks, entered into a verbal hauling agreement
showed that the remaining balance owing to the bank
with the following terms and conditions to wit: that
was only P30,000.00 which was not due until one (1)
defendants shall haul the logs of the plaintiffs from the
year and five (5) months after the breach by the private
concession area to the logpond at Baculin, Baganga,
respondents or on September 4, 1980. However, the
Davao Oriental, at a hauling fee of P1.25/cu.m./km. of
trial court found that private respondents acted with
all species of timber, payable on weekly liquidation
bad faith when it surreptitiously pulled out their hauler
basis of all timber hauled and scaled at the Baganga
trucks from petitioner's jobsite before the termination of
office of the plaintiffs.
the
by
contract.
the
The
private
trial
respondents
court
held:
"The
of
act
of
defendants in suddenly and surreptitiously withdrawing
Davao
Oriental,
on
one
hand,
and
the
Page 19 of 76
"It was likewise agreed between the parties as a pre-
"The Aquarius Trading, a Taiwan log importer of the
condition before defendants' sending of the truck
plaintiffs, have charged the plaintiffs of P56,000.00
haulers to the jobsite that the plaintiffs provide
reimbursements representing cancellation fee of a
financial assistance to the defendants in the amount of
chartered vessel, LC extension fee and other charges
P180,000.00, cash, to defray cost of needed repairs and
due to plaintiffs' unfulfilled commitment of 1,500 cu. m.
re-conditioning of the trucks and other expenses
of logs because of the failure of hauling by the
necessary for the hauling operations.
defendants on the due date to the logpond. The
It was understood that this financial assistance was in

the nature of cash advance obtained by the defendants
plaintiffs, as a result, failed to realize a profit of

P150,000.00.
from the Equitable Bank in the aggregate amount of
"During
P180,000.00 on the guaranty of plaintiff Henry Wee,
abandonment by the defendants in April, 1979 to May,
payable by the defendants, and that the hauling
1979
services shall continue unless and until this loan from
replacement haulers, the plaintiffs could have produced
the Equitable Bank remain unpaid.
5,000 cu. m. of logs, to fill other commitments, or a loss
"After the defendants obtained the aggregate amount of
the
when
interim
the
period
plaintiffs
between
have
the
no
sudden
immediate
of P350,000.00, was suffered by plaintiffs.
P180,000.00 from the Equitable Bank on the guaranty
"The defendants' violation of its undertaking also
of plaintiff Henry Wee by way of cash advance as
resulted in exposing the plaintiff Henry Wee to liability
financial assistance, the defendants proceeded to the
to the Equitable Bank for the loans he guaranteed in
jobsite
favor of the defendants in the total amount of
at
Baculin,
Baganga,
Davao
Oriental,
to
commence the hauling service for the plaintiffs. cdrep

"However, after hauling logs for about a year, or so,
specifically on April 12, 1979, the defendants, without
giving notice and information to the plaintiffs, suddenly
P180,000.00 which have become due, and demands for

payment resulted in unduly annoying and vexing said
plaintiff which entitles him to moral damages in the
amount of P200,000.00." (pp. 302-305, Rollo)
and surreptitiously at nighttime, withdrew all its truck
The evidence of the plaintiffs showed that they sent two
haulers from the jobsite and returned to its base in
(2) letters to the defendants demanding the return to
Tagum, Davao del Norte, all in violation of the terms of
the area of the six (6) hauler trucks to be used in
the hauling agreement, particularly, the repayment of
hauling the logs (pp. 103-104, Rollo) but the defendants
the cash advance to P180,000.00 obtained from the
did not heed the demand.
Equitable Bank, and that the hauling should continue

until the said amount is fully paid.
The defendants waived their right to present evidence.

Hence, on January 3, 1983, a decision was rendered on
"Evidence on record show that all hauling services had
the basis of plaintiffs' evidence, the dispositive portion
been paid by the plaintiffs. In fact, it appears that from
of which reads: prLL
cash vales in the course of the hauling operation; the

defendants have incurred an overdraft of P10,726.53
still unliquidated.
"Due to the sudden and surreptitious abandonment by
the defendants of its hauling obligation in bad faith
several logs have been left unhauled from the area
which spawned serious and varied consequences to the
great damage and prejudice of the plaintiffs.
"WHEREFORE, judgment is hereby rendered in favor of

the plaintiffs and against the defendants ordering the
defendants, jointly and severally to:
(1)
pay the plaintiffs the sum of P10,726.53, unpaid
overdraft cash vales;

(2)
pay
the
plaintiffs
the
sum
of
P56,000.00
reimbursement of charges of Aquarius Trading paid by

the plaintiffs;
Page 20 of 76
(3)
pay the plaintiffs the sum of P150,000.00
In this petition before Us, the petitioners Corporation
unrealized profit in the Aquarius Trading transaction
and Henry Wee question the deletion of the awards for
unfulfilled;
unfulfilled import of logs, moral damages and attorneys
(4)
pay the plaintiffs the sum of P350,000.00
fees.
unfulfilled import of logs after the sudden withdrawal of
We agree with the appellate court when it deleted the
defendants' trucks;
award of P350,000.00 granted by the trial court for
(5)
pay the plaintiffs P200,000.00 moral damages
caused by the anxiety and annoyance as a consequence

of
the
demands
of
the
Equitable
Bank
on
the
defendants' unpaid cash advance of P180,000.00;
actual damages allegedly incurred by petitioners for the

unfulfilled import of logs. It correctly held that there
was no evidence to support such claim. This claim
apparently refers to an alleged commitment to a certain
Ching Kee Trading of Taiwan scheduled in June 1979 as
(6)
pay the plaintiffs attorneys' fees of P20,000.00;
distinguished from the claim for actual damages
(7)
to pay the plaintiffs litigation expenses of
transaction. Henry Wee testified on the actual damages
incurred in connection with its Aquarius Trading
P40,000.00; and
they incurred, as follows:
(8)
"Q
pay the costs.
"SO ORDERED." (pp. 306-307, Rollo)
logs, where are these contracts of shipments go (sic)?
From the decision of the trial court, the defendants

appealed to the Court of Appeals questioning the
amount of damages awarded to the plaintiffs on the
ground
that
the
awards
were
not supported
by
sufficient evidence. The other grounds assigned by the

defendants as errors were improper venue and lack of
cause of action, in the latter case, because there was
allegedly no contract to be enforced. LexLib
of Appeals rendered a decision modifying the trial

court's decision. While the awards for the unpaid
cash
vales
of
P10,726.53;
the
sum
of
P56,000.00 as reimbursement of charges by Aquarius

Trading
paid
by
the
plaintiff
and
the
LLpr
"A
The company has a commitment of exporting
logs and wood products in foreign countries like

Hongkong and other foreign buyer on monthly basis
and on that month on (sic) April to May, there was a
contracted shipment of 1,500 anticipating to be hauled
by the services of the Willie Kho trucking, so that the
company has to reach their shipment on May 15, which
On August 30, 1991, as already mentioned, the Court
overdraft
Let us go to the business of the corporation for
which you said that it has a contract for shipment of
sum
of
P150,000.00 for unrealized profit in the Aquarius
was fully contracted with the buyer.

"Q
I show to you this letter of Aquarius Trading
Company, duly confirmed and accepted by Consolidated

Plywood Industries by Mr. Henry Wee, president, please
tell the Court what relation has this to the commitment
of the shipment of logs?
Trading transaction were affirmed, all the other awards
"A
of damages for unfulfilled import of logs, attorney's fees
1,400 on May 15, for Aquarius Trading.
and litigation expenses were deleted. The dispositive

portion of the decision reads:
"WHEREFORE, and in the light of all the foregoing, the
appealed judgment is affirmed except the award of
damages for 'unfulfilled import of logs,' moral damages
and attorney's fees which are hereby denied and
ordered deleted." (p. 354, Rollo)
"Q
This is the commitment of shipment of logs for
Other than this commitment, do you have other
commitment to other buyer?

"A
Yes, we have commitment to Ching Kee Trading
in Taiwan scheduled on June (TSN, 12 Jan. 1982, pp.

45-48: pp. 158-160, Rollo).
Page 21 of 76
The commitment to Aquarius Trading was sufficiently
respondent had no fixed date of termination. It was a
substantiated
"I").
verbal agreement where the private respondents bound
Petitioners were able to present the papers evidencing
themselves until the loan with Equitable Bank in the
their transaction with said entity including the amount
personal account of petitioners had been fully paid.
demanded from them as reimbursement for damages it
There was substantial compliance by the private
incurred due to by petitioners' failure to ship the
respondents of their obligations in the contract for
ordered
alleged
about a year. The record showed that the remaining
commitment of petitioner to Ching Kee Trading in
balance owing to the bank was only P30,000.00 which
Taiwan was not supported by evidence other than the
was not due until one (1) year and five (5) months after
self-serving statement of Wee. Nor did they present any
the breach by the private respondents or on September
other evidence which would show that they had other
4, 1980 (p. 109, Rollo). However, the trial court found
unfulfilled shipments for which they incurred damages
that private respondents acted with bad faith when it
because of the pull-out of private respondents' hauler
surreptitiously pulled out their hauler trucks from
trucks. But even granting for the sake of argument that
petitioner's
there was in fact a commitment to Chingkee Trading,
contract. The trial court held:
logs
by
on
documents
time.
In
(Exhs.
"H"
contrast,
and
the
the shipment was scheduled some two (2) months after

the private respondents pulled out their trucks from
petitioners' jobsite on April 12, 1979. That would have
left the petitioners with sufficient time to find other
trucks which could be used for the job. Cdpr
jobsite
before
the
termination
of
the
"The act of defendants in suddenly and surreptitiously

withdrawing its hauler trucks from the jobsite and
abandoning its obligation of hauling the logs is
indubitably a wanton violation of its obligation, under
the contract, a neglect to perform its obligation in bad
The petitioners insist that if the appellate court did not
faith more particularly. In its stipulation to liquidate the
consider
unfulfilled
cash advance obtained from Equitable Bank, for the law
shipments, it should have awarded this amount as a
would not permit said defendants to enrich themselves
form of temperate or moderate damages.
at the expense of the plaintiffs." (p. 305, Rollo). prLL
Article 2224 of the Civil Code provides: "Temperate or
Thus, an award of P50,000.00 for moral damages is
moderate damages, which are more than nominal but
sufficient.
the
P350,000.00
damages
for
less than compensatory damages, may be recovered

when the Court finds that some pecuniary loss has
been suffered but its amount can not, from the nature
of the case, be proved with certainty." The grant thereof
is proper under the provision of Article 2205 of the Civil
Code, which provides that damages may be recovered.
In this case however, there was no showing nor proof
that petitioner was entitled to an award of this kind of
damages in addition to the actual damages it suffered
as a direct consequence of private respondents' act. The
nature of the contract between the parties is such that
damages which the innocent party may have incurred
The award for attorneys fees by the trial court in the

amount of P20,000.00 is likewise proper. Petitioner was
forced to litigate in court for the recovery of actual
damages
incurred
by
him
because
they return to the area and perform their obligations.

ACCORDINGLY, the decision of the Court of Appeals is
MODIFIED. The award of P50,000.00 as moral damages
and P20,000.00 as attorney's fees are hereby granted in
addition to the damages awarded by the appellate court.
SO ORDERED.
The Court, however, believes that petitioner is entitled
Grio-Aquino and Bellosillo, JJ ., concur.
granted by the trial court in the amount of P200,000.00

is excessive. It should be stated here that the hauling
agreement between the petitioners and the private
private
respondent ignored petitioners' letters demanding that
can be substantiated by evidence.
to an award for moral damages. However, the award
the
Cruz, J ., is on leave.
FIRST DIVISION
Page 22 of 76
suffered by the creditor is not necessary in order that
[G.R. No. 85161. September 9, 1991.]

COUNTRY
AND
BANKERS
ENRIQUE SY,
INSURANCE
petitioners,
CORPORATION
vs.
COURT
OF
the penalty may be demanded (Article 1228, New Civil

Code). However, there are exceptions to the rule that the
penalty shall substitute the indemnity for damages and
APPEALS AND OSCAR VENTANILLA ENTERPRISES
the payment of interests in case of non-compliance with
CORPORATION, respondents.
the principal obligation. They are first, when there is a

stipulation to the contrary; second, when the obligor is
Esteban C. Manuel for petitioners.
sued for refusal to pay the agreed penalty; and third,

when the obligor is guilty of fraud (Article 1226, par. 1,
Augusto Gatmaytan for OVEC.
New Civil Code). It is evident that in all said cases, the

purpose of the penalty is to punish the obligor.
SYLLABUS
1.
CIVIL
LAW;
SPECIAL
CONTRACTS;
LEASE;
FORFEITURE CLAUSE MAY BE STIPULATED IN CASE

OF VIOLATION OF THE TERMS AND CONDITIONS OF
THE ARGUMENT; CASE AT BAR. We find no merit in
petitioners'
argument
that
the
forfeiture
clause
stipulated in the lease agreement would unjustly enrich

the respondent OVEC at the expense of Sy and CBISCO
contrary to law, morals, good customs, public order
or public policy. A provision which calls for the
forfeiture
of
the
remaining
deposit
still
in
the
possession of the lessor, without prejudice to any other

obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessee's
violation of any of the terms and conditions of the
agreement is a penal clause that may be validly entered
into.
2.
ID.;
OBLIGATIONS
WITH
PENAL
CLAUSE;
CONSTRUED. A penal clause is an accessory

obligation which the parties attach to a principal
obligation for the purpose of insuring the performance
thereof by imposing on the debtor a special prestation
(generally consisting in the payment of a sum of money)
in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled. (Eduardo P. Caguioa, Comments
and Cases on Civil Law, Vol. IV, First Edition, pp. 199200)
3.
Therefore, the obligee can recover from the obligor not

only the penalty but also the damages resulting from
the non-fulfillment or defective performance of the
principal obligation.
4.
REMEDIAL
COUNTERCLAIM;
LAW;
CIVIL
CIRCUMSTANCES
PROCEDURE;
WHEN
NO
DOCKET FEES ARE REQUIRED; PRESENT IN CASE AT

BAR. OVEC's counterclaims are compulsory so no
docket fees are required as the following circumstances
are present: (a) they arise out of or are necessarily
connected with the transaction or occurrence that is
subject matter of the opposing party's claim; (b) they do
not require for their adjudication the presence of third
parties of whom the court cannot acquire jurisdiction;
and (c) the court has jurisdiction to entertain the claim
(see Javier v. Intermediate Appellate Court, G.R. No.
75379, March 31, 1989, 171 SCRA 605). Whether the
respective claims asserted by the parties arise out of
the same contract or transaction within the limitation
on counterclaims imposed by the statutes depends on a
consideration of all the facts brought forth by the
parties and on a determination of whether there is some
legal or equitable relationship between the ground of
recovery alleged in the counterclaim and the matters
alleged as the cause of action by the plaintiff (80 C.J.S.
48). As the counterclaims of OVEC arise from or are
necessarily connected with the facts alleged in the
ID.; ID.; RULE AND EXCEPTIONS. As a
general rule, in obligations with a penal clause, the

penalty shall substitute the indemnity for damages and
the payment of interests in case of non-compliance.
This is specifically provided for in Article 1226, par. 1,
New Civil Code. In such case, proof of actual damages
complaint for reformation of instrument of Sy, it is clear

that said counterclaims are compulsory.
DECISION
MEDIALDEA, J p:
Page 23 of 76
Petitioners seek a review on certiorari of the decision of
injunction, with legal interest thereon from the finality
the Court of Appeals in CA-G.R. CV No. 09504 "Enrique
of this decision until fully paid;
Sy and Country Bankers Insurance Corporation v.

Oscar Ventanilla Enterprises Corporation" affirming in
toto
the
decision
of
the
Regional
Trial
Court,
Cabanatuan City, Branch XXV, to wit:
Sy is dismissed, and on the counterclaim of the

O.
Ventanilla
Enterprises
Corporation,
judgment is hereby rendered:

'1.
Declaring
as
lawful,
the
cancellation
and
defendant's re-entry and repossession of the Avenue,

Broadway and Capitol theaters under lease on February
11, 1980;
mentioned amounts of P289,534.78, P100,000.00 and
'7.
Ordering the plaintiff to pay the costs.' " (pp. 94-
95, Rollo).
Respondent Oscar Ventanilla Enterprises Corporation

(OVEC), as lessor, and the petitioner Enrique F. Sy, as
lessee, entered into a lease agreement over the Avenue,
Broadway and Capitol Theaters and the land on which
they are situated in Cabanatuan City, including their
Declaring as lawful, the forfeiture clause under
paragraph 12 of the said Lease Agreement, and

confirming the forfeiture of the plaintiff's remaining
cash deposit of P290,000.00 in favor of the defendant
thereunder, as of February 11, 1980;
'3.
sum equivalent to ten per centum (10%) of the above-
The antecedent facts of the case are as follows:
termination of the Lease Agreement (Exh. A) and the
'2.
Ordering the plaintiff to pay to the defendant the
P100,000.00, as and for attorney's fees; and
"WHEREFORE, the complaint of the plaintiff Enrique F.

defendant
'6.
air-conditioning systems, projectors and accessories

needed for showing the films or motion pictures. The
term of the lease was for six (6) years commencing from
June 13, 1977 and ending June 12, 1983. After more
than two (2) years of operation of the Avenue, Broadway
and Capitol Theaters, the lessor OVEC made demands
Ordering the plaintiff to pay the defendant the
for the repossession of the said leased properties in
sum of P289,534.78, representing arrears in rentals,
view of the Sy's arrears in monthly rentals and non-
unremitted amounts for amusement tax delinquency
payment of amusement taxes. On August 8, 1979,
and accrued interest thereon, with further interest on
OVEC and Sy had a conference and by reason of Sy's
said amounts at the rate of 12% per annum (per lease
request for reconsideration of OVEC's demand for
agreement) from December 1, 1980 until the same is
repossession of the three (3) theaters, the former was
fully paid;
allowed to continue operating the leased premises upon
'4.
Ordering the plaintiff to pay the defendant the
amount of P100,000.00, representing the P10,000.00

portion of the monthly lease rental which were not
his conformity to certain conditions imposed by the

latter in a supplemental agreement dated August 13,
1979.
deducted from the cash deposit of the plaintiff from
In pursuance of their latter agreement, Sy's arrears in
February to November, 1980, after the forfeiture of the
rental in the amount of P125,455.76 (as of July 31,
said cash deposit on February 11, 1980, with interest
1979) was reduced to P71,028.91 as of December 31,
thereon at the rate of 12% per annum on each of the
1979. However, the accrued amusement tax liability of
said monthly amounts of P10,000.00 from the time the
the three (3) theaters to the City Government of
same became due until it is paid;
Cabanatuan City had accumulated to P84,000.00
'5.
Ordering the plaintiff to pay the defendant
through the injunction bond, the sum of P100,000.00,

representing
the
P10,000.00
monthly
increase
in
rentals which the defendant failed to realize from

February
to
November
1980
resulting
from
the
despite the fact that Sy had been deducting the amount

of
P4,000.00
from
his
monthly
rental
with
the
obligation to remit the said deductions to the city

government. Hence, letters of demand dated January 7,
1980 and February 3, 1980 were sent to Sy demanding
payment of the arrears in rentals and amusement tax
Page 24 of 76
delinquency. The latter demand was with warning that
cause of action, Sy prayed for the issuance of a
OVEC will re-enter and repossess the Avenue, Broadway
restraining
and
Capital
Theaters
February
enjoin
OVEC and all persons employed by it from entering and

taking possession of the three theaters, conditioned
contract of June 11, 1977 and their supplemental
upon Sy's filing of a P500,000.00 bond supplied by
letter-agreement
Country Bankers Insurance Corporation (CBISCO).
13,
1980
to
in
August
11,
injunction
pursuance of the pertinent provisions of their lease

of
on
order/preliminary
1979.
But
notwithstanding the said demands and warnings Sy

failed to pay the above-mentioned amounts in full.
Consequently, OVEC padlocked the gates of the three
theaters under lease and took possession thereof in the
morning of February 11, 1980 by posting its men
around the premises of the said movie houses and
preventing the lessee's employees from entering the
same.
OVEC, on the other hand, alleged in its answer by way

of counterclaims, that by reason of Sy's violation of the
terms of the subject lease agreement, OVEC became
authorized to enter and possess the three theaters in
question and to terminate said agreement and the
balance of the deposits given by Sy to OVEC had thus
became
forfeited;
that
OVEC
would
be
losing
P50,000.00 for every month that the possession and
Sy, through his counsel, filed the present action for
operation of said three theaters remain with Sy and
reformation of the lease agreement, damages and
that OVEC incurred P500,000.00 for attorney's service.
injunction late in the afternoon of the same day. And by

virtue of a restraining order dated February 12, 1980
followed by an order directing the issuance of a writ of
preliminary injunction issued in said case, Sy regained
possession and operation of the Avenue, Broadway and
Capital theaters.
The trial court arrived at the conclusions that Sy is not

entitled to the reformation of the lease agreement; that
the repossession of the leased premises by OVEC after
the cancellation and termination of the lease was in
accordance with the stipulation of the parties in the
said agreement and the law applicable thereto and that
As first cause of action, Sy alleged that the amount of
the consequent forfeiture of Sy's cash deposit in favor of
deposit P600,000.00 as agreed upon, P300,000.00 of
OVEC was clearly agreed upon by them in the lease
which was to be paid on June 13, 1977 and the balance
agreement. The trial court further concluded that Sy
on December 13, 1977 was too big; and that OVEC
was not entitled to the writ of preliminary injunction
had assured him that said forfeiture will not come to
issued in his favor after the commencement of the
pass. By way of second cause of action, Sy sought to
action and that the injunction bond filed by Sy is liable
recover from OVEC the sums of P100,000.00 which Sy
for whatever damages OVEC may have suffered by
allegedly spent in making "major repairs" on Broadway
reason of the injunction.
Theater and the application of which to Sy's due

rentals; (2) P48,000.00 covering the cost of electrical
current allegedly used by OVEC in its alleged "illegal
connection" to Capitol Theater and (3) P31,000.00 also
for the cost of electrical current allegedly used by OVEC
for its alleged "illegal connection" to Broadway Theater
and for damages suffered by Sy as a result of such
connection. Under the third cause of action, it is alleged
in the complaint that on February 11, 1980, OVEC had
the three theaters padlocked with the use of force, and
that as a result, Sy suffered damages at the rate of
P5,000.00 a day, in view of his failure to go thru the
contracts he had entered into with movie and booking
companies for the showing of movies at ABC. As fourth
On the counterclaim of OVEC, the trial court found that

the said lessor was deprived of the possession and
enjoyment of the leased premises and also suffered
damages as a result of the filing of the case by Sy and
his violation of the terms and conditions of the lease
agreement. Hence, it held that OVEC is entitled to
recover the said damages in addition to the arrears in
rentals and amusement tax delinquency of Sy and the
accrued interest thereon. From the evidence presented,
it found that as of the end of November, 1980, when
OVEC finally regained the possession of the three (3)
theaters
under
lease,
Sy's
unpaid
rentals
and
amusement tax liability amounted to P289,534.78. In

addition, it held that Sy was under obligation to pay
Page 25 of 76
P10,000.00 every month from February to November,
"PRIVATE RESPONDENT SHOULD NOT BE ALLOWED
1980 or the total amount of P100,000.00 with interest
TO UNJUSTLY ENRICH OR BE BENEFITED AT THE
on each amount of P10,000.00 from the time the same
EXPENSE OF THE PETITIONERS.
became due. This P10,000.00 portion of the monthly

lease rental was supposed to come from the remaining
cash deposit of Sy but with the consequent forfeiture of
the remaining cash deposit of P290,000.00, there was
no more cash deposit from which said amount could be
deducted. Further, it adjudged Sy to pay attorney's fees
equivalent to 10% of the amounts above-mentioned.
Finally, the trial court held Sy through the injunction
bond liable to pay the sum of P10,000.00 every month
from
February
to
November,
1980.
represents the supposed increase
The
amount
in rental
from
"B
"RESPONDENT COURT OF APPEALS COMMITTED
SERIOUS ERROR OF LAW AND GRAVE ABUSE OF
DISCRETION IN NOT SETTING OFF THE P100,000.00
SUPPOSED
DAMAGE
RESULTING
FROM
THE
INJUNCTION AGAINST THE P290,000.00 REMAINING

CASH DEPOSIT OF PETITIONER ENRIQUE SY.
"C
"RESPONDENT
COURT
OF
APPEALS
FURTHER
P50,000.00 to P60,000.00 in view of the offer of one
COMMITTED SERIOUS ERROR OF LAW AND GRAVE
RTG Productions, Inc. to lease the three theaters
ABUSE OF DISCRETION IN NOT DISMISSING PRIVATE
involved for P60,000.00 a month.
RESPONDENT'S COUNTERCLAIM FOR FAILURE TO
From this decision of the trial court, Sy and CBISCO
PAY THE NECESSARY DOCKET FEE." (p. 10, Rollo)
appealed the decision in toto while OVEC appealed
We find no merit in petitioners' argument that the
insofar as the decision failed to hold the injunction
forfeiture clause stipulated in the lease agreement
bond liable for all damages awarded by the trial court.
would unjustly enrich the respondent OVEC at the
The respondent Court of Appeals found no ambiguity in

the provisions of the lease agreement. It held that the
provisions are fair and reasonable and therefore, should
be respected and enforced as the law between the
parties. It held that the cancellation or termination of
the agreement prior to its expiration period is justified
as it was brought about by Sy's own default in his
compliance with the terms of the agreement and not
"motivated by fraud or greed." It also affirmed the award
to OVEC of the amount of P100,000.00 chargeable
against the injunction bond posted by CBISCO, which
was soundly and amply justified by the trial court.
The respondent Court likewise found no merit in
OVEC's appeal and held that the trial court did not err
in not charging and holding the injunction bond posted
by Sy liable for all the awards as the undertaking of
CBISCO under the bond referred only to damages which
OVEC may suffer as a result of the injunction.
expense of Sy and CBISCO - contrary to law, morals,

good customs, public order or public policy. A provision
which calls for the forfeiture of the remaining deposit
still in the possession of the lessor, without prejudice to
any other obligation still owing, in the event of the
termination or cancellation of the agreement by reason
of the lessee's violation of any of the terms and
conditions of the agreement is a penal clause that may
be validly entered into. A penal clause is an accessory
obligation which the parties attach to a principal
obligation for the purpose of insuring the performance
thereof by imposing on the debtor a special prestation
(generally consisting in the payment of a sum of money)
in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled. (Eduardo P. Caguioa, Comments
and Cases on Civil Law, Vol. IV, First Edition, pp. 199200) As a general rule, in obligations with a penal
clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance. This is specifically provided for in Article
From this decision, CBISCO and Sy filed this instant
1226, par. 1, New Civil Code. In such case, proof of
petition on the following grounds:
actual
"A
damages
suffered
by
the
creditor
is
not
necessary in order that the penalty may be demanded
Page 26 of 76
(Article 1228, New Civil Code). However, there are
There is likewise no merit to the claim of petitioners
exceptions to the rule that the penalty shall substitute
that respondent Court committed serious error of law
the indemnity for damages and the payment of interests
and grave abuse of discretion in not dismissing private
in case of non-compliance with the principal obligation.
respondent's
They are first, when there is a stipulation to the
necessary docket fee, which is an issue raised for the
contrary; second, when the obligor is sued for refusal to
first time in this petition. Petitioners rely on the rule in
pay the agreed penalty; and third, when the obligor is
Manchester
guilty of fraud (Article 1226, par. 1, New Civil Code). It
Appeals, G.R. No. 75919, May 7, 1987, 149 SCRA 562
is evident that in all said cases, the purpose of the
to the effect that all the proceedings held in connection
penalty is to punish the obligor. Therefore, the obligee
with a case where the correct docket fees are not paid
can recover from the obligor not only the penalty but
should be peremptorily considered null and void
also the damages resulting from the non-fulfillment or
because, for all legal purposes, the trial court never
defective performance of the principal obligation.
acquired jurisdiction over the case. It should be
In the case at bar, inasmuch as the forfeiture clause

provides that the deposit shall be deemed forfeited,
without prejudice to any other obligation still owing by
the lessee to the lessor, the penalty cannot substitute
for the P100,000.00 supposed damage resulting from
the issuance of the injunction against the P290,000.00
remaining cash deposit. This supposed damage suffered
by OVEC was the alleged P10,000.00 a month increase
in rental from P50,000.00 to P60,000.00), which OVEC
failed to realize for ten months from February to
November, 1980 in the total sum of P100,000.00. This
opportunity cost which was duly proven before the trial
court, was correctly made chargeable by the said court
against the injunction bond posted by CBISCO. The
undertaking
assumed
by
CBISCO
under
subject
injunction refers to "all such damages as such party

may sustain by reason of the injunction if the Court
counterclaim
Development
for
failure
Corporation
to
v.
pay
the
Court
of
remembered however, that in Davao Light and Power

Co., Inc. v. Dinopol, G.R. 75195, August 19, 1988, 164
SCRA 748, this Court took note of the fact that the
assailed order of the trial court was issued prior to the
resolution in the Manchester case and held that its
strict application to the case at bar would therefore be
unduly harsh. Thus, We allowed the amendment of the
complaint by specifying the amount of damages within
a non-extendible period of five (5) days from notice and
the reassessment of the filing fees. Then, in Sun
Insurance Office, Ltd. v. Asuncion, G.R. 79937-38,
February 3, 1989, 170 SCRA 274, We held that where
the filing of the initiatory pleading is not accompanied
by payment of the docket fee, the court may allow
payment of the fee within a reasonable time but in no
case beyond the applicable prescriptive or reglementary
period.
should finally decide that the Plaintiff was/were not
Nevertheless, OVEC's counterclaims are compulsory so
entitled thereto." (Rollo, p. 101) Thus, the respondent
no
Court correctly sustained the trial court in holding that
circumstances are present: (a) they arise out of or are
the bond shall and may answer only for damages which
necessarily
OVEC may suffer as a result of the injunction. The
occurrence that is subject matter of the opposing
arrears in rental, the unmeritted amounts of the
party's
amusement
of
adjudication the presence of third parties of whom the
P100,000.00 (P10,000.00 portions of each monthly
court cannot acquire jurisdiction; and (c) the court has
rental which were not deducted from plaintiff's cash
jurisdiction to entertain the claim (see Javier v.
deposit from February to November, 1980 after the
Intermediate Appellate Court, G.R. 75379, March 31,
forfeiture of said cash deposit on February 11, 1980)
1989, 171 SCRA 605). Whether the respective claims
and attorney's fees which were all charged against Sy
asserted by the parties arise out of the same contract or
were correctly considered by the respondent Court as
transaction within the limitation on counterclaims
damages which OVEC sustained not as a result of the
imposed by the statutes depends on a consideration of
injunction.
all the facts brought forth by the parties and on a
tax
delinquency,
the
amount
docket
fees
are
connected
claim;
(b)
they
required
with
do
as
the
not
the
following
transaction
require
for
or
their
Page 27 of 76
determination of whether there is some legal or
omission (People v. Baylon, 129 SCRA 625 [1984];
equitable relationship between the ground of recovery
Bagumbayan Corporation v. Intermediate Appellate
alleged in the counterclaim and the matters alleged as
Court, 132 SCRA 441 [1984]; Guita v. Court of Appeals,
the cause of action by the plaintiff (80 C.J.S. 48). As the
139
counterclaims of OVEC arise from or are necessarily
Transport System, Inc., 148 SCRA 440 [1987]).
connected with the facts alleged in the complaint for

reformation of instrument of Sy, it is clear that said
counterclaims are compulsory.
2.
SCRA
576
[1985]);
Prudenciado
v.
Alliance
ID.; ID.; EXEMPLARY DAMAGES; CONDITIONS
FOR AN AWARD THEREOF. On the other hand,

jurisprudence sets certain conditions when exemplary
ACCORDINGLY, finding no merit in the grounds relied
damages may be awarded, to wit: (1 ) They may be
upon by petitioners in their petition, the same is hereby
imposed by way of example or correction only in
DENIED and the decision dated June 15, 1988 and the
addition, among others, to compensatory damages and
resolution dated September 21, 1988, both of the
cannot be recovered as a matter of right, their
respondent Court of Appeals are AFFIRMED.
determination
depending
upon
the
amount
of
compensatory damages that may be awarded to the
SO ORDERED.
claimant; (2) the claimant must first establish his right
Narvasa, Cruz and Grio-Aquino, JJ., concur.
to
SECOND DIVISION
accompanied by bad faith, and the award would be
damages;
vs.
HONORABLE
COURT OF APPEALS (Sixth Division composed of

Justices Concepcion, Serrano & San Diego) DR.
CORNELIO
represented
S.
TANTOCO
by
and
and
(3)
liquidated
the
or
wrongful
compensatory
act
must
be
fraudulent, reckless, oppressive or malevolent manner
FORTUNATO DE LEON & JUANA F. GONZALES-DE

petitioners-appellants,
temperate,
allowed only if the guilty party acted in a wanton,
[G.R. No. L-31931. August 31, 1988.]
LEON,
moral,
JUAN
Administratrix
BRIONES
MAGDALENA
BERNARDO, respondents-appellees.
(Octot v. Ybaez, 111 SCRA 79 [1982]); Sweet Lines,

Inc., v. Court of Appeals, 121 SCRA 769 [1983]); Dee
Hua Liong Electrical Equipment Corporation v. Reyes,
145 SCRA 713 [1985]); Tan Kapoe v. Masa, 134 SCRA
231[1985]). It may be awarded for breach of contract or
quasi-contract as when a telegraph company personnel
transmitted the wrong telegram (Radio Communication
of the Philippines, Inc. v. Court of Appeals, 103 SCRA
Fortunato de Leon, Celso B. Jamora and Guillermo

B. Ilagan for petitioners-appellants.
359 [1981] but it is not recoverable in the absence of

gross negligence (Bagumbayan Corp. v. Intermediate
Appellate Court, 132 SCRA 441 [1984]).
Jose B. Puerto for respondent-appellee Juan Briones.

Diogracias T . Reyes & Associates and Jose M . Luison
3.
ID.; ID.; MORAL DAMAGES; EXISTENCE OF
THE FACTUAL BASIS FOR AN AWARD THEREOF IN
for respondent-appellee Cornelio S. Tantoco.
THE CASE AT BAR. The filing of the case against
SYLLABUS
prosecuted satisfactorily proves the existence of the
1.
CIVIL LAW;
DAMAGES;
respondent
MORAL DAMAGES;
SCOPE; BASIS FOR RECOVERY. Moral damages

include physical suffering, mental anguish, fright,
serious
anxiety,
besmirched
reputation,
wounded
feelings, moral shock, social humiliation and similar

injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the
proximate result of the defendant's wrongful act or
being
unfounded
and
maliciously
factual basis for moral damages and the causal relation

to petitioners' acts (Hawpia v. Court of Appeals, 20
SCRA 535 [1967]; Ventura v. Bernabe, 38 SCRA 587
[1971]; Enervida v. de la Torre, 55 SCRA 340 [1974];
Tan Kapoe v. Masa, 134 SCRA 231 [1985]). Private
respondent has a good name to protect. He is a surgeon
by profession, had been Chief of the Bulacan Provincial
Hospital since 1946 until he put up a hospital of his
Page 28 of 76
own, the Rosary General Hospital. He is a member of
awarded only to enable the injured party to obtain
the Knights of Columbus, a Cursillista, a member of the
means, diversion or amusements that will serve to
Lions, a fellow of the Philippine College of Surgeons in
alleviate the moral suffering he has undergone, by
good standing from 1946 up to the present, a member
reason of the defendants' culpable action" (Grand Union
of the Philippine Medical Association and of the
Supermarket, Inc. v. Espino, Jr., 94 SCRA 966 [1979]);
Bulacan Medical Association. He has been humiliated,
R & B Surety & Insurance Co., Inc. v. Intermediate
embarrassed, maligned and has been charged in bad
Appellate Court, 129 SCRA 736 [1984]; Prudenciado v.
faith as a money lender in petitioner's complaint
Alliance Transport System, Inc., supra).
accusing him of defrauding the Briones spouses (TSN,

pp. 227-250).
4.
ID.;
ID.;
EXEMPLARY
DAMAGES;
WHEN
AWARD THEREOF PROPER. The entitlement to

moral damages having been established the award of
exemplary
damages
is
proper
(Bert
Osmena
&
Associates v. Court of Appeals, 120 SCRA 395 [1983];

Tan Kapoe v. Masa, 134 SCRA 231 [1985]).
5.
AWARD THEREOF REDUCED IN THE CASE AT BAR.

While the award of moral and exemplary damages in an
aggregate amount may not be the usual way of
said
respondent's
damages
entitlement
there
to
is
moral
no
question
and
of
exemplary
damage (Tan Kapoe v. Masa, supra). The amount should

be reduced, however, for being excessive compared to
the actual losses sustained by the aggrieved party
(Prudenciado v. Alliance Transport System, Inc., 148
SCRA 440 [1987]). In the case at bar, the Court of
Appeals
found
outstanding
on
February
balance
of
the
21,
1970
disputed
PARAS, J p:
This is an appeal by certiorari from the decision * of the
Court of Appeals (Sixth Division) in C.A., G.R. No.
40201-R promulgated on February 21, 1970 affirming
the judgment ** of the Court of First Instance of
Bulacan, with modification of the amount of moral and
ID.; ID.; MORAL AND EXEMPLARY DAMAGES;
awarding
DECISION
that
loan
exemplary damages from P100,000.00 to P60,000.00

and the amount of attorney's fees from P10,000.00 to
P5,000.00 the dispositive portion of which appellate
court's decision reads as follows:
"WHEREFORE, the decision appealed from is hereby
modified as above indicated respecting the award of
moral and exemplary damages as well as attorney's
fees. The rest are hereby affirmed with costs against
plaintiffs-appellants." (pp. 6-7, Decision of the Court of
Appeals; pp. 61-62, Rollo)
the
The facts of the case as drawn by respondent court
was
from the evidence on record are quoted as follows:
P64,921.69. Twenty five percent thereof is P16,230.00

but considering the depreciation of the Philippine peso
today, it is believed that the award of moral and
exemplary damages in the amount of P25,000.00 is
reasonable.
"The third-party defendants spouses Juan Briones and

Magdalena Bernardo were the former registered owners
of the fishpond situated at San Roque, Paombong,
Bulacan which was covered by Transfer Certificate of
Title No. 28296 (Exhibit 2). This fishpond was the
NATURE;
subject of a deed of mortgage executed by the spouses
PURPOSE. Moral damages though incapable of
Briones on January 22, 1954, in favor of Hermogenes
pecuniary estimations, are in the category of an award
Tantoco involving the consideration of P20,000.00 (Exh.
designed to compensate the claimant for actual injury
2), which amount was later assigned by the mortgagee
suffered and not to impose a penalty of the wrongdoer
to his father herein defendant and third-party plaintiff
(San Andres v. Court of Appeals, 116 SCRA 85 [1982]
Dr. Cornelio S. Tantoco (Exh. 10). Apart from this first
cited in Prudenciado v. Alliance Transport System, Inc.,
mortgage, the spouses Briones likewise executed a deed
supra). Time and again the Court has ruled that "moral
of second mortgage for P68,824.00 with 10% interest
damages are emphatically not intended to enrich a
per annum in favor of Cornelio S. Tantoco dated May
complainant at the expense of a defendant. They are
26, 1959 (Exh. 1). Both mortgages were duly registered
6.
ID.;
ID.;
MORAL
DAMAGES;
Page 29 of 76
in the Office of the Register of Deeds of Bulacan and
obligation of his to private respondent for as a matter of
duly annotated at the back of Transfer Certificate of
fact all obligations he had with private respondent had
Title No. 28296 (Exh. 2) of the Briones. While these two
been assumed by petitioner in a document executed by
mortgages were still subsisting the Briones spouses
petitioner himself in his own handwriting (Exhibits p.
sold the fishpond, which is the subject matter of said
108).
two mortgages, to plaintiff spouses Fortunato de Leon

and Juana F. Gonzales de Leon in the amount of
P120,000.00 (Exh 5). Of the amount of P120,000.00,
the Briones spouses actually received only the amount
of P31,000.00 on June 2, 1959, as the amount of
P89,000.00 was withheld by the plaintiff de Leon who
assumed to answer the mortgage indebtedness of the
Briones to the Tantocos (Exhs. 3, 3-a, 3-a-1 to 3-b).
After the sale plaintiffs de Leon satisfied the mortgage
loan of P20,000.00 including 10% interest per annum
to Hermogenes Tantoco who then accordingly executed
a deed of discharge of mortgage (Exhs. Z & Z-l ), but the
mortgage in favor of Cornelio S. Tantoco in the amount
of P68,824 was not satisfied. On February 5, 1962
plaintiffs made payment of P29,382.50 to the defendant
Cornelio Tantoco." (Decision of the Court of Appeals, pp.
2-3).
On May 8, 1962 the spouses Fortunato de Leon and

Juana F. de Leon petitioners herein filed a complaint
with the Court of First Instance of Bulacan against
defendant Cornelio S. Tantoco, respondent herein, Civil
Case No. 2554, for discharge of mortgage (Record on
Appeal, p. 4). On May 31, 1962 defendant filed his
answer with counterclaim and third party complaint
against the Briones spouses with petition for leave to
file third party complaint (Record on Appeal, p. 7). He
alleged by way of special and affirmative defenses,
among others, that the true and real amount of
obligation of the Briones spouses is the sum of
P68,824.00, Philippine currency, with 10% interest
secured by a second mortgage in favor of defendant,
executed and signed by the Briones spouses on May 26,
1959, which deed of second mortgage was duly
registered in the Office of the Register of Deeds of
In his letter to private respondent Cornelio Tantoco
Malolos, Bulacan on May 27, 1959 and properly
dated February 5, 1962, petitioner Fortunato de Leon
annotated at the back of Transfer Certificate of Title No.
made it clear that he was tendering the sum of
28296 issued in the names of Juan Briones and
P29,382.50, represented by PNB Cashier's Check No.
Magdalena Bernardo; that the amount of P29,382.50
119874 in full discharge of the legitimate obligation of
sent by plaintiff as alleged counsel of the spouses Juan
his clients, the spouses Juan Briones and Magdalena
Briones and Magdalena Bernardo was accepted by the
Bernardo. He requested acknowledgment of the receipt
said
of his letter and the execution of the necessary
extinguishment of the mortgage loan of P68,824.00 with
document (Exhibits, p. 103). Through counsel private
10% interest thereon per annum from May 22, 1959,
respondent, trying to set the records straight for
and plaintiffs have been informed of the tenor of said
petitioners, made the clarification that the principal
acceptance and application thereof as partial payment
obligation of the Briones as of May 25, 1959 was
of the mortgage obligation in question; and, that
P68,824.00 and on January 26, 1962 when a letter of
defendant did not accede to the demand of the plaintiff
demand was sent to them their total obligation
to have the mortgage lien on the property in question
including the agreed interest amounted to P88,888.98.
cancelled or discharged because the full amount of the
Hence the above mentioned PNB check will be held in
mortgage debt of P68,824.00 plus the 10% interest
abeyance pending remittance of the total obligation
thereon from May 22, 1959 has not yet been fully paid
after which the necessary document will be executed
either by the plaintiffs or by the spouses Juan Briones
(Exhibits, p. 105).
and Magdalena Bernardo. Defendant prayed under the
On April 5, 1962 Juan Briones executed an affidavit

denying ever having hired petitioner Fortunato de Leon
as counsel nor having authorized petitioner to pay any
defendant
as
part
payment
or
partial
counterclaim that plaintiffs be ordered to pay defendant

the following amounts:
Page 30 of 76
"(1)
P62,245 .04 plus 10% interest thereon per
annum from May 22, 1962 until the full amount

thereon has been paid in the event that the assumption
of obligation (Annex "2") is found by the Court to be
true, valid and binding between the parties thereto;
(2)
I. Plaintiffs further pray for such additional relief just

and proper in the premises."
On June 22, 1962, long before defendant's third party
complaint was admitted, the Briones spouses filed an
answer to the third-party complaint (Record on Appeal,
P100,000.00 for moral damages with 6% interest
p. 32) which was stricken out by order of the trial court
thereon from the date of the filing of the counterclaim
dated September 3, 1962 (Record on Appeal, p. 35) on
until full payment thereof;
petition of plaintiffs dated July 18, 1962 (Record on
(3)
P10,000.00 for exemplary damages with 6%
interest thereon from the date of the filing of the

counterclaim until full payment thereof; and
(4)
P5,000.00 for attorney's fee with 6% interest
until full payment thereof."

June
8,
1962
plaintiffs
answer to third-party complaint on October 6, 1962,

virtually confessing judgment in behalf of third-party
plaintiff (Record on Appeal, p. 35). They alleged by way
thereon from the date of the filing of the counterclaim
On
Appeal, p. 33). Third-party defendants filed their second
of
special
and
affirmative
defense
that
plaintiff
Fortunato de Leon at the time of the sale knew of the

obligations of herein third-party defendants to thirdparty plaintiff and as a matter of fact said plaintiff
filed
an
answer
to
defendants' counterclaim, by way of counterclaim to the

counterclaim and praying for judgment (Record on
assumed said obligations.

On July 29, 1963 Magdalena Bernardo Vda. de Briones
Appeal, p. 24) as follows:
was substituted third-party defendant as administratrix
"A. Dismissing defendants' counterclaim with costs
the proceedings, upon petition of defendant Tantoco
against them;
(Record on Appeal, p. 64).
B. Sentencing defendants to pay unto the plaintiffs
On September 16, 1963 plaintiffs filed a petition for
the sum of P200,000.00 by way of moral damages with
leave to intervene in defendant's third-party complaint,
legal interest thereon from date hereof;
with their answer in intervention, which was granted by
C. Sentencing defendants to pay not less than

P20,000.00 to plaintiffs by way of exemplary damages
with legal interest from date hereof;
D. Sentencing defendants to pay unto plaintiffs the
sum of P30,000.00 by way of actual damages;
E. Declaring the lien on Transfer Certificate of Title
No. T-25079 of plaintiffs duly discharged;
F. Ordering defendant Cornelio S. Tantoco to execute
of the estate of Juan Briones who died in the course of
the Court on October 14, 1963 (Record on Appeal, p.

64).
On May 16, 1967 the trial court rendered its decision
on the case (Record on Appeal, p. 74) the dispositive
portion of which reads as follows:.
"WHEREFORE, judgment is hereby rendered ordering:
the dismissal of the complaint; payment by its plaintiffs
to
the
defendant-Third-party
plaintiff
by
way
of
counterclaim the sum of P64,921.60 with interest
the covering Release and Discharge of Mortgage;
thereon at 10% per annum from February 5, 1962 until
G. Ordering defendant Cornelio S. Tantoco to return
P100,000.00 as moral and exemplary damages, and the
his mortgagee's copy of Transfer Certificate of Title No.
further sum of P10,000.00 as attorney's fees; payment
T-25079 to the Register of Deeds of Bulacan;
of costs of plaintiff."
H. Sentencing defendant Cornelio S. Tantoco to pay
On appeal respondent Court affirmed the judgment of
unto the plaintiffs the sum of P5,000.00 by way of
the trial court with modification respecting the award of
attorney's fees;
moral and exemplary damages as well as attorney's
fully paid; payment by plaintiff to defendant the sum of
Page 31 of 76
fees. Petitioner spouses filed on March 7, 1970 their
On July 20, 1970 the Court resolved among others to
motion for reconsideration of the decision of respondent
deny: (1) respondent Tantoco's motion to dismiss
court which motion was denied on April 20, 1970. On
appeal; (2) petitioners' motion for reconsideration of the
April 23, 1979 petitioners filed their motion for leave to
Court's resolution of June 8, 1970; and (3) respondent
file a second motion for reconsideration.
Tantoco's motion for partial entry of judgment insofar
On July 5, 1970, barely two days before the expiration

date of the period of appeal with their motion still
unacted upon, petitioners filed with this Court their
motion for extension of time to file petition for certiorari
by way of appeal (Rollo, p. 1) which motion was granted
in the Resolution of May 8, 1970 (Rollo, p. 2). The
as the portion of the decision appealed from which is

not the subject of the instant appeal by certiorari is
concerned,
without
prejudice
to
respondent's
presenting the same motion to respondent Court of

Appeals for consideration and action at the proper time
(Rollo, p. 133).
motion to file a second motion for reconsideration was
Respondent Cornelio S. Tantoco filed with this Court on
denied by respondent Court on May 15, 1970 (Rollo, p.
July 21, 1970 reply to consolidated opposition and
53).
rejoinder to reply to respondent Tantoco's motion to
The instant petition for certiorari by way of appeal with
dismiss appeal (Rollo, p. 134).
preliminary injunction was filed with this Court on May
Brief for petitioners was filed on August 5, 1970 (Rollo,
20, 1970 (Rollo, p. 7).
p. 159); brief for respondents was filed on October 28,
In the resolution of June 8, 1970 the petition was given
1970 (Rollo, p. 187).
due course solely on the issue of the propriety of the
On November 14, 1970 petitioners filed an "Urgent
award made by the respondent Cornelio S. Tantoco in
Petition ex-parte For Issuance of Restraining Order and
"the amount of P60,000 in the concept of moral and
To Declare Respondent Cornelio S. Tantoco Guilty of
exemplary damages" (Rollo, p. 75).
Contempt of Court" stating that respondent Tantoco
On June 20, 1970 petitioners moved for reconsideration

of the Resolution of the Court dated June 8, 1979
(Rollo, p. 82), to include other issues.
On the same date private respondent Cornelio Tantoco
moved for the issuance of partial entry of final
judgment with respect to the portion of the decision
appealed from which is not the subject of the instant
appeal by certiorari (Rollo, p. 102).
On June 25, 1970 the Court resolved to require
respondents to comment on the aforementioned motion
for reconsideration (Rollo, p. 101). Said comment was
filed on July 8, 1970 (Rollo, p. 109).
On July 8, 1970 petitioners spouses filed a consolidated
opposition to private respondent Tantoco's motion for
partial entry of final judgment and reply to his
manifestation-motion (Rollo, p. 121) and on July 9,
1970 filed a reply to respondent Tantoco's motion to
dismiss appeal (Rollo, p. 128).
filed with the Court of Appeals on August 14, 1970 the

same motion for partial entry of judgment which was
filed with this Court and denied in the resolution of
July 20, 1970 but which was granted by the Court of
Appeals in its resolution of October 31, 1970 over
petitioners-appellants' objection (Rollo, p. 192). On
November 18, 1970 respondents were required to
comment thereon (Rollo, p. 197) and the required
comment was filed by private respondent on November
26, 1970 (Rollo, p. 200).
On December 2, 1970 a partial remanding of the
records of this case to the Court of Appeals was made
in compliance with Section 11 of Rule 51 of the Rules of
Court (Rollo, p. 220).
The Reply brief of the petitioners was filed on December
3, 1970 (Rollo, p. 210). On the same date petitionersappellants' "Urgent Petition for Issuance of Restraining
Order and To Declare Respondent Cornelio S. Tantoco
Guilty of Contempt of Court" was denied. (Rollo, p. 212).
Page 32 of 76
On February 12, 1971 petitioners spouses again filed a
petition for issuance of a restraining order (Rollo, p.
227) and private respondent was required to comment
thereon (Rollo, p. 233). Said comment was filed on
February 23, 1971 (Rollo, p. 236).
III.
The respondent Court erred in sentencing herein
petitioners
P60,000.00
P5,000.00
de
Leons
moral
to
and
attorney's
pay
respondent
exemplary
fees
when
Tantoco
damages
there
exist
and
no
On February 24, 1971 petitioners spouses filed an
contractual or juridical relations whatsoever between
urgent
them.
manifestation
informing
the
Court
of
the
urgency of the issuance of a restraining order or writ of

preliminary injunction because the Court of First
Instance
of
Bulacan
had
presumably
granted
respondent Cornelio S. Tantoco's motion for partial

execution of judgment in an order dated February 11,
1971
which
petitioners
had
not
yet
received,
IV.
That the decision of respondent Court of Appeals of
February 21, 1970 and its adverse Resolutions of April
20, 1970 and of May 15, 1970 are all nullities.
notwithstanding petitioners' urgent motion to postpone
In accordance with the Resolution of the Court dated
hearing of same scheduled for February 15, 1971
June 8, 1970 (Rollo, p. 75) the sole issue that has to be
because of the pendency of petitioner's motion before
resolved by the Court is the question of whether or not
this Court for issuance of a restraining order or writ of
the award of P60,000.00 in the concept of moral and
preliminary injunctions filed on February 11, 1971
exemplary damages is proper.
(Rollo, p. 241). In the resolution of February 26, 1971

private respondent Cornelio S. Tantoco was required to
comment thereon (Rollo, p. 248) and said comment was
filed by respondent on March 6, 1971 (Rollo, p. 251). In
the resolution of March 10, 1971 petitioners' petition for
issuance of a restraining order was denied (Rollo, p.
265).
Petitioners
anguish, fright, serious anxiety, besmirched reputation,

wounded feelings, moral shock, social humiliation and
similar
injury.
Though
incapable
of
pecuniary
computation, moral damages may be recovered if they

are the proximate result of the defendant's wrongful act
or omission (People v. Baylon, 129 SCRA 625 [1984];
assign
the
following
errors
(Brief
for
Petitioners, p.1):
I.
The respondent Court erred in awarding in favor of
respondent Cornelio S. Tantoco moral and exemplary
damages in the amount of P60,000.00 in the absence of
supporting evidence and reasons notwithstanding that
no actual and compensatory damages have been
allegedly proved and awarded in respondent's favor.
II.
The respondent Court erred in awarding P5,000.00
attorney's fees in favor of respondent Cornelio S.
Tantoco and in sentencing petitioners de Leons to pay
same; instead of awarding the latter (Petitioners)
reasonable attorney's fees as prayed for in their
complaint.
Moral damages include physical suffering, mental
Bagumbayan Corporation v. Intermediate Appellate

Court, 132 SCRA 441 [1984]; Guita v. Court of Appeals,
139
SCRA
576
[1985]);
Prudenciado
v.
Alliance
Transport System, Inc., 148 SCRA 440 [1987]). On the

other hand, jurisprudence sets certain conditions when
exemplary damages may be awarded, to wit: (1 ) They
may be imposed by way of example or correction only in
addition, among others, to compensatory damages and
cannot be recovered as a matter of right, their
determination
depending
upon
the
amount
of
compensatory damages that may be awarded to the

claimant; (2) the claimant must first establish his right
to
moral,
damages;
temperate,
and
(3)
liquidated
the
or
wrongful
compensatory
act
must
be
accompanied by bad faith, and the award would be

allowed only if the guilty party acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner
(Octot v. Ybaez, 111 SCRA 79 [1982]); Sweet Lines,
Inc., v. Court of Appeals, 121 SCRA 769 [1983]); Dee
Page 33 of 76
Hua Liong Electrical Equipment Corporation v. Reyes,
(P68,824.00) of the property he was buying, in favor of
145 SCRA 713 [1985]); Tan Kapoe v. Masa, 134 SCRA
respondent Cornelio Tantoco, entry No. 54835 in the
231[1985]). It may be awarded for breach of contract or
registry of deeds of Bulacan (Exhibits, p. 93). The same
quasi-contract as when a telegraph company personnel
annotation was transferred to TCT No. T-25079 in the
transmitted the wrong telegram (Radio Communication
name of petitioner after the sale of the property was
of the Philippines, Inc. v. Court of Appeals, 103 SCRA
effected and entered in the registry of deeds of Bulacan
359 [1981] but it is not recoverable in the absence of
on June 3, 1959 (Exhibits, p.102). Furthermore,
gross negligence (Bagumbayan Corp. v. Intermediate
petitioners cannot deny having assumed the mortgage
Appellate Court, 132 SCRA 441 [1984]).
debts of the Briones spouses amounting to P89,000.00
Respondent Court found malice in petitioners' refusal to

satisfy respondent Tantoco's lawful claim and in their
subsequent
filing
of
the
present
case
against
respondent, and took into consideration the worries

and mental anxiety of respondent as a result thereof. In
the words of respondent court:
in favor of the Tantocos. The "Patunay" (Exhibits 3-a)

executed by the Briones spouses on June 3, 1959 gives
the information that their property, and fishpond, was
sold by them to the spouses Fortunato de Leon and
Juana F. Gonzales for the amount of one hundred
twenty thousand pesos (P120,000.00),payment made to
them, as follows:
"The evidence shows that plaintiff-appellants' refusal to

satisfy appellee's lawful claims clearly amounted to
"Pinanagutan na aming pagkakautang kay
malice on their part when they filed the present case
G. Hermogenes Tantoco hanggang Mayo 1959
resulting as it were in worries and mental anxiety of the
89,000.00
defendant Tantoco who was dragged to court to litigate

this case for almost 10 years up to now. He was even
Cash na tinanggap namin PBC Check No. 57040

11,000.00
branded as a money lender, and accused forgery and of

entering into collusion with the end in view of
extracting extra amount . . . from the herein plaintiff.
All these tried to picture defendant Cornelio Tantoco
with alleged dishonesty who respecting the legitimate
obligation of the Briones to defendant Cornelio Tantoco,
thereby blemishing his honor, integrity and reputation
as a prominent doctor and a businessman. With all
these extant circumstances which served as a guidepost
for us in determining the reasonable amount of
damages sustained by the defendant-appellee, this
Court
hereby
fixes
the
amount
of
P60,000.00
Pagare No. 1 Junio 1, 1959
10,000.00
Pagare No. 2 Junio 1, 1959
10,000.00
Kabuuan
P120,000.00
At the bottom of the "Patunay" in the handwriting of

petitioner Fortunato de Leon is a statement signed by
him (Exh. 3b) signifying that he was assuming the
spouses' debt of P89,000.00 to respondent Tantoco, in
the following words:
representing moral and exemplary damages and the
"Ang pagkautang na P89,000.00 sa mga Tantoco ay
further sum of P5,000.00 as attorney's fees, which
aking inaasumihan." (Exhibits, p. 97).
plaintiffs-appellants
should
pay
the
defendant-
appellee." (Rollo, p. 61)
Petitioner retained P89,000.00 out of the P120,000.00,

representing the mortgage loan of the Briones spouses
As a lawyer in the practice of law since his admission to
to the Tantocos, including interest. Immediately after
the Bar in 1929, who has held several important
the sale of the fishpond was effected and registered with
positions in the government (TSN, April 22, 1965, p.
the registry of deeds of Bulacan petitioner paid the
127) petitioner Fortunato de Leon could not have
P20,000.00 loan of the Briones spouses to Hermogenes
missed the import of the annotation at the back of TCT
Tantoco including 10% interest on the loan, covered by
No. 28296 regarding the second mortgage for the sum
of sixty eight thousand eight hundred twenty-four pesos
Hermogenes Tantoco executed a deed of discharge from
first
mortgage
on
the
property.
Accordingly,
Page 34 of 76
the mortgage. Out of the P68,000.00 mortgage loan of
SCRA 440 [1987]). Moral damages though incapable of
the Briones spouses from respondent Cornelio Tantoco,
pecuniary estimations, are in the category of an award
petitioner, however made only a payment of P29,382.50
designed to compensate the claimant for actual injury
but would want respondent to execute the necessary
suffered and not to impose a penalty of the wrongdoer
discharge
for
(San Andres v. Court of Appeals, 116 SCRA 85 [1982]
themselves. They are mute but plain and visible
cited in Prudenciado v. Alliance Transport System, Inc.
evidence of the deliberate intent of petitioner to defraud
supra).
document.
The
documents
speak
respondent of the amount withheld from the Briones

spouses to cover the amount of the mortgage loan in
favor of respondent.
The
filing
of
the
Time and again the Court has ruled that "moral

damages are emphatically not intended to enrich a
complainant at the expense of a defendant. They are
case
against
respondent
being
awarded only to enable the injured party to obtain
unfounded and maliciously prosecuted satisfactorily
means, diversion or amusements that will serve to
proves the existence of the factual basis for moral
alleviate the moral suffering he has undergone, by
damages and the causal relation to petitioners' acts
reason of the defendants' culpable action" (Grand Union
(Hawpia v. Court of Appeals, 20 SCRA 535 [1967];
Supermarket, Inc. v. Espino, Jr., 94 SCRA 966 [1979]);
Ventura v. Bernabe, 38 SCRA 587 [1971]; Enervida v.
R & B Surety & Insurance Co., Inc. v. Intermediate
de la Torre, 55 SCRA 340 [1974]; Tan Kapoe v. Masa,
Appellate Court, 129 SCRA 736 [1984]; Prudenciado v.
134 SCRA 231 [1985]). Private respondent has a good
Alliance Transport System, Inc., supra).
name to protect. He is a surgeon by profession, had

been Chief of the Bulacan Provincial Hospital since
1946 until he put up a hospital of his own, the Rosary
General Hospital. He is a member of the Knights of
Columbus, a Cursillista, a member of the Lions, a fellow
of the Philippine College of Surgeons in good standing
from 1946 up to the present, a member of the
Philippine Medical Association and of the Bulacan
Medical
Association.
He
has
been
humiliated,
embarrassed, maligned and has been charged in bad

faith as a money lender in petitioner's complaint
accusing him of defrauding the Briones spouses (TSN,
pp. 227-250).
The
In the case of Miranda Ribaya v. Bautista (95 SCRA 672

[1980]), this Court considered 25% of the principal
amount as reasonable. In the case at bar, the Court of
Appeals
found
outstanding
on
balance
February
of
the
21,
disputed
that
loan
the
was
P64,921.69. Twenty five percent thereof is P16,230.00

but considering the depreciation of the Philippine peso
today, it is behaved that the award of moral and
exemplary damages in the amount of P25,000.00 is
reasonable.
PREMISES CONSIDERED, the assailed decision of the
Court of Appeals is AFFIRMED but the aggregate award
entitlement
to
moral
damages
having
been
established the award of exemplary damages is proper

(Bert Osmena & Associates v. Court of Appeals, 120
SCRA 395 [1983]; Tan Kapoe v. Masa, 134 SCRA 231
of moral and exemplary
damages is reduced
to
P25,000.00.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ.,
[1985]).
While the award of moral and exemplary damages in an
concur.
aggregate amount may not be the usual way of

awarding
1970
said
respondent's
damages
entitlement
there
to
is
moral
no
question
and
of
exemplary
damage (Tan Kapoe v. Masa, supra). The amount should

be reduced, however, for being excessive compared to
the actual losses sustained by the aggrieved party
(Prudenciado v. Alliance Transport System, Inc., 148
ACTUAL DAMAGES
THIRD DIVISION
[G.R. No. 69666. January 23, 1992.]
Page 35 of 76
plaintiff-
eyewitness to the incident which started inside the
appellee, vs. GUMERCINDO QUILATON y EBAROLA,
PROFEM Nursery and ended on the provincial road was
THE
PEOPLE
OF
THE
PHILIPPINES,
defendant-appellant.
Lamberto Abugan. Lamberto Abugan had testified
The Solicitor General for plaintiff-appellee.
Manahan and appellant after the former confronted
about a "falling out" or quarrel between Rolando

appellant and told him to desist from sleeping inside
Public Attorney's Office for accused-appellant.
the PROFEM office and from bringing women sleeping

companions therein. This culminated in a heated
SYLLABUS
argument that led appellant to leave the office in haste
REMEDIAL LAW; EVIDENCE; CREDIBILITY OF
and anger. The verbal dispute continued up to the
WITNESS; FINDINGS OF FACT OF THE TRIAL COURT;
provincial road where Rolando Manahan had followed
RULE; CASE AT BAR. The trial court instead gave
appellant. Lamberto Abugan, however, did not witness
credence to the testimony of Lamberto Abugan who had
the actual stabbing by appellant of Rolando Manahan
seen appellant initiate a deadly assault on the victim
as he ran away just then to seek help. The testimony of
Rolando Manahan by drawing a fan knife from his right
Lamberto
hip and by announcing his intention to kill Manahan.
reasonably
The ordinary rule is that findings of fact of the trial
commission of the crime. On the contrary, considering
court on the credibility of witnesses are entitled to great
that the attack was preceded by a heated argument, it
respect considering that the trial court was in a
cannot be fairly regarded as sudden and unexpected.
position to evaluate the deportment of witnesses while
The
testifying. The Court does not see any compelling
sufficiently put Rolando Manahan on guard against
reason to depart from the general rule.
physical violence; Rolando Manahan should have been
1.
2.
CRIMINAL
CIRCUMSTANCES;
LAW;
AGGRAVATING
TREACHERY;
CANNOT
BE
APPRECIATED IN THE ABSENCE OF EVIDENCE OF
Abugan
offers
inferring
tense
and
that
hostile
no
sufficient
treachery
atmosphere
basis
for
attended
the
should
have
aware that he was in effect inviting trouble in following

appellant into the provincial road and kicking the
latter's shoes that had fallen to the ground.
THE MODE OF ATTACK; REASON THEREFOR; CASE
3.
AT BAR. The Court, however, agrees with the
DEFENSE; OBLIGATIONS OF ACCUSED INVOKING
Solicitor General that appellant should be convicted of
THEREOF; CASE AT BAR. By invoking self-defense
homicide only. The information here filed specified
as
treachery and evident premeditation as qualifying
admitted that he had indeed killed Rolando Manahan.
circumstances. The trial court disregarded evident
In order that he may be relieved of criminal liability, he
premeditation, holding that the prosecution had not
is obliged to establish the presence of the following
adequately
that
requisites: (1) unlawful aggression; (2) reasonable
circumstance. But it considered appellant's act of
necessity of the means employed to prevent or repel it;
stabbing the unarmed Rolando Manahan as treachery
and (3) lack of sufficient provocation on the part of the
and took this into account in convicting appellant of
person defending himself. In so doing, appellant must
murder.
the
rely on the strength of his own evidence and not on the
absence of evidence of the mode of attack; it cannot be
weakness of that of the prosecution for even if the
presumed but must be proven positively. This is so
prosecution's
because treachery exists only "when the offender
disbelieved after appellant has admitted the killing. The
commits
person,
evidence of appellant on his claim of self-defense
employing means, methods, or forms in the execution
consisted solely of his own testimony. The trial court
thereof which tend directly and specially to insure its
rejected that testimony, firstly, because it was not
execution, without risk to himself
supported by convincing corroborative evidence and,
established
Treachery
any
of
the
cannot
the
be
crimes
presence
appreciated
against
the
of
in
arising from any
defense which the offended party might make." The sole
ID.;
JUSTIFYING
justifying
CIRCUMSTANCES;
circumstance,
evidence
were
appellant
weak,
it
in
SELF-
effect
cannot
be
Page 36 of 76
secondly,
because
the
trial
court
had
perceived
appellant to be a liar.
4.
to 1970 when the decision in Villa Rey Transit was
CIVIL LAW; DAMAGES; MORAL DAMAGE FOR
DEATH; PREVAILING JURISPRUDENCE. The amount

of P100,000.00 awarded to the heirs of Rolando
Manahan as indemnity for death must, however, be
reduced to P50,000.00 conformably with prevailing
jurisprudence on the matter. The propriety of the award
of P250,000.00 by the trial court in concept of moral
damages needs some analysis.
5.
based on a table derived from actuarial experience prior
ID.; ID.; ID.; OTHER MONETARY LIABILITIES
OF A PERSON ACCUSED AND CONVICTED OF A

CRIME. The monetary liabilities of a person accused
and convicted of a crime are specified in Article 2206 of
the Civil Code. Aside therefore, from the ordinary
indemnity for death which is currently set by case law
at P50,000.00, appellant is obliged: (1) to compensate
the heirs of Rolando Manahan for the latter's loss of
earning capacity; (2) to give support in the form of
expenses for education to the sisters of Rolando
promulgated. Actuarial experience subsequent to 1970

has, however, changed and indicates a longer life
expectancy
in
the
Philippines
due
to
conditions
including, among other things, advances in medical

science, improved nutrition and food supply, diet
consciousness and health maintenance. The 1970
mortality table was updated in 1980 to reflect the
changes of conditions.
DECISION
FELICIANO, J p:
Appellant Gumercindo Quilaton was found guilty of
murder and sentenced to suffer the penalty of reclusion
perpetua, and required to pay the heirs of the offended
party various amounts of money.
Appellant was tried and convicted under the following
information:
Manahan who had been dependent on him therefor;
"That on or about the 16th day of August, 1983, in the
and (3) to pay the heirs of Rolando Manahan moral
municipality of San Simon, province of Pampanga,
damages for the mental anguish suffered by them. In
Philippines,
and
the instant case, the trial court lumped these monetary
Honorable
Court,
obligations into what it called "moral damages."
GUMERCINDO QUILATON y EBAROLA alias 'ROBERTO

SANDOVAL'
within
armed
the
the
with
jurisdiction
above-named
a
knife
of
this
accused
(balisong),
with
deliberate intent to kill, by means of treachery and with

6.
ID.;
ID.;
DETERMINING
ACTUAL
THE
DAMAGES;
COMPENSABLE
RULE
IN
AMOUNT
OF
LOST EARNING. The more important variables taken

into account in determining the compensable amount of
lost earnings are: (1) the number of years for which the
victim would otherwise have lived; and (2) the rate of
loss sustained by the heirs of the deceased. In Villa Rey
evident premeditation, did then and there wilfully,

unlawfully, and feloniously attack, assault and wound
ROLANDO S. MANAHAN, thereby inflicting upon him
serious and fatal injuries, which directly caused the
death of the said Rolando S. Manahan. LLpr
All contrary to law." 1
Transit, Inc. v. Court of Appeals (31 SCRA 511) the
Appellant pleaded not guilty on arraignment and the
Court computed the first factor, i.e. life expectancy, by
case proceeded to trial. In time, the trial court rendered
applying the formula (2/3 x [80 age at death]) adopted
a decision with the following dispositive portion:
in the American Expectancy Table of Mortality or the

actuarial Combined Experience Table of Mortality. That
formula was followed by the Court in cases subsequent
to Villa Rey Transit, e.g. Philippine Airlines v. Court of
Appeals,
People
v.
Daniel
(supra);
and
Dangwa
Transportation Co., Inc. v. Court of Appeals. The Court

notes that the formula used in Villa Rey Transit was
"WHEREFORE, premises considered, the Court hereby

finds
the
accused
GUMERCINDO
QUILATON
EBAROLA, also known as Roberto Sandoval guilty

beyond reasonable doubt of the crime of Murder as
charged in the Information and hereby sentences him to
suffer the penalty of Reclusion Perpetua.
Page 37 of 76
The Court further sentences him to indemnify the heirs
heated exchange of words then ensued between Rolando
of Rolando S. Manahan the sum of One Hundred
Manahan and appellant.
Thousand (P100,000.00) Pesos, Philippine Currency, for

the death of Rolando S. Manahan, the sum of Twenty
Six Thousand Four Hundred Forty Five (P26,445.00)
Pesos, Philippine Currency, for actual damages incurred
for burial and other expenses of the deceased, the sum
of Two Hundred Fifty Thousand (P250,000.00) Pesos,
Philippine Currency, or moral damages. The Court
further orders the accused to pay the costs.
Appellant
who
remained
outside
the
office
later
requested Lamberto Abugan, an employee of the

PROFEM, to give him his (appellant's) bag of clothes
which had been left inside the room. Lamberto Abugan
initially
refused,
but
on
instructions
of
Rolando
Manahan, complied. With his bag of clothes, appellant

left the office.
Rolando Manahan, however, decided to follow appellant,
apparently to make certain that appellant would in fact
SO ORDERED." 2
leave the premises of the Nursery. Lamberto Abugan,
Appellant has assigned the following errors in his brief:

1.
The court a quo gravely erred in not finding that
the victim was armed with a bladed weapon and was
who had noticed Rolando Manahan leave the office, also

went out to look after them. Lamberto Abugan caught
up with the two (2) at the provincial road where he saw
Rolando Manahan kick appellant's shoes which were
the aggressor.
lying on the road; the heated altercation between the
2.
knife (balisong) from his right hip and told Rolando
two (2) continued. Moments later, appellant pulled a fan
The court a quo gravely erred in finding that the
killing of the victim was qualified by treachery.

3.
Manahan: "this time I am going to kill you, I shall not
The court a quo gravely erred in not finding that
the accused-appellant acted in self-defense. 3

The evidence for the prosecution discloses that the
appellant was a laborer in the Bureau of Forest
Development assigned at the PROFEM Nursery in San
Agustin, San Simon, Pampanga until 3 June 1983
when his services were terminated. While still a laborer
and occasionally after his termination, appellant would
spend the night in one of the rooms of the PROFEM
office. The PROFEM office, it seemed, was converted by
appellant into sleeping quarters during the night.
On 16 August 1983, between the hours of 8:00 and
9:00 o'clock in the evening, Rolando Manahan, then
officer-in-charge of the PROFEM, called for appellant to
see Manahan at the latter's office. Appellant who was
around the PROFEM office at that time, refused to see
Manahan at his office. Rolando Manahan came out of
forgive you." Rolando Manahan started to run away;

appellant chased him.
Lamberto Abugan also ran from the scene to seek help.
He proceeded to the police headquarters in San Simon,
Pampanga and from there returned to the provincial
road aboard a tricycle in the company of Pfc. Nicolas
Yambao. They saw Rolando Manahan lying on the road,
already dead. Appellant, upon the other hand, was
found in Sampaloc, Apalit, Pampanga where he was
arrested and searched. A fan knife and a bloodstained
shirt were recovered from the possession of appellant. 4
A post mortem examination of the cadaver of Rolando
Manahan was conducted by Dra. Maria Theresa Santos,
Municipal Health Officer of San Simon, Pampanga. Dra.
Santos'
report
indicated
that
Rolando
Manahan
sustained seven (7) wounds, two (2) of which located in

the chest were fatal. 5
his office and proceeded to admonish appellant to
Appellant submitted a different version of the facts. He
discontinue his practice of sleeping inside the office,
alleged that on the night of 16 August 1983 when he
sometimes
town.
left the PROFEM office, he became alarmed upon noting
Appellant was reported to have replied "yes, sir, and
that Rolando Manahan was following him. Appellant
from now on I will not bring girls inside the office." A
quickened his steps but because the road was slippery,
with
women
brought
from
the
Page 38 of 76
he fell on the ground with the bag he was carrying, and
secondly,
his shoes spilled onto the road. Rolando Manahan
appellant to be a liar.
kicked his shoes away and continued walking. As

Rolando Manahan came nearer, appellant ran away only
to be stopped in a fenced area. Rolando Manahan there
attacked him with a bladed weapon but appellant was
able to wrest possession of the bladed weapon.
Appellant then instinctively stabbed Rolando Manahan
until the latter died. Appellant claims that after the
incident, he walked towards Apalit, Pampanga to
surrender as he did not know where the municipal
building of San Simon, Pampanga was. He was on his
way to surrender when the police authorities arrested
him. 6
The principal contention of appellant is that he had
acted
in
self-defense
when
he
stabbed
Rolando
Manahan to death. He imputes unlawful aggression to
because
the
trial
court
had
perceived
During trial of the case, the prosecution had marked

and offered in evidence the letter of the INP Station
Commander in Dalaguete, Cebu informing the INP
Station Commander in San Simon, Pampanga that
appellant had two (2) pending cases in Dalaguete, Cebu.
One of those cases was for murder and the other for
double murder. Certified true copies of the alias
warrants for the arrest of appellant in both cases were
also marked in evidence by the prosecution. 9 Appellant
had denied the pendency of the cases. On crossexamination, he testified as follows:
"Q.
Mr. Quilaton, in your town in Dalaguete, Cebu
your mayor is Paz Wong?

A.
I do not know her, sir.
as a cumulative result of antecedent events namely: (1)
Q.
And who is the mayor whom you know in your
Rolando Manahan had been reprimanded for his
town?
Rolando Manahan who, he claims, deeply resented him
inaction on the report that had reached the Central

Office that appellant was bringing girls during the night
inside the PROFEM office; and (2) Rolando Manahan, as
officer-in-charge of the PROFEM, was humiliated by
appellant's lack of respect in refusing to see the former
at his office. Thus, according to appellant, Rolando
Manahan pursued him even as he had left the PROFEM
office during the night of 16 August 1983.
A.
Legaspi, sir.
Q.
Who was your Station Commander when you left
Dalaguete, Cebu?
A.
I do not know his name, sir.
Q.
Mr. Quilaton, is it not a fact that you have a
pending case of double murder in the Municipal Trial
By invoking self-defense as a justifying circumstance,
Court of Dalaguete, Cebu docketed as Crim. Case No.
appellant in effect admitted that he had indeed killed
3032 before the Honorable Judge Buenconsejo?
Rolando Manahan. In order that he may be relieved of

criminal liability, he is obliged to establish the presence
of the following requisites: (1) unlawful aggression; (2)
reasonable necessity of the means employed to prevent
or repel it; and (3) lack of sufficient provocation on the
part of the person defending himself. 7 In so doing,
appellant must rely on the strength of his own evidence
and not on the weakness of that of the prosecution for
even if the prosecution's evidence were weak, it cannot
be disbelieved after appellant has admitted the killing. 8
The evidence of appellant on his claim of self-defense
consisted solely of his own testimony. The trial court
rejected that testimony, firstly, because it was not
supported by convincing corroborative evidence and,
A.
I do not know that, sir.
Q.
You do not also know that there is also another
pending murder case docketed as Crim. Case No. 2710

before the Hon. Dominador Tumulak?
A.
I do not know that, sir.
Q.
Will you deny that you have also another
pending case before the RTC, Branch 26 of Ardaos,

Cebu?
A.
None, sir.
Q.
You mean you have no pending case in Cebu?
Page 39 of 76
A.
None, sir.
Manahan and appellant after the former confronted
Q.
Is it not a fact Mr. Quilaton that you were a
convict escapee in the Provincial Jail of Cebu?
appellant and told him to desist from sleeping inside

the PROFEM office and from bringing women sleeping
companions therein. This culminated in a heated
A.
No, sir.
argument that led appellant to leave the office in haste
Q.
Since you left Cebu, have you returned to Cebu?
provincial road where Rolando Manahan had followed
A.
Not yet, sir." 10
and anger. The verbal dispute continued up to the

appellant. Lamberto Abugan, however, did not witness
the actual stabbing by appellant of Rolando Manahan
The trial court instead gave credence to the testimony of

Lamberto Abugan who had seen appellant initiate a
deadly assault on the victim Rolando Manahan by
drawing a fan knife from his right hip and by
announcing his intention to kill Manahan. The ordinary
rule is that findings of fact of the trial court on the
credibility of witnesses are entitled to great respect
considering that the trial court was in a position to
evaluate the deportment of witnesses while testifying.
11 The Court does not see any compelling reason to
depart from the general rule.
that appellant should be convicted of homicide only.

The information here filed specified treachery and
evident premeditation as qualifying circumstances. The
trial court disregarded evident premeditation, holding
that the prosecution had not adequately established the
presence of that circumstance. But it considered
appellant's act of stabbing the unarmed Rolando
Manahan as treachery and took this into account in
convicting appellant of murder.
Treachery cannot be appreciated in the absence of
evidence of the mode of attack; 12 it cannot be
presumed but must be proven positively. 13 This is so
because treachery exists only "when the offender
any
of
the
crimes
The testimony of Lamberto Abugan offers no sufficient

basis for reasonably inferring that treachery attended
the
commission
of
the
crime.
On
the
contrary,
considering that the attack was preceded by a heated

argument, it cannot be fairly regarded as sudden and
unexpected. The tense and hostile atmosphere should
have sufficiently put Rolando Manahan on guard
against physical violence; Rolando Manahan should
have been aware that he was in effect inviting trouble in
following appellant into the provincial road and kicking
The Court, however, agrees with the Solicitor General
commits
as he ran away just then to seek help.
against
the
person,
employing means, methods, or forms in the execution
the latter's shoes that had fallen to the ground.

The trial court had ordered appellant to pay the heirs of
Rolando Manahan P26,445.00 as actual damages,
representing interment and related expenses incurred
by the heirs of Rolando Manahan. The brother of
Rolando
Manahan
testified
on
this
matter
and
submitted various receipts in support of their claim for

actual damages; appellant did not controvert this claim
nor the amount thereof.
The amount of P100,000.00 awarded to the heirs of
Rolando Manahan as indemnity for death must,
however, be reduced to P50,000.00 conformably with
prevailing
jurisprudence
on
the
matter.
15
The
propriety of the award of P250,000.00 by the trial court

in concept of moral damages needs some analysis.
thereof which tend directly and specially to insure its
The monetary liabilities of a person accused and
execution, without risk to himself arising from any
convicted of a crime are specified in Article 2206 of the
defense which the offended party might make." 14
Civil Code:
The sole eyewitness to the incident which started inside
"ARTICLE 2206.
the PROFEM Nursery and ended on the provincial road
caused by a crime or quasi-delict shall be at least three
was Lamberto Abugan. Lamberto Abugan had testified
thousand pesos, even though there may have been
about a "falling out" or quarrel between Rolando
mitigating circumstances. In addition:
The amount of damages for death
Page 40 of 76
(1)
The defendant shall be liable for the loss of the
the formula used in Villa Rey Transit was based on a
earning capacity of the deceased, and the indemnity
table derived from actuarial experience prior to 1970
shall be paid to the heirs of the latter; such indemnity
when the decision in Villa Rey Transit was promulgated.
shall in every case be assessed and awarded by the
Actuarial experience subsequent to 1970 has, however,
court, unless the deceased on account of permanent
changed and indicates a longer life expectancy in the
physical disability not caused by the defendant, had no
Philippines due to conditions including, among other
earning capacity at the time of his death;
things, advances in medical science, improved nutrition
(2)
If the deceased was obliged to give support
according to the provisions of article 291, the recipient

who is not an heir called to the decedent's inheritance
and
food
supply,
diet
consciousness
and
health
maintenance. The 1970 mortality table was updated in

1980 to reflect the changes of conditions. 20
by the law of testate or intestate succession, may
Considering that Rolando Manahan was 26 years of age
demand support from the person causing the death, for
at the time of death, he was expected to live for another
a period not exceeding five years, the exact duration to
46 years. This is derived by using the generally accepted
be fixed by the court;
formula in computing for life expectancy, based on the
(3)
The
spouses,
legitimate
and
illegitimate
descendants and ascendants of the deceased may
1980 CSO table:

S (Lx+1, Lx+2, .., Lx+n), where n =100 - x
demand moral damages for mental anguish by reason of
Lx
the death of the deceased." (Emphasis supplied).
x = age upon death

L = number of people in sample
Aside, therefore, from the ordinary indemnity for death

which is currently set by case law at P50,000.00,
surviving after number of years.
appellant is obliged: (1) to compensate the heirs of

Rolando Manahan for the latter's loss of earning
But a man does not normally continue working to earn
capacity; (2) to give support in the form of expenses for
money up to the final month or year of his life; hence 46
education to the sisters of Rolando Manahan who had
years could be reasonably reduced to 39 years. 21
been dependent on him therefor; and (3) to pay the
Besides, Rolando Manahan was a government employee
heirs of Rolando Manahan moral damages for the
who is expected to retire at the age of 65. If there are
mental anguish suffered by them. 16 In the instant
261 working days in a year 22 and Rolando Manahan
case, the trial court lumped these monetary obligations
was receiving P23.00 a day, 23 Rolando Manahan's
into what it called "moral damages."
gross earnings would be approximately P234,000.00. A
The more important variables taken into account in

determining the compensable amount of lost earnings
are: (1) the number of years for which the victim would
otherwise have lived; and (2) the rate of loss sustained
by the heirs of the deceased. 17 In Villa Rey Transit,
reasonable amount must be deducted therefrom that

would
represent
Rolando
Manahan's
necessary
expenses had he been living, in this case P120,000.00.

The net or compensable earnings lost by reason of
Rolando Manahan's death is, accordingly, P114,000.00.
Inc. v. Court of Appeals (supra), the Court computed
Finally, the Court in the exercise of its discretion,
the first factor, i.e. life expectancy, by applying the
considers it appropriate and reasonable to award the
formula (2/3 x [80 age at death]) adopted in the
amount of P20,000.00 to the heirs of Rolando Manahan
American Expectancy Table of Mortality or the actuarial
by way of moral damages. Ruben Manahan, brother of
Combined Experience Table of Mortality. That formula
Rolando Manahan, testified that their mother suffered a
was followed by the Court in cases subsequent to Villa
mild stroke upon learning of Rolando Manahan's
Rey Transit, e.g. Philippine Airlines v. Court of Appeals,
slaying; this eventually resulted in the mother's semi-
18 People v. Daniel (supra); and Dangwa Transportation
paralysis. 24
Co., Inc. v. Court of Appeals. 19 The Court notes that
Page 41 of 76
WHEREFORE, the Decision of the Regional Trial Court,
Petitioner Dario Nacar filed a complaint for constructive
Branch 54, Macabebe, Pampanga is hereby SET ASIDE;
dismissal before the Arbitration Branch of the National
the Court instead finds appellant Gumercindo Quilaton
Labor
guilty
respondents Gallery Frames (GF) and/or Felipe Bordey,
of
HOMICIDE.
Applying
the
Indeterminate
Sentence Law, appellant is hereby SENTENCED to

suffer
imprisonment
for
an
indeterminate
period
ranging from ten (10) years as minimum to seventeen

(17) years and four (4) months as maximum. Appellant
is ORDERED to pay the heirs of Rolando Manahan the
following amounts:
1.
P50,000.00 as indemnity for death;
2.
P26,445.00 as actual damages;
3.
P114,000.00 by way of lost earnings;
4.
P10,000.00 by way of educational assistance to
Rolando Manahan's two (2) sisters; and

5.
P20,000.00 as moral damages.
Costs against appellant.
Relations
Commission
(NLRC)
against
Jr., docketed as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a
Decision 3 in favor of petitioner and found that he was
dismissed from employment without a valid or just
cause. Thus, petitioner was awarded backwages and
separation pay in lieu of reinstatement in the amount of
P158,919.92. The dispositive portion of the decision,
reads:
With
the
foregoing,
we
find
and
so
rule
that
respondents failed to discharge the burden of showing

that complainant was dismissed from employment for a
just or valid cause. All the more, it is clear from the
records that complainant was never afforded due
process before he was terminated. As such, we are
perforce constrained to grant complainant's prayer for
the payments of separation pay in lieu of reinstatement
SO ORDERED.
to
his
former
position,
considering
the
strained
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ .,
reluctance to be reinstated, computed only up to
concur.
promulgation of this decision as follows: CcSTHI
relationship between the parties, and his apparent
SEPARATION PAY
EN BANC
Date Hired
[G.R. No. 189871. August 13, 2013.]
Rate
P198/day
DARIO NACAR, petitioner, vs. GALLERY FRAMES
Date of Decision
Aug. 18, 1998
Length of Service
8 yrs. & 1 month
and/or FELIPE BORDEY, JR., respondents.

DECISION
PERALTA, J p:
This is a petition for review on certiorari assailing the
Decision 1 dated September 23, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 98591, and the
Resolution 2 dated October 9, 2009 denying petitioner's
August 1990
P198.00 x 26 days x 8 months
P41,184.00
BACKWAGES
Date Dismissed
Rate per day
P196.00
motion for reconsideration. SEAHcT
Date of Decisions
The factual antecedents are undisputed.
a)
January 24, 1997
Aug. 18, 1998
1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.
P62,986.56
Page 42 of 76
b)
2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day
reversible error on the part of the CA, this Court denied

P62,986.00
P198.00 x 26 days x 6.4 mos.
An Entry of Judgment was later issued certifying that
the resolution became final and executory on May 27,
P32,947.20
TOTAL =
xxx
the petition in the Resolution dated April 17, 2002. 8
2002. 9 The case was, thereafter, referred back to the
Labor
P95,933.76
appear. 10
===========
On November 5, 2002, petitioner filed a Motion for
xxx
Arbiter.
pre-execution
conference
was
consequently scheduled, but respondents failed to
Correct Computation, praying that his backwages be
xxx
computed from the date of his dismissal on January 24,
WHEREFORE, premises considered, judgment is hereby

rendered finding respondents guilty of constructive
1997 up to the finality of the Resolution of the Supreme

Court on May 27, 2002. 11 Upon recomputation, the
dismissal and are therefore, ordered: ISDHEa
Computation and Examination Unit of the NLRC arrived
1.
DSCIEa
at an updated amount in the sum of P471,320.31. 12
To pay jointly and severally the complainant the
amount of sixty-two thousand nine hundred eighty-six

pesos and 56/100 (P62,986.56) Pesos representing his
On December 2, 2002, a Writ of Execution 13 was
separation pay;
issued by the Labor Arbiter ordering the Sheriff to
2.
To pay jointly and severally the complainant the
P471,320.31. Respondents filed a Motion to Quash Writ
amount of nine (sic) five thousand nine hundred thirty-
of Execution, arguing, among other things, that since
three
the Labor Arbiter awarded separation pay of P62,986.56
and
36/100
collect
(P95,933.36)
representing
his
backwages; and
3.
and
All other claims are hereby dismissed for lack of
merit.
from
limited
respondents
backwages
of
the
total
amount
P95,933.36,
no
of
more
recomputation is required to be made of the said

awards. They claimed that after the decision becomes
final and executory, the same cannot be altered or
amended anymore. 14 On January 13, 2003, the Labor
SO ORDERED. 4
Respondents
appealed to
the
NLRC,
but it
was
dismissed for lack of merit in the Resolution 5 dated

February 29, 2000. Accordingly, the NLRC sustained
the decision of the Labor Arbiter. Respondents filed a
Arbiter issued an Order 15 denying the motion. Thus,

an Alias Writ of Execution 16 was issued on January
14, 2003.
Respondents again appealed before the NLRC, which on
motion for reconsideration, but it was denied. 6
June 30, 2003 issued a Resolution 17 granting the
Dissatisfied, respondents filed a Petition for Review on
recomputation of the judgment award.
Certiorari before the CA. On August 24, 2000, the CA

issued
Resolution
dismissing
the
petition.
Respondents filed a Motion for Reconsideration, but it

was likewise denied in a Resolution dated May 8, 2001.
appeal in favor of the respondents and ordered the
On August 20, 2003, an Entry of Judgment was issued

declaring the Resolution of the NLRC to be final and
executory.
Consequently,
another
pre-execution
conference was held, but respondents failed to appear
Respondents then sought relief before the Supreme
of Execution be issued to enforce the earlier recomputed
Court, docketed as G.R. No. 151332. Finding no
on time. Meanwhile, petitioner moved that an Alias Writ

judgment award in the sum of P471,320.31. 18
Page 43 of 76
The records of the case were again forwarded to the
to be done except to enforce the said judgment.
Computation and Examination Unit for recomputation,
Consequently, it can no longer be modified in any
where the judgment award of petitioner was reassessed
respect, except to correct clerical errors or mistakes.
to be in the total amount of only P147,560.19.
Petitioner filed a Motion for Reconsideration, but it was
Petitioner then moved that a writ of execution be issued

ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated
October 15, 1998, pending the final computation of his
backwages and separation pay. HEcSDa
On January 14, 2003, the Labor Arbiter issued an Alias
Writ of Execution to satisfy the judgment award that
was due to petitioner in the amount of P147,560.19,
which petitioner eventually received.
denied in the Resolution 25 dated October 9, 2009.

Hence, the petition assigning the lone error: ScaATD
I
WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED, COMMITTED GRAVE
ABUSE OF DISCRETION AND DECIDED CONTRARY
TO
LAW
IN
UPHOLDING
THE
QUESTIONED
RESOLUTIONS OF THE NLRC WHICH, IN TURN,
Petitioner then filed a Manifestation and Motion praying

for the re-computation of the monetary award to
include the appropriate interests. 19
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR

ARBITER MAGAT MAKING THE DISPOSITIVE PORTION
OF THE OCTOBER 15, 1998 DECISION OF LABOR
ARBITER LUSTRIA SUBSERVIENT TO AN OPINION
On May 10, 2005, the Labor Arbiter issued an Order 20
EXPRESSED IN THE BODY OF THE SAME DECISION.
granting the motion, but only up to the amount of
26
P11,459.73. The Labor Arbiter reasoned that it is the

October 15, 1998 Decision that should be enforced
considering that it was the one that became final and
executory. However, the Labor Arbiter reasoned that
since the decision states that the separation pay and
backwages are computed only up to the promulgation of
the said decision, it is the amount of P158,919.92 that
should be executed. Thus, since petitioner already
received P147,560.19, he is only entitled to the balance
of P11,459.73.
Petitioner argues that notwithstanding the fact that

there was a computation of backwages in the Labor
Arbiter's
decision,
the
same
is
not
final
until
reinstatement is made or until finality of the decision,

in case of an award of separation pay. Petitioner
maintains that considering that the October 15, 1998
decision of the Labor Arbiter did not become final and
executory until the April 17, 2002 Resolution of the
Supreme Court in G.R. No. 151332 was entered in the
Book of Entries on May 27, 2002, the reckoning point
Petitioner then appealed before the NLRC, 21 which
for the computation of the backwages and separation
appeal was denied by the NLRC in its Resolution 22
pay should be on May 27, 2002 and not when the
dated September 27, 2006. Petitioner filed a Motion for
decision of the Labor Arbiter was rendered on October
Reconsideration, but it was likewise denied in the
15, 1998. Further, petitioner posits that he is also
Resolution 23 dated January 31, 2007.
entitled to the payment of interest from the finality of
Aggrieved, petitioner then sought recourse before the

CA, docketed as CA-G.R. SP No. 98591.
On their part, respondents assert that since only
On September 23, 2008, the CA rendered a Decision 24

denying
the
petition.
The
CA
opined
the decision until full payment by the respondents.
that
since
petitioner no longer appealed the October 15, 1998

Decision of the Labor Arbiter, which already became
final and executory, a belated correction thereof is no
longer allowed. The CA stated that there is nothing left
separation pay and limited backwages were awarded to

petitioner by the October 15, 1998 decision of the Labor
Arbiter, no more recomputation is required to be made
of said awards. Respondents insist that since the
decision clearly stated that the separation pay and
backwages are "computed only up to [the] promulgation
of this decision," and considering that petitioner no
Page 44 of 76
longer appealed the decision, petitioner is only entitled
The first is that part of the decision that cannot now be
to the award as computed by the Labor Arbiter in the
disputed because it has been confirmed with finality.
total amount of P158,919.92. Respondents added that
This is the finding of the illegality of the dismissal and
it was only during the execution proceedings that the
the awards of separation pay in lieu of reinstatement,
petitioner questioned the award, long after the decision
backwages, attorney's fees, and legal interests. TaISEH
had become final and executory. Respondents contend

that
to
allow
the
further
recomputation
of
the
backwages to be awarded to petitioner at this point of

the proceedings would substantially vary the decision of
the Labor Arbiter as it violates the rule on immutability
of judgments. HcDSaT
Delights Ice Cream and Fast Foods v. Court of Appeals

(Sixth Division), 27 wherein the issue submitted to the
resolution
made shows that it was time-bound as can be seen

from the figures used in the computation. This part,
being merely a computation of what the first part of the
re-computed. This is the part, too, that the petitioner
The instant case is similar to the case of Session
for
made. On its face, the computation the labor arbiter
decision established and declared, can, by its nature, be
The petition is meritorious.
Court
The second part is the computation of the awards
was
the
propriety
of
the
computation of the awards made, and whether this

violated the principle of immutability of judgment. Like
in the present case, it was a distinct feature of the
judgment of the Labor Arbiter in the above-cited case
that the decision already provided for the computation
now posits should no longer be re-computed because

the computation is already in the labor arbiter's
decision that the CA had affirmed. The public and
private respondents, on the other hand, posit that a recomputation is necessary because the relief in an illegal
dismissal decision goes all the way up to reinstatement
if reinstatement is to be made, or up to the finality of
the decision, if separation pay is to be given in lieu
reinstatement.
of the payable separation pay and backwages due and
That the labor arbiter's decision, at the same time that
did not further order the computation of the monetary
it found that an illegal dismissal had taken place, also
awards up to the time of the finality of the judgment.
made a computation of the award, is understandable in
Also in Session Delights, the dismissed employee failed
light of Section 3, Rule VIII of the then NLRC Rules of
to appeal the decision of the labor arbiter. The Court
Procedure which requires that a computation be made.
clarified, thus:
This Section in part states:
In concrete terms, the question is whether a re-
[T]he Labor Arbiter of origin, in cases involving
computation in the course of execution of the labor
monetary
arbiter's original computation of the awards made,
practicable, shall embody in any such decision or order
pegged as of the time the decision was rendered and
the detailed and full amount awarded.
confirmed with modification by a final CA decision, is

legally proper. The question is posed, given that the
petitioner did not immediately pay the awards stated in
the original labor arbiter's decision; it delayed payment
because it continued with the litigation until final
judgment at the CA level.
A source of misunderstanding in implementing the final
decision in this case proceeds from the way the original
labor arbiter framed his decision. The decision consists
essentially of two parts.
awards
and
at
all
events,
as
far
as
Clearly implied from this original computation is its

currency up to the finality of the labor arbiter's
decision. As we noted above, this implication is
apparent from the terms of the computation itself, and
no
question
would
have
arisen
had
the
parties
terminated the case and implemented the decision at

that point. HSEIAT
However,
the
petitioner
disagreed
with
the
labor
arbiter's findings on all counts i.e., on the finding of

illegality as well as on all the consequent awards made.
Hence, the petitioner appealed the case to the NLRC
Page 45 of 76
which, in turn, affirmed the labor arbiter's decision. By
previous computation has been made) is a part of the
law, the NLRC decision is final, reviewable only by the
law specifically, Article 279 of the Labor Code and
CA on jurisdictional grounds.
the established jurisprudence on this provision that
The petitioner appropriately sought to nullify the NLRC

decision on jurisdictional grounds through a timely filed
Rule 65 petition for certiorari. The CA decision, finding
that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to
finality and was subsequently returned to the labor
arbiter of origin for execution.
It was at this point that the present case arose.
Focusing on the core illegal dismissal portion of the
original labor arbiter's decision, the implementing labor
arbiter ordered the award re-computed; he apparently
read the figures originally ordered to be paid to be the
computation due had the case been terminated and
implemented at the labor arbiter's level. Thus, the labor
arbiter re-computed the award to include the separation
pay and the backwages due up to the finality of the CA
decision that fully terminated the case on the merits.
Unfortunately, the labor arbiter's approved computation
went beyond the finality of the CA decision (July 29,
2003) and included as well the payment for awards the
final CA decision had deleted specifically, the
proportionate 13th month pay and the indemnity
awards. Hence, the CA issued the decision now
questioned in the present petition.
We see no error in the CA decision confirming that a recomputation is necessary as it essentially considered
the labor arbiter's original decision in accordance with
its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality
is read into the decision. By the nature of an illegal

dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the
Labor Code. The recomputation of the consequences of
illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final
decision being implemented. The illegal dismissal ruling
stands;
only
the
computation
of
monetary
consequences of this dismissal is affected, and this is

not a violation of the principle of immutability of final
judgments. 30
That the amount respondents shall now pay has greatly
increased is a consequence that it cannot avoid as it is
the risk that it ran when it continued to seek recourses
against
the
Labor
Arbiter's
decision.
Article
279
provides for the consequences of illegal dismissal in no

uncertain terms, qualified only by jurisprudence in its
interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the
finality of the illegal dismissal decision becomes the
reckoning point instead of the reinstatement that the
law decrees. In allowing separation pay, the final
decision
effectively
relationship
ended
declares
so
that
that
the
employment
separation
pay
and
backwages are to be computed up to that point. 31

Finally, anent the payment of legal interest. In the
landmark case of Eastern Shipping Lines, Inc. v. Court
of Appeals, 32 the Court laid down the guidelines
regarding the manner of computing legal interest, to wit:
and its monetary consequences; the second part is the
II.
computation of the awards or monetary consequences
in the concept of actual and compensatory damages,
With regard particularly to an award of interest
of the illegal dismissal, computed as of the time of the
the rate of interest, as well as the accrual thereof, is
labor arbiter's original decision. 28 ESaITA
imposed, as follows: cDHAES
Consequently, from the above disquisitions, under the
1.
terms of the decision which is sought to be executed by
in the payment of a sum of money, i.e., a loan or
the petitioner, no essential change is made by a
forbearance of money, the interest due should be that
recomputation as this step is a necessary consequence
which
that flows from the nature of the illegality of dismissal
Furthermore, the interest due shall itself earn legal
declared by the Labor Arbiter in that decision. 29 A
interest from the time it is judicially demanded. In the
recomputation (or an original computation, if no
absence of stipulation, the rate of interest shall be 12%
When the obligation is breached, and it consists
may
have
been
stipulated
in
writing.
Page 46 of 76
per annum to be computed from default, i.e., from
allowed in judgments, in the absence of an express
judicial or extrajudicial demand under and subject to
contract as to such rate of interest, shall be six percent
the provisions of Article 1169 of the Civil Code.
(6%) per annum.
2.
Section 2.
When an obligation, not constituting a loan or
In view of the above, Subsection X305.1
forbearance of money, is breached, an interest on the
36 of the Manual of Regulations for Banks and Sections
amount of damages awarded may be imposed at the
4305Q.1, 37 4305S.3 38 and 4303P.1 39 of the Manual
discretion of the court at the rate of 6% per annum. No
of Regulations for Non-Bank Financial Institutions are
interest, however, shall be adjudged on unliquidated
hereby amended accordingly.
claims or damages except when or until the demand

can
be
established
with
reasonable
certainty.
Accordingly, where the demand is established with

reasonable certainty, the interest shall begin to run
from
the
time
the
claim
is
made
judicially
or
extrajudicially (Art. 1169, Civil Code) but when such

certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to
run only from the date the judgment of the court is
made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall,
in any case, be on the amount finally adjudged.
3.
When the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal

interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit. 33
This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express
stipulation as to the rate of interest that would govern
the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent
(12%) per annum as reflected in the case of Eastern
Shipping Lines 40 and Subsection X305.1 of the
Manual
of
Regulations
for
Banks
and
Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of

Regulations for Non-Bank Financial Institutions, before
its amendment by BSP-MB Circular No. 799 but will
now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate
could
only
be
applied
prospectively
and
not
retroactively. Consequently, the twelve percent (12%) per

annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent
(6%) per annum shall be the prevailing rate of interest
when applicable. DTIcSH
Recently, however, the Bangko Sentral ng Pilipinas

Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of
Section 2 34 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, 35 Series of 2013,
effective July 1, 2013, the pertinent portion of which
reads: AHcaDC
Corollarily, in the recent case of Advocates for Truth in

Lending, Inc. and Eduardo B. Olaguer v. Bangko
Sentral Monetary Board, 41 this Court affirmed the
authority of the BSP-MB to set interest rates and to
issue and enforce Circulars when it ruled that "the
BSP-MB may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the
The Monetary Board, in its Resolution No. 796 dated 16
forbearance of any money, goods or credits, including
May 2013, approved the following revisions governing
those for loans of low priority such as consumer loans,
the rate of interest in the absence of stipulation in loan
as well as such loans made by pawnshops, finance
contracts, thereby amending Section 2 of Circular No.
companies and similar credit institutions. It even
905, Series of 1982:
authorizes the BSP-MB to prescribe different maximum
Section 1.
The rate of interest for the loan or
forbearance of any money, goods or credits and the rate
rate or rates for different types of borrowings, including

deposits and deposit substitutes, or loans of financial
intermediaries."
Page 47 of 76
Nonetheless, with regard to those judgments that have
run only from the date the judgment of the court is
become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed
therein.
in any case, be on the amount finally adjudged.
To recapitulate and for future guidance, the guidelines
3.
laid down in the case of Eastern Shipping Lines 42 are
accordingly modified to embody BSP-MB Circular No.
799, as follows:
I.
When an obligation, regardless of its source, i.e.,
law, contracts, quasi-contracts, delicts or quasi-delicts

is breached, the contravenor can be held liable for
damages.
provisions
under
Title
XVIII

credit. SDHETI
on
And, in addition to the above, judgments that have
"Damages" of the Civil Code govern in determining the
become final and executory prior to July 1, 2013, shall
measure of recoverable damages.
not be disturbed and shall continue to be implemented
II.
The
applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated
September 23, 2008 of the Court of Appeals in CA-G.R.
imposed, as follows: HcSaTI
SP No. 98591, and the Resolution dated October 9,
1.
2009 are REVERSED and SET ASIDE. Respondents are

ORDERED to PAY petitioner:
(1)
which
may
have
been
stipulated
in
backwages computed from the time petitioner
writing.
was illegally dismissed on January 24, 1997 up to May
27, 2002, when the Resolution of this Court in G.R. No.
interest from the time it is judicially demanded. In the
151332 became final and executory;
absence of stipulation, the rate of interest shall be 6%

per annum to be computed from default, i.e., from
the provisions of Article 1169 of the Civil Code.
2.
When an obligation, not constituting a loan or

discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand
can
be
established
with
reasonable
certainty.

from
the
time
the
claim
is
made
judicially
or
extrajudicially (Art. 1169, Civil Code), but when such

(2)
separation pay computed from August 1990 up
to May 27, 2002 at the rate of one month pay per year
of service; and
(3)
interest of twelve percent (12%) per annum of
the total monetary awards, computed from May 27,

2002 to June 30, 2013 and six percent (6%) per annum
from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another
recomputation of the total monetary benefits awarded
and due to petitioner in accordance with this Decision.
SO ORDERED. TSIaAc
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de Castro,
Brion, Bersamin, Del Castillo, Abad, Villarama, Jr.,
Perez, Mendoza, Reyes, Perlas-Bernabe and Leonen,
JJ., concur.
Page 48 of 76
stipulated in writing. Furthermore, the interest due
EN BANC
shall itself earn legal interest from the time it is
[G.R. No. 97412. July 12, 1994.]
judicially demanded. In the absence of stipulation, the
EASTERN SHIPPING LINES, INC., petitioner, vs.

HON.
COURT
OF
APPEALS
AND
MERCANTILE
INSURANCE COMPANY, INC., respondents.
rate of interest shall be 12% per annum to be computed

from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of
the Civil Code. 2. When a obligation, not constituting a
loan or forbearance of money, is breached, an interest
SYLLABUS
on the amount of damages awarded may be imposed at
CIVIL LAW; COMMON CARRIERS; TIME FRAME
the discretion of the court at the rate of 6% per annum.
WITHIN WHICH DILIGENCE REQUIRED IN SHIPMENT
No interest, however, shall be adjudged on unliquidated
OF GOODS LAST. The common carrier's duty to
claims or damages except when or until the demand
observe the requisite diligence in the shipment of goods
can
lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered
from
to, or until the lapse of a reasonable time for their
extrajudicially (Art. 1169, Civil Code) but when such
acceptance, by the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals,
161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52
run only from the date of the judgment of the court is
Phil. 863).
1.
2.
ID.; ID.; ID.; PRESUMPTION OF CARRIER'S
FAULT ON LOST OR DAMAGED GOODS SHIPPED;

CASE AT BAR NOT AN EXCEPTION. When the goods
shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to
observe that diligence, and there need not be an
express finding of negligence to hold it liable (Art. 1735,
Civil Code; Philippine National Railways vs. Court of
Appeals, 139 SCRA 87; Metro Port Service vs. Court of
Appeals,
131
SCRA
365).
There
are,
of
course,
exceptional cases when such presumption of fault is not

observed but these cases, enumerated in Article 1734 of
the Civil Code, are exclusive, not one of which can be
applied to this case.
3.
ID.; DAMAGES; INTEREST AWARDED AS A
CONCEPT THEREOF; RATE AND ACCRUAL THEREOF,

HOW DETERMINED. With regard particularly to an
award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows: 1. When the
obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been
be
established
the
time
the
with
claim
reasonable
is
made
certainty.
judicially
or

in any case, be on the amount of finally adjudged. 3.
When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
credit.
DECISION
VITUG, J p:
The issues, albeit not completely novel, are: (a) whether
or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of
the common carrier, the arrastre operator and the
customs broker; (b) whether the payment of legal
interest on an award of loss or damage is to be
computed from the time the complaint is filed or from
the date the decision appealed from is rendered; and (c)
whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%). llcd
Page 49 of 76
The findings of the court a quo, adopted by the Court of
"As a consequence of the losses sustained, plaintiff was
Appeals, on the antecedent and undisputed facts that
compelled to pay the consignee P19,032.95 under the
have led to the controversy are hereunder reproduced:
aforestated marine insurance policy, so that it became
"This is an action against defendants shipping company,

arrastre operator and broker-forwarded for damages
sustained by a shipment while in defendants' custody,
filed by the insurer-subrogee who paid the consignee
the value of such losses/damages.
subrogated to all the rights of action of said consignee

against defendants (per 'Form of Subrogation,' 'Release'
and Philbanking check, Exhs. M, N, and O)." (pp. 85-86,
Rollo.)
There were, to be sure, other factual issues that
"On December 4, 1981, two fiber drums of riboflavin
confronted both courts. Here, the appellate court said:
were shipped from Yokohama, Japan for delivery vessel
"Defendants filed their respective answers, traversing
`SS EASTERN COMET' owned by defendant Eastern
the material allegations of the complaint contending
Shipping Lines under Bill of Lading No. YMA-8 (Exh. B).
that: As for defendant Eastern Shipping it alleged that
The shipment was insured under plaintiff's Marine
the shipment was discharged in good order from the
Insurance Policy No. 81/01177 for P36,382,466.38.
vessel unto the custody of Metro Port Service so that
"Upon arrival of the shipment in Manila on December

12, 1981, it was discharged unto the custody of
defendant Metro Port Services, Inc. The latter excepted
to one drum, said to be in bad order, which damage was
unknown to plaintiff.
Corporation received the shipment from defendant

Metro Port Service, Inc., one drum opened and without
seal (per 'Request for Bad Order Survey.' (Exh. D).
January
and
incurred after the shipment was turned over to the

latter, is no longer its liability (p. 17, Record); Metroport
averred that although subject shipment was discharged
unto its custody, portion of the same was already in bad
order (p. 11, Record); Allied Brokerage alleged that
"On January 7, 1982 defendant Allied Brokerage
"On
any damage/losses incurred after the shipment was
14,
1982,
defendant
plaintiff has no cause of action against it, not having

negligent or at fault for the shipment was already in
damage and bad order condition when received by it,
but nonetheless, it still exercised extra ordinary care
and diligence in he handling/delivery of the cargo to
Allied
Brokerage Corporation made deliveries of the shipment

to the consignees' warehouse. The latter excepted to one
drum which contained spillages, while the rest of the
contents was adulterated/fake (per 'Bad Order Waybill'
No. 10649, Exh. E).
"Plaintiff contended that due to the losses/damage
sustained by said drum, the consignee suffered losses
consignee in the same condition shipment was received

by it.
"From the evidence that court found the following:
"'The issues are:
'1.
Whether
or
not
the
shipment
sustained
losses/damages;
totaling P19,032.95, due to the fault and negligence of
'2.
defendants. Claims were presented against defendants
sustained while in the custody of defendants (in whose
who failed and refused to pay the same (Exhs. H, I, J, K,
respective custody, if determinable); prLL
L). Cdpr
'3.
Whether or not these losses/damages were
Whether or not defendant(s) should be held
liable for the losses/damages (see plaintiff's pre-Trial

Brief, Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).'
'As to the first issue, there can be no doubt that the
shipment sustained losses/damages. The two drums
Page 50 of 76
were shipped in good order and condition, as clearly
A.
shown by the Bill of Lading and Commercial Invoice
severally:
which do not indicate any damages drum that was

shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro
Port Service, Inc., it excepted to one drum in bad order.
1.
Ordering defendants to pay plaintiff, jointly and
The amount of P19,032.95 with the present legal
interest of 12% per annum from October 1, 1982, the

date of filing of this complaints, until fully paid (the
liability of defendant Eastern Shipping, Inc. shall not
'Correspondingly, as to the second issue, it follows that
exceed US$500 per case or the CIF value of the loss,
the losses/damages
sustained while in the
whichever is lesser, while the liability of defendant
respective and/or successive custody and possession of
Metro Port Service, Inc. shall be to the extent of the
defendants carrier (Eastern), arrastre operator (Metro
actual invoice value of each package, crate box or
Port) and broker (Allied Brokerage). This becomes
container in no case to exceed P5,000.00 each,
evident when the Marine Cargo Survey Report (Exh. G),
pursuant to Section 6.01 of the Management Contract);
with its 'Additional Survey Notes,' are considered. In the
LexLib
were
latter notes, it is stated that when the shipment was
2.
P3,000.00 as attorney's fees, and
3.
Costs.
by the vessel's Agent's Bad order Tally Sheet No. 86427.'
B.
Dismissing the counterclaims and crossclaim of
The report further states that when defendant Allied
defendant/cross-claimant Allied Brokerage Corporation.
'landed on vessel' to dock of Pier # 15, South Harbor,

Manila on December 12, 1981,' it was observed that
'one (1) fiber drum (was) in damaged condition, covered
Brokerage withdrew the shipment, from defendant

arrastre operator's custody on January 7, 1982, one
drum was found opened without seal, cello bag partly
torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the
drums reached the consignee, one drum was found
with
adulterated/faked
contents.
It
is
obvious,
therefore, that these losses/damages occurred before

the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737 of
the New Civil Code, the common carrier's duty to
observe extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination,
until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the
goods (Art. 1738, NCC). Defendant Eastern Shipping's
own exhibit, the 'Turn-Over Survey of Bad Order
Cargoes' (Exhs. 3-Eastern) states that on December 12,
1981 one drum was found 'open.'
SO ORDERED.' (p. 207, Record).

"Dissatisfied, defendant's recourse to US.
"The appeal is devoid of merit.
"After a careful scrutiny of the evidence on record. We
find that the conclusion drawn therefrom is correct. As
there is sufficient evidence that the shipment sustained
damage
while
in
the
successive
possession
of
appellants, and therefore they are liable to the appellee,

as subrogee for the amount it paid to the consignee."
(pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the
judgment of the court a quo.
In this petition, Eastern Shipping Lines, Inc., the
common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when
I.
IT HELD PETITIONER CARRIER JOINTLY AND
SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR
"and thus held:
AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
'WHEREFORE, PREMISES CONSIDERED, judgment is
DECISION;
hereby rendered:
RESPONDENT AS GRANTED IN THE QUESTIONED
Page 51 of 76
II.
IT HELD THAT THE GRANT OF INTEREST ON
"The legal relationship between the consignee and the
THE CLAIM OF PRIVATE RESPONDENT SHOULD
arrastre operator is akin to that of a depositor and
COMMENCE FROM THE DATE OF THE FILING OF THE
warehouseman (Lua Kian v. Manila Railroad Co., 19
COMPLAINT AT THE RATE OF TWELVE PERCENT PER
SCRA 5 [1967]. The relationship between the consignee
ANNUM INSTEAD OF FROM THE DATE OF THE
and the common carrier is similar to that of the
DECISION OF THE TRIAL COURT AND ONLY AT THE
consignee and the arrastre operator (Northern Motors,
RATE
PRIVATE
Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it
INDISPUTABLY
is the duty of the ARRASTRE to take good care of the
OF
SIX
PERCENT
RESPONDENT'S
CLAIM
PER
ANNUM,
BEING
UNLIQUIDATED.
goods that are in its custody and to deliver them in

good condition to the consignee, such responsibility
The petition is, in part, granted.
also devolves upon the CARRIER. Both the ARRASTRE
In this decision, we have begun by saying that the

questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of
previous decisions this Court can merely tack to. Cdpr
The common carrier's duty to observe the requisite
diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier
for transportation until delivered to, or until the lapse of
a reasonable time for their acceptance, by the person
entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai
vs. Dollar Steamship Lines, 52 Phil. 863).When the
goods
shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of

its failure to observe that diligence, and there need not
be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court
of Appeals, 139 SCRA 87; Metro Port Service vs. Court
of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not
observed but these cases, enumerated in Article 1734 1
of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the
arrastre
operator
with
the
obligation
of
properly
and the CARRIER are therefore charged with the

obligation to deliver the goods in goods condition to the
consignee."
We
do
not,
of
course,
imply
by
the
above
pronouncement that the arrastre operator and the

customs broker are themselves always and necessarily
liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule.
The instant petition has been brought solely by Eastern
Shipping Lines which, being the carrier and not having
been able to rebut the presumption of fault, is, in any
event, to be held liable in this particular case. A factual
finding of both the court a quo and the appellate court,
we take note, is that "there is sufficient evidence that
the shipment sustained damage while in the successive
possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others
solidarily liable with it. llcd
It is over the issue of legal interest adjudged by the
appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major
rulings of this Court:
delivering the goods to the consignee has, too, been
The early case of Malayan Insurance Co., Inc., vs.
passed
Fund
Manila Port Service, 2 decided 3 on 15 May 1969,
Insurance vs. Metro Port Services (182 SCRA 455), we
involved a suit for recovery of money arising out of short
have explained in holding the carrier and the arrastre
deliveries and pilferage of goods. In this case, appellee
operator liable in solidum, thus: Cdpr
Malayan Insurance (the plaintiff in the lower court)
upon
by
the
Court.
In
Fireman's
averred in its complaint that the total amount of its

claim for the value of the undelivered goods amounted
Page 52 of 76
to P3,947.20. This demand, however, was neither
"(g)
established in its totality nor definitely ascertained. In
Reformina the sum of P131,084.00 which is the value of
the stipulation of facts later entered into by the parties,
the boat F B Pacita III together with its accessories,
in lieu of proof, the amount of P1,447.51 was agreed
fishing gear and equipment minus P80,000.00 which is
upon. The trial court rendered judgment ordering the
the value of the insurance recovered and the amount of
appellants (defendants) Manila Port Service and Manila
P10,000.00 a month as the estimated monthly loss
Railroad Company to pay appellee Malayan Insurance
suffered by them as a result of the fire of May 6, 1969
the sum of P1,447.51 with legal interest thereon from
up to the time they are actually paid or already the total
the date the complaint was filed on 28 December 1962
sum of P370,000.00 as of June 4, 1972 with legal
until full payment thereof. The appellants then assailed,
interest from the filing of the complaint until paid and
inter alia, the award of legal interest. In sustaining the
to pay attorney's fees of P5,000.00 with costs against
appellants, this Court ruled:
defendants
"Interest upon an obligation which calls for the payment
Plaintiffs Pacita F. Reformina and Francisco
and
third
party
plaintiffs."
(Emphasis
supplied.)
of money, absent a stipulation, is the legal rate. Such
On appeal of the Court of Appeals, the latter modified
interest normally is allowable from the date of demand,
the amount of damages awarded but sustained the trial
judicial or extrajudicial. The trial court opted for judicial
court in adjudging legal interest from the filing of the
demand as the starting point.
complaint until fully paid. When the appellate court's
"But then upon the provisions of Article 2213 of the

Civil
Code,
interest
'cannot
be
recovered
upon
unliquidated claims or damages, except when the

demand can be established with reasonable certainty.'
And as was held by this Court in Rivera vs. Perez 4 , L6998, February 29, 1956, if the suit were for damages,
'unliquidated
and
not
known
until
definitely
decision became final, the case was remanded to the

lower court for execution, and this was when the trial
court issued its assailed resolution which applied the
6% interest per annum prescribed in Article 2209 of the
Civil Code. In their petition for review on certiorari, the
petitioners contended that Central Bank Circular No.
416, providing thus Cdpr
ascertained, assessed and determined by the courts
"By virtue of the authority granted to it under Section 1
after proof (Montilla c. Corporacion de P. P. Agustinos,
of Act 2655, as amended, Monetary Board in its
25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302),' then,
Resolution
interest 'should be from the date of the decision.'"
prescribed that the rate of interest for the loan, or
(Emphasis supplied). Cdpr
forbearance of any money, goods, or credits and the rate
The case of Reformina vs. Tomol, 5 rendered on 11

October 1985, was for "Recovery of Damages for Injury
to Person and Loss of Property." After trial, the lower
court decreed:
No.
1622
dated
July
29,
1974,
has
allowed in judgments, in the absence of express

contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take
effect immediately." (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
the plaintiffs and third party defendants and against
"The
the defendants and third party plaintiffs as follows:
judgments in litigations involving loans or forbearance
"Ordering defendants and third party plaintiffs Shell

and Michael, Incorporated to pay jointly and severally
the following persons:
"(a)
"xxx
judgments
spoken
of
and
referred
to
are
of any money, goods or credits. any other kind of

monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or
credits does not fall within the coverage of the said law
for it is not within the ambit of the authority granted to
...
the Central Bank.

xxx
xxx
Page 53 of 76
"xxx
xxx
xxx
hereby impose, upon the defendant and the third-party
"Coming to the case at bar, the decision herein sought

to be executed is one rendered in an Action for Damages
for injury to persons and loss of property and does not
involve any loan, much less forbearances of any money,
goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is
Article 2209 of the New Civil Code which reads
'ARTICLE 2209.
defendants (with the exception of Roman Ozaeta) a

solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity
in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages
(with the exception of attorney's fees) occasioned by the
loss of the building and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's
fees, the total sum being payable upon the finality of
If the obligation consists in the
payment of a sum of money, and the debtor incurs in

delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation,
this decision. Upon failure to pay on such finality,

twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality
until paid. Solidary costs against the defendant and
third-party
defendants
(except
Roman
Ozaeta)."
the legal interest which is six percent per annum.'"
(Emphasis supplied).
The above rule was reiterated in Philippine Rabbit Bus
A motion for reconsideration was filed by United
Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986.

The case was for damages occasioned by an injury to
person and loss of property. The trial court awarded
private
respondent
Pedro
Manabat
actual
and
compensatory damages in the amount of P72,500.00

with legal interest thereon from the filing of the
complaint until fully paid. Relying on the Reformina v.
Tomol case, this Court 8 modified the interest award
from 12% to 6% interest per annum but sustained the
time computation thereof, i.e., from the filing of the
complaint until fully paid. Cdpr
Construction, contending that "the interest of twelve

(12%) per cent per annum imposed on the total amount
of the monetary award was in contravention of law." The
Court 10 ruled out the applicability of the Reformina
and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained: LLphil
"There should be no dispute that the imposition of 12%
interest pursuant to Central Bank Circular No. 416 . . .
is applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and (3) rate
allowed in judgments (judgments spoken of refer to
In Nakpil and Sons vs. Court of Appeals, 9 the trial

court, in an action for the recovery of damages arising
from the collapse of a building, ordered inter alia, the
"defendant United Construction Co., Inc. (one of the
petitioners) . . . to pay the plaintiff, . . ., the sum of
P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the
complaint until full payment . . . ." Save from the
modification of the amount granted by the lower court,
judgments involving loans or forbearance of any money,

goods or credits. (Philippine Rabbit Bus Lines Inc. v.
Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol,
Jr., 139 SCRA 260 [1985]). It is true that in the instant
case, there is neither a loan or a forbearance, but then
no interest is actually imposed provided the sums
referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
the Court of Appeals sustained the trial court's

decision. When taken to this Court for review, the case,
on 03 October 1986, was decided, thus:
"It will be noted that in the cases already adverted to,
"WHEREFORE, the decision appealed from is hereby

MODIFIED
and
considering
the
special
and
environmental circumstances of this case, we deem it

reasonable to render a decision imposing, as We do
the rate of interest is imposed on the total sum, from

the filing of the complaint until paid; in other words, as
part of the judgment for damages. Clearly, they are not
applicable to the instant case." (Emphasis supplied)
Page 54 of 76
The
subsequent
case
of
American
Express
compensatory damages should earn interest at 6% per
International, Inc., vs. International Appellate Court 11
annum from the date of the filing of the complaint.
was a petition for review on certiorari from the decision,
Ascribing grave abuse of discretion on the part of the
dated 27 February 1985, of the then Intermediate
trial judge, a petition for certiorari assailed the said
Appellate Court reducing the amount of moral and
order. This court said:
exemplary damages awarded by the trial court, to

P240,000.00 and P100,000.00, respectively, and its
resolution, dated 29 April 1985, restoring the amount of
damages awarded by the trial court, i.e., P2,000,000,00
as moral damages and P400,000.00 as exemplary
damages with interest thereon at 12% per annum from
notice of judgment, plus costs of suit. In a decision of
09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held
the award, however, for moral damages by the trial
court, later sustained by the IAC, to be inconceivably
". . ., it is to be noted that the Court of Appeals ordered

the payment of interest 'at the legal rate' from the time
of the filing of the complaint. . . . Said circular [Central
Bank Circular No. 416] does not apply to actions based
on a breach of employment contract like the case at
bar." (Emphasis supplied)
The Court reiterated that the 6% interest per annum on
the damages should be computed from the time the
complaint was filed until the amount is fully paid.
large. The Court 12 thus set aside the decision of the
Quite recently, the Court had another occasion to rule
appellate court and rendered a new one, "ordering the
on the matter. National Power Corporation vs. Angas, 14
petitioner to pay private respondent the sum of One
decided on 08 May 1992, involved the expropriation of
Hundred Thousand (P100,000.00) Pesos as moral
certain parcels of land. After conducting a hearing on
damages,
thereon
the complaints for eminent domain, the trial court
computed from the finality of this decision until paid."
ordered the petitioner to pay the private respondents
(Emphasis supplied). Cdpr
certain sums of money as just compensation for their
with
six
(6%)
percent
interest
Reformina came into fore again in the 21 February

1989 case of Florendo v. Ruiz 13 which arose from a
breach of employment contract. For having been illegally
dismissed, the petitioner was awarded by the trial court
moral
and
exemplary
damages
without,
however,
lands so expropriated "with legal interest thereon . . .

until fully paid." Again, in applying the 6% legal interest
per annum under the Civil Code, the Court 15 declared:
LLpr
". . ., (T)he transaction involved is clearly not a loan or
providing any legal interest thereon. When the decision
forbearance
was appealed to the Court of Appeals, the latter held:
expropriation of certain parcels of land for a public
"WHEREFORE, except as modified hereinabove the

decision of the CFI of Negros Oriental dated October 31,
1972 is affirmed in all respects, with the modification
that defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally,
the amounts stated in the dispositive portion of the
decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate
from the date of the filing of the complaint until fully
paid." (Emphasis supplied)
The petition for review to this Court was denied. The
records were thereupon transmitted to the trial court,
and an entry of judgment was made. The writ of
execution issued by the trial court directed that only
of
money,
goods
or
credits
but
purpose, the payment of which is without stipulation

regarding interest, and the interest adjudged by the trial
court is in the nature of indemnity for damages. The
legal interest required to be paid on the amount of just
compensation
for
the
properties
expropriated
is
manifestly in the form of indemnity for damages for the

delay in the payment thereof. Therefore, since the kind
of interest involved in the joint judgment of the lower
court sought to be enforced in this case is interest by
way of damages, and not by way of earnings from loans,
etc. Art. 2209 of the Civil Code shall apply."
Concededly, there have been seeming variances in the
above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues
Page 55 of 76
involved and the corresponding rulings rendered by the
interest by ordering it to be "computed from the finality
court. The " first group" would consist of the cases of
of (the) decision until paid." The Nakpil and Sons case
Reformina v. Tomol (1985), Philippine Rabbit Bus Lines
ruled that 12% interest per annum should be imposed
v. Cruz (1986), Florendo v. Ruiz (1989) and National
from the finality of the decision until the judgment
Power Corporation v. Angas (1992). In the "second
amount is paid.
group" would be Malayan Insurance Company v. Manila

Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.
Intermediate Appellate Court (1988). LLpr
The ostensible discord is not difficult to explain. The

factual circumstances may have called for different
applications, guided by the rule that the courts are
vested with discretion, depending on the equities of
In the " first group," the basic issue focus on the
each case, on the award of interest. Nonetheless, it may
application of either the 6% (under the Civil Code) or
not be unwise, by way of clarification and reconciliation,
12% (under the Central Bank Circular) interest per
to suggest the following rules of thumb for future
annum. It is easily discernible in these cases that there
guidance.
has been a consistent holding that the Central Bank

Circular imposing the 12% interest per annum applies
only to loans or forbearance 16 of money, goods or
credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach of a delay in
the performance of obligations in general. Observe, too,
that in these cases, a common time frame in the
computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until
The "second group," did not alter the pronounced rule

on the application of the 6% or 12% interest per
annum, 17 depending on whether or not the amount
involved is a loan or forbearance, on the one hand, or
one of indemnity for damage, on the other hand. Unlike,
however, the "first group" which remained consistent in
holding that the running of the legal interest should be
from the time of the filing of the complaint until fully
paid, the "second group" varied on the commencement
Malayan held that the amount awarded should bear

legal interest from the date of the decision of the court a
quo, explaining that "if the suit were for damages,
not
known
law, contracts, quasi-contracts, delicts or quasi-delicts

18 is breached, the contravenor can be held liable for
damages. 19 The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages. 20
II.

imposed, as follows: LibLex
until
definitely
ascertained, assessed and determined by the courts

after proof,' then, interest 'should be from the date of
the decision.'" American Express International v. IAC,
introduced a different time frame for reckoning the 6%

which
may
have
been
stipulated
in
writing.
21

interest from the time it is judicially demanded. 22 In
the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from
the provisions of Article 1169 23 of the Civil Code.
2.
of the running of the legal interest. cdll
and
When an obligation, regardless of its source, i.e.,
1.
the adjudged amount is fully paid.
'unliquidated
I.
When a obligation, not constituting a loan or

discretion of the court 24 at the rate of 6% per annum.
25
No
interest,
however,
shall
be
adjudged
on
unliquidated claims or damages except when or until

the
demand
certainty.
26
can
be
established
Accordingly,
where
with
the
reasonable
demand
is
established with reasonable certainty, the interest shall
Page 56 of 76
begin to run from the time the claim is made judicially
Quisumbing,
or extrajudicially (Art. 1169, Civil Code) but when such
respondent.

run only from the date of the judgment of the court is
in any case, be on the amount of finally adjudged. LLjur
3.

credit.
WHEREFORE, the petition is partly GRANTED. The
appealed
decision
is
AFFIRMED
with
the
MODIFICATION that the legal interest to be paid is SIX

PERCENT(6%) on the amount due computed from the
decision, dated 03 February 1988, of the court a quo. A
TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon
1.
of confirmed tickets cannot be disputed. The U.S. law or

regulation allegedly authorizing overbooking has never
been proved. Foreign laws do not prove themselves nor
can the courts take judicial notice of them. Like any
other fact, they must be alleged and proved. Written law
may be evidenced by an official publication thereof or
by a copy attested by the officer having the legal
custody
record,
or
by
his
deputy,
and
accompanied with a certificate that such officer has

custody. The certificate may be made by a secretary of
an embassy or legation, consul general, consul, viceconsul, or consular agent or by any officer in the foreign
service of the Philippines stationed in the foreign
country in which the record is kept, and authenticated
by the seal of his office.
ID.; ID.; ID.; U.S.
AUTHORIZING
LAW
OVERBOOKING,
TESTIMONY
OF
OR REGULATION
NOT
PROVED
RESPONDENT'S
BY
AIRLINE
CUSTOMER SERVICE AGENT. Respondent TWA

relied solely on the statement of Ms. Gwendolyn Lather,
its customer service agent, in her deposition dated
was presented as evidence. Thus, respondent court's

finding that overbooking is specifically allowed by the
US Code of Federal Regulations has no basis in fact.
SPOUSES CESAR & SUTHIRA ZALAMEA AND LIANA

ZALAMEA, petitioners, vs. HONORABLE COURT OF
TRANSWORLD
AIRLINES,
INC.,
respondents.
petitioners.
the
from said statement, no official publication of said code
[G.R. No. 104235. November 18, 1993.]
Salazar,
of
of the Civil Aeronautics Board allows overbooking. Aside
SECOND DIVISION
Sycip,
REMEDIAL LAW; EVIDENCE; FOREIGN LAWS,
January 27, 1986 that the Code of Federal Regulations
Mendoza, J., took no part.
AND
private-
petitioners to board their flight for Los Angeles in spite
MERE
APPEALS
for
the part of respondent airline when it did not allow
SO ORDERED.
and Kapunan, JJ., concur.
Evangelista
HOW PROVED. That there was fraud or bad faith on
2.
Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno
&
SYLLABUS
finality of this decision until the payment thereof. cdll
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado,
Torres
3.
CIVIL LAW; APPLICATION OF LAWS; CONTRACT
GOVERNED BY LAWS OF PLACE WHERE EXECUTED;

CASE AT BAR. Even if the claimed U.S. Code of
Federal Regulations does exist, the same is not
Hernandez,
Gatmaitan
for
applicable to the case at bar in accordance with the

principle of lex loci contractus which requires that the
law of the place where the airline ticket was issued
should be applied by the court where the passengers
are residents and nationals of the forum and the ticket
Page 57 of 76
is issued in such State by the defendant airline. Since
raised in this case is not the reasonableness of said
the tickets were sold and issued in the Philippines, the
policies
applicable law in this case would be Philippine law.
incorporated or deemed written on petitioners' contracts
4.
ID.; DAMAGES; OVERBOOKING AMOUNTS TO
BAD FAITH ENTITLING PASSENGERS TO AWARD OF

MORAL DAMAGES. Existing jurisprudence explicitly
states that overbooking amounts to bad faith, entitling
the passengers concerned to an award of moral
damages. (Alitalia Airways v. Court of Appeals, G.R. No.
77011, 187 SCRA 763 [1990]; Korean Airlines Co., Ltd.
v. Court of Appeals, G.R. No. 61418, 154 SCRA 211
[1987])
5.
whether
or
not
said
policies
were
of carriage. Respondent TWA failed to show that there

are provisions to that effect. Neither did it present any
argument of substance to show that petitioners were
duly apprised of the overbooked condition of the flight
or that there is a hierarchy of boarding priorities in
booking passengers. It is evident that petitioners had
the right to rely upon the assurance of respondent
TWA, thru its agent in Manila, then in New York, that
their tickets represented confirmed seats without any
qualification. The failure of respondent TWA to so
ID.; ID.; BREACH OF CONTRACT OF CARRIAGE
AMOUNTS
TO
BAD
FAITH.
In
fact,
existing
jurisprudence abounds with rulings where the breach

of contract of carriage amounts to bad faith. (Pan
American World Airways, Inc. v. Intermediate Appellate
Court, G.R. No. 74442, 153 SCRA 521 [1987]) A
contract to transport passengers is quite different in
kind and degree from any other contractual relation.
(Zulueta v. Pan American World Airways, Inc., G.R. No.
L-28589, 43 SCRA 397 [1972]
6.
but
ID.;
enabling respondent to hold on to them as passengers

up to the last minute amounts to bad faith. Evidently,
respondent TWA placed its self-interest over the rights
of petitioners under their contracts of carriage. Such
conscious
disregard
of
petitioners'
rights
makes
respondent TWA liable for moral damages. To deter

breach of contracts by respondent TWA in similar
fashion in the future, we adjudge respondent TWA liable
for exemplary damages, as well. However, the award for
moral and exemplary damages by the trial court is
OF
excessive in the light of the fact that only Suthira and
NOT
Liana Zalamea were actually "bumped off." An award of
INFORMING PASSENGERS OF ITS POLICY GIVING
P50,000.00 moral damages and another P50,000.00
LESS
exemplary
STIPULATIONS
ID.;
inform them when it could easily have done so thereby
ON
PRIORITY
NON-INCORPORATION
OVERBOOKING
TO
AND
DISCOUNTED
IN
TICKET,
CONSTITUTE BAD FAITH; PASSENGERS ENTITLED TO

BOTH MORAL AND EXEMPLARY DAMAGES; CASE AT
BAR. Even on the assumption that overbooking is
allowed, respondent TWA is still guilty of bad faith in
not informing its passengers beforehand that it could
breach the contract of carriage even if they have
confirmed tickets if there was overbooking. Respondent
TWA
should
have
incorporated
stipulations
on
overbooking on the tickets issued or to properly inform

its passengers about these policies so that the latter
would be prepared for such eventuality or would have
the choice to ride with another airline. Moreover,
respondent TWA was also guilty of not informing its
passengers of its alleged policy of giving less priority to
discounted tickets. It is respondent TWA's position that
the practice of overbooking and the airline system of
boarding priorities are reasonable policies, which when
implemented do not amount to bad faith. But the issue
damages
would
suffice
under
the
circumstances obtaining in the instant case.

7.
ID.;
ID.;
PASSENGER
ENTITLED
TO
REIMBURSEMENT FOR COST OF TICKETS BOUGHT

FOR ANOTHER FLIGHT ON ANOTHER AIRLINE; CASE
AT BAR. The respondent court erred, however, in not
ordering the refund of the cost of the American Airlines
tickets purchased and used by petitioners Suthira and
Liana. The evidence shows that petitioners Suthira and
Liana were constrained to take the American Airlines
flight to Los Angeles not because they "opted not to use
their TWA tickets on another TWA flight" but because
respondent TWA could not accommodate them either on
the next TWA flight which was also fully booked. The
purchase of the American Airlines tickets by petitioners
Suthira and Liana was the consequence of respondent
TWA's unjustifiable breach of its contracts of carriage
with petitioners. In accordance with Article 2201, New
Page 58 of 76
Civil Code, respondent TWA should, therefore, be
75% while that of their daughter was a full fare ticket.
responsible for all damages which may be reasonably
All three tickets represented confirmed reservations.
attributed to the non-performance of its obligation. In

the previously cited case of Alitalia Airways v. Court of
Appeals, this Court explicitly held that a passenger is
entitled to be reimbursed for the cost of the tickets he
had to buy for a flight on another airline. Thus, instead
of simply being refunded for the cost of the unused TWA
tickets, petitioners should be awarded the actual cost of
their flight from New York to Los Angeles.
8.
While in New York, on June 4, 1984, petitioners

received
notice
of
the
reconfirmation
of
their
reservations for said flight. On the appointed date,

however, petitioners checked in at 10:00 a.m., an hour
earlier than the scheduled flight at 11:00 a.m. but were
placed
on
the
wait-list
because
the
number
of
passengers who had checked in before them had

already taken all the seats available on the flight. Liana
ID.; ID.; ATTORNEY'S FEES; RECOVERABLE
Zalamea appeared as No. 13 on the wait-list while the
WHERE A PARTY WAS COMPELLED TO LITIGATE TO
two other Zalameas were listed as "No. 34, showing a
PROTECT HIS RIGHTS. The award to petitioners of
party of two." Out of the 42 names on the wait-list, the
attorney's fees is also justified under Article 2208(2) of
first 22 names were eventually allowed to board the
the
flight
Civil
Code
which
allows
recovery
when
the
to
Los
Angeles,
including
petitioner
Cesar
defendant's act or omission has compelled plaintiff to
Zalamea. The two others, on the other hand, at No. 34,
litigate or to incur expenses to protect his interest.
being ranked lower than 22, were not able to fly. As it

were, those holding full-fare tickets were given first
DECISION
priority among the wait-listed passengers. Mr. Zalamea,
NOCON, J p:
who was holding the full-fare ticket of his daughter, was
Disgruntled over TransWorld Airlines, Inc.'s refusal to
who presented the discounted tickets were denied
accommodate them in TWA Flight 007 departing from
boarding. According to Mr. Zalamea, it was only later
New York to Los Angeles on June 6, 1984 despite
when he discovered that he was holding his daughter's
possession of confirmed tickets, petitioners filed an
full-fare ticket. LLphil
allowed to board the plane; while his wife and daughter,
action for damages before the Regional Trial Court of

Makati,
Metro
Manila,
Branch
145.
Advocating
petitioners' position, the trial court categorically ruled

that respondent TransWorld Airlines (TWA) breached its
contract of carriage with petitioners and that said
breach was "characterized by bad faith." On appeal,
however, the appellate court found that while there was
a breach of contract on respondent TWA's part, there
was neither fraud nor bad faith because under the Code
of Federal Regulations by the Civil Aeronautics Board of
the United States of America it is allowed to overbook
flights. LLpr
The factual backdrop of the case is as follows:
Petitioners-spouses Cesar C. Zalamea and Suthira
Zalamea, and their daughter, Liana Zalamea, purchased
three (3) airline tickets from the Manila agent of
respondent TransWorld Airlines, Inc. for a flight from
New York to Los Angeles on June 6, 1984. The tickets of
petitioners-spouses were purchased at a discount of
Even in the next TWA flight to Los Angeles Mrs.

Zalamea and her daughter, could not be accommodated
because it was also fully booked. Thus, they were
constrained to book in another flight and purchased
two tickets from American Airlines at a cost of Nine
Hundred Eighteen ($918.00) Dollars.
Upon their arrival in the Philippines, petitioners filed an
action for damages based on breach of contract of air
carriage before the Regional Trial Court of Makati,
Metro Manila, Branch 145. As aforesaid, the lower court
ruled in favor of petitioners in its decision 1 dated
January 9, 1989 the dispositive portion of which states
as follows:
"WHEREFORE, judgment is hereby rendered ordering
the defendant to pay plaintiffs the following amounts:
"(1)
US $918.00, or its peso equivalent at the time of
payment, representing the price of the tickets bought by
Page 59 of 76
Suthira and Liana Zalamea from American Airlines, to
The dispositive portion of the decision of respondent
enable them to fly to Los Angeles from New York City;
Court of Appeals 3 dated October 25, 1991 states as
"(2)
US $159.49, or its peso equivalent at the time of
follows:.
payment, representing the price of Suthira Zalamea's
"WHEREFORE, in view of all the foregoing, the decision
ticket for TWA Flight 007; Cdpr
under review is hereby MODIFIED in that the award of
"(3)
Eight Thousand Nine Hundred Thirty-four Pesos
and Fifty Centavos (P8,934.50), Philippine Currency,

representing the price of Liana Zalamea's ticket for TWA
Flight 007;
"(4)
Two
Hundred
Fifty
Thousand
Pesos
for all the plaintiffs;
ordered to pay the plaintiffs the following amounts:
Philippine Currency, as and for attorney's fees; and

The costs of suit.
"SO ORDERED." 2
On appeal, the respondent Court of Appeals held that
US$159.49, or its peso equivalent at the time of
payment, representing the price of Suthira Zalamea's

ticket for TWA Flight 007;
"(2)
One Hundred Thousand Pesos (P100,000.00),
"(6)
eliminated, and the defendant-appellant is hereby
"(1)
(250,000.00), Philippine Currency, as moral damages
"(5)
moral and exemplary damages to the plaintiffs is
US$159.49, or its peso equivalent at the time of
payment, representing the price of Cesar Zalamea's

ticket for TWA Flight 007;
"(3)
P50,000.00 as and for attorney's fees.
"(4)
The costs of suit.
"SO ORDERED." 4
moral damages are recoverable in a damage suit
Not satisfied with the decision, petitioners raised the
predicated upon a breach of contract of carriage only
case on petition for review on certiorari and alleged the
where there is fraud or bad faith. Since it is a matter of
following errors committed by the respondent Court of
record that overbooking of flights is a common and
Appeals, to wit: cdrep
accepted practice of airlines in the United States and is

specifically
allowed
under
the
Code
of
Federal
Regulations by the Civil Aeronautics Board, no fraud

nor
bad
faith
could
be
imputed
on
respondent
TransWorld Airlines.
I.
". . . IN HOLDING THAT THERE WAS NO FRAUD OR
BAD FAITH ON THE PART OF RESPONDENT TWA
BECAUSE IT HAS A RIGHT TO OVERBOOK FLIGHTS.
Moreover, while respondent TWA was remiss in not

informing petitioners that the flight was overbooked and
II.
that even a person with a confirmed reservation may be
". . . IN ELIMINATING THE AWARD OF EXEMPLARY
denied
DAMAGES.
accommodation
on
an
overbooked
flight,
nevertheless it ruled that such omission or negligence

cannot under the circumstances be considered to be so
gross as to amount to bad faith.
Finally, it also held that there was no bad faith in
placing petitioners in the wait-list along with forty-eight
(48) other passengers where full-fare first class tickets
were given priority over discounted tickets. cdphil
III.
". . . IN NOT ORDERING THE REFUND OF LIANA
ZALAMEA'S TWA TICKET AND PAYMENT FOR THE
AMERICAN AIRLINES TICKETS." 5
That there was fraud or bad faith on the part of
respondent airline when it did not allow petitioners to
board their flight for Los Angeles in spite of confirmed
tickets cannot be disputed. The U.S. law or regulation
Page 60 of 76
allegedly
been
carriage. Where an airline had deliberately overbooked,
proved. Foreign laws do not prove themselves nor can
it took the risk of having to deprive some passengers of
the courts take judicial notice of them. Like any other
their seats in case all of them would show up for check
fact, they must be alleged and proved. 6 Written law
in. For the indignity and inconvenience of being refused
may be evidenced by an official publication thereof or
a confirmed seat on the last minute, said passenger is
by a copy attested by the officer having the legal
entitled to an award of moral damages.
custody
authorizing
of
the
overbooking
record,
or
by
has
his
never
deputy,
and
accompanied with a certificate that such officer has

custody. The certificate may be made by a secretary of
an embassy or legation, consul general, consul, viceconsul, or consular agent or by any officer in the foreign
service of the Philippines stationed in the foreign
country in which the record is kept, and authenticated
by the seal of his office. 7
Similarly, in Korean Airlines Co., Ltd. v. Court of

Appeals, 10 where private respondent was not allowed
to board the plane because her seat had already been
given to another passenger even before the allowable
period for passengers to check in had lapsed despite the
fact that she had a confirmed ticket and she had
arrived on time, this Court held that petitioner airline
acted in bad faith in violating private respondent's
Respondent TWA relied solely on the statement of Ms.
rights under their contract of carriage and is therefore
Gwendolyn Lather, its customer service agent, in her
liable for the injuries she has sustained as a result.
deposition dated January 27, 1986 that the Code of
cdll
Federal Regulations of the Civil Aeronautics Board

allows overbooking. Aside from said statement, no
official publication of said code was presented as
evidence.
Thus,
respondent
court's
finding
that
overbooking is specifically allowed by the US Code of

Federal Regulations has no basis in fact. Cdpr
In fact, existing jurisprudence abounds with rulings

where the breach of contract of carriage amounts to bad
faith.
In
Pan
American
World
Airways,
Inc.
v.
Intermediate Appellate Court, 11 where a would-be

passenger had the necessary ticket, baggage claim and
clearance
from
immigration
all
clearly
and
Even if the claimed U.S. Code of Federal Regulations
unmistakably showing that she was indeed a confirmed
does exist, the same is not applicable to the case at bar
passenger and that she was, in fact, included in the
in accordance with the principle of lex loci contractus
passenger manifest of said flight, and yet was denied
which requires that the law of the place where the
accommodation in said flight, this Court did not
airline ticket was issued should be applied by the court
hesitate to affirm the lower court's finding awarding her
where the passengers are residents and nationals of the
damages.
forum and the ticket is issued in such State by the

defendant airline. 8 Since the tickets were sold and
issued in the Philippines, the applicable law in this case
would be Philippine law.
Existing
A contract to transport passengers is quite different in

kind and degree from any other contractual relation. So
ruled this Court in Zulueta v. Pan American World
Airways, Inc. 12 This is so, for a contract of carriage
jurisprudence
that
generates a relation attended with public duty a duty
the
to provide public service and convenience to its
passengers concerned to an award of moral damages. In
passengers which must be paramount to self-interest or
Alitalia Airways v. Court of Appeals, 9 where passengers
enrichment. Thus, it was also held that the switch of
with confirmed bookings were refused carriage on the
planes from Lockheed 1011 to a smaller Boeing 707
last minute, this Court held that when an airline issues
because there were only 138 confirmed economy class
a ticket to a passenger confirmed on a particular flight,
passengers who could very well be accommodated in
on a certain date, a contract of carriage arises, and the
the smaller plane, thereby sacrificing the comfort of its
passenger has every right to expect that he would fly on
first class passengers for the sake of economy, amounts
that flight and on that date. If he does not, then the
to bad faith. Such inattention and lack of care for the
carrier opens itself to a suit for breach of contract of
interest of its passengers who are entitled to its utmost
overbooking
amounts
to
explicitly
states
bad
entitling
faith,
Page 61 of 76
consideration entitles the passenger to an award of
the right to rely upon the assurance of respondent
moral damages. 13
TWA, thru its agent in Manila, then in New York, that
Even on the assumption that overbooking is allowed,

respondent TWA is still guilty of bad faith in not
informing its passengers beforehand that it could
breach the contract of carriage even if they have
confirmed tickets if there was overbooking. Respondent
TWA
should
have
incorporated
stipulations
on
overbooking on the tickets issued or to properly inform

its passengers about these policies so that the latter
would be prepared for such eventuality or would have
the choice to ride with another airline. LibLex
flight coupon upon which were written the name of the

passenger and the points of origin and destination,
contained such a notice. An examination of Exhibit I
does not bear this out. At any rate, said exhibit was not
offered for the purpose of showing the existence of a
notice of overbooking but to show that Exhibit I was
used for Flight 007 in first class of June 11, 1984 from
New York to Los Angeles.
inform them when it could easily have done so thereby

enabling respondent to hold on to them as passengers
up to the last minute amounts to bad faith. Evidently,
respondent TWA placed its self-interest over the rights
of petitioners under their contracts of carriage. Such
conscious
disregard
of
petitioners'
rights
makes
respondent TWA liable for moral damages. To deter

breach of contracts by respondent TWA in similar
for exemplary damages, as well. LexLib
Petitioners also assail the respondent court's decision
not to require the refund of Liana Zalamea's ticket
because the ticket was used by her father. On this
score, we uphold the respondent court. Petitioners had
not shown with certainty that the act of respondent
TWA in allowing Mr. Zalamea to use the ticket of her
daughter was due to inadvertence or deliberate act.
Petitioners had also failed to establish that they did not
Moreover, respondent TWA was also guilty of not

informing its passengers of its alleged policy of giving
less priority to discounted tickets. While the petitioners
had checked in at the same time, and held confirmed
tickets, yet, only one of them was allowed to board the
plane ten minutes before departure time because the
full-fare ticket he was holding was given priority over
discounted tickets. The other two petitioners were left
behind.
accede to said arrangement. The logical conclusion,

therefore, is that both petitioners and respondent TWA
agreed, albeit impliedly, to the course of action taken.
The respondent court erred, however, in not ordering
the refund of the cost of the American Airlines tickets
purchased and used by petitioners Suthira and Liana.
The evidence shows that petitioners Suthira and Liana
were constrained to take the American Airlines flight to
Los Angeles not because they "opted not to use their
It is respondent TWA's position that the practice of

overbooking
and
are
the
airline
reasonable
system
policies,
of
boarding
which
when
implemented do not amount to bad faith. But the issue

raised in this case is not the reasonableness of said
policies
qualification. The failure of respondent TWA to so
fashion in the future, we adjudge respondent TWA liable
Respondent TWA contends that Exhibit I, the detached
priorities
their tickets represented confirmed seats without any
but
whether
or
not
said
policies
were
incorporated or deemed written on petitioners' contracts

of carriage. Respondent TWA failed to show that there
are provisions to that effect. Neither did it present any
argument of substance to show that petitioners were
duly apprised of the overbooked condition of the flight
or that there is a hierarchy of boarding priorities in
booking passengers. It is evident that petitioners had
TWA tickets on another TWA flight" but because

respondent TWA could not accommodate them either on
the next TWA flight which was also fully booked. 14 The
purchase of the American Airlines tickets by petitioners
Suthira and Liana was the consequence of respondent
TWA's unjustifiable breach of its contracts of carriage
with petitioners. In accordance with Article 2201, New
Civil Code, respondent TWA should, therefore, be
responsible for all damages which may be reasonably
attributed to the non-performance of its obligation. In
the previously cited case of Alitalia Airways v. Court of
Appeals, 15 this Court explicitly held that a passenger
is entitled to be reimbursed for the cost of the tickets he
Page 62 of 76
had to buy for a flight on another airline. Thus, instead
of simply being refunded for the cost of the unused TWA
tickets, petitioners should be awarded the actual cost of
[G.R. No. 82146. January 22, 1990.]

EULOGIO OCCENA, petitioner, vs. HON. PEDRO M.
their flight from New York to Los Angeles. On this score,
ICAMINA, Presiding Judge, Branch X of the Regional
we differ from the trial court's ruling which ordered not
Trial
only the reimbursement of the American Airlines tickets
Antique;
but also the refund of the unused TWA tickets. To
represented by the Honorable Provincial Fiscal of
require both prestations would have enabled petitioners

to fly from New York to Los Angeles without any fare
Court,
Sixth
THE
Judicial
PEOPLE
OF
Region,
THE
San
Jose,
PHILIPPINES,
Antique; and CRISTINA VEGAFRIA, respondents.
being paid. LLjur
Comelec Legal Assistance Office for petitioner.
The award to petitioners of attorney's fees is also
Comelec
justified under Article 2208(2) of the Civil Code which
respondent.
allows recovery when the defendant's act or omission

has compelled plaintiff to litigate or to incur expenses to
protect his interest. However, the award for moral and
exemplary damages by the trial court is excessive in the
light of the fact that only Suthira and Liana Zalamea
were actually "bumped off." An award of P50,000.00
moral damages and another P50,000.00 exemplary
damages
would
suffice
under
the
circumstances
obtaining in the instant case.

WHEREFORE, the petition is hereby GRANTED and the
decision of the respondent Court of Appeals is hereby
MODIFIED to the extent of adjudging respondent
TransWorld Airlines to pay damages to petitioners in the
Legal
Assistance
Officer
for
private
SYLLABUS
1.
REMEDIAL
LAW;
APPEAL;
ACCUSED
MAY
SEEK REVIEW OF JUDGMENT WITH RESPECT TO

BOTH CIVIL AND CRIMINAL ACTIONS. In the case of
People vs. Coloma, 105 Phil. 1287, we categorically
stated that from a judgment convicting the accused,
two (2) appeals may, accordingly, be taken. The accused
may seek a review of said judgment, as regards both
civil and criminal actions; while the complainant may
appeal with respect only to the civil action, either
because the lower court has refused to award damages
or because the award made is unsatisfactory to him.
following amounts, to wit:
The right of either to appeal or not to appeal in the
(1)
upon the other. Thus, private respondent's theory that
US$918.00 or its peso equivalent at the time of
payment representing the price of the tickets bought by

Suthira and Liana Zalamea from American Airlines, to
enable them to fly to Los Angeles from New York City;
(2)
P50,000.00 as moral damages;
(3)
P50,000.00 as exemplary damages;
(4)
P50,000.00 as attorney's fees; and
(5)
Costs of suit. LLjur
SO ORDERED.
event of conviction of the accused is not dependent

in actively intervening in the criminal action, petitioner
waived his right to appeal from the decision that may be
rendered therein, is incorrect and inaccurate. Petitioner
may, as he did, appeal from the decision on the civil
aspect which is deemed instituted with the criminal
action and such appeal, timely taken, prevents the
decision on the civil liability from attaining finality.
2.
CRIMINAL LAW; PERSON CRIMINALLY LIABLE
IS CIVILLY LIABLE; RATIONALE. Underlying the legal

principle that a person who is criminally liable is also
civilly liable is the view that from the standpoint of its
Narvasa, C .J ., Padilla, Regalado and Puno, JJ .,
effects, a crime has dual character: (1) as an offense
concur.
against the state because of the disturbance of the
THIRD DIVISION
social order; and (2) as an offense against the private

person injured by the crime unless it involves the crime
of treason, rebellion, espionage, contempt and others
Page 63 of 76
wherein no civil liability arises on the part of the
offender either because there are no damages to be
compensated or there is no private person injured by
the crime. In the ultimate analysis, what gives rise to
the civil liability is really the obligation of everyone to
repair or to make whole the damage caused to another
by reason of his act or omission, whether done
intentionally
punishable
or
by
negligently
law.
In
the
and
whether
case
at
bar,
or
not
private
respondent was found guilty of slight oral defamation

and sentenced to a fine of P50.00 with subsidiary
imprisonment in case of insolvency, but no civil liability
arising from the felonious act of the accused was
adjudged. This is erroneous. As a general rule, a person
who is found to be criminally liable offends two (2)
entities: the state or society in which he lives and the
individual member of the society or private person who
was injured or damaged by the punishable act or
DECISION
FERNAN, C.J p:
On May 31, 1979, herein petitioner Eulogio Occena
instituted before the Second Municipal Circuit Trial
Court of Sibalom-San Remigio-Belison, Province of
Antique, Criminal Case No. 1717, a criminal complaint
for Grave Oral Defamation against herein private
respondent
Cristina
Vegafria
for
allegedly
openly,
publicly and maliciously uttering the following insulting

words and statements: "Gago ikaw nga Barangay
Captain, montisco, traidor, malugus, Hudas," which,
freely translated, mean: "You are a foolish Barangay
Captain, ignoramus, traitor, tyrant, Judas" and other
words and statements of similar import which caused
great and irreparable damage and injury to his person
and honor.
omission. The offense of which private respondent was
Private respondent as accused therein entered a plea of
found guilty is not one of those felonies where no civil
not guilty. Trial thereafter ensued, at which petitioner,
liability results because either there is no offended
without reserving his right to file a separate civil action
party or no damage was caused to a private person.
for
There is here an offended party, whose main contention
prosecutor.
precisely is that he suffered damages in view of the

defamatory words and statements uttered by private
respondent, in the amount of Ten Thousand Pesos
(P10,000.00) as moral damages and the further sum of
Ten Thousand Pesos (P10,000) as exemplary damages.
3.
damages
actively
intervened
thru
private
After trial, private respondent was convicted of the

offense of Slight Oral Defamation and was sentenced to
pay a fine of Fifty Pesos (P50.00) with subsidiary
imprisonment in case of insolvency and to pay the
costs. No damages were awarded to petitioner in view of
CIVIL LAW; MORAL DAMAGES; RECOVERABLE
the
trial
court's
opinion
that
"the
facts
and
IN CASES OF LIBEL; SLANDER OR ANY OTHER FORM
circumstances of the case as adduced by the evidence
OF DEFAMATION. Article 2219, par. (7) of the Civil
do not warrant the awarding of moral damages." 1
Code allows the recovery of moral damages in case of

libel, slander or any other form of defamation. This
provision of law establishes the right of an offended
party in a case for oral defamation to recover from the
guilty party damages for injury to his feelings and
reputation. The offended party is likewise allowed to
recover punitive or exemplary damages. It must be
remembered
that
every
defamatory
imputation
is
Disagreeing, petitioner sought relief from the Regional

Trial Court, which in a decision dated March 16, 1987
disposed of petitioner's appeal as follows:
"IN VIEW OF ALL THE FOREGOING, the civil aspect of
the lower court's decision of April 20, 1981 subject of
this appeal, for lack of merit, is hereby DENIED.
presumed to be malicious, even if it be true, if no good
"After the decision shall have become final, remand the
intention and justifiable motive for making it is shown.
records of this case to the court of origin, Second
And malice may be inferred from the style and tone of
Municipal Circuit Trial Court of Sibalom, San Remigio-
publication subject to certain exceptions which are not
Belison, Antique, for the execution of its decision on the
present in the case at bar.
criminal aspect.
Page 64 of 76
"SO ORDERED." 2
The issues confronting us in the instant petition is
Petitioner is now before us by way of a petition for

review on certiorari seeking to annul the RTC decision
for being contrary to Article 100 of the Revised Penal
Code providing that every person criminally liable for a
felony is also civilly liable, and Article 2219 of the New
Civil Code providing that moral damages may be
recovered in libel, slander or any other form of
defamation. He submits that public respondent RTC
whether or not the decision of the Second Municipal

Trial Court of Sibalom, San-Remigio-Belison, Province
of Antique constitutes the final adjudication on the
merits
of
private
respondent's
civil
liability;
and
whether or not petitioner is entitled to an award of

damages arising from the remarks uttered by private
respondent and found by the trial court to be
defamatory.
erred in relying on the cases of Roa vs. de la Cruz, 107
The decision of the Municipal Circuit Trial Court as
Phil. 10 and Tan vs. Standard Vacuum Oil Co., et al., 91
affirmed by the Regional Trial Court in Criminal Case
Phil. 672 cited therein. He differentiates said cases from
No. 1709 cannot be considered as a final adjudication
the case at bar by saying that in the case of Roa, the
on the civil liability of private respondent simply
decision of the trial court had become final before Maria
because said decision has not yet become final due to
C. Roa instituted a civil action for damages; whereas in
the timely appeal filed by petitioner with respect to the
the instant case, the decision of the trial court has not
civil liability of the accused in said case. It was only the
yet become final by reason of the timely appeal
unappealed criminal aspect of the case which has
interposed by him and no civil action for damages has
become final. cdll
been instituted by petitioner against private respondent

for
the
same
cause.
Tan,
on
the
other
hand,
contemplates of two actions, one criminal and one civil,

and the prosecution of the criminal case had resulted in
the acquittal of the accused, which is not the situation
here where the civil aspect was impliedly instituted with
the criminal action in accordance with Section 1, Rule
111, of the Rules of Court.
In the case of People vs. Coloma, 105 Phil. 1287, we

categorically stated that from a judgment convicting the
accused, two (2) appeals may, accordingly, be taken.
The accused may seek a review of said judgment, as
regards both civil and criminal actions; while the
complainant may appeal with respect only to the civil
action, either because the lower court has refused to
award
damages
or
because
the
award
made
is
Private respondent for her part argues that the decision
unsatisfactory to him. The right of either to appeal or
of the trial court carries with it the final adjudication of
not to appeal in the event of conviction of the accused is
her civil liability. Since petitioner chose to actively
not
intervene in the criminal action without reserving his
respondent's theory that in actively intervening in the
right to file a separate civil action for damages, he
criminal action, petitioner waived his right to appeal
assumed the risk that in the event he failed to recover
from the decision that may be rendered therein, is
damages he cannot appeal from the decision of the
incorrect and inaccurate. Petitioner may, as he did,
lower court.
appeal from the decision on the civil aspect which is
We find merit in the petition.
dependent
upon
the
other.
Thus,
private
deemed instituted with the criminal action and such

appeal, timely taken, prevents the decision on the civil
liability from attaining finality.
We tackle the second issue by determining the basis of
civil liability arising from crime. Civil obligations arising
from criminal offenses are governed by Article 100 of
the Revised Penal Code which provides that "(E)very
person criminally liable for a felony is also civilly liable,"
in relation to Article 2177 of the Civil Code on quasidelict, the provisions for independent civil actions in the
Page 65 of 76
Chapter on Human Relations and the provisions
offended party is likewise allowed to recover punitive or
regulating damages, also found in the Civil Code.
exemplary damages. Cdpr
Underlying the legal principle that a person who is
It
criminally liable is also civilly liable is the view that
imputation is presumed to be malicious, even if it be
from the standpoint of its effects, a crime has dual
true, if no good intention and justifiable motive for
character: (1) as an offense against the state because of
making it is shown. And malice may be inferred from
the disturbance of the social order; and (2) as an
the style and tone of publication 5 subject to certain
offense against the private person injured by the crime
exceptions which are not present in the case at bar.
unless it involves the crime of treason, rebellion,

espionage, contempt and others wherein no civil liability
arises on the part of the offender either because there
are no damages to be compensated or there is no
private person injured by the crime. 3 In the ultimate
analysis, what gives rise to the civil liability is really the
obligation of everyone to repair or to make whole the
damage caused to another by reason of his act or
omission, whether done intentionally or negligently and
whether or not punishable by law. 4
must
be
remembered
that
every
defamatory
Calling petitioner who was a barangay captain an

ignoramus, traitor, tyrant and Judas is clearly an
imputation of defects in petitioner's character sufficient
to cause him embarrassment and social humiliation.
Petitioner testified to the feelings of shame and anguish
he suffered as a result of the incident complained of. 6
It is patently error for the trial court to overlook this
vital piece of evidence and to conclude that the "facts
and circumstances of the case as adduced by the
evidence do not warrant the awarding of moral
In the case at bar, private respondent was found guilty
damages." Having misapprehended the facts, the trial
of slight oral defamation and sentenced to a fine of
court's findings with respect thereto is not conclusive
P50.00 with subsidiary imprisonment in case of
upon us.
insolvency, but no civil liability arising from the

felonious act of the accused was adjudged. This is
erroneous. As a general rule, a person who is found to
be criminally liable offends two (2) entities: the state or
society in which he lives and the individual member of
the society or private person who was injured or
damaged by the punishable act or omission. The
offense of which private respondent was found guilty is
not one of those felonies where no civil liability results
because either there is no offended party or no damage
was caused to a private person. There is here an
offended party, whose main contention precisely is that
he suffered damages in view of the defamatory words
and statements uttered by private respondent, in the
amount of Ten Thousand Pesos (P10,000.00) as moral
damages and the further sum of Ten Thousand Pesos
From the evidence presented, we rule that for the injury

to his feelings and reputation, being a barangay
captain, petitioner is entitled to moral damages in the
sum of P5,000.00 and a further sum of P5,000.00 as
exemplary damages.
WHEREFORE, the petition is hereby GRANTED. The
decision
of
the
Regional
Trial
Court
is
hereby
MODIFIED and private respondent is ordered to pay

petitioner the amount of P5,000.00 as moral damages
and another P5,000.00 as exemplary damages. Costs
against private respondent. llcd
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.
(P10,000) as exemplary damages.
SECOND DIVISION
Article 2219, par. (7) of the Civil Code allows the
MORAL DAMAGES
recovery of moral damages in case of libel, slander or

any other form of defamation. This provision of law
establishes the right of an offended party in a case for
oral defamation to recover from the guilty party
damages for injury to his feelings and reputation. The
[G.R. No. 106664. March 8, 1995.]
Page 66 of 76
PHILIPPINE AIR LINES, petitioner, vs. FLORANTE A.
and regular. Upon inquiry from their Frankfurt Station,
MIANO, respondent.
it was however discovered that the interline tag of
Siguion Reyna, Montecillo & Ongsiako for petitioner.
According to Mr. Ebio, it was customary for destination

stations to hold a tagless baggage until properly
Florante A. Miano in his own behalf.
identified. The tracer telex, which contained information

on the baggage, is matched with the tagless luggage for
SYLLABUS
1.
"BAD
identification. Without the tracer telex, the color and
CIVIL LAW;
FAITH"
DAMAGES;
MUST
BE
MORAL DAMAGES;
SUBSTANTIATED
BY
EVIDENCE; APPLICATION IN CASE OF CONTRACT OF

CARRIAGE. Bad faith means a breach of a known
duty through some motive of interest or ill will (Lopez, et
al. vs. Pan American World Airways, No. L-22415,
March 30, 1996, 16 SCRA 431). Bad faith must be
substantiated by evidence. In LBC vs. Court of Appeals,
(G.R. No. 108670, September 21, 1994), this Court
ruled: "Bad faith under the law cannot be presumed; it
must be established by clear and convincing evidence.
Again, the unbroken jurisprudence is that in breach of
contract cases where the defendant is not shown to
have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable
consequences of the breach of the obligation which the
parties had foreseen or could reasonably have foreseen.
The damages, however, will not include liability for
moral damages."
2.
ID.;
ID.;
WHEN
AVAILABLE;
RULE;
NOT
of carriage by air, moral damages are awarded only if

the defendant acted fraudulently or in bad faith (Civil
Code, Article 220). The established facts evince that
petitioner's late delivery of the baggage for eleven (11)
days was not motivated by ill will or bad faith. In fact, it
immediately coordinated with its Central Baggage
Services to trace private respondent's suitcase and
succeeded in finding it. At the hearing, petitioner's
for
the type of baggage are used as basis for the matching.

Thus, the delay.
3.
ID.;
ID.;
EXEMPLARY
DAMAGES;
PREREQUISITES IN AWARDING THEREOF. The

prerequisite for the award of exemplary damages in
cases of contract or quasi-contract (Civil Code, Article
2232)
is
that
the
defendant
acted
in
wanton,
fraudulent, reckless, oppressive, or malevolent manner.

(Albenson Enterprises Corp. vs. Court of Appeals, G.R.
No. 88694, January 11, 1993, 217 SCRA 16) The
undisputed facts do not so warrant the characterization
of the action of petitioner.
4.
ID.;
ID.;
RECOVERED
AS
ATTORNEY'S
PART
OF
FEES;
CANNOT
DAMAGES;
BE
REASON
THEREFOR. The award of attorney's fees must also

be disallowed for lack of legal leg to stand on. The fact
that private respondent was compelled to litigate and
incur expenses to protect and enforce his claim did not
APPLICABLE IN CASE AT BAR. In breach of contract
Manager
private respondent's baggage was accidentally taken off.
Administration
of
Airport
Services
Department Miguel Ebio testified that their records

disclosed that Manila, the originating station, did not
receive any tracer telex. A tracer telex, an airline lingo,
is an action of any station that the airlines operate from
whom a passenger may complain or have not received
his baggage upon his arrival. It was reasonable to
presume that the handling of the baggage was normal
justify the award of attorney's fees. The general rule is

that attorney's fees cannot be recovered as part of
damages because of the policy that no premium should
be placed on the right to litigate (Firestone Tire &
Rubber Company of the Philippines vs. Ines Chaves, No.
L-17106, October 19, 1966, 18 SCRA 356). Petitioner is
willing to pay the just claim of $200.00 as a result of
the delay in the transportation of the luggage in accord
with the Warsaw Convention. Needless to say, the award
of attorney's fees must be deleted where the award of
moral and exemplary damages are eliminated.
DECISION
PUNO, J p:
The petitioner questions the Decision of the Regional
Trial Court of Makati, Branch 148, dated July 29, 1992,
1 awarding private respondent moral and exemplary
Page 67 of 76
damages
and
attorney's
fees
for
want
of
legal
that if at all liable its obligation is limited by the
justification. We grant the petition. LLpr
Warsaw Convention rate.
The facts are uncontroverted.
Petitioner
On
August
31,
1988,
private
respondent
took
petitioner's flight PR 722, Mabuhay Class, bound for

Frankfurt, Germany. He had an immediate onward
filed
Third-Party
Complaint
against
Lufthansa German Airlines imputing the mishandling

of private respondent's baggage, but was dismissed for
its failure to prosecute. cdll
connecting flight via Lufthansa flight LH 1452 to
In its decision, the trial court observed that petitioner's
Vienna, Austria. At the Ninoy Aquino International
actuation was not attended by bad faith. Nevertheless,
Airport, he checked-in one brown suitcase weighing
it awarded private respondent damages and attorney's
twenty (20) kilograms 2 but did not declare a higher
fees, the dispositive portion of which reads:
valuation. He claimed that his suitcase contained

money, documents, one Nikkon camera with zoom lens,
suits,
sweaters,
shirts,
pants,
shoes,
and
other
accessories. 3
Upon
private
respondent's
arrival
at
Vienna
via
missing. He reported the matter to the Lufthansa

authorities. After three (3) hours of waiting in vain, he
proceeded to Piestany, Czechoslovakia. Eleven (11) days
after or on September 11, 1988, his suitcase was
to
the plaintiff (private respondent) and against the

defendant (petitioner), thereby ordering the latter to pay
the following:
Lufthansa flight LH 1452, his checked-in baggage was
delivered
him
in
his
hotel
in
Piestany,
Czechoslovakia. He claimed that because of the delay in

the delivery of his suitcase, he was forced to borrow
money to buy some clothes, to pay $200.00 for the
transportation of his baggage from Vienna to Piestany,
and lost his Nikkon camera. 4
(a)
U.S.
$200.00
as
cost
of
transporting
the
suitcase from Vienna to Czechoslovakia;

(b)
P40,000.00 as moral damages;
(c)
P20,000.00 as exemplary damages; and
(d)
P15,000.00 as attorney's fees.
SO ORDERED." 5
Hence, this petition for review.
In breach of contract of carriage by air, moral damages
to
are awarded only if the defendant acted fraudulently or
petitioner a letter demanding: (1) P10,000.00 cost of
in bad faith. 6 Bad faith means a breach of a known
allegedly lost Nikkon camera; (2) $200.00 for alleged
duty through some motive of interest or ill will. 7
In
November
1988,
private
respondent
wrote
cost of transporting luggage from Vienna to Piestany;

and (3) P100,000.00 as damages. In its reply, petitioner
informed
private
respondent
that
his
letter
was
forwarded to its legal department for investigation.
The trial court erred in awarding moral damages to

private respondent. The established facts evince that
petitioner's late delivery of the baggage for eleven (11)
days was not motivated by ill will or bad faith. In fact, it
Private respondent felt his demand letter was left
immediately coordinated with its Central Baggage
unheeded.
Damages
Services to trace private respondent's suitcase and
docketed as Civil Case No. 89-3496 before the Regional
succeeded in finding it. At the hearing, petitioner's
Trial Court of Makati.
Manager
He
instituted
an
action
for
Petitioner contested the complaint. It disclaimed any

liability on the ground that there was neither a report of
mishandled baggage on flight PR 722 nor a tracer telex
received from its Vienna Station. It, however, contented
for
Administration
of
Airport
Services
Department Miguel Ebio testified that their records

disclosed that Manila, the originating station, did not
receive any tracer telex. 8 A tracer telex, an airline lingo,
is an action of any station that the airlines operate from
whom a passenger may complain or have not received
Page 68 of 76
his baggage upon his arrival. 9 It was reasonable to
Bad faith must be substantiated by evidence. In LBC vs.
presume that the handling of the baggage was normal
Court of Appeals, 13 we ruled:
and regular. Upon inquiry from their Frankfurt Station,

it was however discovered that the interline tag of
private respondent's baggage was accidentally taken off.
According to Mr. Ebio, it was customary for destination
stations to hold a tagless baggage until properly
identified. The tracer telex, which contained information
on the baggage, is matched with the tagless luggage for
identification. Without the tracer telex, the color and
the type of baggage are used as basis for the matching.
Thus, the delay.
conclusion that petitioner did not act in bad faith or

with malice, viz:
xxx
(petitioner) PAL, this court finds it appropriate to apply

the Warsaw Convention with respect to the liability of
Air Carriers." 10
damages is limited to the natural and probable

consequences of the breach of the obligation which the
parties had foreseen or could reasonably have foreseen.
The damages, however, will not include liability for
We can neither sustain the award of exemplary

damages. The prerequisite for the award of exemplary
the
defendant
acted
in
wanton,
fraudulent,
reckless, oppressive, or malevolent manner. 15 The

undisputed facts do not so warrant the characterization
of the action of petitioner.
lack of legal leg to stand on. The fact that private
xxx
respondent
"The mere fact that defendant (petitioner) exerted effort

plaintiff
(private
respondent)
in
his
predicament as shown in defendant's (petitioner's) letter

to plaintiff (private respondent) (Exh. "E") and likewise
the letter from Mr. Miguel Ebio, Manager-Airport
Services Administration of defendant (petitioner) PAL to
its Senior Counsel-Litigation, Atty. Marceliano Calica
(Exh. "3") which reveals the fact that an investigation
was conducted as to mishandled baggage, coupled with
the fact that said information were then relayed to
plaintiff (private respondent) as evidenced by a letter of
defendant (petitioner) to plaintiff (private respondent)
(Exh. "4") does not warrant a showing of malice on the
part of defendant (petitioner)." 11
xxx
have acted fraudulently or in bad faith, liability for
The award of attorney's fees must also be disallowed for

xxx
assist
contract cases where the defendant is not shown to
that
"Absent a finding as to the bad intention of defendant
to
the unbroken jurisprudence is that in breach of
damages in cases of contract or quasi-contract 14 is

xxx
xxx
be established by clear and convincing evidence. Again,
moral damages." (Citations omitted)
Worthy to stress, the trial court made an unequivocal
xxx
"Bad faith under the law cannot be presumed; it must
xxx
xxx
"Under the circumstances obtaining, considering that

defendant's (petitioner's) actuation was not attendant
with bad faith, the award of moral damages in the
amount of P40,000.00 is but just and fair." 12
was
compelled
to
litigate
and
incur
expenses to protect and enforce his claim did not justify

the award of attorney's fees. The general rule is that
attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed
on the right to litigate. 16 Petitioner is willing to pay the
just claim of $200.00 as a result of the delay in the
transportation of the luggage in accord with the Warsaw
Convention. Needless to say, the award of attorney's fees
must be deleted where the award of moral and
exemplary damages are eliminated. cdphil
IN VIEW WHEREOF, the assailed Decision of July 29,
1992 is MODIFIED deleting the award of moral and
exemplary damages and attorney's fees. No costs.
SO ORDERED.
Narvasa, C.J., Bidin, Regalado and Mendoza, JJ.,
concur.
LIQUIDATED DAMAGES
Page 69 of 76
or unconsciounable. Further, Art. 1229 provides that in
THIRD DIVISION
obligations with a penal clause, the judge shall
[G.R. No. L-45349. August 15, 1988.]

NEWTON
JISON
and
equitably reduce
SALVACION
I.
JISON,
petitioners, vs. COURT OF APPEALS and ROBERT O.

PHILLIPS & SONS, INC., respondents.
the
penalty when the
principal
obligation has been partly or irregularly complied with.

DECISION
CORTES, J p:
Ledesma, Saludo & Associates for petitioners.
The instant petition for review of the decision of the
Domicador L. Reyes and Magtanggol C. Gunigundo
Court of Appeals poses the issue of the validity of the
for respondents.
rescission of a contract to sell a subdivision lot due to
SYLLABUS
on their due dates and the forfeiture of the amounts
1.
the failure of the lot buyer to pay monthly installments
CIVIL LAW; RESCISSION OF CONTRACT TO
already paid. llcd
SELL. In the instant case the resolution or rescission
The case is not one of first impression, and neither is it
of the Contract to Sell was valid. Neither can it be said
exceptional. On the contrary, it typifies the common
that the cancellation of the contract was ineffective for
plight of countless subdivision lot buyers. Petitioners,
failure of private respondents to give petitioners notice
the spouses Newton and Salvacion Jison, entered into a
thereof
private
Contract to Sell with private respondent, Robert O.
respondent that the contract was cancelled in the letter
Phillips & Sons, Inc., whereby the latter agreed to sell to
dated April 6, 1967 (Exh. "D"). As R.A. No. 6552 was
the former a lot at the Victoria Valley Subdivision in
not yet effective, the notice of cancellation need not be
Antipolo, Rizal for the agreed price of P55,000.00, with
by
interest at 8% per annum, payable on an installment
as
petitioners
notarial
act,
were
private
informed
respondent's
by
letter
being
sufficient compliance with the legal requirement.
basis.
2.
ID.; ID.; FORFEITURE OF FIFTY PERCENT OF
Pursuant to the contract, petitioners paid private
AMOUNT ALREADY PAID UPON RESOLUTION OF
respondents a down payment of P11,000.00 on October
CONTRACT
20, 1961 and from October 27, 1961 to May 8, 1965 a
REASON.
CONSIDERED
Since
the
FAIR
contract
SETTLEMENT;
price
is
only
P55,000.00, the forfeiture of amounts already paid

totalling P47,312 is iniquitous. A forfeiture if fifty
percent of the amount already paid is a fair settlement.
Although petitioners were delinquent in paying several
amortizations to the prejudice of private respondent,
upon resolution of the contract, possession of the lot
reverts to private respondent who may resell it to
another. Also, had R.A. No. 6552 been applicable to this
case, the same percentage would have been forfeited
[Sec. 3 (b).]
3.
ID.; ID.; ID.; REDUCTION OF FORFEITED
AMOUNT FINDS SUPPORT IN THE CIVIL CODE. The

reduction of the forfeited amount is supported by Civil
Code provisions. Art. 2227 states that liquidated
damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous
monthly installment of P533.85.

Thereafter, due to the failure of petitioners to build a
house as provided in the contract, the stipulated
penalty of P5.00 per square meter was imposed to the
effect that the monthly amortization was increased to
P707.24.
On January 1, 1966, February 1, 1966 and March 1,
1966, petitioners failed to pay the monthly installments
due on said dates although petitioners subsequently
paid the amounts due and these were accepted by
private respondent.
Again
on
October
1,
1966,
November
1,
1966,
December 1, 1966 and January 1, 1967, petitioners

failed to pay. On January 11, 1967, private respondent
sent a letter (Exh. "2") to petitioners calling their
Page 70 of 76
attention to the fact that their account was four months
overdue. This letter was followed up by another letter
NOT
dated February 27, 1967 (Exh. "3") where private
SUBSTANTIALLY COMPLIED WITH THE TERMS OF
respondent
THEIR AGREEMENT WITH PRIVATE RESPONDENTS.
reminded
petitioner
of
the
automatic
rescission clause of the contract. Petitioners eventually

paid on March 1, 1967. LLjur
Petitioners again failed to pay the monthly installments
due on February 1, 1967, March 1, 1967 and April 1,
1967. Thus, in a letter dated April 6, 1967 (Exh. "D"),
private respondent returned petitioners' check and
informed them that the contract was cancelled when on
April 1, 1987 petitioners failed to pay the monthly
installment
due,
thereby
making
their
account
delinquent for three months.

On April 19, 1967, petitioners tendered payment for all
the installments already due but the tender was
refused.
Thus,
petitioners
countered
by
filing
complaint for specific performance with the Court of

First Instance of Rizal on May 4, 1967 and consigning
the monthly installments due with the court.
entered into a stipulation of facts, the trial court on

January 9, 1969 rendered judgment in favor of private
respondent, dismissing the complaint and declaring the
contract cancelled and all payments already made by
forfeited;
ordering
petitioners
to
pay
THAT
PETITIONERS
HAVE
II
HOLDING THAT THE CONTRACT TO SELL MAY BE
AUTOMATICALLY
RESCINDED
AND
PRIVATE
RESPONDENT MAY UNILATERALLY RESCIND SAID

CONTRACT AND REJECT THE CONSIGNATION OF
PAYMENTS MADE BY PETITIONERS, WHICH ACTIONS
OF PRIVATE RESPONDENT ARE HIGHLY INIQUITOUS
AND UNCONSCIONABLE.
III
NOT HOLDING THAT PRIVATE RESPONDENT'S ACT OF
FORFEITING ALL PREVIOUS PAYMENTS MADE BY
PETITIONERS
INIQUITOUS
Following the hearing of the case, wherein the parties
petitioner
HOLDING
IS
AND
CONTRARY
TO
LAW,
UNCONSCIONABLE.
HIGHLY
[Petitioners'
Brief, pp. 13-27.]

As stated at the outset, the principal issue in this case
is the legality of the rescission of the contract and the
forfeiture of the payments already made by petitioners.
To
support
the
rescission
and
forfeiture
private
P1,000.00 as and for attorney's fees; and declaring the
respondent falls back on paragraph 3 of the contract
consignation and tender of payment made by petitioners
which reads:
as not amounting to payment of the corresponding

monthly installments.
This
contract
shall
be
considered
automatically
rescinded and cancelled and of no further force and
Not satisfied with the decision of the trial court,
effect, upon the failure of the Vendee to pay when due
petitioners appealed to the Court of Appeals. Agreeing
Three (3) or more consecutive monthly installments
with the findings and conclusions of the trial court, the
mentioned in Paragraph 2 of this Contract, or to comply
Court of Appeals on November 4, 1976 affirmed the
with any of the terms and conditions hereof, in which
former's decision.
case the Vendor shall have the right to resell the said
Thus, the instant petition for review.

In assailing the decision of the Court of Appeals,
petitioners attributed the following errors:
I
parcel of land to any Vendee and any amount derived

from the sale on account hereof shall be forfeited in
favor of the Vendor as liquidated damages for the
breach of the Contract by the Vendee, the latter hereby
renouncing and reconveying absolutely and forever in
favor of the Vendor all rights and claims to and for all
the amount paid by the Vendee on account of the
Contract, as well as to and for all compensation of any
Page 71 of 76
kind, hereby also agreeing in this connection, to
We hold that resolution by petitioners of the contract
forthwith
was
vacate
the
said
property
or
properties
peacefully without further advise of any kind.
the effectivity of Republic Act No. 6552 (the Realty

Installment Buyers' Protection Act) and Presidential
Decree No. 957 (the Subdivision and Condominium
Buyers' Protective Decree), it becomes necessary to
resort to jurisprudence and the general provisions of
law to resolve the controversy.
[G.R. No. L-56076, September 21, 1983, 124 SCRA 692]

facilitates the resolution of the controversy. In deciding
whether the rescission of the contract to sell a
subdivision lot after the lot buyer has failed to pay
several installments was valid, the Court said:
is
the
rule,
as
held
in
previous
jurisprudence [Torralba v. De los Angeles, 96 SCRA 69,

Luzon Brokerage Co., Inc. v. Maritime Building Co., 43
SCRA 93 and 86 SCRA 305; Lopez v. Commissioner of
Customs, 37 SCRA 327; U.P. v. De los Angeles, 35 SCRA
102; Ponce Enrile v. CA, 29 SCRA 504; Froilan v. Pan
Oriental Shipping Co., 12 SCRA 276; Taylor v. Uy Tieng
Piao, 43 Phil. 873], that judicial action for the rescission
of a contract is not necessary where the contract
provides that it may be cancelled for violation of any of
its terms and conditions. However, even in the cited
cases, there was at least a written notice sent to the
defaulter informing him of the rescission. As stressed in
University of the Philippines v. Walfrido de los Angeles
[35 SCRA 102] the act of a party in treating a contract
as cancelled should be made known to the other . . .
xxx
xxx
inoperative
against
private
the U.P. v. Angeles case, supra.

xxx
xxx
xxx
The indispensability of notice of cancellation to the

buyer was to be later underscored in Republic Act No.
6552 entitled "An Act to Provide Protection to Buyers of
Real Estate on Installment Payments." which took effect
on September 14, 1972, when it specifically provided:
The decision in the recent case of Palay, Inc. v. Clave
settled
and
respondent for lack of notice of resolution, as held in
Since the contract was executed and cancelled prior to
Well
ineffective
xxx
Sec. 3 (b) . . . the actual cancellation of the contract

shall take place thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission
of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.
There is no denying that in the instant case the
resolution or rescission of the Contract to Sell was
valid. Neither can it be said that the cancellation of the
contract
was
respondents
to
ineffective
give
for
failure
petitioners
notice
of
private
thereof
as
petitioners were informed by private respondent that

the contract was cancelled in the letter dated April 6,
1967 (Exh. "D"). As R.A. No. 6552 was not yet effective,
the notice of cancellation need not be by notarial act,
private respondent's letter being sufficient compliance
with the legal requirement. LLjur
The facts of the instant case should be distinguished
from those in the Palay, Inc. case, as such distinction
will explain why the Court in said case invalidated the
resolution of the contract. In said case, the subdivision
developer,
without
informing
the
buyer
of
the
cancellation of the contract, resold the lot to another

person. The lot buyer in said case was only informed of
In other words, resolution of reciprocal contracts may
the resolution of the contract some six years later after
be made extrajudicially unless successfully impugned
the developer rejected his request for authority to assign
in Court. If the debtor impugns the declaration it shall
his rights under the contract. Such a situation does not
be subject to judicial determination. prLL
obtain in the instant case. In fact, petitioners were
In this case, private respondent has denied that

rescission is justified and has resorted to judicial
action. It is now for the Court to determine whether
resolution of the contract by petitioner was warranted.
informed of the cancellation of their contract in April

1967, when private respondent wrote them the letter
dated April 6, 1967 (Exh. "D"), and within a month they
were able to file a complaint against private respondent.
Page 72 of 76
While the resolution of the contract and the forfeiture of
principal object the enforcement of compliance with the
the amounts already paid are valid and binding upon
contract.. (Laureano v. Kilayco, 32 Phil. 194(1915).]
petitioners, the Court is convinced that the forfeiture of

the amount of P47,312.64, although it includes the
accumulated fines for petitioners' failure to construct a
house as required by the contract, is clearly iniquitous
considering that the contract price is only P55,000.00.
The forfeiture of fifty percent (50%) of the amount
already paid, or P23,656.32, appears to be a fair
settlement. In arriving at this amount the Court gives
weight to the fact that although petitioners have been
delinquent in paying their amortizations several times
to the prejudice of private respondent, with the
cancellation of the contract the possession of the lot
reverts to private respondent who is free to resell it to
another party. Also, had R.A. No. 6552 been applicable
to the instant case, the same percentage of the amount
already paid would have been forfeited [Sec. 3(b).]
The Court's decision to reduce the amount forfeited
finds support in the Civil Code. As stated in paragraph
3 of the contract, in case the contract is cancelled, the
amounts already paid shall be forfeited in favor of the
vendor as liquidated damages. The Code provides that
liquidated damages, whether intended as an indemnity
or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable [Art. 2227.]
Further, in obligations with a penal clause, the judge
shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with
by the debtor [Art. 1229; Hodges v. Javellana, G.R. No.
L-17247, April 28, 1962, 4 SCRA 1228]. In this
connection, the Court said:
It follows that, in any case wherein there has been a
partial or irregular compliance with the provisions in a
contract for special indemnification in the event of
failure to comply with its terms, courts will rigidly apply
the doctrine of strict construction and against the
enforcement in its entirety of the indemnification, where
it is clear from the terms of the contract that the
amount or character of the indemnity is fixed without
regard to the probable damages which might be
anticipated as a result of a breach of the terms of the
contract; or, in other words, where the indemnity
provided for is essentially a mere penalty having for its
This principle was reiterated in Makati Development

Corp. v. Empire Insurance Co. [G.R. No. L-21780, June
30, 1967, 20 SCRA 557] where the Court affirmed the
judgment of the Court of First Instance reducing the
subdivision lot buyer's liability from the stipulated
P12,000.00 to P1,500.00 after finding that he had
partially performed his obligation to complete at least
fifty percent (50%) of his house within two (2) years
from March 31, 1961, fifty percent (50%) of the house
having been completed by the end of April 1961. LexLib
WHEREFORE, the Decision of the Court of Appeals is
hereby MODIFIED as to the amount forfeited which is
reduced to fifty percent (50%) of the amount already
paid or P23,656.32 and AFFIRMED as to all other
respects.
Private respondent is ordered to refund to petitioners
the excess of P23,656.32 within thirty (30) days from
the date of finality of this judgment.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ.,
concur.
SECOND DIVISION
[G.R. No. 76093. March 21, 1989.]
AIR
FRANCE,
petitioner,
vs.
THE
COURT
OF
APPEALS AND NARCISO O. MORALES, respondents.

Siguion Reyna, Montecillo & Ongsiako for petitioner.
Morales & Joyas Law Office for private respondent.
SYLLABUS
1.
CIVIL PROCEDURE; FACTUAL FINDINGS OF
THE
APPELLATE
COURT
NOT
SUPPORTED
BY
CITATION OF SPECIFIC EVIDENCE, A GROUND FOR

REVIEW BY THE SUPREME COURT. While this
Court is not a trier of facts, yet, when the findings of
respondent court are without citation of specific
evidence on which they are based, there is sufficient
Page 73 of 76
reason for the Court to review the appellate court's
Sometime in October 1977, private respondent Narciso
decision.
Morales thru his representative, Ms. Janet Tolentino,
2.
DAMAGES;
SUFFICIENT
PROOF
OF
EXISTENCE OF FACTUAL BASIS OF DAMAGES AND

ITS
CAUSAL
CONNECTION
TO
DEFENDANT'S
ACTIONS, ESSENTIAL BEFORE GRANT OF AWARD
purchased an airline ticket from Aspac Management

Corporation, petitioner's General Sales Agent in Makati,
for P9,426.00 plus P413.90 travel tax, of which P413.90
were later refunded to Ms. Tolentino. llcd
THEREOF. With a claim for a large amount of
The itinerary covered by the ticket included several
damages, the Court finds it unusual for respondent, a
cities, with certain segments thereof restricted by
lawyer, to easily forget vital information to substantiate
markings
his plea. It is also essential before an award of damages
(meaning Air France) only", as herein specified:
that the claimant must satisfactorily prove during the

trial the existence of the factual basis of the damages
of "non endorsable" and "valid on AF
CARRIER
and its causal connection to defendant's acts.
"ITINERARY
3.
New York/Paris
ID.; REFUSAL TO ACCEDE TO A PASSENGER'S
WISHES, IN THE ABSENCE OF BAD FAITH, NOT A
was aggravated by the discourteous and arbitrary
Paris/Stockholm
conduct of an official of the Aer Lingus which the KLM

employees
in
Hamburg
informed
private
respondent that his tickets were partly stamped "nonendorsable" and "valid on Air France only." Mere refusal
to accede to the passenger's wishes does not necessarily
translate into damages in the absence of bad faith. To
our mind, respondent has failed to show wanton,
malevolent
or
reckless
misconduct
imputable
to
petitioner in its refusal to reroute.

DECISION
dismissing herein petitioner's appeal from the adverse

ruling of the trial court (Branch 33, CFI of Rizal,
Kalookan City) ** and the latter's denial of its motion for
its decision in a resolution dated 25 September 1986.

In reviewing the records, we find:
Air France
NONENDORSABLE
None
London/Amsterdam None
Amsterdam/HamburgNone
Humburg/Frankfurt None
Frankfurt/Paris
Air France
NONENDORSABLE
VALID ON AF ONLY
Paris/Geneva Air France
NONENDORSABLE
VALID ON AF ONLY
Geneva/Madrid
Madrid/Nice
reconsideration. The respondent Court of Appeals

likewise denied petitioner's motion for reconsideration of
NONENDORSABLE
Copenhagen/London None
* of the Court of Appeals, dated 1986, in CA-G.R. CV.

No. 69875, entitled "Narciso Morales vs. Air France,"
Air France
Stockholm/Copenhagen
PADILLA, J p:
RESTRICTIONS
VALID ON AF ONLY
had engaged to transport the respondents, here, Air

France
SPECIFIED
VALID ON AF ONLY
STRONG CAUSE FOR AN AWARD OF DAMAGES.

Unlike in the KLM case where the breach of contract
EXPRESS
None
Air France
NONENDORSABLE
VALID ON AF ONLY
Nice/Rome
Air France
NONENDORSABLE
VALID ON AF ONLY
Rome/Athens None
Page 74 of 76
Athens/Tel Aviv
None
Geneva/Rome AZ
Tel Avive/Bangkok
Air France
NONENDORSABLE
VALID ON AF ONLY
Bangkok/Manila
(Alitalia)
Rome/Hongkong
Air France
NONENDORSABLE
VALID ON AF ONLY" 1
Morales
obtained
Hongkong/Manila
three
(3)
medical
certificates (Exhibits G, G-1, G-2) attesting to an ear

infection which necessitated medical treatment. From
New York, he flew to Paris, Stockholm and then
Copenhagen where he made representations with
petitioner's office to shorten his trip by deleting some of
the cities in the itinerary. Respondent Morales was
informed that, as a matter of procedure, confirmation of
petitioner's office in Manila (as ticketing office) must be
secured before shortening of the route (already paid for).
Air France in Amsterdam telexed AF Manila requesting
for rerouting of the passenger to Amsterdam, Hamburg,
Geneva, Rome, Hongkong, Manila. 2
respondent proceeded to Hamburg where he was

informed of AF Manila's negative reply. After reiterating
his need to flying home on a shorter route due to his
ear infection, and presentation of supporting medical
certificates, again, the airline office made the necessary
request to Manila on 23 November 1977 for a Hamburg,
Paris, Geneva, Rome, Paris, Hongkong and Manila
Still,
respondent's
the
protest
request
and
was
offer
denied.
to
pay
Despite
any
fare
difference, petitioner did not relent in its position.

Respondent, therefore, had to buy an entirely new set of
tickets, paying 1,914 German marks for the homeward
route, namely:
"Itinerary
CarrierDate
Reservation
26 Nov.OK
(Lufthansa)
(Swissair)
OK
PR
Open
Open
(Philippine Airlines)" 3
Upon arrival in Manila, respondent sent a lettercomplaint to Air France dated 20 December 1977 thru
Aspac Management Corporation. Respondent Morales
was advised to surrender the unused flight coupons for
a refund of its value, but he kept the same and, instead,
filed a complaint for breach of contract of carriage and
damages.
CFI Judge Marcelino Sayo found Air France in evident
bad faith for violation of the contract of carriage,
aggravated by the threatening attitude of its employees
in Hamburg. Considering the social and economic
directors of a multi-million corporation and a member
of several civic and business organizations, an award of
moral and exemplary damages, in addition to the actual
damages incurred, was deemed proper under the
circumstances. The dispositive part of the CFI decision
states:
WHEREFORE, this Court hereby renders judgment for
the plaintiff and orders the defendant to pay to the
plaintiff the sum of 1,914 German Marks, in its
equivalent in Philippine Peso, as actual damages, the
sum of P1,000,000.00 as moral damages, and the
further sum of P800,000.00 as exemplary damages,
with legal interest thereon from date of the filing of the
complaint until fully paid, plus the sum equal to 20%
Hamburg/Frankfurt LH
Frankfurt/Geneva
02 Dec.
standing of respondent, who is chairman of the board of
As there was no immediate response to the telex,
route.
BA
(British Airways)
While in New York, U.S.A. on 3 November 1977, private

respondent
29 Nov.OK
thereof as attorney's fees, with costs against the

plaintiff." 4
On appeal to the Court of Appeals, the award of
damages was modified as follows:
SR
26 Nov.OK
ACCORDINGLY, the judgment appealed from is hereby

modified so that it will read as follows: Judgment is
hereby rendered in favor of the plaintiff against the
Page 75 of 76
defendant ordering there defendant to pay to said
Eventually respondent flew on his chosen route with
plaintiff the following:
different airlines.
(1)
1,914 German Marks in its equivalent in
Under the factual milieu, was there really a breach of
Philippine peso at prevailing rate of exchange as actual
contract of carriage on the part of the petitioner, as to
damages, with legal interest thereon from the date of
justify the award to private respondent of actual, moral
the filing of the complaint until fully paid;
and exemplary damages? We find none.
(2)
P500,000.00, as moral damages;
International Air Transportation Association (IATA)
(3)
P150,000.00, as exemplary damages; and
(4)
5%
of
the
amount
of
actual,
moral
Resolution No. 275 e, 2., special note, reads: "Where a

fare is restricted and such restrictions are not clearly
and
exemplary damages which are recoverable, as attorney's
evident from the required entries on the ticket, such

restrictions may be written, stamped or reprinted in
fees." 5
plain language in the Endorsements/Restrictions" box
Questioning the factual findings of the respondent
use of an appropriate notice." 7 Voluntary changes to
court, petitioner comes to this court for review citing
tickets, 8 while allowable, are also covered by IATA
three (3) errors:
Resolution No. 1013, Art. II, which provides: "1.
1.
of the applicable flight coupon(s); or attached thereto by
The conclusion that there is a breach of contract
is premised on a misapprehension of facts.

2.
Failure to apply the doctrine of avoidable
consequence in the present case.

3.
changes to the ticket requested by the passenger will be

subject to carriers regulations."
Private respondent wanted a rerouting to Hamburg,
Geneva,
Rome,
Hongkong
and
Manila
which
shortened the original itinerary on the ticket issued by
Award of exorbitant damages and attorney's
AF Manila through ASPAC, its general sales agent.
fees.
Considering the original restrictions on the ticket, it
After considering respondent's comment, the Court
request.
was not unreasonable for Air France to deny the
resolved to give due course to the petition, and required

the
parties
to
file
their
respective
memoranda.
Complying with the resolution of 26 October 1987,

private respondent filed his reply memorandum on 17
Besides, a recurring ear infection was pleaded as

reason necessitating urgent return to Manila. Assuming
arguendo a worsening pain or discomfort, private
December 1987. This is the last pleading on record.
respondent appears to have still proceeded to four (4)
While this Court is not a trier of facts, yet, when the
leaving open his date of departure from Hongkong to
findings of respondent court are without citation of
Manila. 10 And, even if he claimed to have undergone
specific evidence on which they are based, there is
medical examination upon arrival in Manila, no medical
sufficient reason for the Court to review the appellate
certificate was presented. He failed to even remember
court's decision. 6
his date of arrival in Manila.
The respondent court's ruling that there was breach of
With a claim for a large amount of damages, the Court
contract of carriage is premised on petitioner's refusal
finds it unusual for respondent, a lawyer, to easily forget
to reroute respondent and, in effect, requiring him to
vital information to substantiate his plea. It is also
purchase a new set of tickets. Petitioner refutes this
essential before an award of damages that the claimant
conclusion, claiming that the original ticket was
must satisfactorily prove during the trial the existence
discounted and non-endorsable on certain segments.
of the factual basis of the damages and its causal
other cities covering a period of at least six (6) days and
connection to defendant's acts. 11
Page 76 of 76
In KLM Royal Dutch Airlines v. CA, 12 the Court
endorsable" and "valid on Air France only." 13 Mere
observed
refusal to accede to the passenger's wishes does not
". . . As noted by the Court of Appeals that condition

was printed in letters so small that one would have to
use a magnifying glass to read the words. Under the
circumstances, it would be unfair and inequitable to
necessarily translate into damages in the absence of

bad faith. 14 To our mind, respondent has failed to
show
wanton,
malevolent
or
reckless
misconduct
imputable to petitioner in its refusal to reroute.
charge the respondents with automatic knowledge or
Air France Manila acted upon the advise of ASPAC in
notice of the said condition so as to preclude any doubt
denying private respondent's request. There was no
that it was fairly and freely agreed upon by the
evident bad faith when it followed the advise not to
respondents when they accepted the passage tickets
authorize rerouting. 15 At worst, the situation can be
issued to them by the KLM. As the airline which issued
considered a case of inadvertence on the part of ASPAC
those tickets with the knowledge that the respondents
in not explaining the non-endorsable character of the
would be flown on the various legs of their journey by
ticket. Of importance, however, is the fact that private
different air carriers, the KLM was chargeable with the
respondent is a lawyer, and the restriction box 16
duty and responsibility of specifically informing the
clearly indicated the non-endorsable character of the
respondents of conditions prescribed in their tickets or
ticket. cdrep
in the very least, to ascertain that the respondent read

them before they accepted their passage tickets. A
thorough search of the records, however, inexplicably
fails to show that any effort was exerted by the KLM
officials or employees to discharge in a proper manner
this responsibility to the respondents. Consequently, We
hold that the respondents cannot be bound by the
provision
in
question
by
which
KLM
unilaterally
assumed the role of a mere-ticket-issuing agent for

other airlines and limited its liability only to untoward
occurrences on its own lines." (Emphasis supplied)
Unlike in the KLM case where the breach of contract
was aggravated by the discourteous and arbitrary
conduct of an official of the Aer Lingus which the KLM
had engaged to transport the respondents, here, Air
France
employees
in
Hamburg
informed
private
respondent that his tickets were partly stamped "non-
Omissions by ordinary passengers may be condoned

but more is expected of members of the bar who cannot
feign ignorance of such limitations and restrictions. An
award of moral and exemplary damages cannot be
sustained under the circumstances, but petitioner has
to refund the unused coupons in the Air France ticket
to the private respondent.
WHEREFORE,
the
judgment
appealed
from
is
REVERSED and SET ASIDE. Petitioner is ordered,

however, to refund to private respondent the value of
the unused coupons in the passenger's ticket issued to
him by the petitioner. No costs.
SO ORDERED.
Melencio-Herrera, Paras, Sarmiento and Regalado JJ.,
concur.

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Page 1 of 76

respondent Manaog did not present any evidence for his

defense to prove non-delivery. When the trial court

[G.R. No. 66641. March 6, 1992.]

rendered judgment in favor of petitioner Filinvest,

FILINVEST CREDIT CORPORATION, petitioner, vs.

REMEDIAL LAW; CIVIL PROCEDURE; EFFECT

OF JUDGMENT; TWO ASPECTS OF RES JUDICATA;

subsequent action for damages that the judgment

ID.; ID.; ID.; REMEDY OF PARTY WHO IS NOT

SATISFIED FROM A JUDGMENT RENDERED. If

judgment which is void upon its face or that the nullity

ID.; ID.; ID.; ALLOWING THE JUDGMENT TO

BECOME FINAL AND EXECUTORY; A PARTY IS

case. Hence, he is now precluded from claiming in a

the airconditioning units from petitioner.

enforced before disclosing certain fats which should

against him was erroneous because he did not receive

Eduardo F. Elizalde for private respondent.

final and executory and the execution thereof be fully

Labaguis, Loyola, Angara & Associates for petitioner.

respondent Manaog allowed the judgment to become

defective. Respondent Manaog did not however raise as

On November 11, 1977, respondent Manaog filed a

of the respondent appellate court (now Court of

motion to suspend execution of judgment, which was

Appeals) affirming the decision of the court which

granted by the trial court. It appears however that the

awarded damages to private respondent arising from

sale at public auction had already been conducted.

the alleged wrongful execution of a final judgment.

complaint before the Court of First Instance (CFI) of

The antecedent facts of the case are as follows:

Rizal (now Regional Trial Court) for damages alleging

Corporation (Filinvest for brevity) filed a complaint with

that the judgment which was made the basis of the

After trial, the CFI of Rizal rendered its decision, in

airconditioners bought by respondent Manaog from

favor of respondent Manaog, the dispositive portion of

Heritage Mercantile Corporation. The latter as vendor

assigned the contract of "sale with reservation of title"

"Premises considered, it is the finding of this Court that

Because respondent Manaog failed to pay the monthly

thereon at the rate of 14% starting September 24, 1977

amortization, petitioner Filinvest sent letters of demand

until fully paid; to pay plaintiff the amount of

to respondent Manaog demanding payment. The latter

P20,000.00 as exemplary damages and to pay plaintiff

did not respond however to any of the demands, thus,

attorney's fees in the amount of P5,000.00 as well as

prompting petitioner Filinvest to file the aforementioned

airconditioners are defective (p. 39, Rollo) On October 3,

"SO ORDERED." (p. 38, Rollo).

served upon respondent Manaog. By virtue of the said

The Honorable Intermediate Appellate Court

writ of execution, a sale by public auction was

gravely abused its discretion in not holding private

conducted by the sheriff on October 5, 1977 and a

respondent a joint fraudfeasor even when the facts

return thereof was made on October 27, 1977.

clearly show him to be so;

The Honorable Intermediate Appellate Court