[G.R. No. 119107.
March 18, 2005] heirs of Bai Tonina Sepi to sell the property to him, thereby
JOSE V. LAGON, petitioner, vs. HONORABLE COURT OF
APPEALS and MENANDRO V. LAPUZ, respondents.
DECISION
CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the
estate of Bai Tonina Sepi, through an intestate court, [1] two parcels
of land located at Tacurong, Sultan Kudarat. A few months after the
sale, private respondent Menandro Lapuz filed a complaint for torts
and damages against petitioner before the Regional Trial Court
(RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed
that he entered into a contract of lease with the late Bai Tonina
Sepi Mengelen Guiabar over three parcels of land (the property) in
Sultan Kudarat, Maguindanao beginning 1964. One of the
provisions agreed upon was for private respondent to put up
commercial buildings which would, in turn, be leased to new
tenants. The rentals to be paid by those tenants would answer for
the rent private respondent was obligated to pay Bai Tonina Sepi
for the lease of the land. In 1974, the lease contract ended but
since the construction of the commercial buildings had yet to be
completed, the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started
remitting his rent to the court-appointed administrator of her estate.
But when the administrator advised him to stop collecting rentals
from the tenants of the buildings he constructed, he discovered that
petitioner, representing himself as the new owner of the property,
had been collecting rentals from the tenants. He thus filed a
complaint against the latter, accusing petitioner of inducing the
violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he
induced the heirs of Bai Tonina to sell the property to him,
contending that the heirs were in dire need of money to pay off the
obligations of the deceased. He also denied interfering with private
respondents leasehold rights as there was no lease contract
covering the property when he purchased it; that his personal
investigation and inquiry revealed no claims or encumbrances on
the subject lots.
Petitioner claimed that before he bought the property, he went
to Atty. Benjamin Fajardo, the lawyer who allegedly notarized the
lease contract between private respondent and Bai Tonina Sepi, to
verify if the parties indeed renewed the lease contract after it
expired in 1974. Petitioner averred that Atty. Fajardo showed him
four copies of the lease renewal but these were all unsigned. To
refute the existence of a lease contract, petitioner presented in
court a certification from the Office of the Clerk of Court confirming
that no record of any lease contract notarized by Atty. Fajardo had
been entered into their files. Petitioner added that he only learned
of the alleged lease contract when he was informed that private
respondent was collecting rent from the tenants of the building.
Finding the complaint for tortuous interference to be
unwarranted, petitioner filed his counterclaim and prayed for the
payment of actual and moral damages.
On July 29, 1986, the court a quo found for private respondent
(plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the
plaintiff:
1
1. Declaring the Contract of Lease executed by Bai
Tonina Sepi Mangelen Guiabar in favor of the
plaintiff on November 6, 1974 (Exh. A and A-1) over
Lot No. 6395, Pls-73. Lot No 6396. Pls.-73. Lot No.
6399. 3ls-73, and Lot no.9777-A. CSD-11-000076-D
(Lot No. 3-A. 40124), all situated along Ledesma
St., Tacurong, Sultan Kudarat, which document was
notarized by Atty. Benjamin S. Fajardo, Sr. and
entered into his notarial register as Doc. No. 619.
Page No. 24. Book No. II. Series of 1974, to be
authentic and genuine and as such valid and
binding for a period of ten (10) years specified
thereon from November 1, 1974 up to October 31,
1984;
2. Declaring the plaintiff as the lawful owner of the
commercial buildings found on the aforesaid lots
and he is entitled to their possession and the
collection (of rentals) of the said commercial
buildings within the period covered by this Contract
of Lease in his favor;
3. Ordering the defendant to pay to the plaintiff the
following:
a) Rentals of the commercial buildings on the lots
covered by the Contract of Lease in favor of the
plaintiff for the period from October 1, 1978 up to
October 31, 1984, including accrued interests in
the total amount of Five Hundred Six Thousand
Eight Hundred Five Pesos and Fifty Six Centavos
(P506, 850.56), the same to continue to bear
interest at the legal rate of 12% per annum until
the whole amount is fully paid by the defendant to
the plaintiff;
b) Moral damages in the amount of One Million
Sixty Two Thousand Five Hundred Pesos
(P1,062,500.00);
c) Actual or compensatory damages in the
amount of Three Hundred Twelve Thousand Five
Hundred Pesos (P312, 500.00);
d) Exemplary or corrective damages in the
amount of One Hundred Eighty Thousand Five
Hundred Pesos (P187,500.00)
e) Temperate or moderate damages in the
amount of Sixty Two Thousand Five Hundred
Pesos (P62,500.00);
f) Nominal damages in the amount of Sixty Two
Thousand Five Hundred Pesos (P62,500.00);
g) Attorneys fees in the amount of One Hundred
Twenty Five Thousand Pesos (P125,000.00);
h) Expenses of litigation in the amount of Sixty
Two Thousand Five Hundred Pesos
(P62,500.00);
i) Interest on the moral damages, actual or
compensatory damages temperate or moderate
damages, nominal damages, attorneys fees and
expenses of litigation in the amounts as specified
hereinabove from May 24, 1982 up to June 27,
1986, in the total amount of Nine Hundred
Thousand Pesos (P900,000.00); all of which will
continue to bear interests at a legal rate of 12%
per annum until the whole amounts are fully paid
by the defendants to the plaintiffs;
2
 4. For failure of the defendant to deposit with this
Court all the rentals he had collected from the
thirteen (13) tenants or occupants of the commercial
buildings in question, the plaintiff is hereby restored
to the possession of his commercial buildings for a
period of seventy-three (73) months which is the
equivalent of the total period for which he was
prevented from collecting the rentals from the
tenants or occupants of his commercial buildings
from October 1, 1978 up to October 31, 1984, and
for this purpose a Writ of Preliminary Injunction is
hereby issued, but the plaintiff is likewise ordered to
pay to the defendant the monthly rental of Seven
Hundred Pesos (P700.00) every end of the month
for the entire period of seventy three (73) months.
This portion of the judgment should be considered
as a mere alternative should the defendant fail to
pay the amount of Five Hundred Five Pesos and
Fifty Six Centavos (P506,805.56) hereinabove
specified;
5. Dismissing the counterclaim interposed by the
defendant for lack of merit;
6. With costs against the defendant.[2]
Petitioner appealed the judgment to the Court of Appeals. [3] In a
decision dated January 31, 1995, [4] the appellate court modified the
assailed judgment of the trial court as follows:
a) The award for moral damages,
compensatory damages, exemplary damages,
temperate or moderate damages, and nominal
damages as well as expenses of litigation in the
amount of P62,500.00 and interests under paragraph
3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorneys fees is
reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are
AFFIRMED;
d) Additionally, the defendant is
hereby ordered to pay to the plaintiff by way of actual
damages the sum of P178,425.00 representing the
amount of rentals he collected from the period of
October 1978 to August 1983, and minus the amount
of P42,700.00 representing rentals due the defendant
computed at P700.00 per month for the period from
August 1978 to August 1983, with interest thereon at
the rate until the same is fully paid;
e) Paragraph 4 is deleted.[5]
Before the appellate court, petitioner disclaimed knowledge of
any lease contract between the late Bai Tonina Sepi and private
respondent. On the other hand, private respondent insisted that it
was impossible for petitioner not to know about the contract since
the latter was aware that he was collecting rentals from the tenants
of the building. While the appellate court disbelieved the
contentions of both parties, it nevertheless held that, for petitioner
to become liable for damages, he must have known of the lease
contract and must have also acted with malice or bad faith when he
bought the subject parcels of land.
Via this petition for review, petitioner cites the following reasons
why the Court should rule in his favor:
1. The Honorable Court of Appeals seriously erred in
holding that petitioner is liable for interference of
contractual relation under Article 1314 of the New Civil
Code;
3
 2. The Honorable Court of Appeals erred in not holding that
private respondent is precluded from recovering, if at all,
because of laches;
3. The Honorable Court of Appeals erred in holding
petitioner liable for actual damages and attorneys fees,
and;
4. The Honorable Court of Appeals erred in dismissing
petitioners counterclaims.[6]
Article 1314 of the Civil Code provides that any third person
who induces another to violate his contract shall be liable for
damages to the other contracting party. The tort recognized in that
provision is known as interference with contractual relations. [7] The
interference is penalized because it violates the property rights of a
party in a contract to reap the benefits that should result therefrom.
[8]
The core issue here is whether the purchase by petitioner of
the subject property, during the supposed existence of private
respondents lease contract with the late Bai Tonina Sepi,
constituted tortuous interference for which petitioner should be held
liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals,
[9]
laid down the elements of tortuous interference with contractual
relations: (a) existence of a valid contract; (b) knowledge on the
part of the third person of the existence of the contract and (c)
interference of the third person without legal justification or excuse.
In that case, petitioner So Ping Bun occupied the premises which
the corporation of his grandfather was leasing from private
respondent, without the knowledge and permission of the
corporation. The corporation, prevented from using the premises
for its business, sued So Ping Bun for tortuous interference.
As regards the first element, the existence of a valid contract
must be duly established. To prove this, private respondent
presented in court a notarized copy of the purported lease renewal.
[10]
While the contract appeared as duly notarized, the notarization
thereof, however, only proved its due execution and delivery but
not the veracity of its contents. Nonetheless, after undergoing the
rigid scrutiny of petitioners counsel and after the trial court declared
it to be valid and subsisting, the notarized copy of the lease
contract presented in court appeared to be incontestable proof that
private respondent and the late Bai Tonina Sepi actually renewed
their lease contract. Settled is the rule that until overcome by clear,
strong and convincing evidence, a notarized document continues
to be prima facie evidence of the facts that gave rise to its
execution and delivery.[11]
The second element, on the other hand, requires that there be
knowledge on the part of the interferer that the contract exists.
Knowledge of the subsistence of the contract is an essential
element to state a cause of action for tortuous interference. [12] A
defendant in such a case cannot be made liable for interfering with
a contract he is unaware of.[13] While it is not necessary to prove
actual knowledge, he must nonetheless be aware of the facts
which, if followed by a reasonable inquiry, will lead to a complete
disclosure of the contractual relations and rights of the parties in
the contract.[14]
In this case, petitioner claims that he had no knowledge of the
lease contract. His sellers (the heirs of Bai Tonina Sepi) likewise
allegedly did not inform him of any existing lease contract.
After a careful perusal of the records, we find the contention of
petitioner meritorious. He conducted his own personal investigation
and inquiry, and unearthed no suspicious circumstance that would
have made a cautious man probe deeper and watch out for any
conflicting claim over the property. An examination of the entire
propertys title bore no indication of the leasehold interest of private
4
respondent. Even the registry of property had no record of the
same.[15]
Assuming ex gratia argumenti that petitioner knew of the
contract, such knowledge alone was not sufficient to make him
liable for tortuous interference. Which brings us to the third
element. According to our ruling in So Ping Bun, petitioner may be
held liable only when there was no legal justification or excuse for
his action[16] or when his conduct was stirred by a wrongful motive.
To sustain a case for tortuous interference, the defendant must
have acted with malice[17] or must have been driven by purely
impious reasons to injure the plaintiff. In other words, his act of
interference cannot be justified.[18]
Furthermore, the records do not support the allegation of
private respondent that petitioner induced the heirs of Bai Tonina
Sepi to sell the property to him. The word induce refers to
situations where a person causes another to choose one course of
conduct by persuasion or intimidation. [19] The records show that the
decision of the heirs of the late Bai Tonina Sepi to sell the property
was completely of their own volition and that petitioner did
absolutely nothing to influence their judgment. Private respondent
himself did not proffer any evidence to support his claim. In short,
even assuming that private respondent was able to prove the
renewal of his lease contract with Bai Tonina Sepi, the fact was
that he was unable to prove malice or bad faith on the part of
petitioner in purchasing the property. Therefore, the claim of
tortuous interference was never established.
In So Ping Bun, the Court discussed whether interference can
be justified at all if the interferer acts for the sole purpose of
furthering a personal financial interest, but without malice or bad
faith. As the Court explained it:
x x x, as a general rule, justification for interfering with the business
relations of another exists where the actors motive is to benefit
himself. Such justification does not exist where the actors motive is
to cause harm to the other. Added to this, some authorities believe
that it is not necessary that the interferers interest outweigh that of
the party whose rights are invaded, and that an individual acts
under an economic interest that is substantial, not merely de
minimis, such that wrongful and malicious motives are negatived,
for he acts in self-protection. Moreover, justification for protecting
ones financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that
of the others. It is sufficient if the impetus of his conduct lies in a
proper business interest rather than in wrongful motives. [20]
The foregoing disquisition applies squarely to the case at bar.
In our view, petitioners purchase of the subject property was
merely an advancement of his financial or economic interests,
absent any proof that he was enthused by improper motives. In the
very early case of Gilchrist v. Cuddy,[21] the Court declared that a
person is not a malicious interferer if his conduct is impelled by a
proper business interest. In other words, a financial or profit
motivation will not necessarily make a person an officious interferer
liable for damages as long as there is no malice or bad faith
involved.
In sum, we rule that, inasmuch as not all three elements to hold
petitioner liable for tortuous interference are present, petitioner
cannot be made to answer for private respondents losses.
This case is one of damnun absque injuria or damage without
injury. Injury is the legal invasion of a legal right while damage is
the hurt, loss or harm which results from the injury. [22] In
BPI Express Card Corporation v. Court of Appeals ,,[23] the Court
turned down the claim for damages of a cardholder whose credit
card had been cancelled by petitioner corporation after several
defaults in payment. We held there that there can be damage
without injury where the loss or harm is not the result of a violation
of a legal duty. In that instance, the consequences must be borne
by the injured person alone since the law affords no remedy for
damages resulting from an act which does not amount to legal
5
injury or wrong.[24] Indeed, lack of malice in the conduct complained Panganiban, (Chairman), Sandoval-Gutierrez, Carpio-
of precludes recovery of damages.[25] Morales, and Garcia, JJ., concur.

With respect to the attorneys fees awarded by the appellate

court to private respondent, we rule that it cannot be recovered
under the circumstances. According to Article 2208 of the Civil
Code, attorneys fees may be awarded only when it has been
stipulated upon or under the instances provided therein.
[26]
Likewise, being in the concept of actual damages, the award for
attorneys fees must have clear, factual and legal bases [27] which, in
this case, do not exist.

Regarding the dismissal of petitioners counterclaim for actual

and moral damages, the appellate court affirmed the assailed order
of the trial court because it found no basis to grant the amount of
damages prayed for by petitioner. We find no reason to reverse the
trial court and the Court of Appeals. Actual damages are those
awarded in satisfaction of, or in recompense for, loss or injury
sustained. To be recoverable, they must not only be capable of
proof but must actually be proved with a reasonable degree of
certainty.[28] Petitioner was unable to prove that he suffered loss or
injury, hence, his claim for actual damages must fail. Moreover, [G.R. No. 134971. March 25, 2004]
petitioners prayer for moral damages was not warranted as moral
damages should result from the wrongful act of a person. The
worries and anxieties suffered by a party hailed to court litigation HERMINIO TAYAG, petitioner, vs. AMANCIA LACSON,
are not compensable.[29] ROSENDO LACSON, ANTONIO LACSON, JUAN
LACSON, TEODISIA LACSON-ESPINOSA and THE
With the foregoing discussion, we no longer deem it necessary COURT OF APPEALS, respondents.
to delve into the issue of laches.
DECISION
WHEREFORE, premises considered, the petition is hereby CALLEJO, SR., J.:
GRANTED. The assailed decision of the Court of Appeals is
hereby REVERSED and SET ASIDE. Before us is a petition for review on certiorari of the
Decision[1] and the Resolution[2] of respondent Court of Appeals in
No costs. CA-G.R. SP No. 44883.

SO ORDERED.
6
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson, [3] and her
children Amancia, Antonio, Juan, and Teodosia, all surnamed
Lacson, were the registered owners of three parcels of land located
in Mabalacat, Pampanga, covered by Transfer Certificates of Title
(TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in the
Register of Deeds of San Fernando, Pampanga. The properties,
which were tenanted agricultural lands, [4] were administered by
Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely,
Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose
Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres,
Meliton Allanigue, Dominga Laxamana, Felicencia de Leon,
Emiliano Ramos, and another group, namely, Felino G. Tolentino,
Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao,
Roman Laxamana, Eddie San Luis, Ricardo Hernandez,
Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson,
Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro
Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores,
and Aurelio Flores,[5] individually executed in favor of the petitioner
separate Deeds of Assignment[6] in which the assignees assigned
to the petitioner their respective rights as tenants/tillers of the
landholdings possessed and tilled by them for and in consideration
of P50.00 per square meter. The said amount was made payable
when the legal impediments to the sale of the property to the
petitioner no longer existed. The petitioner was also granted the
exclusive right to buy the property if and when the respondents,
with the concurrence of the defendants-tenants, agreed to sell the
property. In the interim, the petitioner gave varied sums of money
to the tenants as partial payments, and the latter issued receipts for
the said amounts.
On July 24, 1996, the petitioner called a meeting of the
defendants-tenants to work out the implementation of the terms of
their separate agreements.[7] However, on August 8, 1996, the
defendants-tenants, through Joven Mariano, wrote the petitioner
stating that they were not attending the meeting and instead gave
notice of their collective decision to sell all their rights and interests,
as tenants/lessees, over the landholding to the respondents.
[8]
Explaining their reasons for their collective decision, they wrote
as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng
ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente,
pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng
demanda ninyo at pagbibigay ng problema sa amin na hindi
naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming
karapatan o ang aming lupang sinasaka sa landowner o sa mga
pamilyang Lacson, dahil ayaw naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong
magiging katangahan kung ibebenta pa namin sa inyo ang aming
lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira
ninyo ang aming pagtitiwala at katapatan.[9]
On August 19, 1996, the petitioner filed a complaint with the
Regional Trial Court of San Fernando, Pampanga, Branch 44,
against the defendants-tenants, as well as the respondents, for the
court to fix a period within which to pay the agreed purchase price
of P50.00 per square meter to the defendants, as provided for in
the Deeds of Assignment. The petitioner also prayed for a writ of
preliminary injunction against the defendants and the respondents
therein.[10] The case was docketed as Civil Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma
Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga
Laxamana, Felicencia de Leon, Emiliano Ramos are original
farmers or direct tillers of landholdings over parcels of
lands covered by Transfer Certificate of Title Nos. 35922-R, 35923-
R and 35925-R which are registered in the names of defendants
LACSONS; while defendants Felino G. Tolentino, Rica
7
Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
6. Norma Quiambao
Quiambao, Roman Laxamana, Eddie San Luis, Alfredo P 10,000 41,501.10 231279
----
Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex
Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez,
7. Rosita Tolentino -
and Aurelio Flores are sub-tenantsover the same parcel of land. P 10,000 22,126.08 231284
----
5. That on March 17, 1996 the defendants TIAMSON, et al.,
entered into Deeds of Assignment with the plaintiff by which the 8. Jose Sosa - - - - -
P 10,000 14,861.31 231291
defendants assigned all their rights and interests on their ----
landholdings to the plaintiff and that on the same date (March 17,
1996), the defendants received from the plaintiff partial payments 9. Francisco
P 10,000 24,237.62 231283
in the amounts corresponding to their names. Subsequent Tolentino, Sr.
payments were also received:
10. Emiliano
P 10,000 ------ ------
Laxamana - -
1st PAYMENT 2nd PAYMENT CHECK NO.
11. Ruben Torres - -
P 10,000 P 33,587.31 ------
----
1.Julio Tiamson - - -
P 20,000 P 10,621.54 231281
--- [Son of Mariano Torres (deceased)]

2. Renato Gozun - -
P 10,000 96,000 12. Meliton Allanigue P 10,000 12,944.77 231269
----

[son of Felix Gozun (deceased)] 13. Dominga

P 5,000 22,269.02 231275
Laxamana

3. Rosita Hernandez 14. Felicencia de

P 5,000 14,374.24 231274 10,000 ------ ------
---- Leon

4. Bienvenido Tongol
P 10,000 14,465.90 231285 15. Emiliano Ramos 5,000 18,869.60 231280
---

[Son of Abundio Tongol (deceased)] 16. Felino G.

10,000 ------ ------
Tolentino

5. Alfonso Flores - - -
P 30,000 26,648.40 231271 17. Rica Gozun 5,000 ------ ------
---

8
18. Perla Gozun 10,000 ------ ------ 31. Isidro Tolentino 10,000 ------ ------

19. Benigno
10,000 ------ ------ 32. Ceferino de Leon ------ 11,378.70 231270
Tolentino

20. Rodolfo 33. Alberto

10,000 ------ ------ 10,000 ------ ------
Quiambao Hernandez

21. Roman
10,000 ------ ------ 34. Orlando Florez 10,000 ------ ------
Laxamana

22. Eddie San Luis 10,000 ------ ------ 35. Aurelio Flores 10,000 ------ ------

23. Ricardo
10,000 ------ ------ 6. That on July 24, 1996, the plaintiff wrote the defendants
Hernandez
TIAMSON, et al., inviting them for a meeting regarding the
negotiations/implementations of the terms of their Deeds of
24. Nicenciana Assignment;
10,000 ------ ------
Miranda
7. That on August 8, 1996, the defendants TIAMSON, et al.,
25. Jose Gozun 10,000 ------ ------ through Joven Mariano, replied that they are no longer willing to
pursue with the negotiations, and instead they gave notice to the
plaintiff that they will sell all their rights and interests to the
26. Alfredo Sosa 5,000 ------ ------ registered owners (defendants LACSONS).

A copy of the letter is hereto attached as Annex A etc.;

27. Jose Tiamson 10,000 ------ ------
8. That the defendants TIAMSON, et. al., have no right to deal with
the defendants LACSON or with any third persons while their
28. Augusto contracts with the plaintiff are subsisting; defendants LACSONS
5,000 ------ ------
Tolentino are inducing or have induced the defendants TIAMSON, et. al., to
violate their contracts with the plaintiff;
29. Sixto Hernandez 10,000 ------ ------
9. That by reason of the malicious acts of all the defendants,
plaintiff suffered moral damages in the forms of mental anguish,
30. Alex Quiambao 10,000 ------ ------ mental torture and serious anxiety which in the sum of

9
P500,000.00 for which defendants should be held liable jointly and
severally.[11]
In support of his plea for injunctive relief, the petitioner, as
plaintiff, also alleged the following in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et
al., should be restrained from rescinding their contracts with the
plaintiff, and the defendants LACSONS should also be restrained
from accepting any offer of sale or alienation with the defendants
TIAMSON, et al., in whatever form, the latters rights and interests
in the properties mentioned in paragraph 4 hereof; further, the
LACSONS should be restrained from encumbering/alienating the
subject properties covered by TCT No. 35922-R, 35923-R and TCT
No. 35925-R, Registry of Deeds of San Fernando, Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their
contracts with the plaintiff and are also bent on selling/alienating
their rights and interests over the subject properties to their co-
defendants (LACSONS) or any other persons to the damage and
prejudice of the plaintiff who already invested much money, efforts
and time in the said transactions;
13. That the plaintiff is entitled to the reliefs being demanded in the
complaint;
14. That to prevent irreparable damages and prejudice to the
plaintiff, as the latter has no speedy and adequate remedy under
the ordinary course of law, it is essential that a Writ of Preliminary
Injunction be issued enjoining and restraining the
defendants TIAMSON, et al., from rescinding their contracts with
the plaintiff and from selling/alienating their properties to the
LACSONS or other persons;
15. That the plaintiff is willing and able to put up a reasonable bond
to answer for the damages which the defendants would suffer
should the injunction prayed for and granted be found without
basis.[12]
The petitioner prayed, that after the proceedings, judgment be
rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued
prohibiting, enjoining and restraining defendants Julio Tiamson,
Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, Felino
G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo
Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez,
Orlando Flores, and Aurelio Flores from rescinding their contracts
with the plaintiff and from alienating their rights and interest over
the aforementioned properties in favor of defendants LACSONS or
any other third persons; and prohibiting the defendants LACSONS
from encumbering/alienating TCT Nos. 35922-R, 35923-R and
35925-R of the Registry of Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary
Injunction, it is prayed that a restraining order be issued restraining
the aforementioned defendants (TIAMSON, et al.) from rescinding
their contracts with the plaintiff and from alienating the subject
properties to the defendants LACSONS or any third persons;
further, restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos. 35922-R,
35923-R, and 35925-R of the Registry of Deeds of San Fernando,
Pampanga.
3. Fixing the period within which plaintiff shall pay the balance
of the purchase price to the defendants TIAMSON, et al., after the
lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum
of P500,000.00 as moral damages;
10
6. Ordering the defendants to pay the plaintiff attorneys fees in the sign[ed] was a mere receipt for amounts received by
sum of P100,000.00 plus litigation expenses of P50,000.00; way of loans;
d) That the documents signed in blank were filled up and
Plaintiff prays for such other relief as may be just and equitable
completed after the defendants Tiamson, et al., signed
under the premises.[13]
the documents and their completion and
accomplishment was done in the absence of said
In their answer to the complaint, the respondents as
defendants and, worst of all, defendants were not
defendants asserted that (a) the defendant Angelica Vda. de
provided a copy thereof;
Lacson had died on April 24, 1993; (b) twelve of the defendants
were tenants/lessees of respondents, but the tenancy status of the e) That as completed, the Deeds of Assignment reflected
rest of the defendants was uncertain; (c) they never induced the that the defendants Tiamson, et al., did assign all their
defendants Tiamson to violate their contracts with the petitioner; rights and interests in the properties or landholdings
and, (d) being merely tenants-tillers, the defendants-tenants had no they were tilling in favor of the plaintiff. That if this is so,
right to enter into any transactions involving their properties without assuming arguendo that the documents were voluntarily
their knowledge and consent. They also averred that the transfers executed, the defendants Tiamson, et al., do not have
or assignments of leasehold rights made by the defendants-tenants any right to transfer their interest in the landholdings
to the petitioner is contrary to Presidential Decree (P.D.) No. 27 they are tilling as they have no right whatsoever in the
and Republic Act No. 6657, the Comprehensive Agrarian Reform landholdings, the landholdings belong to their co-
Program (CARP).[14] The respondents interposed counterclaims for defendants, Lacson, et al., and therefore, the contract is
damages against the petitioner as plaintiff. null and void;
The defendants-tenants Tiamson, et al., alleged in their answer f) That while it is admitted that the defendants Tiamson, et
with counterclaim for damages, that the money each of them al., received sums of money from plaintiffs, the same
received from the petitioner were in the form of loans, and that they were received as approved loans granted by plaintiff to
were deceived into signing the deeds of assignment: the defendants Tiamson, et al., and not as part
consideration of the alleged Deeds of Assignment; and
a) That all the foregoing allegations in the Answer are
by way of:[15]
hereby repleaded and incorporated in so far as they are
material and relevant herein; At the hearing of the petitioners plea for a writ of preliminary
injunction, the respondents counsel failed to appear. In support of
b) That the defendants Tiamson, et al., in so far as the
his plea for a writ of preliminary injunction, the petitioner adduced
Deeds of Assignment are concern[ed] never knew that
in evidence the Deeds of Assignment, [16] the receipts[17] issued by
what they did sign is a Deed of Assignment. What they
the defendants-tenants for the amounts they received from him;
knew was that they were made to sign a document that
and the letter[18] the petitioner received from the defendants-
will serve as a receipt for the loan granted [to] them by
tenants. The petitioner then rested his case.
the plaintiff;
The respondents, thereafter, filed a Comment/Motion to
c) That the Deeds of Assignment were signed through the
dismiss/deny the petitioners plea for injunctive relief on the
employment of fraud, deceit and false pretenses of
following grounds: (a) the Deeds of Assignment executed by the
plaintiff and made the defendants believe that what they
defendants-tenants were contrary to public policy and P.D. No. 27
and Rep. Act No. 6657; (b) the petitioner failed to prove that the
11
respondents induced the defendants-tenants to renege on their
obligations under the Deeds of Assignment; (c) not being privy to
the said deeds, the respondents are not bound by the said deeds;
and, (d) the respondents had the absolute right to sell and dispose
of their property and to encumber the same and cannot be
enjoined from doing so by the trial court.
The petitioner opposed the motion, contending that it was
premature for the trial court to resolve his plea for injunctive relief,
before the respondents and the defendants-tenants adduced
evidence in opposition thereto, to afford the petitioner a chance to
adduce rebuttal evidence and prove his entitlement to a writ of
preliminary injunction. The respondents replied that it was the
burden of the petitioner to establish the requisites of a writ of
preliminary injunction without any evidence on their part, and that
they were not bound to adduce any evidence in opposition to the
petitioners plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order [19] denying
the motion of the respondents for being premature. It directed the
hearing to proceed for the respondents to adduce their
evidence. The court ruled that the petitioner, on the basis of the
material allegations of the complaint, was entitled to injunctive
relief. It also held that before the court could resolve the petitioners
plea for injunctive relief, there was need for a hearing to enable the
respondents and the defendants-tenants to adduce evidence to
controvert that of the petitioner. The respondents filed a motion for
reconsideration, which the court denied in its Order dated April 16,
1997. The trial court ruled that on the face of the averments of the
complaint, the pleadings of the parties and the evidence adduced
by the petitioner, the latter was entitled to injunctive relief unless
the respondents and the defendants-tenants adduced controverting
evidence.
The respondents, the petitioners therein, filed a petition for
certiorari in the Court of Appeals for the nullification of the February
13, 1997 and April 16, 1997 Orders of the trial court. The case was
docketed as CA-G.R. SP No. 44883. The petitioners therein prayed
in their petition that:
1. An order be issued declaring the orders of respondent
court dated February 13, 1997 and April 16, 1997 as null
and void;
2. An order be issued directing the respondent court to
issue an order denying the application of respondent
Herminio Tayag for the issuance of a Writ of Preliminary
Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be
issued against the respondent court, prohibiting it from
issuing its own writ of injunction against Petitioners, and
thereafter making said injunction to be issued by this
Court permanent.
Such other orders as may be deemed just & equitable under the
premises also prayed for.[20]
The respondents asserted that the Deeds of Assignment
executed by the assignees in favor of the petitioner were contrary
to paragraph 13 of P.D. No. 27 and the second paragraph of
Section 70 of Rep. Act No. 6657, and, as such, could not be
enforced by the petitioner for being null and void. The respondents
also claimed that the enforcement of the deeds of assignment was
subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall
be exercised only when no legal impediments exist to the lot to
effect the smooth transfer of lawful ownership of the lot/property in
the name of the ASSIGNEE.[21]
The respondents argued that until such condition took place,
the petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioners plea in his complaint
before the trial court, to fix a period within which to pay the balance
of the amounts due to the tenants under said deeds after the lapse
of any legal impediment, assumed that the deeds were valid, when,
in fact and in law, they were not. According to the respondents,
they were not parties to the deeds of assignment; hence, they were
not bound by the said deeds.The issuance of a writ of preliminary
12
injunction would restrict and impede the exercise of their right to
dispose of their property, as provided for in Article 428 of the New
Civil Code. They asserted that the petitioner had no cause of action
against them and the defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision
against the petitioner, annulling and setting aside the assailed
orders of the trial court; and permanently enjoining the said trial
court from proceeding with Civil Case No. 10901. The decretal
portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive
relief he demands in the lower court still he could avail of other
course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against
TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February
1997 and 16 April 1997 are hereby NULLIFIED and ordered SET
ASIDE for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction. Accordingly, public
respondent is permanently enjoined from proceeding with the case
designated as Civil Case No. 10901.[22]
The CA ruled that the respondents could not be enjoined from
alienating or even encumbering their property, especially so since
they were not privies to the deeds of assignment executed by the
defendants-tenants. The defendants-tenants were not yet owners
of the portions of the landholdings respectively tilled by them; as
such, they had nothing to assign to the petitioner. Finally, the CA
ruled that the deeds of assignment executed by the defendants-
tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the
petitioners motion for reconsideration.[23]
Hence, the petitioner filed his petition for review on certiorari
before this Court, contending as follows:
I SAME TIME THE COUNTER-CLAIMS THEY FILED
A MERE ALLEGATION IN THE ANSWER OF
THE TENANTS COULD NOT BE USED AS EVIDENCE
OR BASIS FOR ANY CONCLUSION, AS THIS
ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN
THE LOWER COURT (RTC).[24]
II
THE COURT OF APPEALS CANNOT ENJOIN
THE HEARING OF A PETITION FOR PRELIMINARY
INJUNCTION AT A TIME WHEN THE LOWER COURT
(RTC) IS STILL RECEIVING EVIDENCE PRECISELY
TO DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY
TAYAG SHOULD BE GRANTED OR NOT.[25]
III
THE COURT OF APPEALS CANNOT USE
FACTS NOT IN EVIDENCE, TO SUPPORT ITS
CONCLUSION THAT THE TENANTS ARE NOT YET
AWARDEES OF THE LAND REFORM.[26]
IV
THE COURT OF APPEALS CANNOT CAUSE
THE PERMANENT STOPPAGE OF THE ENTIRE
PROCEEDINGS BELOW INCLUDING THE TRIAL ON
THE MERITS OF THE CASE CONSIDERING THAT
THE ISSUE INVOLVED ONLY THE PROPRIETY OF
MAINTAINING THE STATUS QUO.[27]
V
THE COURT OF APPEALS CANNOT INCLUDE
IN ITS DECISION THE CASE OF THE OTHER 35
TENANTS WHO DO NOT QUESTION THE
JURISDICTION OF THE LOWER COURT (RTC) OVER
THE CASE AND WHO ARE IN FACT STILL
PRESENTING THEIR EVIDENCE TO OPPOSE THE
INJUNCTION PRAYED FOR, AND TO PROVE AT THE
AGAINST THE PETITIONER.[28]
13
VI
THE LOWER COURT (RTC) HAS
JURISDICTION OVER THE CASE FILED BY TAYAG
FOR FIXING OF PERIOD UNDER ART. 1197 OF THE
NEW CIVIL CODE AND FOR DAMAGES AGAINST
THE LACSONS UNDER ART. 1314 OF THE SAME
CODE. THIS CASE CANNOT BE SUPPRESSED OR
RENDERED NUGATORY UNCEREMONIOUSLY.[29]
The petitioner faults the Court of Appeals for permanently
enjoining the trial court from proceeding with Civil Case No.
10910. He opines that the same was too drastic, tantamount to a
dismissal of the case. He argues that at that stage, it was
premature for the appellate court to determine the merits of the
case since no evidentiary hearing thereon was conducted by the
trial court. This, the Court of Appeals cannot do, since neither party
moved for the dismissal of Civil Case No. 10910. The petitioner
points out that the Court of Appeals, in making its findings, went
beyond the issue raised by the private respondents, namely,
whether or not the trial court committed a grave abuse of discretion
amounting to excess or lack of jurisdiction when it denied the
respondents motion for the denial/dismissal of the petitioners plea
for a writ of preliminary injunction. He, likewise, points out that the
appellate court erroneously presumed that the leaseholders were
not DAR awardees and that the deeds of assignment were contrary
to law. He contends that leasehold tenants are not prohibited from
conveying or waiving their leasehold rights in his favor. He insists
that there is nothing illegal with his contracts with the leaseholders,
since the same shall be effected only when there are no more legal
impediments.
At bottom, the petitioner contends that, at that stage, it was
premature for the appellate court to determine the merits of his
case since no evidentiary hearing on the merits of his complaint
had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the
respondents to dismiss/deny the petitioners plea for a writ of
preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case
on the incident, was proper and timely. It bears stressing that the
petitioner had the burden to prove his right to a writ of preliminary
injunction. He may rely solely on the material allegations of his
complaint or adduce evidence in support thereof. The petitioner
adduced his evidence to support his plea for a writ of preliminary
injunction against the respondents and the defendants-tenants and
rested his case on the said incident. The respondents then had
three options: (a) file a motion to deny/dismiss the motion on the
ground that the petitioner failed to discharge his burden to prove
the factual and legal basis for his plea for a writ of preliminary
injunction and, if the trial court denies his motion, for them to
adduce evidence in opposition to the petitioners plea; (b) forgo
their motion and adduce testimonial and/or documentary evidence
in opposition to the petitioners plea for a writ of preliminary
injunction; or, (c) waive their right to adduce evidence and submit
the incident for consideration on the basis of the pleadings of the
parties and the evidence of the petitioner. The respondents opted
not to adduce any evidence, and instead filed a motion to deny or
dismiss the petitioners plea for a writ of preliminary injunction
against them, on their claim that the petitioner failed to prove his
entitlement thereto. The trial court cannot compel the respondents
to adduce evidence in opposition to the petitioners plea if the
respondents opt to waive their right to adduce such
evidence. Thus, the trial court should have resolved the
respondents motion even without the latters opposition and the
presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the
petitioner was entitled to a writ of preliminary injunction against the
14
respondents on the basis of the material averments of the
complaint. In its April 16, 1997 Order, the trial court denied the
respondents motion for reconsideration of the previous order, on its
finding that the petitioner was entitled to a writ of preliminary
injunction based on the material allegations of his complaint, the
evidence on record, the pleadings of the parties, as well as the
applicable laws:
For the record, the Court denied the LACSONS
COMMENT/MOTION on the basis of the facts culled from the
evidence presented, the pleadings and the law applicable
unswayed by the partisan or personal interests, public opinion or
fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics). [30]
Section 3, Rule 58 of the Rules of Court, as amended,
enumerates the grounds for the issuance of a writ of preliminary
injunction, thus:
(a) That the applicant is entitled to the relief demanded,
and the whole or part of such relief consists in
restraining the commission or continuance of the act or
acts complained of, or in requiring the performance of
an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance
of the act or acts complained of during the litigation
would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to
render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to
preserve or maintain the status quo of things ante litem and is
generally availed of to prevent actual or threatened acts, until the
merits of the case can be heard. Injunction is accepted as the
strong arm of equity or a transcendent remedy.[31] While generally
the grant of a writ of preliminary injunction rests on the sound
discretion of the trial court taking cognizance of the case, extreme
caution must be observed in the exercise of such discretion.
[32]
Indeed, in Olalia v. Hizon,[33] we held:
It has been consistently held that there is no power the exercise of
which is more delicate, which requires greater caution, deliberation
and sound discretion, or more dangerous in a doubtful case, than
the issuance of an injunction. It is the strong arm of equity that
should never be extended unless to cases of great injury, where
courts of law cannot afford an adequate or commensurate remedy
in damages.
Every court should remember that an injunction is a limitation upon
the freedom of action of the defendant and should not be granted
lightly or precipitately. It should be granted only when the court is
fully satisfied that the law permits it and the emergency demands it.
[34]
The very foundation of the jurisdiction to issue writ of injunction
rests in the existence of a cause of action and in the probability of
irreparable injury, inadequacy of pecuniary compensation and the
prevention of the multiplicity of suits. Where facts are not shown to
bring the case within these conditions, the relief of injunction
should be refused.[35]
For the court to issue a writ of preliminary injunction, the
petitioner was burdened to establish the following: (1) a right
in esse or a clear and unmistakable right to be protected; (2) a
violation of that right; (3) that there is an urgent and permanent act
and urgent necessity for the writ to prevent serious damage.
[36]
Thus, in the absence of a clear legal right, the issuance of the
injunctive writ constitutes a grave abuse of discretion. Where the
complainants right is doubtful or disputed, injunction is not
proper. Injunction is a preservative remedy aimed at protecting
substantial rights and interests. It is not designed to protect
contingent or future rights. The possibility of irreparable damage
without proof of adequate existing rights is not a ground for
injunction.[37]
15
 We have reviewed the pleadings of the parties and found that,
as contended by the respondents, the petitioner failed to establish
the essential requisites for the issuance of a writ of preliminary
injunction. Hence, the trial court committed a grave abuse of its
discretion amounting to excess or lack of jurisdiction in denying the
respondents comment/motion as well as their motion for
reconsideration.
First. The trial court cannot enjoin the respondents, at the
instance of the petitioner, from selling, disposing of and
encumbering their property. As the registered owners of the
property, the respondents have the right to enjoy and dispose of
their property without any other limitations than those established
by law, in accordance with Article 428 of the Civil Code. The right to
dispose of the property is the power of the owner to sell, encumber,
transfer, and even destroy the property. Ownership also includes
the right to recover the possession of the property from any other
person to whom the owner has not transmitted such property, by
the appropriate action for restitution, with the fruits, and for
indemnification for damages.[38] The right of ownership of the
respondents is not, of course, absolute. It is limited by those set
forth by law, such as the agrarian reform laws. Under Article 1306
of the New Civil Code, the respondents may enter into contracts
covering their property with another under such terms and
conditions as they may deem beneficial provided they are not
contrary to law, morals, good conduct, public order or public policy.
The respondents cannot be enjoined from selling or
encumbering their property simply and merely because they had
executed Deeds of Assignment in favor of the petitioner, obliging
themselves to assign and transfer their rights or interests as
agricultural farmers/laborers/sub-tenants over the landholding, and
granting the petitioner the exclusive right to buy the property
subject to the occurrence of certain conditions. The respondents
were not parties to the said deeds. There is no evidence that the
respondents agreed, expressly or impliedly, to the said deeds or to
the terms and conditions set forth therein. Indeed, they assailed the
validity of the said deeds on their claim that the same were
contrary to the letter and spirit of P.D. No. 27 and Rep. Act No.
6657. The petitioner even admitted when he testified that he did
not know any of the respondents, and that he had not met any of
them before he filed his complaint in the RTC. He did not even
know that one of those whom he had impleaded as defendant,
Angelica Vda. de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are
residents of the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de
Lacson had already been dead?
A: I am aware of that, sir.[39]
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie
against petitioners. As owners of the lands being tilled by
TIAMSON, et al., petitioners, under the law, have the right to enjoy
and dispose of the same. Thus, they have the right to possess the
lands, as well as the right to encumber or alienate them. This
principle of law notwithstanding, private respondent in the lower
court sought to restrain the petitioners from encumbering and/or
alienating the properties covered by TCT No. 35922-R, 35923-R
and TCT No. 35925-R of the Registry of Deeds of San Fernando,
Pampanga. This cannot be allowed to prosper since it would
constitute a limitation or restriction, not otherwise established by
law on their right of ownership, more so considering that petitioners
were not even privy to the alleged transaction between private
respondent and TIAMSON, et al.[40]
Second. A reading the averments of the complaint will show
that the petitioner clearly has no cause of action against the
respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the defendants-
tenants the balance of the P50.00 per square meter, the
consideration under the Deeds of Assignment executed by the
defendants-tenants. The respondents are not parties or privies to
16
the deeds of assignment. The matter of the period for the petitioner
to pay the balance of the said amount to each of the defendants-
tenants is an issue between them, the parties to the deed.
Third. On the face of the complaint, the action of the petitioner
against the respondents and the defendants-tenants has no legal
basis. Under the Deeds of Assignment, the obligation of the
petitioner to pay to each of the defendants-tenants the balance of
the purchase price was conditioned on the occurrence of the
following events: (a) the respondents agree to sell their property to
the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the petitioner
decides to buy the property. When he testified, the petitioner
admitted that the legal impediments referred to in the deeds were
(a) the respondents refusal to sell their property; and, (b) the lack
of approval of the Department of Agrarian Reform:
Q : There is no specific agreement prior to the execution of
those documents as when they will pay?
A : We agreed to that, that I will pay them when there are
no legal impediment, sir.
Q : Many of the documents are unlattered (sic) and you
want to convey to this Honorable Court that prior to the
execution of these documents you have those tentative
agreement for instance that the amount or the cost of
the price is to be paid when there are no legal
impediment, you are using the word legal impediment,
do you know the meaning of that?
A : When there are (sic) no more legal impediment exist,
sir.
Q : Did you make how (sic) to the effect that the meaning
of that phrase that you used the unlettered
defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer
my question not to answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then
especially if the Lacsons will not agree to sell their
shares to me or to us it would be hard to (sic) me to
pay them in full. And those covered by DAR. I
explain[ed] to them and it was clearly stated in the title
that there is [a] prohibited period of time before you
can sell the property. I explained every detail to them.
[41]
It is only upon the occurrence of the foregoing conditions that
the petitioner would be obliged to pay to the defendants-tenants
the balance of the P50.00 per square meter under the deeds of
assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually
agree to sell the said lot to the ASSIGNEE, who is given an
exclusive and absolute right to buy the lot, the ASSIGNOR shall
receive the sum of FIFTY PESOS (P50.00) per square meter as
consideration of the total area actually tilled and possessed by the
ASSIGNOR, less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions relative
to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE
shall be exercised only when no legal impediments exist to the lot
to effect the smooth transfer of lawful ownership of the lot/property
in the name of the ASSIGNEE;
17
4. That the ASSIGNOR will remain in peaceful possession over the
said property and shall enjoy the fruits/earnings and/or harvest of
the said lot until such time that full payment of the agreed purchase
price had been made by the ASSIGNEE.[42]
There is no showing in the petitioners complaint that the
respondents had agreed to sell their property, and that the legal
impediments to the agreement no longer existed. The petitioner
and the defendants-tenants had yet to submit the Deeds of
Assignment to the Department of Agrarian Reform which, in turn,
had to act on and approve or disapprove the same. In fact, as
alleged by the petitioner in his complaint, he was yet to meet with
the defendants-tenants to discuss the implementation of the deeds
of assignment. Unless and until the Department of Agrarian Reform
approved the said deeds, if at all, the petitioner had no right to
enforce the same in a court of law by asking the trial court to fix a
period within which to pay the balance of the purchase price and
praying for injunctive relief.
We do not agree with the contention of the petitioner that the
deeds of assignment executed by the defendants-tenants are
perfected option contracts.[43] An option is a contract by which the
owner of the property agrees with another person that he shall
have the right to buy his property at a fixed price within a certain
time. It is a condition offered or contract by which the owner
stipulates with another that the latter shall have the right to buy the
property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions, or which gives to the
owner of the property the right to sell or demand a sale. It imposes
no binding obligation on the person holding the option, aside from
the consideration for the offer. Until accepted, it is not, properly
speaking, treated as a contract. [44] The second party gets in
praesenti, not lands, not an agreement that he shall have the
lands, but the right to call for and receive lands if he elects. [45] An
option contract is a separate and distinct contract from which the
parties may enter into upon the conjunction of the option. [46]
In this case, the defendants-tenants-subtenants, under the
deeds of assignment, granted to the petitioner not only an option
but the exclusive right to buy the landholding. But the grantors
were merely the defendants-tenants, and not the respondents, the
registered owners of the property. Not being the registered owners
of the property, the defendants-tenants could not legally grant to
the petitioner the option, much less the exclusive right to buy the
property. As the Latin saying goes, NEMO DAT QUOD NON
HABET.
Fourth. The petitioner impleaded the respondents as parties-
defendants solely on his allegation that the latter induced or are
inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the New
Civil Code which reads:
Art. 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,[47] we held that for the said
law to apply, the pleader is burdened to prove the following: (1) the
existence of a valid contract; (2) knowledge by the third person of
the existence of the contract; and (3) interference by the third
person in the contractual relation without legal justification.
Where there was no malice in the interference of a contract,
and the impulse behind ones conduct lies in a proper business
interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially
interested, and such interest motivates his conduct, it cannot be
said that he is an officious or malicious intermeddler.[48]
In fine, one who is not a party to a contract and who interferes
thereon is not necessarily an officious or malicious
intermeddler. The only evidence adduced by the petitioner to prove
his claim is the letter from the defendants-tenants informing him
that they had decided to sell their rights and interests over the
landholding to the respondents, instead of honoring their obligation
under the deeds of assignment because, according to them, the
petitioner harassed those tenants who did not want to execute
deeds of assignment in his favor, and because the said
defendants-tenants did not want to have any problem with the
respondents who could cause their eviction for executing with the
petitioner the deeds of assignment as the said deeds are in
18
violation of P.D. No. 27 and Rep. Act No. 6657. [49] The defendants-
tenants did not allege therein that the respondents induced them to
breach their contracts with the petitioner. The petitioner himself
admitted when he testified that his claim that the respondents
induced the defendants-assignees to violate contracts with him
was based merely on what he heard, thus:
Q: Going to your last statement that the Lacsons induces
(sic) the defendants, did you see that the Lacsons
were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir,
they went in the barrio (sic). As a matter of fact, that is
the reason why they sent me letter that they will sell it
to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons
individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic)
personally, the alleged negotiator and has the authority
to sell the property.[50]
Even if the respondents received an offer from the defendants-
tenants to assign and transfer their rights and interests on the
landholding, the respondents cannot be enjoined from entertaining
the said offer, or even negotiating with the defendants-tenants. The
respondents could not even be expected to warn the defendants-
tenants for executing the said deeds in violation of P.D. No. 27 and
Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries
under P.D. No. 27 who have culpably sold, disposed of, or
abandoned their land, are disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his
purpose in having the defendants-tenants execute the Deeds of
Assignment in his favor was to acquire the landholding without any
tenants thereon, in the event that the respondents agreed to sell
the property to him. The petitioner knew that under Section 11 of
Rep. Act No. 3844, if the respondents agreed to sell the property,
the defendants-tenants shall have preferential right to buy the
same under reasonable terms and conditions:
SECTION 11. Lessees Right of Pre-emption. In case the
agricultural lessor desires to sell the landholding, the agricultural
lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire
landholding offered for sale must be pre-empted by the Land
Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where
there are two or more agricultural lessees, each shall be entitled to
said preferential right only to the extent of the area actually
cultivated by him. [51]
Under Section 12 of the law, if the property was sold to a third
person without the knowledge of the tenants thereon, the latter
shall have the right to redeem the same at a reasonable price and
consideration. By assigning their rights and interests on the
landholding under the deeds of assignment in favor of the
petitioner, the defendants-tenants thereby waived, in favor of the
petitioner, who is not a beneficiary under Section 22 of Rep. Act
No. 6657, their rights of preemption or redemption under Rep. Act
No. 3844. The defendants-tenants would then have to vacate the
property in favor of the petitioner upon full payment of the purchase
price. Instead of acquiring ownership of the portions of the
landholding respectively tilled by them, the defendants-tenants
would again become landless for a measly sum of P50.00 per
square meter. The petitioners scheme is subversive, not only of
public policy, but also of the letter and spirit of the agrarian
laws. That the scheme of the petitioner had yet to take effect in the
future or ten years hence is not a justification. The respondents
may well argue that the agrarian laws had been violated by the
defendants-tenants and the petitioner by the mere execution of the
deeds of assignment. In fact, the petitioner has implemented the
deeds by paying the defendants-tenants amounts of money and
even sought their immediate implementation by setting a meeting
with the defendants-tenants. In fine, the petitioner would not wait
for ten years to evict the defendants-tenants. For him, time is of the
essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
19
From Continuing with the
Proceedings in Civil Case
No. 10910.
We agree with the petitioners contention that the appellate
court erred when it permanently enjoined the RTC from continuing
with the proceedings in Civil Case No. 10910. The only issue
before the appellate court was whether or not the trial court
committed a grave abuse of discretion amounting to excess or lack
of jurisdiction in denying the respondents motion to deny or dismiss
the petitioners plea for a writ of preliminary injunction. Not one of
the parties prayed to permanently enjoin the trial court from further
proceeding with Civil Case No. 10910 or to dismiss the
complaint. It bears stressing that the petitioner may still amend his
complaint, and the respondents and the defendants-tenants may
file motions to dismiss the complaint.By permanently enjoining the
trial court from proceeding with Civil Case No. 10910, the appellate
court acted arbitrarily and effectively dismissed the complaint motu
proprio, including the counterclaims of the respondents and that of
the defendants-tenants. The defendants-tenants were even
deprived of their right to prove their special and affirmative
defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is
PARTIALLY GRANTED. The Decision of the Court of Appeals
nullifying the February 13, 1996 and April 16, 1997 Orders of the
RTC is AFFIRMED. The writ of injunction issued by the Court of
Appeals permanently enjoining the RTC from further proceeding
with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The
Regional Trial Court of Mabalacat, Pampanga, Branch 44, is
ORDERED to continue with the proceedings in Civil Case No.
10910 as provided for by the Rules of Court, as amended.
SO ORDERED. Republic of the Philippines
SUPREME COURT
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, Manila
JJ., concur.
THIRD DIVISION

20
 G.R. No. 86683 January 21, 1993
PHILIP S. YU, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE
PRESIDING JUDGE, RTC OF MANILA, BRANCH XXXIV (34)
and UNISIA MERCHANDISING CO., INC., respondents.
Oscar M. Manahan for petitioner.
Ruben L. Pasamonte collaborating counsel for petitioner.
Alfredo G. De Guzman for private respondent.
MELO, J.:
Petitioner, the exclusive distributor of the House of Mayfair
wallcovering products in the Philippines, cried foul when his former
dealer of the same goods, herein private respondent, purchased
the merchandise from the House of Mayfair in England through
FNF Trading in West Germany and sold said merchandise in the
Philippines. Both the court of origin and the appellate court rejected
petitioner's thesis that private respondent was engaged in a sinister
form of unfair competition within the context of Article 28 of the
New Civil Code (pp. 23 and 64, Rollo). Hence, the petition at bar.
There is no dispute that petitioner has had an exclusive sales
agency agreement with the House of Mayfair since 1987 to
promote and procure orders for Mayfair wallcovering products from
customers in the Philippines (Annex "B", Petition; p. 30, Rollo).
Even as petitioner was such exclusive distributor, private
respondent, which was then petitioner's dealer, imported the some
goods via the FNF Trading which eventually sold the merchandise
in the domestic market (TSN, September 20, 1988, p. 9; p.
117, Rollo). In the suit for injunction which petitioner filed before the
Regional Trial Court of the National Capital Judicial Region
stationed at Manila, petitioner pressed the idea that he was
practically by-passed and that private respondent acted in concert
with the FNF Trading in misleading Mayfair into believing that the
goods ordered by the trading firm were intended for shipment to
Nigeria although they were actually shipped to and sold in the
Philippines (Paragraph 5, Complaint: p. 34, Rollo). Private
respondent professed ignorance of the exclusive contract in favor
of petitioner. Even then, private respondent responded by asserting
that petitioner's understanding with Mayfair is binding only between
the parties thereto (Paragraph 5, Answer; p. 50, Rollo).
In the course of hearing the arguments for and against the
issuance of the requested writ of preliminary injunction, petitioner
impressed before the lower court that he is seeking to enjoin the
sale and distribution by private respondent of the same goods in
the market (TSN, September 20, 1988, p. 35; p. 142, Rollo) but the
Honorable Cesar V. Alejandria, Presiding Judge of Branch 34 was
unperturbed, thusly:
Resolving plaintiff's motion embodied in the complaint
for the issuance of a writ of preliminary injunction
after hearing, but without prejudging the merits of the
case, and finding from the evidences adduced by the
plaintiff, that the terms and conditions of the agency
agreement, Exhibit "A-inj." between the plaintiff and
The House of Mayfair of England for the exclusive
distributorship by the plaintiff of the latter's goods,
apertain to them; that there is no privity of contract
between the plaintiff and the defendant; that the
controversy in this case arose from a breach of
contract by the FNF Trading of Germany, for having
shipped goods it had purchased from The House of
Mayfair to the Philippines: that as shown in Exh. "J-
inj.", the House of Mayfair was demanding payment
of 4,500.00 from the FNF Trading for restitution of
plaintiff's alleged loss on account of the shipment of
21
 the goods in question here in the Philippines and now
in the possession of the defendant; it appears to the
Court that to restrain the defendant from selling the
goods it has ordered from the FNF Trading of
Germany, would be without legal justification.
WHEREFORE, the motion for the issuance of a writ
of preliminary injunction to restrain the defendant
from selling the goods it has ordered from the FNF
Trading of Germany is hereby DENIED. (p. 64, Rollo.)
The indifference of the trial court towards petitioner's supplication
occasioned the filing of a petition for review on certiorari with the
Court of Appeals but Justice Ordoez-Benitez, with whom Justices
Bellosillo and Kalalo concurred, reacted in the same nonchalant
fashion. According to the appellate court, petitioner was not able to
demonstrate the unequivocal right which he sought to protect and
that private respondent is a complete stranger vis-a-vis the
covenant between petitioner and Mayfair. Apart from these
considerations, the reviewing authority noted that petitioner could
be fully compensated for the prejudice he suffered judging from the
tenor of Mayfair's correspondence to FNF Trading wherein Mayfair
took the cudgels for petitioner in seeking compensation for the
latter's loss as a consequence of private respondent's scheme (p.
79, Rollo; pp. 23-29, Rollo).
In the petition at hand, petitioner anchors his plea for redress on
his perception that private respondent has distributed and
continues to sell Mayfair covering products in contravention of
petitioner's exclusive right conferred by the covenant with the
House of Mayfair.
On March 13, 1989, a temporary restraining order was issued to
last until further notice from this Court directed against private
respondent (p. 188, Rollo). Notwithstanding such proscription,
private respondent persisted in the distribution and sole (p. 208;
228-229, Rollo), triggering petitioner's motion to cite private
respondent's manager in contempt of court (p. 223, Rollo).
Considering that private respondent's manager, Frank Sia,
admitted the acts complained of, a fine of P500.00 was imposed on
him but he failed to pay the same within the five-day period
provided in Our Resolution of June 21, 1989
(p. 236, Rollo).
Did respondent appellate court correctly agree with the lower court
in disallowing the writ solicited by herein petitioner?
That the exclusive sales contract which links petitioner and the
House of Mayfair is solely the concern of the privies thereto and
cannot thus extend its chain as to bind private respondent herein
is, We believe, beside the point. Verily, injunction is the appropriate
remedy to prevent a wrongful interference with contracts
by strangers to such contracts where the legal remedy is
insufficient and the resulting injury is irreparable (Gilchrist vs.
Cuddy, 29 Phil. 542 [1915]; 4-A Padilla, Civil Code Annotated, 1988
Ed., p. 90). The liability of private respondent, if any, does not
emanate from the four corners of the contract for undoubtedly,
Unisia Merchandising Co., Inc. is not a party thereto but its
accountability is "an independent act generative of civil liability"
(Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil. 587
[1919]; 4 Paras, Civil Code of the Philippines Annotated, 1981 10th
Ed., p. 439; 4 Tolentino, Commentaries and Jurisprudence on the
Civil Code, 1986 Ed.,
p. 439). These observations, however, do not in the least convey
the message that We have placed the cart ahead of the horse, so
to speak, by pronouncing private respondent's liability at this stage
in view of the pendency of the main suit for injunction below. We
are simply rectifying certain misperceptions entertained by the
appellate court as regards the feasibility of requesting a preliminary
injunction to enjoin a stranger to an agreement.
To Our mind, the right to perform an exclusive distributorship
agreement and to reap the profits resulting from such performance
are proprietary rights which a party may protect (30 Am. Jur.
22
Section 19, pp. 71-72: Jurado, Comments and Jurisprudence magistrate at the court of origin are hereby REVERSED and SET
on Obligations and Contracts, 1983 8th Rev. Ed., p. 336) which ASIDE. Let this case be remanded to the court of origin for
may otherwise not be diminished, nay, rendered illusory by the issuance of a writ of preliminary injunction upon petitioner's posting
expedient act of utilizing or interposing a person or firm to obtain of a bond in the sum of Fifty Thousand (P50,000.00) Pesos to be
goods from the supplier to defeat the very purpose for which the approved by said court, to remain effective during the trial on the
exclusive distributorship was conceptualized, at the expense of the merits until final determination of the case. The manager of private
sole authorized distributor (43 C.J.S. 597). respondent. Frank Sia, is hereby ordered to pay to the Clerk of
Court within five (5) days from notice hereof the fine of P500.00, as
Another circumstance which respondent court overlooked was previously imposed on him, with a warning that failure to do so will
petitioner's suggestion, which was not disputed by herein private be dealt with more severely.
respondent in its comment, that the House of Mayfair in England
was duped into believing that the goods ordered through the FNF Upon issuance of the writ of preliminary injunction, the restraining
Trading were to be shipped to Nigeria only, but the goods were order issued on March 13, 1989 by this Court shall be deemed
actually sent to and sold in the Philippines. A ploy of this character automatically lifted.
is akin to the scenario of a third person who induces a party to
renege on or violate his undertaking under a contract, thereby SO ORDERED.
entitling the other contracting party to relief therefrom (Article 1314,
New Civil Code). The breach caused by private respondent was
even aggravated by the consequent diversion of trade from the
business of petitioner to that of private respondent caused by the
latter's species of unfair competition as demonstrated no less by
the sales effected inspite of this Court's restraining order. This
brings Us to the irreparable mischief which respondent court
misappreciated when it refused to grant the relief simply because
of the observation that petitioner can be fully compensated for the
damage. A contrario, the injury is irreparable where it is continuous
and repeated since from its constant and frequent recurrence, no
fair and reasonable redress can be had therefor by petitioner
insofar as his goodwill and business reputation as sole distributor
are concerned. Withal, to expect petitioner to file a complaint for
every sale effected by private respondent will certainly court
multiplicity of suits (3 Francisco, Revised Rules of Court, 1985
Edition, p. 261).

WHEREFORE, the petition is hereby GRANTED. The decision of

the Court of Appeals dated January 13, 1989 in CA-G.R. SP No.
16019 and the Order dated October 16, 1988 issued by the
23

[G.R. No. 120554. September 21, 1999]
SO PING BUN, petitioner, vs. COURT OF APPEALS, TEK HUA
ENTERPRISING CORP. and MANUEL C.
TIONG, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari challenges the Decision[1] of the Court
of Appeals dated October 10, 1994, and the Resolution [2] dated
June 5, 1995, in CA-G.R. CV No. 38784. The appellate court
affirmed the decision of the Regional Trial Court of Manila, Branch
35, except for the award of attorneys fees, as follows:
"WHEREFORE, foregoing considered, the appeal of respondent-
appellant So Ping Bun for lack of merit is DISMISSED. The
appealed decision dated April 20, 1992 of the court a quo is
modified by reducing the attorney's fees awarded to plaintiff Tek
Hua Enterprising Corporation from P500,000.00 to P200,000.00." [3]
The facts are as follows:
In 1963, Tek Hua Trading Co, through its managing partner, So
Pek Giok, entered into lease agreements with lessor Dee C. Chuan
& Sons Inc. (DCCSI). Subjects of four (4) lease contracts were
premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler
Street, Binondo, Manila. Tek Hua used the areas to store its
textiles. The contracts each had a one-year term. They provided
that should the lessee continue to occupy the premises after the
term, the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not renew the
contracts, but Tek Hua continued to occupy the premises. In 1976,
Tek Hua Trading Co. was dissolved. Later, the original members of
Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua
Enterprising Corp., herein respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in
1986. So Pek Gioks grandson, petitioner So Ping Bun, occupied
the warehouse for his own textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek
Hua Enterprises, informing the latter of the 25% increase in rent
effective September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon other lessees
demand. Again on December 1, 1990, the lessor implemented a
30% rent increase. Enclosed in these letters were new lease
contracts for signing. DCCSI warned that failure of the lessee to
accomplish the contracts shall be deemed as lack of interest on the
lessees part, and agreement to the termination of the lease. Private
respondents did not answer any of these letters. Still, the lease
contracts were not rescinded.
On March 1, 1991, private respondent Tiong sent a letter to
petitioner, which reads as follows:
March 1, 1991
Mr. So Ping Bun
930 Soler Street
Binondo, Manila
Dear Mr. So,
Due to my closed (sic) business associate (sic) for three decades
with your late grandfather Mr. So Pek Giok and late father, Mr. So
24
Chong Bon, I allowed you temporarily to use the warehouse of Tek
Hua Enterprising Corp. for several years to generate your personal
business.
Since I decided to go back into textile business, I need a
warehouse immediately for my stocks. Therefore, please be
advised to vacate all your stocks in Tek Hua Enterprising Corp.
Warehouse. You are hereby given 14 days to vacate the premises
unless you have good reasons that you have the right to
stay. Otherwise, I will be constrained to take measure to protect my
interest.
Please give this urgent matter your preferential attention to avoid
inconvenience on your part.
Very truly yours,
(Sgd) Manuel C. Tiong
MANUEL C. TIONG
President[4]
Petitioner refused to vacate. On March 4, 1992, petitioner
requested formal contracts of lease with DCCSI in favor
Trendsetter Marketing. So Ping Bun claimed that after the death of
his grandfather, So Pek Giok, he had been occupying the premises
for his textile business and religiously paid rent. DCCSI acceded to
petitioners request. The lease contracts in favor of Trendsetter
were executed.
In the suit for injunction, private respondents pressed for the
nullification of the lease contracts between DCCSI and
petitioner. They also claimed damages.
After trial, the trial court ruled:
WHEREFORE, judgment is rendered:
1. Annulling the four Contracts of Lease (Exhibits A, A-1 to
A-3, inclusive) all dated March 11, 1991, between
defendant So Ping Bun, doing business under the name
and style of Trendsetter Marketing, and defendant Dee
C. Chuan & Sons, Inc. over the premises located at
Nos. 924-B, 924-C, 930 and 930, Int., respectively, Soler
Street, Binondo Manila;
2. Making permanent the writ of preliminary injunction
issued by this Court on June 21, 1991;
3. Ordering defendant So Ping Bun to pay the aggrieved
party, plaintiff Tek Hua Enterprising Corporation, the sum
of P500,000.00, for attorneys fees;
4. Dismissing the complaint, insofar as plaintiff Manuel C.
Tiong is concerned, and the respective counterclaims of
the defendant;
5. Ordering defendant So Ping Bun to pay the costs of this
lawsuit;
This judgment is without prejudice to the rights of plaintiff Tek Hua
Enterprising Corporation and defendant Dee C. Chuan & Sons, Inc.
to negotiate for the renewal of their lease contracts over the
premises located at Nos. 930, 930-Int., 924-B and 924-C Soler
Street, Binondo, Manila, under such terms and conditions as they
agree upon, provided they are not contrary to law, public policy,
public order, and morals.
SO ORDERED.[5]
Petitioners motion for reconsideration of the above decision
was denied.
25
 On appeal by So Ping Bun, the Court of Appeals upheld the
trial court. On motion for reconsideration, the appellate court
modified the decision by reducing the award of attorneys fees from
five hundred thousand (P500,000.00) pesos to two hundred
thousand (P200,000.00) pesos.
Petitioner is now before the Court raising the following issues:
I. WHETHER THE APPELLATE COURT ERRED IN
AFFIRMING THE TRIAL COURTS DECISION FINDING
SO PING BUN GUILTY OF TORTUOUS
INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT ERRED IN
AWARDING ATTORNEYS FEES OF P200,000.00 IN
FAVOR OF PRIVATE RESPONDENTS.
The foregoing issues involve, essentially, the correct
interpretation of the applicable law on tortuous conduct, particularly
unlawful interference with contract. We have to begin, obviously,
with certain fundamental principles on torts and damages.
Damage is the loss, hurt, or harm which results from injury, and
damages are the recompense or compensation awarded for the
damage suffered.[6] One becomes liable in an action for damages
for a nontrespassory invasion of anothers interest in the private use
and enjoyment of asset if (a) the other has property rights and
privileges with respect to the use or enjoyment interfered with, (b)
the invasion is substantial, (c) the defendants conduct is a legal
cause of the invasion, and (d) the invasion is either intentional and
unreasonable or unintentional and actionable under general
negligence rules.[7]
The elements of tort interference are: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the
existence of contract; and (3) interference of the third person is
without legal justification or excuse.[8]
A duty which the law of torts is concerned with is respect for
the property of others, and a cause of action ex delicto may be
predicated upon an unlawful interference by one person of the
enjoyment by the other of his private property.[9] This may pertain to
a situation where a third person induces a party to renege on or
violate his undertaking under a contract. In the case before us,
petitioners Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived respondent
corporation of the latters property right. Clearly, and as correctly
viewed by the appellate court, the three elements of tort
interference above-mentioned are present in the instant case.
Authorities debate on whether interference may be justified
where the defendant acts for the sole purpose of furthering his own
financial or economic interest.[10] One view is that, as a general
rule, justification for interfering with the business relations of
another exists where the actors motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm
to the other.Added to this, some authorities believe that it is not
necessary that the interferers interest outweigh that of the party
whose rights are invaded, and that an individual acts under an
economic interest that is substantial, not merely de minimis, such
that wrongful and malicious motives are negatived, for he acts in
self-protection.[11] Moreover, justification for protecting ones
financial position should not be made to depend on a comparison
of his economic interest in the subject matter with that of others.
[12]
It is sufficient if the impetus of his conduct lies in a proper
business interest rather than in wrongful motives. [13]
As early as Gilchrist vs. Cuddy,[14] we held that where there
was no malice in the interference of a contract, and the impulse
behind ones conduct lies in a proper business interest rather than
in wrongful motives, a party cannot be a malicious
interferer. Where the alleged interferer is financially interested, and
such interest motivates his conduct, it cannot be said that he is an
officious or malicious intermeddler.[15]
26
 In the instant case, it is clear that petitioner So Ping Bun
prevailed upon DCCSI to lease the warehouse to his enterprise at
the expense of respondent corporation. Though petitioner took
interest in the property of respondent corporation and benefited
from it, nothing on record imputes deliberate wrongful motives or
malice on him.
Section 1314 of the Civil Code categorically provides also that,
Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party. Petitioner
argues that damage is an essential element of tort interference,
and since the trial court and the appellate court ruled that private
respondents were not entitled to actual, moral or exemplary
damages, it follows that he ought to be absolved of any liability,
including attorneys fees.
It is true that the lower courts did not award damages, but this
was only because the extent of damages was not quantifiable. We
had a similar situation in Gilchrist, where it was difficult or
impossible to determine the extent of damage and there was
nothing on record to serve as basis thereof. In that case we
refrained from awarding damages. We believe the same
conclusion applies in this case.
While we do not encourage tort interferers seeking their
economic interest to intrude into existing contracts at the expense
of others, however, we find that the conduct herein complained of
did not transcend the limits forbidding an obligatory award for
damages in the absence of any malice. The business desire is
there to make some gain to the detriment of the contracting
parties. Lack of malice, however, precludes damages. But it does
not relieve petitioner of the legal liability for entering into contracts
and causing breach of existing ones. The respondent appellate
court correctly confirmed the permanent injunction and nullification
of the lease contracts between DCCSI and Trendsetter Marketing,
without awarding damages. The injunction saved the respondents
from further damage or injury caused by petitioners interference.
Lastly, the recovery of attorneys fees in the concept of actual or
compensatory damages, is allowed under the circumstances
provided for in Article 2208 of the Civil Code. [16] One such occasion
is when the defendants act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his
interest.[17] But we have consistently held that the award of
considerable damages should have clear factual and legal bases.
[18]
In connection with attorneys fees, the award should be
commensurate to the benefits that would have been derived from a
favorable judgment. Settled is the rule that fairness of the award of
damages by the trial court calls for appellate review such that the
award if far too excessive can be reduced. [19] This ruling applies
with equal force on the award of attorneys fees.In a long line of
cases we said, It is not sound policy to place a penalty on the right
to litigate. To compel the defeated party to pay the fees of counsel
for his successful opponent would throw wide open the door of
temptation to the opposing party and his counsel to swell the fees
to undue proportions.[20]
Considering that the respondent corporations lease contract, at
the time when the cause of action accrued, ran only on a month-to-
month basis whence before it was on a yearly basis, we find even
the reduced amount of attorneys fees ordered by the Court of
Appeals still exorbitant in the light of prevailing jurisprudence.
[21]
Consequently, the amount of two hundred thousand
(P200,000.00) awarded by respondent appellate court should be
reduced to one hundred thousand (P100,000.00) pesos as the
reasonable award for attorneys fees in favor of private respondent
corporation.
WHEREFORE, the petition is hereby DENIED. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 38784 are hereby AFFIRMED, with MODIFICATION that the
award of attorneys fees is reduced from two hundred thousand
(P200,000.00) to one hundred thousand (P100,000.00) pesos. No
pronouncement as to costs.
27
 SO ORDERED. Present:

- versus - PUNO, C.J., Chairperson,

CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
ALLAN C. GO, doing business VILLARAMA, JR., JJ.
underthe name and style
ACG Express Liner, FELIPE M. Promulgated:
LANDICHO and VINCENT D. TECSON,
Respondents. May 4, 2010
x---------------------------------------------------------------------------------------
--x

DECISION

VILLARAMA, JR., J.:

For review is the Decision[1] dated March 16, 2004 as modified by

the Resolution[2] dated July 22, 2004 of the Court of Appeals (CA)
in CA-G.R. CV No. 69113, which affirmed with modifications the
Decision[3] dated May 31, 2000 of the Regional Trial Court (RTC)
FIRST DIVISION of Quezon City, Branch 85 in Civil Case No. 98-35332.

ALLAN C. GO, doing business G.R. No. 164703 The factual antecedents:
under the name and style ACG
Express Liner,
Petitioner, Sometime in 1996, Mortimer F. Cordero, Vice-President of Pamana
Marketing Corporation (Pamana), ventured into the business of
- versus - marketing inter-island passenger vessels. After contacting various
overseas fast ferry manufacturers from all over the world, he came
MORTIMER F. CORDERO, to meet Tony Robinson, an Australian national based
Respondent.
x-----------------------------------------x in Brisbane, Australia, who is the Managing Director of Aluminium
Fast Ferries Australia (AFFA).
MORTIMER F. CORDERO, G.R. No. 164747
Petitioner,
28
Between June and August 1997, Robinson signed documents
appointing Cordero as the exclusive distributor of AFFA catamaran
and other fast ferry vessels in the Philippines.As such exclusive
distributor, Cordero offered for sale to prospective buyers the 25-
meter Aluminium Passenger catamaran known as the SEACAT 25.
[4]
After negotiations with Felipe Landicho and Vincent Tecson,
lawyers of Allan C. Go who is the owner/operator of ACG Express
Liner of Cebu City, a single proprietorship, Cordero was able to
close a deal for the purchase of two (2) SEACAT 25 as evidenced
by the Memorandum of Agreement dated August 7, 1997.
[5]
Accordingly, the parties executed Shipbuilding Contract No. 7825
for one (1) high-speed catamaran (SEACAT 25) for the price of
US$1,465,512.00.[6] Per agreement between Robinson and
Cordero, the latter shall receive commissions totalling
US$328,742.00, or 22.43% of the purchase price, from the sale of
each vessel.[7]
Cordero made two (2) trips to the AFFA Shipyard in Brisbane,
Australia, and on one (1) occasion even accompanied Go and his
family and Landicho, to monitor the progress of the building of the
vessel. He shouldered all the expenses for airfare, food, hotel
accommodations, transportation and entertainment during these
trips. He also spent for long distance telephone calls to
communicate regularly with Robinson, Go, Tecson and Landicho.
However, Cordero later discovered that Go was dealing directly
with Robinson when he was informed by Dennis Padua of Wartsila
Philippines that Go was canvassing for a second catamaran engine
from their company which provided the ship engine for the first
SEACAT 25. Padua told Cordero that Go instructed him to fax the
requested quotation of the second engine to the Park Royal Hotel
in Brisbane where Go was then staying. Cordero tried to contact
Go and Landicho to confirm the matter but they were nowhere to
be found, while Robinson refused to answer his calls. Cordero
immediately flew to Brisbane to clarify matters with Robinson, only
to find out that Go and Landicho were already there
in Brisbane negotiating for the sale of the second SEACAT
25. Despite repeated follow-up calls, no explanation was given by
Robinson, Go, Landicho and Tecson who even made Cordero
believe there would be no further sale between AFFA and ACG
Express Liner.
In a handwritten letter dated June 24, 1998, Cordero informed Go
that such act of dealing directly with Robinson violated his
exclusive distributorship and demanded that they respect the
same, without prejudice to legal action against him and Robinson
should they fail to heed the same. [8] Corderos lawyer, Atty. Ernesto
A. Tabujara, Jr. of ACCRA law firm, also wrote ACG Express Liner
assailing the fraudulent actuations and misrepresentations
committed by Go in connivance with his lawyers (Landicho and
Tecson) in breach of Corderos exclusive distributorship
appointment.[9]
Having been apprised of Corderos demand letter, Thyne &
Macartney, the lawyer of AFFA and Robinson, faxed a letter
to ACCRA law firm asserting that the appointment of Cordero as
AFFAs distributor was for the purpose of one (1) transaction only,
that is, the purchase of a high-speed catamaran vessel by ACG
Express Liner in August 1997. The letter further stated that Cordero
was offered the exclusive distributorship, the terms of which were
contained in a draft agreement which Cordero allegedly failed to
return to AFFA within a reasonable time, and which offer is already
being revoked by AFFA.[10]
29
As to the response of Go, Landicho and Tecson to his demand
letter, Cordero testified before the trial court that on the same day,
Landicho, acting on behalf of Go, talked to him over the telephone
and offered to amicably settle their dispute. Tecson and Landicho
offered to convince Go to honor his exclusive distributorship with
AFFA and to purchase all vessels for ACG Express Liner through
him for the next three (3) years. In an effort to amicably settle the
matter, Landicho, acting in behalf of Go, set up a meeting with
Cordero on June 29, 1998 between 9:30 p.m. to 10:30 p.m. at the
Mactan Island Resort Hotel lobby. On said date, however, only
Landicho and Tecson came and no reason was given for Gos
absence. Tecson and Landicho proposed that they will convince
Go to pay him US$1,500,000.00 on the condition that they will get
a cut of 20%. And so it was agreed between him, Landicho and
Tecson that the latter would give him a weekly status report and
that the matter will be settled in three (3) to four (4) weeks and
neither party will file an action against each other until a final report
on the proposed settlement. No such report was made by either
Tecson or Landicho who, it turned out, had no intention to do so
and were just buying time as the catamaran vessel was due to
arrive from Australia. Cordero then filed a complaint with the
Bureau of Customs (BOC) to prohibit the entry of SEACAT 25
from Australia based on misdeclaration and
undervaluation. Consequently, an Alert Order was issued by Acting
BOC Commissioner Nelson Tan for the vessel which in fact arrived
on July 17, 1998. Cordero claimed that Go and Robinson had
conspired to undervalue the vessel by around US$500,000.00. [11]
On August 21, 1998, Cordero instituted Civil Case No. 98-
35332 seeking to hold Robinson, Go, Tecson and Landicho liable
jointly and solidarily for conniving and conspiring together in
violating his exclusive distributorship in bad faith and wanton
disregard of his rights, thus depriving him of his due commissions
(balance of unpaid commission from the sale of the first vessel in
the amount of US$31,522.01 and unpaid commission for the sale
of the second vessel in the amount of US$328,742.00) and causing
him actual, moral and exemplary damages, including P800,000.00
representing expenses for airplane travel to Australia,
telecommunications bills and entertainment, on account of AFFAs
untimely cancellation of the exclusive distributorship
agreement. Cordero also prayed for the award of moral and
exemplary damages, as well as attorneys fees and litigation
expenses.[12]
Robinson filed a motion to dismiss grounded on lack of jurisdiction
over his person and failure to state a cause of action, asserting that
there was no act committed in violation of the distributorship
agreement. Said motion was denied by the trial court on December
20, 1999. Robinson was likewise declared in default for failure to
file his answer within the period granted by the trial court. [13] As for
Go and Tecson, their motion to dismiss based on failure to state a
cause of action was likewise denied by the trial court on February
26, 1999.[14] Subsequently, they filed their Answer denying that they
have anything to do with the termination by AFFA of Corderos
authority as exclusive distributor in the Philippines. On the contrary,
they averred it was Cordero who stopped communicating with Go
in connection with the purchase of the first vessel from AFFA and
was not doing his part in making progress status reports and airing
the clients grievances to his principal, AFFA, such that Go engaged
the services of Landicho to fly to Australia and attend to the
documents needed for shipment of the vessel to the Philippines. As
to the inquiry for the Philippine price for a Wartsila ship engine for
AFFAs other on-going vessel construction, this was merely
requested by Robinson but which Cordero misinterpreted as
indication that Go was buying a second vessel. Moreover,
Landicho and Tecson had no transaction whatsoever with Cordero
30
who had no document to show any such shipbuilding contract. As
to the supposed meeting to settle their dispute, this was due to the
malicious demand of Cordero to be given US$3,000,000 as
otherwise he will expose in the media the alleged undervaluation of
the vessel with the BOC. In any case, Cordero no longer had
cause of action for his commission for the sale of the second
vessel under the memorandum of agreement dated August 7,
1997 considering the termination of his authority by AFFAs lawyers
on June 26, 1998.[15]
as exclusive distributor in the Philippines; (2) Cordero spent
considerable sums of money in pursuance of the contract with Go
and ACG Express Liner; and (3) AFFA through Robinson paid
Cordero his commissions from each scheduled payment made by
Go for the first SEACAT 25 purchased from AFFA pursuant to
Shipbuilding Contract No. 7825.[17]
On May 31, 2000, the trial court rendered its decision, the
dispositive portion of which reads as follows:

WHEREFORE, PREMISES CONSIDERED,

Pre-trial was reset twice to afford the parties opportunity to reach a
judgment is hereby rendered in favor of Plaintiff and
settlement. However, on motion filed by Cordero through counsel, against defendants Allan C. Go, Tony Robinson,
the trial court reconsidered the resetting of the pre-trial to another Felipe Landicho, and Vincent Tecson.As prayed for,
date for the third time as requested by Go, Tecson and Landicho, in defendants are hereby ordered to pay Plaintiff jointly
view of the latters failure to appear at the pre-trial conference on and solidarily, the following:
January 7, 2000 despite due notice. The trial court further
1. On the First Cause of Action, the sum total of
confirmed that said defendants misled the trial court in moving for SIXTEEN MILLION TWO HUNDRED
continuance during the pre-trial conference held on December 10, NINETY ONE THOUSAND THREE
1999, purportedly to go abroad for the holiday season when in truth HUNDRED FIFTY TWO AND FORTY
a Hold-Departure Order had been issued against them. THREE CENTAVOS (P16,291,352.43) as
[16] actual damages with legal interest from 25
Accordingly, plaintiff Cordero was allowed to present his
June 1998 until fully paid;
evidence ex parte.
2. On the Second Cause of Action, the sum of
Corderos testimony regarding his transaction with defendants Go, ONE MILLION PESOS (P1,000,000.00) as
Landicho and Tecson, and the latters offer of settlement, was moral damages;
corroborated by his counsel who also took the witness 3. On the Third Cause of Action, the sum of
stand. Further, documentary evidence including photographs taken ONE MILLION PESOS (P1,000,000.00) as
of the June 29, 1998 meeting with Landicho, Tecson and Atty. exemplary damages; and
Tabujara at Shangri-las Mactan Island Resort, photographs taken
in Brisbane showing Cordero, Go with his family, Robinson and 4. On the Fourth Cause of Action, the sum of
ONE MILLION PESOS (P1,000,000.00) as
Landicho, and also various documents, communications, vouchers
attorneys fees;
and bank transmittals were presented to prove that: (1) Cordero
was properly authorized and actually transacted in behalf of AFFA Costs against the defendants.
31

[18]
SO ORDERED.
Go, Robinson, Landicho and Tecson filed a motion for new trial,
claiming that they have been unduly prejudiced by the negligence
of their counsel who was allegedly unaware that the pre-trial
conference on January 28, 2000 did not push through for the
reason that Cordero was then allowed to present his evidence ex-
parte, as he had assumed that the said ex-parte hearing was being
conducted only against Robinson who was earlier declared in
default.[19] In its Order dated July 28, 2000, the trial court denied the
motion for new trial.[20] In the same order, Corderos motion for
execution pending appeal was granted. Defendants moved to
reconsider the said order insofar as it granted the motion for
execution pending appeal.[21] On August 8, 2000, they filed a notice
of appeal.[22]
On August 18, 2000, the trial court denied the motion for
reconsideration and on August 21, 2000, the writ of execution
pending appeal was issued.[23] Meanwhile, the notice of appeal was
denied for failure to pay the appellate court docket fee within the
prescribed period.[24] Defendants filed a motion for reconsideration
and to transmit the case records to the CA.[25]
On September 29, 2000, the CA issued a temporary restraining
order at the instance of defendants in the certiorari case they filed
with said court docketed as CA-G.R. SP No. 60354 questioning the
execution orders issued by the trial court. Consequently, as
requested by the defendants, the trial court recalled and set aside
its November 6, 2000 Order granting the ex-parte motion for
release of garnished funds, cancelled the scheduled public auction
sale of levied real properties, and denied the ex-parte Motion for
Break-Open Order and Ex-Parte Motion for Encashment of Check
filed by Cordero.[26] On November 29, 2000, the trial court
reconsidered its Order dated August 21, 2000 denying due course
to the notice of appeal and forthwith directed the transmittal of the
records to the CA.[27]
On January 29, 2001, the CA rendered judgment granting the
petition for certiorari in CA-G.R. SP No. 60354 and setting aside
the trial courts orders of execution pending appeal.Cordero
appealed the said judgment in a petition for review filed with this
Court which was eventually denied under our Decision
dated September 17, 2002.[28]
On March 16, 2004, the CA in CA-G.R. CV No.
69113 affirmed the trial court (1) in allowing Cordero to present his
evidence ex-parte after the unjustified failure of appellants (Go,
Tecson and Landicho) to appear at the pre-trial conference despite
due notice; (2) in finding that it was Cordero and not Pamana who
was appointed by AFFA as the exclusive distributor in the
Philippines of its SEACAT 25 and other fast ferry vessels, which is
not limited to the sale of one (1) such catamaran to Go on August
7, 1997; and (3) in finding that Cordero is entitled to a commission
per vessel sold for AFFA through his efforts in the amount
equivalent to 22.43% of the price of each vessel or
US$328,742.00, and with payments of US$297,219.91 having
been made to Cordero, there remained a balance of US$31,522.09
still due to him. The CA sustained the trial court in ruling that
Cordero is entitled to damages for the breach of his exclusive
distributorship agreement with AFFA. However, it held that Cordero
is entitled only to commission for the sale of the first catamaran
obtained through his efforts with the remaining unpaid sum of
US$31,522.09 or P1,355,449.90 (on the basis of US$1.00=P43.00
rate) with interest at 6% per annum from the time of the filing of the
complaint until the same is fully paid. As to the P800,000.00
32
representing expenses incurred by Cordero for transportation,
phone bills, entertainment, food and lodging, the CA declared there I. THE HONORABLE COURT OF APPEALS
DISREGARDED THE RULES OF COURT AND
was no basis for such award, the same being the logical and PERTINENT JURISPRUDENCE AND ACTED
necessary consequences of the exclusive distributorship WITH GRAVE ABUSE OF DISCRETION IN
agreement which are normal in the field of sales and distribution, NOT RULING THAT THE RESPONDENT IS
and the expenditures having redounded to the benefit of the NOT THE REAL PARTY-IN-INTEREST AND IN
distributor (Cordero). NOT DISMISSING THE INSTANT CASE ON
THE GROUND OF LACK OF CAUSE OF
ACTION;
On the amounts awarded by the trial court as moral and
exemplary damages, as well as attorneys fees, the CA reduced the II. THE HONORABLE COURT OF APPEALS
same to P500,000.00, P300,000.00 and P50,000.00, IGNORED THE LAW AND JURISPRUDENCE
AND ACTED WITH GRAVE ABUSE OF
respectively. Appellants were held solidarily liable pursuant to the
DISCRETION IN HOLDING HEREIN
provisions of Article 1207 in relation to Articles 19, 20, 21 and 22 of PETITIONER RESPONSIBLE FOR THE
the New Civil Code. The CA further ruled that no error was BREACH IN THE ALLEGED EXCLUSIVE
committed by the trial court in denying their motion for new trial, DISTRIBUTORSHIP AGREEMENT WITH
which said court found to be pro forma and did not raise any ALUMINIUM FAST FERRIES AUSTRALIA;
substantial matter as to warrant the conduct of another trial.
III. THE HONORABLE APPELLATE COURT
MISAPPLIED THE LAW AND ACTED WITH
By Resolution dated July 22, 2004, the CA denied the GRAVE ABUSE OF DISCRETION IN FINDING
motions for reconsideration respectively filed by the appellants and PETITIONER LIABLE IN SOLIDUMWITH THE
appellee, and affirmed the Decision dated March 16, 2004 with the CO-DEFENDANTS WITH RESPECT TO THE
CLAIMS OF RESPONDENT;
sole modification that the legal interest of 6% per annum shall start
to run from June 24, 1998 until the finality of the decision, and the IV. THE HONORABLE COURT OF APPEALS
rate of 12% interest per annum shall apply once the decision MISAPPLIED LAW AND JURISPRUDENCE
becomes final and executory until the judgment has been satisfied. AND GRAVELY ABUSED ITS DISCRETION
WHEN IT FOUND PETITIONER LIABLE FOR
UNPAID COMMISSIONS, DAMAGES,
The case before us is a consolidation of the petitions for ATTORNEYS FEES, AND LITIGATION
review under Rule 45 separately filed by Go (G.R. No. 164703) and EXPENSES; and
Cordero (G.R. No. 164747) in which petitioners raised the following
arguments: V. THE HONORABLE APPELLATE COURT ACTED
CONTRARY TO LAW AND JURISPRUDENCE
G.R. No. 164703 AND GRAVELY ABUSED ITS DISCRETION
(Petitioner Go) WHEN IT EFFECTIVELY DEPRIVED HEREIN

33
 PETITIONER OF HIS RIGHT TO DUE
PROCESS BY AFFIRMING THE LOWER
COURTS DENIAL OF PETITIONERS MOTION
FOR NEW TRIAL.[29]
G.R. No. 164747
(Petitioner Cordero)
THE COURT OF APPEALS ERRED IN RULING
THAT PETITIONER IS NOT ENTITLED TO HIS
COMMISSIONS FOR THE PURCHASE OF A
SECOND VESSEL, SINCE IT WAS PETITIONERS
EFFORTS WHICH ACTUALLY FACILITATED AND
SET-UP THE TRANSACTION FOR
RESPONDENTS.

I. III.

THE COURT OF APPEALS ERRED IN NOT THE COURT OF APPEALS ERRED IN NOT
SUSTAINING THE JUDGMENT OF THE TRIAL IMPOSING THE PROPER LEGAL INTEREST RATE
COURT AWARDING PETITIONER ACTUAL ON RESPONDENTS UNPAID OBLIGATION WHICH
DAMAGES FOR HIS COMMISSION FOR SHOULD BE TWELVE PERCENT (12%) FROM THE
THE SALE OF THE SECOND VESSEL, SINCE TIME OF THE BREACH OF THE OBLIGATION.
THERE IS SUFFICIENT EVIDENCE ON RECORD
WHICH PROVES THAT THERE WAS A
SECOND SALE OF A VESSEL.
IV.
A. THE MEMORANDUM OF AGREEMENT
DATED 7 AUGUST 1997 PROVIDES THAT THE COURT OF APPEALS ERRED IN NOT
RESPONDENT GO WAS SUSTAINING THE ORIGINAL AMOUNT OF
CONTRACTUALLY BOUND TO BUY TWO CONSEQUENTIAL DAMAGES AWARDED TO
(2) VESSELS FROM AFFA. PETITIONER BY THE TRIAL COURT
CONSIDERING THE BAD FAITH AND
B. RESPONDENT GOS POSITION PAPER FRAUDULENT CONDUCT OF RESPONDENTS IN
AND COUNTER-AFFIDAVIT/POSITION MISAPPROPRIATING THE MONEY OF
PAPER THAT WERE FILED BEFORE THE PETITIONER.[30]
BUREAU OF CUSTOMS, ADMITS UNDER
OATH THAT HE HAD INDEED
PURCHASED A SECOND VESSEL FROM The controversy boils down to two (2) main issues: (1) whether
AFFA. petitioner Cordero has the legal personality to sue the respondents
for breach of contract; and (2) whether the respondents may be
C. RESPONDENTS ADMITTED IN THEIR
PRE-TRIAL BRIEF THAT THEY HAD held liable for damages to Cordero for his unpaid commissions and
PURCHASED A SECOND VESSEL. termination of his exclusive distributorship appointment by the
principal, AFFA.
II.

34

I. Real Party-in-Interest
First, on the issue of whether the case had been filed by the real
party-in-interest as required by Section 2, Rule 3 of the Rules of
Court, which defines such party as the one (1) to be benefited or
injured by the judgment in the suit, or the party entitled to the avails
of the suit. The purposes of this provision are: 1) to prevent the
prosecution of actions by persons without any right, title or interest
in the case; 2) to require that the actual party entitled to legal relief
be the one to prosecute the action; 3) to avoid a multiplicity of suits;
and 4) to discourage litigation and keep it within certain bounds,
pursuant to sound public policy.[31] A case is dismissible for lack of
personality to sue upon proof that the plaintiff is not the real party-
in-interest, hence grounded on failure to state a cause of action. [32]
On this issue, we agree with the CA in ruling that it was Cordero
and not Pamana who is the exclusive distributor of AFFA in
the Philippines as shown by the Certification dated June 1,
1997 issued by Tony Robinson.[33] Petitioner Go mentions the
following documents also signed by respondent Robinson which
state that Pamana Marketing Corporation represented by Mr.
Mortimer F. Cordero was actually the exclusive distributor: (1) letter
dated 1 June 1997[34]; (2) certification dated 5 August 1997 [35]; and
(3) letter dated 5 August 1997 addressed to petitioner Cordero
concerning commissions to be paid to Pamana Marketing
Corporation.[36] Such apparent inconsistency in naming AFFAs
exclusive distributor in the Philippines is of no moment. For all
intents and purposes, Robinson and AFFA dealt only with Cordero
who alone made decisions in the performance of the exclusive
distributorship, as with other clients to whom he had similarly
offered AFFAs fast ferry vessels. Moreover, the stipulated
commissions from each progress payments made by Go were
directly paid by Robinson to Cordero.[37] Respondents Landicho
and Tecson were only too aware of Corderos authority as the
person who was appointed and acted as exclusive distributor of
AFFA, which can be gleaned from their act of immediately
furnishing him with copies of bank transmittals everytime Go remits
payment to Robinson, who in turn transfers a portion of funds
received to the bank account of Cordero in the Philippines as his
commission. Out of these partial payments of his commission,
Cordero would still give Landicho and Tecson their respective
commission, or cuts from his own commission. Respondents
Landicho and Tecson failed to refute the evidence submitted by
Cordero consisting of receipts signed by them. Said amounts were
apart from the earlier expenses shouldered by Cordero for
Landichos airline tickets, transportation, food and hotel
accommodations for the trip to Australia.[38]
Moreover, petitioner Go, Landicho and Tecson never raised
petitioner Corderos lack of personality to sue on behalf of Pamana,
[39]
and did so only before the CA when they contended that it is
Pamana and not Cordero, who was appointed and acted as
exclusive distributor for AFFA.[40] It was Robinson who argued in
support of his motion to dismiss that as far as said defendant is
concerned, the real party plaintiff appears to be Pamana, against
the real party defendant which is AFFA. [41] As already mentioned,
the trial court denied the motion to dismiss filed by Robinson.
We find no error committed by the trial court in overruling
Robinsons objection over the improper resort to summons by
publication upon a foreign national like him and in an action in
personam, notwithstanding that he raised it in a special
appearance specifically raising the issue of lack of jurisdiction over
his person. Courts acquire jurisdiction over the plaintiffs upon the
filing of the complaint, while jurisdiction over the defendants in a
35
civil case is acquired either through the service of summons upon
them in the manner required by law or through their voluntary
appearance in court and their submission to its authority.[42] A party
who makes a special appearance in court challenging the
jurisdiction of said court based on the ground of invalid service of
summons is not deemed to have submitted himself to the
jurisdiction of the court.[43]
In this case, however, although the Motion to Dismiss filed
by Robinson specifically stated as one (1) of the grounds the lack
of personal jurisdiction, it must be noted that he had earlier filed a
Motion for Time to file an appropriate responsive pleading even
beyond the time provided in the summons by publication. [44] Such
motion did not state that it was a conditional appearance entered to
question the regularity of the service of summons, but an
appearance submitting to the jurisdiction of the court by
acknowledging the summons by publication issued by the court
and praying for additional time to file a responsive
pleading. Consequently, Robinson having acknowledged the
summons by publication and also having invoked the jurisdiction of
the trial court to secure affirmative relief in his motion for additional
time, he effectively submitted voluntarily to the trial courts
jurisdiction. He is now estopped from asserting otherwise, even
before this Court.[45]
II. Breach of Exclusive Distributorship,
Contractual Interference and
Respondents Liability for Damages
In Yu v. Court of Appeals,[46] this Court ruled that the right to
perform an exclusive distributorship agreement and to reap the
profits resulting from such performance are proprietary rights which
a party may protect. Thus, injunction is the appropriate remedy to
prevent a wrongful interference with contracts by strangers to such
contracts where the legal remedy is insufficient and the resulting
injury is irreparable. In that case, the former dealer of the same
goods purchased the merchandise from the manufacturer
in Englandthrough a trading firm in West Germany and sold these
in the Philippines. We held that the rights granted to the petitioner
under the exclusive distributorship agreement may not be
diminished nor rendered illusory by the expedient act of utilizing or
interposing a person or firm to obtain goods for which the exclusive
distributorship was conceptualized, at the expense of the sole
authorized distributor.[47]
In the case at bar, it was established that petitioner Cordero
was not paid the balance of his commission by respondent
Robinson. From the time petitioner Go and respondent Landicho
directly dealt with respondent Robinson in Brisbane, and ceased
communicating through petitioner Cordero as the exclusive
distributor of AFFA in the Philippines, Cordero was no longer
informed of payments remitted to AFFA in Brisbane. In other words,
Cordero had clearly been cut off from the transaction until the
arrival of the first SEACAT 25 which was sold through his
efforts. When Cordero complained to Go, Robinson, Landicho and
Tecson about their acts prejudicial to his rights and demanded that
they respect his exclusive distributorship, Go simply let his lawyers
led by Landicho and Tecson handle the matter and tried to settle it
by promising to pay a certain amount and to purchase high-speed
catamarans through Cordero. However, Cordero was not paid
anything and worse, AFFA through its lawyer in Australia even
terminated his exclusive dealership insisting that his services were
engaged for only one (1) transaction, that is, the purchase of the
first SEACAT 25 in August 1997.
36
 Petitioner Go argues that unlike in Yu v. Court of
Appeals[48] there is no conclusive proof adduced by petitioner
Cordero that they actually purchased a second SEACAT 25 directly
from AFFA and hence there was no violation of the exclusive
distributorship agreement. Further, he contends that the CA gravely
abused its discretion in holding them solidarily liable to Cordero,
relying on Articles 1207, 19 and 21 of the Civil Code despite
absence of evidence, documentary or testimonial, showing that
they conspired to defeat the very purpose of the exclusive
distributorship agreement.[49]
We find that contrary to the claims of petitioner Cordero,
there was indeed no sufficient evidence that respondents actually
purchased a second SEACAT 25 directly from AFFA. But this
circumstance will not absolve respondents from liability for invading
Corderos rights under the exclusive distributorship. Respondents
clearly acted in bad faith in bypassing Cordero as they completed
the remaining payments to AFFA without advising him and
furnishing him with copies of the bank transmittals as they
previously did, and directly dealt with AFFA through Robinson
regarding arrangements for the arrival of the first SEACAT 25 in
Manila and negotiations for the purchase of the second vessel
pursuant to the Memorandum of Agreement which Cordero signed
in behalf of AFFA. As a result of respondents actuations, Cordero
incurred losses as he was not paid the balance of his commission
from the sale of the first vessel and his exclusive distributorship
revoked by AFFA.
Petitioner Go contends that the trial and appellate courts
erred in holding them solidarily liable for Corderos unpaid
commission, which is the sole obligation of the principal AFFA. It
was Robinson on behalf of AFFA who, in the letter dated August 5,
1997 addressed to Cordero, undertook to pay commission
payments to Pamana on a staggered progress payment plan in the
form of percentage of the commission per payment. AFFA explicitly
committed that it will, upon receipt of progress payments, pay to
Pamana their full commission by telegraphic transfer to an account
nominated by Pamana within one to two days of [AFFA] receiving
such payments.[50] Petitioner Go further maintains that he had not in
any way violated or caused the termination of the exclusive
distributorship agreement between Cordero and AFFA; he had also
paid in full the first and only vessel he purchased from AFFA. [51]
While it is true that a third person cannot possibly be sued
for breach of contract because only parties can breach contractual
provisions, a contracting party may sue a third person not for
breach but for inducing another to commit such breach.
Article 1314 of the Civil Code provides:
Art. 1314. Any third person who induces
another to violate his contract shall be liable for
damages to the other contracting party.
The elements of tort interference are: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the
existence of a contract; and (3) interference of the third person is
without legal justification.[52]
The presence of the first and second elements is not
disputed. Through the letters issued by Robinson attesting that
Cordero is the exclusive distributor of AFFA in the Philippines,
respondents were clearly aware of the contract between Cordero
and AFFA represented by Robinson. In fact, evidence on record
showed that respondents initially dealt with and recognized
Cordero as such exclusive dealer of AFFA high-speed catamaran
37
vessels in the Philippines. In that capacity as exclusive distributor,
petitioner Go entered into the Memorandum of Agreement and
Shipbuilding Contract No. 7825 with Cordero in behalf of AFFA.
As to the third element, our ruling in the case of So Ping
Bun v. Court of Appeals[53] is instructive, to wit:
A duty which the law of torts is concerned with is
respect for the property of others, and a cause of
action ex delicto may be predicated upon an unlawful
interference by one person of the enjoyment by the
other of his private property. This may pertain to a
situation where a third person induces a party to
renege on or violate his undertaking under a
contract. In the case before us, petitioners
Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner
deprived respondent corporation of the latters
property right. Clearly, and as correctly viewed by the
appellate court, the three elements of tort interference
above-mentioned are present in the instant case.
Authorities debate on whether interference may
be justified where the defendant acts for the sole
purpose of furthering his own financial or economic
interest. One view is that, as a general rule,
justification for interfering with the business relations
of another exists where the actors motive is to benefit
himself. Such justification does not exist where his
sole motive is to cause harm to the other. Added to
this, some authorities believe that it is not necessary
that the interferers interest outweigh that of the party
whose rights are invaded, and that an individual acts
under an economic interest that is substantial, not
merely de minimis, such that wrongful and malicious
motives are negatived, for he acts in self-
protection. Moreover, justification for protecting ones
financial position should not be made to depend on a
comparison of his economic interest in the subject
matter with that of others. It is sufficient if the impetus
of his conduct lies in a proper business interest rather
than in wrongful motives.
As early as Gilchrist vs. Cuddy, we held that
where there was no malice in the interference of a
contract, and the impulse behind ones conduct
lies in a proper business interest rather than in
wrongful motives, a party cannot be a malicious
interferer. Where the alleged interferer is financially
interested, and such interest motivates his conduct, it
cannot be said that he is an officious or malicious
intermeddler.
In the instant case, it is clear that petitioner
So Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of
respondent corporation. Though petitioner took
interest in the property of respondent corporation
and benefited from it, nothing on record imputes
deliberate wrongful motives or malice in him.
xxx
While we do not encourage tort interferers
seeking their economic interest to intrude into existing
contracts at the expense of others, however, we find
that the conduct herein complained of did not
transcend the limits forbidding an obligatory award for
damages in the absence of any malice. The business
desire is there to make some gain to the detriment of
the contracting parties. Lack of malice, however,
precludes damages. But it does not relieve
petitioner of the legal liability for entering into
contracts and causing breach of existing
ones. The respondent appellate court correctly
confirmed the permanent injunction and nullification
of the lease contracts between DCCSI and
38
 Trendsetter Marketing, without awarding
damages. The injunction saved the respondents from
further damage or injury caused by petitioners
interference.[54] [EMPHASIS SUPPLIED.]
Malice connotes ill will or spite, and speaks not in response
to duty. It implies an intention to do ulterior and unjustifiable harm.
Malice is bad faith or bad motive.[55] In the case of Lagon v. Court
of Appeals,[56] we held that to sustain a case for tortuous
interference, the defendant must have acted with malice or must
have been driven by purely impure reasons to injure the plaintiff; in
other words, his act of interference cannot be justified. We further
explained that the word induce refers to situations where a person
causes another to choose one course of conduct by persuasion or
intimidation. As to the allegation of private respondent in said case
that petitioner induced the heirs of the late Bai Tonina Sepi to sell
the property to petitioner despite an alleged renewal of the original
lease contract with the deceased landowner, we ruled as follows:
Assuming ex gratia argumenti that petitioner
knew of the contract, such knowledge alone was not
sufficient to make him liable for tortuous interference.
xxx
Furthermore, the records do not support the
allegation of private respondent that
petitioner induced the heirs of Bai Tonina Sepi to sell
the property to him. The word induce refers to
situations where a person causes another to choose
one course of conduct by persuasion or
intimidation. The records show that the decision of
the heirs of the late Bai Tonina Sepi to sell the
property was completely of their own volition and that
petitioner did absolutely nothing to influence their
judgment. Private respondent himself did not proffer
any evidence to support his claim. In short, even
assuming that private respondent was able to prove
the renewal of his lease contract with Bai Tonina
Sepi, the fact was that he was unable to prove malice
or bad faith on the part of petitioner in purchasing the
property. Therefore, the claim of tortuous interference
was never established.[57]
In their Answer, respondents denied having anything to do with the
unpaid balance of the commission due to Cordero and the
eventual termination of his exclusive distributorship by AFFA. They
gave a different version of the events that transpired following the
signing of Shipbuilding Contract No. 7825. According to them,
several builder-competitors still entered the picture after the said
contract for the purchase of one (1) SEACAT 25 was sent to
Brisbane in July 1997 for authentication, adding that the contract
was to be effective on August 7, 1997, the time when their funds
was to become available. Go admitted he called the attention of
AFFA if it can compete with the prices of other builders, and upon
mutual agreement, AFFA agreed to give them a discounted price
under the following terms and conditions: (1) that the contract price
be lowered; (2) that Go will obtain another vessel; (3) that to
secure compliance of such conditions, Go must make an advance
payment for the building of the second vessel; and (4) that the
payment scheme formerly agreed upon as stipulated in the first
contract shall still be the basis and used as the guiding factor in
remitting money for the building of the first vessel. This led to the
signing of another contract superseding the first one (1), still to be
dated 07 August 1997. Attached to the answer were photocopies
of the second contract stating a lower purchase price
(US$1,150,000.00) and facsimile transmission of AFFA to Go
confirming the transaction.[58]
As to the cessation of communication with Cordero, Go averred it
was Cordero who was nowhere to be contacted at the time the
shipbuilding progress did not turn good as promised, and it was
39
always Landicho and Tecson who, after several attempts, were
able to locate him only to obtain unsatisfactory reports such that it
was Go who would still call up Robinson regarding any progress
status report, lacking documents for MARINA, etc., and go to
Australia for ocular inspection. Hence, in May 1998 on the
scheduled launching of the ship in Australia, Go engaged the
services of Landicho who went to Australia to see to it that all
documents needed for the shipment of the vessel to the
Philippines would be in order. It was also during this time that
Robinsons request for inquiry on the Philippine price of a Wartsila
engine for AFFAs then on-going vessel construction, was
misinterpreted by Cordero as indicating that Go was buying a
second vessel.[59]
We find these allegations unconvincing and a mere afterthought
as these were the very same averments contained in the Position
Paper for the Importer dated October 9, 1998, which was
submitted by Go on behalf of ACG Express Liner in connection
with the complaint-affidavit filed by Cordero before the BOC-SGS
Appeals Committee relative to the shipment valuation of the first
SEACAT 25 purchased from AFFA.[60] It appears that the purported
second contract superseding the original Shipbuilding Contract
No. 7825 and stating a lower price of US$1,150,000.00 (not
US$1,465,512.00) was only presented before the BOC to show
that the vessel imported into the Philippines was not undervalued
by almost US$500,000.00. Cordero vehemently denied there was
such modification of the contract and accused respondents of
resorting to falsified documents, including the facsimile
transmission of AFFA supposedly confirming the said sale for only
US$1,150,000.00. Incidentally, another document filed in said
BOC case, the Counter-Affidavit/Position Paper for the Importer
dated November 16, 1998,[61] states in paragraph 8 under the
Antecedent facts thereof, that --
8. As elsewhere stated, the total
remittances made by herein Importer
to AFFA does not alone represent the
purchase price for Seacat 25. It
includes advance payment for the
acquisition of another vessel as
part of the deal due to the
discounted price.[62]
which even gives credence to the claim of Cordero that
respondents negotiated for the sale of the second vessel and that
the nonpayment of the remaining two (2) instalments of his
commission for the sale of the first SEACAT 25 was a result of Go
and Landichos directly dealing with Robinson, obviously to obtain
a lower price for the second vessel at the expense of Cordero.
The act of Go, Landicho and Tecson in inducing Robinson
and AFFA to enter into another contract directly with ACG Express
Liner to obtain a lower price for the second vessel resulted in
AFFAs breach of its contractual obligation to pay in full the
commission due to Cordero and unceremonious termination of
Corderos appointment as exclusive distributor. Following our
pronouncement in Gilchrist v. Cuddy (supra), such act may not be
deemed malicious if impelled by a proper business interest rather
than in wrongful motives. The attendant circumstances, however,
demonstrated that respondents transgressed the bounds of
permissible financial interest to benefit themselves at the expense
of Cordero. Respondents furtively went directly to
Robinson after Cordero had worked hard to close the deal for
them to purchase from AFFA two (2) SEACAT 25, closely
monitored the progress of building the first vessel sold, attended to
their concerns and spent no measly sum for the trip to Australia
with Go, Landicho and Gos family members. But what is appalling
is the fact that even as Go, Landicho and Tecson secretly
40
negotiated with Robinson for the purchase of a second vessel,
Landicho and Tecson continued to demand and receive from
Cordero their commission or cut from Corderos earned
commission from the sale of the first SEACAT 25.
Cordero was practically excluded from the transaction when
Go, Robinson, Tecson and Landicho suddenly ceased
communicating with him, without giving him any
explanation. While there was nothing objectionable in negotiating
for a lower price in the second purchase of SEACAT 25, which is
not prohibited by the Memorandum of Agreement, Go, Robinson,
Tecson and Landicho clearly connived not only in ensuring that
Cordero would have no participation in the contract for sale of the
second SEACAT 25, but also that Cordero would not be paid the
balance of his commission from the sale of the first SEACAT
25. This, despite their knowledge that it was commission already
earned by and due to Cordero. Thus, the trial and appellate courts
correctly ruled that the actuations of Go, Robinson, Tecson and
Landicho were without legal justification and intended solely to
prejudice Cordero.
The existence of malice, ill will or bad faith is a factual
matter. As a rule, findings of fact of the trial court, when affirmed
by the appellate court, are conclusive on this Court. [63] We see no
compelling reason to reverse the findings of the RTC and the CA
that respondents acted in bad faith and in utter disregard of the
rights of Cordero under the exclusive distributorship agreement.
The failure of Robinson, Go, Tecson and Landico to act with
fairness, honesty and good faith in securing better terms for the
purchase of high-speed catamarans from AFFA, to the prejudice of
Cordero as the duly appointed exclusive distributor, is further
proscribed by Article 19 of the Civil Code:
Art. 19. Every person must, in the exercise of
his rights and in the performance of his duties, act
with justice, give everyone his due, and observe
honesty and good faith.
As we have expounded in another case:
Elsewhere, we explained that when a right is
exercised in a manner which does not conform with
the norms enshrined in Article 19 and results in
damage to another, a legal wrong is thereby
committed for which the wrongdoer must be
responsible. The object of this article, therefore, is to
set certain standards which must be observed not
only in the exercise of ones rights but also in the
performance of ones duties. These standards are the
following: act with justice, give everyone his due and
observe honesty and good faith. Its antithesis,
necessarily, is any act evincing bad faith or intent to
injure. Its elements are the following: (1) There is a
legal right or duty; (2) which is exercised in bad faith;
(3) for the sole intent of prejudicing or injuring
another. When Article 19 is violated, an action for
damages is proper under Articles 20 or 21 of the Civil
Code. Article 20 pertains to damages arising from a
violation of law x x x. Article 21, on the other hand,
states:
Art. 21. Any person who willfully
causes loss or injury to another in a
manner that is contrary to morals, good
customs or public policy shall compensate
the latter for the damage.
Article 21 refers to acts contra bonus mores and has
the following elements: (1) There is an act which is
legal; (2) but which is contrary to morals, good
custom, public order, or public policy; and (3) it is
done with intent to injure.
41
 A common theme runs through Articles 19 and
21, and that is, the act complained of must be Joint tort feasors are jointly and
intentional.[64] severally liable for the tort which they
commit. The persons injured may sue all
Petitioner Gos argument that he, Landicho and Tecson of them or any number less than all. Each
is liable for the whole damages caused by
cannot be held liable solidarily with Robinson for actual, moral and all, and all together are jointly liable for
exemplary damages, as well as attorneys fees awarded to the whole damage. It is no defense for
Cordero since no law or contract provided for solidary obligation in one sued alone, that the others who
these cases, is equally bereft of merit. Conformably with Article participated in the wrongful act are not
2194 of the Civil Code, the responsibility of two or more persons joined with him as defendants; nor is it
any excuse for him that his participation
who are liable for the quasi-delict is solidary.[65] In Lafarge Cement in the tort was insignificant as compared
Philippines, Inc. v. Continental Cement Corporation, [66] we held: to that of the others. x x x
[O]bligations arising from tort are, by their
Joint tort feasors are not liable pro
nature, always solidary. We have assiduously
rata. The damages can not be
maintained this legal principle as early as 1912
apportioned among them, except among
in Worcester v. Ocampo, in which we held:
themselves. They cannot insist upon an
apportionment, for the purpose of each
x x x The difficulty in the contention
paying an aliquot part. They are jointly
of the appellants is that they fail to
and severally liable for the whole
recognize that the basis of the present
amount. x x x
action is tort. They fail to recognize the
universal doctrine that each joint tort
A payment in full for the damage
feasor is not only individually liable for the
done, by one of the joint tort feasors, of
tort in which he participates, but is also
course satisfies any claim which might
jointly liable with his tort feasors. x x x
exist against the others. There can be but
satisfaction. The release of one of the
It may be stated as a general rule
joint tort feasors by agreement generally
that joint tort feasors are all the persons
operates to discharge all. x x x
who command, instigate, promote,
encourage, advise, countenance,
Of course, the court during trial may
cooperate in, aid or abet the commission
find that some of the alleged tort feasors
of a tort, or who approve of it after it is
are liable and that others are not
done, if done for their benefit. They are
liable. The courts may release some for
each liable as principals, to the same
lack of evidence while condemning others
extent and in the same manner as if
of the alleged tort feasors. And this is true
they had performed the wrongful act
themselves. x x x
42
 even though they are charged jointly and
severally.[67] [EMPHASIS SUPPLIED.]
The rule is that the defendant found guilty of interference
with contractual relations cannot be held liable for more than the
amount for which the party who was inducted to break the contract
can be held liable.[68] Respondents Go, Landicho and Tecson were
therefore correctly held liable for the balance of petitioner
Corderos commission from the sale of the first SEACAT 25, in the
amount of US$31,522.09 or its peso equivalent, which
AFFA/Robinson did not pay in violation of the exclusive
distributorship agreement, with interest at the rate of 6% per
annum from June 24, 1998 until the same is fully paid.
Respondents having acted in bad faith, moral damages
may be recovered under Article 2219 of the Civil Code.[69] On the
other hand, the requirements of an award of exemplary damages
are: (1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimants right to them
has been established; (2) that they cannot be recovered as a
matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner.[70] The award of
exemplary damages is thus in order. However, we find the sums
awarded by the trial court as moral and exemplary damages as
reduced by the CA, still excessive under the circumstances.
Moral damages are meant to compensate and alleviate the
physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injuries unjustly caused. Although
incapable of pecuniary estimation, the amount must somehow be
proportional to and in approximation of the suffering inflicted. Moral
damages are not punitive in nature and were never intended to
enrich the claimant at the expense of the defendant. There is no
hard-and-fast rule in determining what would be a fair and
reasonable amount of moral damages, since each case must be
governed by its own peculiar facts. Trial courts are given discretion
in determining the amount, with the limitation that it should not be
palpably and scandalously excessive. Indeed, it must be
commensurate to the loss or injury suffered.[71]
We believe that the amounts of P300,000.00
and P200,000.00 as moral and exemplary damages, respectively,
would be sufficient and reasonable. Because exemplary
damages are awarded, attorneys fees may also be awarded in
consonance with Article 2208 (1).[72] We affirm the appellate courts
award of attorneys fees in the amount of P50,000.00.
WHEREFORE, the petitions are DENIED. The
Decision dated March 16, 2004 as modified by the Resolution
dated July 22, 2004 of the Court of Appeals in CA-G.R. CV No.
69113 are hereby AFFIRMED with MODIFICATION in that the
awards of moral and exemplary damages are hereby reduced
to P300,000.00 and P200,000.00, respectively.
With costs against the petitioner in G.R. No. 164703.
SO ORDERED.
MARTIN S. VILLARAMA, J
43
 Associate Justice

WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson

CONCHITA CARPIO MORALES TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
LUCAS P. BERSAMIN
Associate Justice EN BANC

G.R. No. L-45911 April 11, 1979

JOHN GOKONGWEI, JR., petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M.
SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO
ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION,
EMIGDIO TANJUATCO, SR., and EDUARDO R.
VISAYA, respondents.

De Santos, Balgos & Perez for petitioner.

Angara, Abello, Concepcion, Regala, Cruz Law Offices for

respondents Sorianos

44
Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel
Corporation.
R. T Capulong for respondent Eduardo R. Visaya.
ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with
prayer for issuance of writ of preliminary injunction, arose out of
two cases filed by petitioner with the Securities and Exchange
Commission, as follows:
SEC CASE NO 1375
On October 22, 1976, petitioner, as stockholder of respondent San
Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity of amended
by-laws, cancellation of certificate of filing of amended by- laws,
injunction and damages with prayer for a preliminary injunction"
against the majority of the members of the Board of Directors and
San Miguel Corporation as an unwilling petitioner. The petition,
entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M.
Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao,
Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San
Miguel Corporation", was docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September 18,
1976, individual respondents amended by bylaws of the
corporation, basing their authority to do so on a resolution of the
stockholders adopted on March 13, 1961, when the outstanding
capital stock of respondent corporation was only P70,139.740.00,
divided into 5,513,974 common shares at P10.00 per share and
150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled
30,127,047 with a total par value of P301,270,430.00. It was
contended that according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the power to amend,
modify, repeal or adopt new by-laws may be delegated to the
Board of Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid up capital
stock of the corporation, which 2/3 should have been computed on
the basis of the capitalization at the time of the amendment. Since
the amendment was based on the 1961 authorization, petitioner
contended that the Board acted without authority and in usurpation
of the power of the stockholders.
As a second cause of action, it was alleged that the authority
granted in 1961 had already been exercised in 1962 and 1963,
after which the authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership
of the Board of Directors had changed since the authority was
given in 1961, there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the
questioned amendment, petitioner had all the qualifications to be a
director of respondent corporation, being a Substantial stockholder
thereof; that as a stockholder, petitioner had acquired rights
inherent in stock ownership, such as the rights to vote and to be
voted upon in the election of directors; and that in amending the
by-laws, respondents purposely provided for petitioner's
disqualification and deprived him of his vested right as afore-
mentioned hence the amended by-laws are null and void. 1
As additional causes of action, it was alleged that corporations
have no inherent power to disqualify a stockholder from being
elected as a director and, therefore, the questioned act is ultra
vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano,
while representing other corporations, entered into contracts
(specifically a management contract) with respondent corporation,
which was allowed because the questioned amendment gave the
Board itself the prerogative of determining whether they or other
persons are engaged in competitive or antagonistic business; that
the portion of the amended bylaws which states that in determining
whether or not a person is engaged in competitive business, the
Board may consider such factors as business and family
45
relationship, is unreasonable and oppressive and, therefore, void;
and that the portion of the amended by-laws which requires that "all
nominations for election of directors ... shall be submitted in writing
to the Board of Directors at least five (5) working days before the
date of the Annual Meeting" is likewise unreasonable and
oppressive.
It was, therefore, prayed that the amended by-laws be declared
null and void and the certificate of filing thereof be cancelled, and
that individual respondents be made to pay damages, in specified
amounts, to petitioner.
On October 28, 1976, in connection with the same case, petitioner
filed with the Securities and Exchange Commission an "Urgent
Motion for Production and Inspection of Documents", alleging that
the Secretary of respondent corporation refused to allow him to
inspect its records despite request made by petitioner for
production of certain documents enumerated in the request, and
that respondent corporation had been attempting to suppress
information from its stockholders despite a negative reply by the
SEC to its query regarding their authority to do so. Among the
documents requested to be copied were (a) minutes of the
stockholder's meeting field on March 13, 1961, (b) copy of the
management contract between San Miguel Corporation and A.
Soriano Corporation (ANSCOR); (c) latest balance sheet of San
Miguel International, Inc.; (d) authority of the stockholders to invest
the funds of respondent corporation in San Miguel International,
Inc.; and (e) lists of salaries, allowances, bonuses, and other
compensation, if any, received by Andres M. Soriano, Jr. and/or its
successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents"
was opposed by respondents, alleging, among others that the
motion has no legal basis; that the demand is not based on good
faith; that the motion is premature since the materiality or relevance
of the evidence sought cannot be determined until the issues are
joined, that it fails to show good cause and constitutes continued
harrasment, and that some of the information sought are not part of
the records of the corporation and, therefore, privileged.
During the pendency of the motion for production, respondents San
Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio
Prieto filed their answer to the petition, denying the substantial
allegations therein and stating, by way of affirmative defenses that
"the action taken by the Board of Directors on September 18, 1976
resulting in the ... amendments is valid and legal because the
power to "amend, modify, repeal or adopt new By-laws" delegated
to said Board on March 13, 1961 and long prior thereto has never
been revoked of SMC"; that contrary to petitioner's claim, "the vote
requirement for a valid delegation of the power to amend, repeal or
adopt new by-laws is determined in relation to the total subscribed
capital stock at the time the delegation of said power is made, not
when the Board opts to exercise said delegated power"; that
petitioner has not availed of his intra-corporate remedy for the
nullification of the amendment, which is to secure its repeal by vote
of the stockholders representing a majority of the subscribed
capital stock at any regular or special meeting, as provided in
Article VIII, section I of the by-laws and section 22 of the
Corporation law, hence the, petition is premature; that petitioner is
estopped from questioning the amendments on the ground of lack
of authority of the Board. since he failed, to object to other
amendments made on the basis of the same 1961 authorization:
that the power of the corporation to amend its by-laws is broad,
subject only to the condition that the by-laws adopted should not be
respondent corporation inconsistent with any existing law; that
respondent corporation should not be precluded from adopting
protective measures to minimize or eliminate situations where its
directors might be tempted to put their personal interests over t I
hat of the corporation; that the questioned amended by-laws is a
matter of internal policy and the judgment of the board should not
be interfered with: That the by-laws, as amended, are valid and
binding and are intended to prevent the possibility of violation of
criminal and civil laws prohibiting combinations in restraint of trade;
and that the petition states no cause of action. It was, therefore,
prayed that the petition be dismissed and that petitioner be ordered
to pay damages and attorney's fees to respondents. The
application for writ of preliminary injunction was likewise on various
grounds.
46
Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their
opposition to the petition, denying the material averments thereof
and stating, as part of their affirmative defenses, that in August
1972, the Universal Robina Corporation (Robina), a corporation
engaged in business competitive to that of respondent corporation,
began acquiring shares therein. until September 1976 when its
total holding amounted to 622,987 shares: that in October 1972,
the Consolidated Foods Corporation (CFC) likewise began
acquiring shares in respondent (corporation. until its total holdings
amounted to P543,959.00 in September 1976; that on January 12,
1976, petitioner, who is president and controlling shareholder of
Robina and CFC (both closed corporations) purchased 5,000
shares of stock of respondent corporation, and thereafter, in behalf
of himself, CFC and Robina, "conducted malevolent and malicious
publicity campaign against SMC" to generate support from the
stockholder "in his effort to secure for himself and in representation
of Robina and CFC interests, a seat in the Board of Directors of
SMC", that in the stockholders' meeting of March 18, 1976,
petitioner was rejected by the stockholders in his bid to secure a
seat in the Board of Directors on the basic issue that petitioner was
engaged in a competitive business and his securing a seat would
have subjected respondent corporation to grave disadvantages;
that "petitioner nevertheless vowed to secure a seat in the Board of
Directors at the next annual meeting; that thereafter the Board of
Directors amended the by-laws as afore-stated.
As counterclaims, actual damages, moral damages, exemplary
damages, expenses of litigation and attorney's fees were
presented against petitioner.
Subsequently, a Joint Omnibus Motion for the striking out of the
motion for production and inspection of documents was filed by all
the respondents. This was duly opposed by petitioner. At this
juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R.
Visaya were allowed to intervene as oppositors and they
accordingly filed their oppositions-intervention to the petition.
On December 29, 1976, the Securities and Exchange Commission
resolved the motion for production and inspection of documents by
issuing Order No. 26, Series of 1977, stating, in part as follows:
Considering the evidence submitted before the
Commission by the petitioner and respondents in the
above-entitled case, it is hereby ordered:
1. That respondents produce and permit the
inspection, copying and photographing, by or on
behalf of the petitioner-movant, John Gokongwei, Jr.,
of the minutes of the stockholders' meeting of the
respondent San Miguel Corporation held on March
13, 1961, which are in the possession, custody and
control of the said corporation, it appearing that the
same is material and relevant to the issues involved
in the main case. Accordingly, the respondents
should allow petitioner-movant entry in the principal
office of the respondent Corporation, San Miguel
Corporation on January 14, 1977, at 9:30 o'clock in
the morning for purposes of enforcing the rights
herein granted; it being understood that the
inspection, copying and photographing of the said
documents shall be undertaken under the direct and
strict supervision of this Commission. Provided,
however, that other documents and/or papers not
heretofore included are not covered by this Order and
any inspection thereof shall require the prior
permission of this Commission;
2. As to the Balance Sheet of San Miguel
International, Inc. as well as the list of salaries,
allowances, bonuses, compensation and/or
remuneration received by respondent Jose M.
Soriano, Jr. and Andres Soriano from San Miguel
International, Inc. and/or its successors-in- interest,
the Petition to produce and inspect the same is
hereby DENIED, as petitioner-movant is not a
stockholder of San Miguel International, Inc. and has,
47
 therefore, no inherent right to inspect said
documents;
3. In view of the Manifestation of petitioner-movant
dated November 29, 1976, withdrawing his request to
copy and inspect the management contract between
San Miguel Corporation and A. Soriano Corporation
and the renewal and amendments thereof for the
reason that he had already obtained the same, the
Commission takes note thereof; and
4. Finally, the Commission holds in abeyance the
resolution on the matter of production and inspection
of the authority of the stockholders of San Miguel
Corporation to invest the funds of respondent
corporation in San Miguel International, Inc., until
after the hearing on the merits of the principal issues
in the above-entitled case.
This Order is immediately executory upon its
approval. 2
Dissatisfied with the foregoing Order, petitioner moved for its
reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to be
heard, respondent corporation issued a notice of special
stockholders' meeting for the purpose of "ratification and
confirmation of the amendment to the By-laws", setting such
meeting for February 10, 1977. This prompted petitioner to ask
respondent Commission for a summary judgment insofar as the
first cause of action is concerned, for the alleged reason that by
calling a special stockholders' meeting for the aforesaid purpose,
private respondents admitted the invalidity of the amendments of
September 18, 1976. The motion for summary judgment was
opposed by private respondents. Pending action on the motion,
petitioner filed an "Urgent Motion for the Issuance of a Temporary
Restraining Order", praying that pending the determination of
petitioner's application for the issuance of a preliminary injunction
and/or petitioner's motion for summary judgment, a temporary
restraining order be issued, restraining respondents from holding
the special stockholder's meeting as scheduled. This motion was
duly opposed by respondents.
On February 10, 1977, respondent Commission issued an order
denying the motion for issuance of temporary restraining order.
After receipt of the order of denial, respondents conducted the
special stockholders' meeting wherein the amendments to the by-
laws were ratified. On February 14, 1977, petitioner filed a
consolidated motion for contempt and for nullification of the special
stockholders' meeting.
A motion for reconsideration of the order denying petitioner's
motion for summary judgment was filed by petitioner before
respondent Commission on March 10, 1977. Petitioner alleges that
up to the time of the filing of the instant petition, the said motion
had not yet been scheduled for hearing. Likewise, the motion for
reconsideration of the order granting in part and denying in part
petitioner's motion for production of record had not yet been
resolved.
In view of the fact that the annul stockholders' meeting of
respondent corporation had been scheduled for May 10, 1977,
petitioner filed with respondent Commission a Manifestation stating
that he intended to run for the position of director of respondent
corporation. Thereafter, respondents filed a Manifestation with
respondent Commission, submitting a Resolution of the Board of
Directors of respondent corporation disqualifying and precluding
petitioner from being a candidate for director unless he could
submit evidence on May 3, 1977 that he does not come within the
disqualifications specified in the amendment to the by-laws, subject
matter of SEC Case No. 1375. By reason thereof, petitioner filed a
manifestation and motion to resolve pending incidents in the case
and to issue a writ of injunction, alleging that private respondents
were seeking to nullify and render ineffectual the exercise of
jurisdiction by the respondent Commission, to petitioner's
irreparable damage and prejudice, Allegedly despite a subsequent
48
Manifestation to prod respondent Commission to act, petitioner
was not heard prior to the date of the stockholders' meeting.
Petitioner alleges that there appears a deliberate and concerted
inability on the part of the SEC to act hence petitioner came to this
Court.
SEC. CASE NO. 1423
Petitioner likewise alleges that, having discovered that respondent
corporation has been investing corporate funds in other
corporations and businesses outside of the primary purpose clause
of the corporation, in violation of section 17 1/2 of the Corporation
Law, he filed with respondent Commission, on January 20, 1977, a
petition seeking to have private respondents Andres M. Soriano, Jr.
and Jose M. Soriano, as well as the respondent corporation
declared guilty of such violation, and ordered to account for such
investments and to answer for damages.
On February 4, 1977, motions to dismiss were filed by private
respondents, to which a consolidated motion to strike and to
declare individual respondents in default and an opposition ad
abundantiorem cautelam were filed by petitioner. Despite the fact
that said motions were filed as early as February 4, 1977, the
commission acted thereon only on April 25, 1977, when it denied
respondents' motion to dismiss and gave them two (2) days within
which to file their answer, and set the case for hearing on April 29
and May 3, 1977.
Respondents issued notices of the annual stockholders' meeting,
including in the Agenda thereof, the following:
6. Re-affirmation of the authorization to the Board of
Directors by the stockholders at the meeting on
March 20, 1972 to invest corporate funds in other
companies or businesses or for purposes other than
the main purpose for which the Corporation has been
organized, and ratification of the investments
thereafter made pursuant thereto.
By reason of the foregoing, on April 28, 1977, petitioner filed with
the SEC an urgent motion for the issuance of a writ of preliminary
injunction to restrain private respondents from taking up Item 6 of
the Agenda at the annual stockholders' meeting, requesting that
the same be set for hearing on May 3, 1977, the date set for the
second hearing of the case on the merits. Respondent
Commission, however, cancelled the dates of hearing originally
scheduled and reset the same to May 16 and 17, 1977, or after the
scheduled annual stockholders' meeting. For the purpose of urging
the Commission to act, petitioner filed an urgent manifestation on
May 3, 1977, but this notwithstanding, no action has been taken up
to the date of the filing of the instant petition.
With respect to the afore-mentioned SEC cases, it is petitioner's
contention before this Court that respondent Commission gravely
abused its discretion when it failed to act with deliberate dispatch
on the motions of petitioner seeking to prevent illegal and/or
arbitrary impositions or limitations upon his rights as stockholder of
respondent corporation, and that respondent are acting
oppressively against petitioner, in gross derogation of petitioner's
rights to property and due process. He prayed that this Court direct
respondent SEC to act on collateral incidents pending before it.
On May 6, 1977, this Court issued a temporary restraining order
restraining private respondents from disqualifying or preventing
petitioner from running or from being voted as director of
respondent corporation and from submitting for ratification or
confirmation or from causing the ratification or confirmation of Item
6 of the Agenda of the annual stockholders' meeting on May 10,
1977, or from Making effective the amended by-laws of respondent
corporation, until further orders from this Court or until the
Securities and Ex-change Commission acts on the matters
complained of in the instant petition.
On May 14, 1977, petitioner filed a Supplemental Petition, alleging
that after a restraining order had been issued by this Court, or on
May 9, 1977, the respondent Commission served upon petitioner
copies of the following orders:
49
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying
petitioner's motion for reconsideration, with its supplement, of the
order of the Commission denying in part petitioner's motion for
production of documents, petitioner's motion for reconsideration of
the order denying the issuance of a temporary restraining order
denying the issuance of a temporary restraining order, and
petitioner's consolidated motion to declare respondents in
contempt and to nullify the stockholders' meeting;
(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing
petitioner to run as a director of respondent corporation but stating
that he should not sit as such if elected, until such time that the
Commission has decided the validity of the bylaws in dispute, and
denying deferment of Item 6 of the Agenda for the annual
stockholders' meeting; and
(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying
petitioner's motion for reconsideration of the order of respondent
Commission denying petitioner's motion for summary judgment;
It is petitioner's assertions, anent the foregoing orders, (1) that
respondent Commission acted with indecent haste and without
circumspection in issuing the aforesaid orders to petitioner's
irreparable damage and injury; (2) that it acted without jurisdiction
and in violation of petitioner's right to due process when it
decided en banc an issue not raised before it and still pending
before one of its Commissioners, and without hearing petitioner
thereon despite petitioner's request to have the same calendared
for hearing , and (3) that the respondents acted oppressively
against the petitioner in violation of his rights as a stockholder,
warranting immediate judicial intervention.
It is prayed in the supplemental petition that the SEC orders
complained of be declared null and void and that respondent
Commission be ordered to allow petitioner to undertake discovery
proceedings relative to San Miguel International. Inc. and thereafter
to decide SEC Cases No. 1375 and 1423 on the merits.
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and
Jose M. Soriano filed their comment, alleging that the petition is
without merit for the following reasons:
(1) that the petitioner the interest he represents are engaged in
business competitive and antagonistic to that of respondent San
Miguel Corporation, it appearing that the owns and controls a
greater portion of his SMC stock thru the Universal Robina
Corporation and the Consolidated Foods Corporation, which
corporations are engaged in business directly and substantially
competing with the allied businesses of respondent SMC and of
corporations in which SMC has substantial investments. Further,
when CFC and Robina had accumulated investments. Further,
when CFC and Robina had accumulated shares in SMC, the Board
of Directors of SMC realized the clear and present danger that
competitors or antagonistic parties may be elected directors and
thereby have easy and direct access to SMC's business and trade
secrets and plans;
(2) that the amended by law were adopted to preserve and protect
respondent SMC from the clear and present danger that business
competitors, if allowed to become directors, will illegally and
unfairly utilize their direct access to its business secrets and plans
for their own private gain to the irreparable prejudice of respondent
SMC, and, ultimately, its stockholders. Further, it is asserted that
membership of a competitor in the Board of Directors is a blatant
disregard of no less that the Constitution and pertinent laws against
combinations in restraint of trade;
(3) that by laws are valid and binding since a corporation has the
inherent right and duty to preserve and protect itself by excluding
competitors and antogonistic parties, under the law of self-
preservation, and it should be allowed a wide latitude in the
selection of means to preserve itself;
(4) that the delay in the resolution and disposition of SEC Cases
Nos. 1375 and 1423 was due to petitioner's own acts or omissions,
since he failed to have the petition to suspend, pendente lite the
amended by-laws calendared for hearing. It was emphasized that it
50
was only on April 29, 1977 that petitioner calendared the aforesaid
petition for suspension (preliminary injunction) for hearing on May
3, 1977. The instant petition being dated May 4, 1977, it is
apparent that respondent Commission was not given a chance to
act "with deliberate dispatch", and
(5) that, even assuming that the petition was meritorious was, it
has become moot and academic because respondent Commission
has acted on the pending incidents, complained of. It was,
therefore, prayed that the petition be dismissed.
On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his
comment, alleging that the petition has become moot and
academic for the reason, among others that the acts of private
respondent sought to be enjoined have reference to the annual
meeting of the stockholders of respondent San Miguel Corporation,
which was held on may 10, 1977; that in said meeting, in
compliance with the order of respondent Commission, petitioner
was allowed to run and be voted for as director; and that in the
same meeting, Item 6 of the Agenda was discussed, voted upon,
ratified and confirmed. Further it was averred that the questions
and issues raised by petitioner are pending in the Securities and
Exchange Commission which has acquired jurisdiction over the
case, and no hearing on the merits has been had; hence the
elevation of these issues before the Supreme Court is premature.
Petitioner filed a reply to the aforesaid comments, stating that the
petition presents justiciable questions for the determination of this
Court because (1) the respondent Commission acted without
circumspection, unfairly and oppresively against petitioner,
warranting the intervention of this Court; (2) a derivative suit, such
as the instant case, is not rendered academic by the act of a
majority of stockholders, such that the discussion, ratification and
confirmation of Item 6 of the Agenda of the annual stockholders'
meeting of May 10, 1977 did not render the case moot; that the
amendment to the bylaws which specifically bars petitioner from
being a director is void since it deprives him of his vested rights.
Respondent Commission, thru the Solicitor General, filed a
separate comment, alleging that after receiving a copy of the
restraining order issued by this Court and noting that the
restraining order did not foreclose action by it, the Commission en
banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375.
In answer to the allegation in the supplemental petition, it states
that Order No. 450 which denied deferment of Item 6 of the Agenda
of the annual stockholders' meeting of respondent corporation, took
into consideration an urgent manifestation filed with the
Commission by petitioner on May 3, 1977 which prayed, among
others, that the discussion of Item 6 of the Agenda be deferred.
The reason given for denial of deferment was that "such action is
within the authority of the corporation as well as falling within the
sphere of stockholders' right to know, deliberate upon and/or to
express their wishes regarding disposition of corporate funds
considering that their investments are the ones directly affected." It
was alleged that the main petition has, therefore, become moot
and academic.
On September 29,1977, petitioner filed a second supplemental
petition with prayer for preliminary injunction, alleging that the
actuations of respondent SEC tended to deprive him of his right to
due process, and "that all possible questions on the facts now
pending before the respondent Commission are now before this
Honorable Court which has the authority and the competence to
act on them as it may see fit." (Reno, pp. 927-928.)
Petitioner, in his memorandum, submits the following issues for
resolution;
(1) whether or not the provisions of the amended by-laws of
respondent corporation, disqualifying a competitor from nomination
or election to the Board of Directors are valid and reasonable;
(2) whether or not respondent SEC gravely abused its discretion in
denying petitioner's request for an examination of the records of
San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation; and
51
(3) whether or not respondent SEC committed grave abuse of
discretion in allowing discussion of Item 6 of the Agenda of the
Annual Stockholders' Meeting on May 10, 1977, and the ratification
of the investment in a foreign corporation of the corporate funds,
allegedly in violation of section 17-1/2 of the Corporation Law.
I decide case involving intra-corporate controversies.
Whether or not amended by-laws are valid is purely a legal
question which public interest requires to be resolved
It is the position of the petitioner that "it is not necessary to remand
the case to respondent SEC for an appropriate ruling on the
intrinsic validity of the amended by-laws in compliance with the
principle of exhaustion of administrative remedies", considering
that: first: "whether or not the provisions of the amended by-laws
are intrinsically valid ... is purely a legal question. There is no
factual dispute as to what the provisions are and evidence is not
necessary to determine whether such amended by-laws are valid
as framed and approved ... "; second: "it is for the interest and
guidance of the public that an immediate and final ruling on the
question be made ... "; third: "petitioner was denied due process by
SEC" when "Commissioner de Guzman had openly shown
prejudice against petitioner ... ", and "Commissioner Sulit ...
approved the amended by-laws ex-parte and obviously found the
same intrinsically valid; and finally: "to remand the case to SEC
would only entail delay rather than serve the ends of justice."
Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly
pray that this Court resolve the legal issues raised by the parties in
keeping with the "cherished rules of procedure" that "a court should
always strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future ligiation",
citing Gayong v. Gayos. 3 To the same effect is the prayer of San
Miguel Corporation that this Court resolve on the merits the validity
of its amended by laws and the rights and obligations of the parties
thereunder, otherwise "the time spent and effort exerted by the
parties concerned and, more importantly, by this Honorable Court,
would have been for naught because the main question will come
back to this Honorable Court for final resolution." Respondent
Eduardo R. Visaya submits a similar appeal.
It is only the Solicitor General who contends that the case should
be remanded to the SEC for hearing and decision of the issues
involved, invoking the latter's primary jurisdiction to hear and
It is an accepted rule of procedure that the Supreme Court should
always strive to settle the entire controversy in a single proceeding,
leaving nor root or branch to bear the seeds of future
litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved
to decide the case on the merits instead of remanding it to the trial
court for further proceedings since the ends of justice would not be
subserved by the remand of the case. In Republic v. Security
Credit and Acceptance Corporation, et al., 6 this Court, finding that
the main issue is one of law, resolved to decide the case on the
merits "because public interest demands an early disposition of the
case", and in Republic v. Central Surety and Insurance
Company, 7 this Court denied remand of the third-party complaint to
the trial court for further proceedings, citing precedent where this
Court, in similar situations resolved to decide the cases on the
merits, instead of remanding them to the trial court where (a) the
ends of justice would not be subserved by the remand of the case;
or (b) where public interest demand an early disposition of the
case; or (c) where the trial court had already received all the
evidence presented by both parties and the Supreme Court is now
in a position, based upon said evidence, to decide the case on its
merits. 8 It is settled that the doctrine of primary jurisdiction has no
application where only a question of law is involved. 8a Because
uniformity may be secured through review by a single Supreme
Court, questions of law may appropriately be determined in the first
instance by courts. 8b In the case at bar, there are facts which
cannot be denied, viz.: that the amended by-laws were adopted by
the Board of Directors of the San Miguel Corporation in the
exercise of the power delegated by the stockholders ostensibly
pursuant to section 22 of the Corporation Law; that in a special
meeting on February 10, 1977 held specially for that purpose, the
amended by-laws were ratified by more than 80% of the
52
stockholders of record; that the foreign investment in the Hongkong
Brewery and Distellery, a beer manufacturing company in
Hongkong, was made by the San Miguel Corporation in 1948; and
that in the stockholders' annual meeting held in 1972 and 1977, all
foreign investments and operations of San Miguel Corporation
were ratified by the stockholders.
II
Whether or not the amended by-laws of SMC of disqualifying a
competitor from nomination or election to the Board of Directors of
SMC are valid and reasonable
The validity or reasonableness of a by-law of a corporation in
purely a question of law. 9 Whether the by-law is in conflict with the
law of the land, or with the charter of the corporation, or is in a legal
sense unreasonable and therefore unlawful is a question of
law. 10 This rule is subject, however, to the limitation that where the
reasonableness of a by-law is a mere matter of judgment, and one
upon which reasonable minds must necessarily differ, a court
would not be warranted in substituting its judgment instead of the
judgment of those who are authorized to make by-laws and who
have exercised their authority. 11
Petitioner claims that the amended by-laws are invalid and
unreasonable because they were tailored to suppress the minority
and prevent them from having representation in the Board", at the
same time depriving petitioner of his "vested right" to be voted for
and to vote for a person of his choice as director.
Upon the other hand, respondents Andres M. Soriano, Jr., Jose M.
Soriano and San Miguel Corporation content that ex. conclusion of
a competitor from the Board is legitimate corporate purpose,
considering that being a competitor, petitioner cannot devote an
unselfish and undivided Loyalty to the corporation; that it is
essentially a preventive measure to assure stockholders of San
Miguel Corporation of reasonable protective from the unrestrained
self-interest of those charged with the promotion of the corporate
enterprise; that access to confidential information by a competitor
may result either in the promotion of the interest of the competitor
at the expense of the San Miguel Corporation, or the promotion of
both the interests of petitioner and respondent San Miguel
Corporation, which may, therefore, result in a combination or
agreement in violation of Article 186 of the Revised Penal Code by
destroying free competition to the detriment of the consuming
public. It is further argued that there is not vested right of any
stockholder under Philippine Law to be voted as director of a
corporation. It is alleged that petitioner, as of May 6, 1978, has
exercised, personally or thru two corporations owned or controlled
by him, control over the following shareholdings in San Miguel
Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b)
Universal Robina Corporation 738,647 shares; (c) CFC
Corporation 658,313 shares, or a total of 1,403,285 shares.
Since the outstanding capital stock of San Miguel Corporation, as
of the present date, is represented by 33,139,749 shares with a par
value of P10.00, the total shares owned or controlled by petitioner
represents 4.2344% of the total outstanding capital stock of San
Miguel Corporation. It is also contended that petitioner is the
president and substantial stockholder of Universal Robina
Corporation and CFC Corporation, both of which are allegedly
controlled by petitioner and members of his family. It is also
claimed that both the Universal Robina Corporation and the CFC
Corporation are engaged in businesses directly and substantially
competing with the alleged businesses of San Miguel Corporation,
and of corporations in which SMC has substantial investments.
ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S
CORPORATIONS AND SAN MIGUEL CORPORATION
According to respondent San Miguel Corporation, the areas of,
competition are enumerated in its Board the areas of competition
are enumerated in its Board Resolution dated April 28, 1978, thus:
Product Line Estimated Market Share Total
1977 SMC Robina-CFC
Table Eggs 0.6% 10.0% 10.6%
Layer Pullets 33.0% 24.0% 57.0%
53
 Dressed Chicken 35.0% 14.0% 49.0%
Poultry & Hog Feeds 40.0% 12.0% 52.0%
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%
Thus, according to respondent SMC, in 1976, the areas of
competition affecting SMC involved product sales of over P400
million or more than 20% of the P2 billion total product sales of
SMC. Significantly, the combined market shares of SMC and CFC-
Robina in layer pullets dressed chicken, poultry and hog feeds ice
cream, instant coffee and woven fabrics would result in a position
of such dominance as to affect the prevailing market factors.
It is further asserted that in 1977, the CFC-Robina group was in
direct competition on product lines which, for SMC, represented
sales amounting to more than ?478 million. In addition, CFC-
Robina was directly competing in the sale of coffee with Filipro, a
subsidiary of SMC, which product line represented sales for SMC
amounting to more than P275 million. The CFC-Robina group
(Robitex, excluding Litton Mills recently acquired by petitioner) is
purportedly also in direct competition with Ramie Textile, Inc.,
subsidiary of SMC, in product sales amounting to more than P95
million. The areas of competition between SMC and CFC-Robina in
1977 represented, therefore, for SMC, product sales of more than
P849 million.
According to private respondents, at the Annual Stockholders'
Meeting of March 18, 1976, 9,894 stockholders, in person or by
proxy, owning 23,436,754 shares in SMC, or more than 90% of the
total outstanding shares of SMC, rejected petitioner's candidacy for
the Board of Directors because they "realized the grave dangers to
the corporation in the event a competitor gets a board seat in
SMC." On September 18, 1978, the Board of Directors of SMC, by
"virtue of powers delegated to it by the stockholders," approved the
amendment to ' he by-laws in question. At the meeting of February
10, 1977, these amendments were confirmed and ratified by 5,716
shareholders owning 24,283,945 shares, or more than 80% of the
total outstanding shares. Only 12 shareholders, representing 7,005
shares, opposed the confirmation and ratification. At the Annual
Stockholders' Meeting of May 10, 1977, 11,349 shareholders,
owning 27,257.014 shares, or more than 90% of the outstanding
shares, rejected petitioner's candidacy, while 946 stockholders,
representing 1,648,801 shares voted for him. On the May 9, 1978
Annual Stockholders' Meeting, 12,480 shareholders, owning more
than 30 million shares, or more than 90% of the total outstanding
shares. voted against petitioner.
AUTHORITY OF CORPORATION TO PRESCRIBE
QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED
BY LAW
Private respondents contend that the disputed amended by laws
were adopted by the Board of Directors of San Miguel Corporation
a-, a measure of self-defense to protect the corporation from the
clear and present danger that the election of a business competitor
to the Board may cause upon the corporation and the other
stockholders inseparable prejudice. Submitted for resolution,
therefore, is the issue whether or not respondent San Miguel
Corporation could, as a measure of self- protection, disqualify a
competitor from nomination and election to its Board of Directors.
It is recognized by an authorities that 'every corporation has the
inherent power to adopt by-laws 'for its internal government, and to
regulate the conduct and prescribe the rights and duties of its
members towards itself and among themselves in reference to the
management of its affairs. 12 At common law, the rule was "that the
power to make and adopt by-laws was inherent in every
corporation as one of its necessary and inseparable legal incidents.
And it is settled throughout the United States that in the absence of
positive legislative provisions limiting it, every private corporation
has this inherent power as one of its necessary and inseparable
legal incidents, independent of any specific enabling provision in its
charter or in general law, such power of self-government being
essential to enable the corporation to accomplish the purposes of
its creation. 13
54
In this jurisdiction, under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the qualifications, duties
and compensation of directors, officers and employees ... " This
must necessarily refer to a qualification in addition to that specified
by section 30 of the Corporation Law, which provides that "every
director must own in his right at least one share of the capital stock
of the stock corporation of which he is a director ... "
In Government v. El Hogar, 14 the Court sustained the validity of a
provision in the corporate by-law requiring that persons elected to
the Board of Directors must be holders of shares of the paid up
value of P5,000.00, which shall be held as security for their action,
on the ground that section 21 of the Corporation Law expressly
gives the power to the corporation to provide in its by-laws for the
qualifications of directors and is "highly prudent and in conformity
with good practice. "
NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED
DIRECTOR
Any person "who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of
incorporation and lawfully enacted by-laws and not forbidden by
law." 15 To this extent, therefore, the stockholder may be considered
to have "parted with his personal right or privilege to regulate the
disposition of his property which he has invested in the capital
stock of the corporation, and surrendered it to the will of the
majority of his fellow incorporators. ... It cannot therefore be justly
said that the contract, express or implied, between the corporation
and the stockholders is infringed ... by any act of the former which
is authorized by a majority ... ." 16
Pursuant to section 18 of the Corporation Law, any corporation
may amend its articles of incorporation by a vote or written assent
of the stockholders representing at least two-thirds of the
subscribed capital stock of the corporation If the amendment
changes, diminishes or restricts the rights of the existing
shareholders then the disenting minority has only one right, viz.: "to
object thereto in writing and demand payment for his share." Under
section 22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or adopt
new by-laws. It cannot be said, therefore, that petitioner has a
vested right to be elected director, in the face of the fact that the
law at the time such right as stockholder was acquired contained
the prescription that the corporate charter and the by-law shall be
subject to amendment, alteration and modification. 17
It being settled that the corporation has the power to provide for the
qualifications of its directors, the next question that must be
considered is whether the disqualification of a competitor from
being elected to the Board of Directors is a reasonable exercise of
corporate authority.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE
CORPORATION AND ITS SHAREHOLDERS
Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any
doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned. As
agents entrusted with the management of the corporation for the
collective benefit of the stockholders, "they occupy a fiduciary
relation, and in this sense the relation is one of trust." 18 "The
ordinary trust relationship of directors of a corporation and
stockholders", according to Ashaman v. Miller, 19 "is not a matter of
statutory or technical law. It springs from the fact that directors
have the control and guidance of corporate affairs and property
and hence of the property interests of the stockholders. Equity
recognizes that stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries thereof * * *.
Justice Douglas, in Pepper v. Litton, 20 emphatically restated the
standard of fiduciary obligation of the directors of corporations,
thus:
A director is a fiduciary. ... Their powers are powers in
trust. ... He who is in such fiduciary position cannot
55
 serve himself first and his cestuis second. ... He
cannot manipulate the affairs of his corporation to
their detriment and in disregard of the standards of
common decency. He cannot by the intervention of a
corporate entity violate the ancient precept against
serving two masters ... He cannot utilize his inside
information and strategic position for his own
preferment. He cannot violate rules of fair play by
doing indirectly through the corporation what he could
not do so directly. He cannot violate rules of fair play
by doing indirectly though the corporation what he
could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the
stockholders and creditors no matter how absolute in
terms that power may be and no matter how
meticulous he is to satisfy technical requirements. For
that power is at all times subject to the equitable
limitation that it may not be exercised for the
aggrandizement, preference or advantage of the
fiduciary to the exclusion or detriment of the cestuis.
And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:
... A person cannot serve two hostile and adverse
master, without detriment to one of them. A judge
cannot be impartial if personally interested in the
cause. No more can a director. Human nature is too
weak -for this. Take whatever statute provision you
please giving power to stockholders to choose
directors, and in none will you find any express
prohibition against a discretion to select directors
having the company's interest at heart, and it would
simply be going far to deny by mere implication the
existence of such a salutary power
... If the by-law is to be held reasonable in disqualifying a
stockholder in a competing company from being a director, the
same reasoning would apply to disqualify the wife and immediate
member of the family of such stockholder, on account of the
supposed interest of the wife in her husband's affairs, and his
suppose influence over her. It is perhaps true that such
stockholders ought not to be condemned as selfish and dangerous
to the best interest of the corporation until tried and tested. So it is
also true that we cannot condemn as selfish and dangerous and
unreasonable the action of the board in passing the by-law. The
strife over the matter of control in this corporation as in many
others is perhaps carried on not altogether in the spirit of brotherly
love and affection. The only test that we can apply is as to whether
or not the action of the Board is authorized and sanctioned by
law. ... . 22
These principles have been applied by this Court in previous
cases. 23
AN AMENDMENT TO THE CORPORATION BY-LAW WHICH
RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF
HE BE ALSO DIRECTOR IN A CORPORATION WHOSE
BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER
CORPORATION, HAS BEEN SUSTAINED AS VALID
It is a settled state law in the United States, according to Fletcher,
that corporations have the power to make by-laws declaring a
person employed in the service of a rival company to be ineligible
for the corporation's Board of Directors. ... (A)n amendment which
renders ineligible, or if elected, subjects to removal, a director if he
be also a director in a corporation whose business is in competition
with or is antagonistic to the other corporation is valid." 24 This is
based upon the principle that where the director is so employed in
the service of a rival company, he cannot serve both, but must
betray one or the other. Such an amendment "advances the benefit
of the corporation and is good." An exception exists in New Jersey,
where the Supreme Court held that the Corporation Law in New
Jersey prescribed the only qualification, and therefore the
corporation was not empowered to add additional
25
qualifications. This is the exact opposite of the situation in the
Philippines because as stated heretofore, section 21 of the
Corporation Law expressly provides that a corporation may make
by-laws for the qualifications of directors. Thus, it has been held
56
that an officer of a corporation cannot engage in a business in
direct competition with that of the corporation where he is a director
by utilizing information he has received as such officer, under "the
established law that a director or officer of a corporation may not
enter into a competing enterprise which cripples or injures the
business of the corporation of which he is an officer or director. 26
It is also well established that corporate officers "are not permitted
to use their position of trust and confidence to further their private
interests." 27 In a case where directors of a corporation cancelled a
contract of the corporation for exclusive sale of a foreign firm's
products, and after establishing a rival business, the directors
entered into a new contract themselves with the foreign firm for
exclusive sale of its products, the court held that equity would
regard the new contract as an offshoot of the old contract and,
therefore, for the benefit of the corporation, as a "faultless fiduciary
may not reap the fruits of his misconduct to the exclusion of his
principal. 28
The doctrine of "corporate opportunity" 29 is precisely a recognition
by the courts that the fiduciary standards could not be upheld
where the fiduciary was acting for two entities with competing
interests. This doctrine rests fundamentally on the unfairness, in
particular circumstances, of an officer or director taking advantage
of an opportunity for his own personal profit when the interest of
the corporation justly calls for protection. 30
It is not denied that a member of the Board of Directors of the San
Miguel Corporation has access to sensitive and highly confidential
information, such as: (a) marketing strategies and pricing structure;
(b) budget for expansion and diversification; (c) research and
development; and (d) sources of funding, availability of personnel,
proposals of mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer
or director of San Miguel Corporation, who is also the officer or
owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual
or corporate interests to the prejudice of San Miguel Corporation
and its stockholders, that the questioned amendment of the by-
laws was made. Certainly, where two corporations are competitive
in a substantial sense, it would seem improbable, if not impossible,
for the director, if he were to discharge effectively his duty, to
satisfy his loyalty to both corporations and place the performance
of his corporation duties above his personal concerns.
Thus, in McKee & Co. v. First National Bank of San
Diego, supra the court sustained as valid and reasonable an
amendment to the by-laws of a bank, requiring that its directors
should not be directors, officers, employees, agents, nominees or
attorneys of any other banking corporation, affiliate or subsidiary
thereof. Chief Judge Parker, in McKee, explained the reasons of
the court, thus:
... A bank director has access to a great deal of
information concerning the business and plans of a
bank which would likely be injurious to the bank if
known to another bank, and it was reasonable and
prudent to enlarge this minimum disqualification to
include any director, officer, employee, agent,
nominee, or attorney of any other bank in California.
The Ashkins case, supra, specifically recognizes
protection against rivals and others who might
acquire information which might be used against the
interests of the corporation as a legitimate object of
by-law protection. With respect to attorneys or
persons associated with a firm which is attorney for
another bank, in addition to the direct conflict or
potential conflict of interest, there is also the danger
of inadvertent leakage of confidential information
through casual office discussions or accessibility of
files. Defendant's directors determined that its welfare
was best protected if this opportunity for conflicting
loyalties and potential misuse and leakage of
confidential information was foreclosed.
In McKee the Court further listed qualificational by-laws upheld by
the courts, as follows:
57
 (1) A director shall not be directly or indirectly
interested as a stockholder in any other firm,
company, or association which competes with the
subject corporation.
(2) A director shall not be the immediate member of
the family of any stockholder in any other firm,
company, or association which competes with the
subject corporation,
(3) A director shall not be an officer, agent, employee,
attorney, or trustee in any other firm, company, or
association which compete with the subject
corporation.
(4) A director shall be of good moral character as an
essential qualification to holding office.
(5) No person who is an attorney against the
corporation in a law suit is eligible for service on the
board. (At p. 7.)
These are not based on theorical abstractions but on human
experience that a person cannot serve two hostile masters
without detriment to one of them.
The offer and assurance of petitioner that to avoid any possibility of
his taking unfair advantage of his position as director of San Miguel
Corporation, he would absent himself from meetings at which
confidential matters would be discussed, would not detract from the
validity and reasonableness of the by-laws here involved. Apart
from the impractical results that would ensue from such
arrangement, it would be inconsistent with petitioner's primary
motive in running for board membership which is to protect his
investments in San Miguel Corporation. More important, such a
proposed norm of conduct would be against all accepted principles
underlying a director's duty of fidelity to the corporation, for the
policy of the law is to encourage and enforce responsible corporate
management. As explained by Oleck: 31 "The law win not tolerate
the passive attitude of directors ... without active and conscientious
participation in the managerial functions of the company. As
directors, it is their duty to control and supervise the day to day
business activities of the company or to promulgate definite
policies and rules of guidance with a vigilant eye toward seeing to it
that these policies are carried out. It is only then that directors may
be said to have fulfilled their duty of fealty to the corporation."
Sound principles of corporate management counsel against
sharing sensitive information with a director whose fiduciary duty of
loyalty may well require that he disclose this information to a
competitive arrival. These dangers are enhanced considerably
where the common director such as the petitioner is a controlling
stockholder of two of the competing corporations. It would seem
manifest that in such situations, the director has an economic
incentive to appropriate for the benefit of his own corporation the
corporate plans and policies of the corporation where he sits as
director.
Indeed, access by a competitor to confidential information
regarding marketing strategies and pricing policies of San Miguel
Corporation would subject the latter to a competitive disadvantage
and unjustly enrich the competitor, for advance knowledge by the
competitor of the strategies for the development of existing or new
markets of existing or new products could enable said competitor
to utilize such knowledge to his advantage. 32
There is another important consideration in determining whether or
not the amended by-laws are reasonable. The Constitution and the
law prohibit combinations in restraint of trade or unfair competition.
Thus, section 2 of Article XIV of the Constitution provides: "The
State shall regulate or prohibit private monopolies when the public
interest so requires. No combinations in restraint of trade or unfair
competition shall be snowed."
Article 186 of the Revised Penal Code also provides:
Art. 186. Monopolies and combinations in restraint of
trade. The penalty of prision correccional in its
58
 minimum period or a fine ranging from two hundred to
six thousand pesos, or both, shall be imposed upon:
1. Any person who shall enter into any contract or
agreement or shall take part in any conspiracy or
combination in the form of a trust or otherwise, in
restraint of trade or commerce or to prevent by
artificial means free competition in the market.
2. Any person who shag monopolize any
merchandise or object of trade or commerce, or shall
combine with any other person or persons to
monopolize said merchandise or object in order to
alter the price thereof by spreading false rumors or
making use of any other artifice to restrain free
competition in the market.
3. Any person who, being a manufacturer, producer,
or processor of any merchandise or object of
commerce or an importer of any merchandise or
object of commerce from any foreign country, either
as principal or agent, wholesale or retailer, shall
combine, conspire or agree in any manner with any
person likewise engaged in the manufacture,
production, processing, assembling or importation of
such merchandise or object of commerce or with any
other persons not so similarly engaged for the
purpose of making transactions prejudicial to lawful
commerce, or of increasing the market price in any
part of the Philippines, or any such merchandise or
object of commerce manufactured, produced,
processed, assembled in or imported into the
Philippines, or of any article in the manufacture of
which such manufactured, produced, processed, or
imported merchandise or object of commerce is used.
There are other legislation in this jurisdiction, which prohibit
monopolies and combinations in restraint of trade. 33
Basically, these anti-trust laws or laws against monopolies or
combinations in restraint of trade are aimed at raising levels of
competition by improving the consumers' effectiveness as the final
arbiter in free markets. These laws are designed to preserve free
and unfettered competition as the rule of trade. "It rests on the
premise that the unrestrained interaction of competitive forces will
yield the best allocation of our economic resources, the lowest
prices and the highest quality ... ." 34 they operate to forestall
concentration of economic power. 35 The law against monopolies
and combinations in restraint of trade is aimed at contracts and
combinations that, by reason of the inherent nature of the
contemplated acts, prejudice the public interest by unduly
restraining competition or unduly obstructing the course of trade. 36
The terms "monopoly", "combination in restraint of trade" and
"unfair competition" appear to have a well defined meaning in other
jurisdictions. A "monopoly" embraces any combination the
tendency of which is to prevent competition in the broad and
general sense, or to control prices to the detriment of the
public. 37 In short, it is the concentration of business in the hands of
a few. The material consideration in determining its existence is not
that prices are raised and competition actually excluded, but
that power exists to raise prices or exclude competition when
desired. 38Further, it must be considered that the Idea of monopoly
is now understood to include a condition produced by the mere act
of individuals. Its dominant thought is the notion of exclusiveness
or unity, or the suppression of competition by the qualification of
interest or management, or it may be thru agreement and concert
of action. It is, in brief, unified tactics with regard to prices. 39
From the foregoing definitions, it is apparent that the contentions of
petitioner are not in accord with reality. The election of petitioner to
the Board of respondent Corporation can bring about an illegal
situation. This is because an express agreement is not necessary
for the existence of a combination or conspiracy in restraint of
trade. 40 It is enough that a concert of action is contemplated and
that the defendants conformed to the arrangements, 41 and what is
to be considered is what the parties actually did and not the words
they used. For instance, the Clayton Act prohibits a person from
59
serving at the same time as a director in any two or more
corporations, if such corporations are, by virtue of their business
and location of operation, competitors so that the elimination of
competition between them would constitute violation of any
provision of the anti-trust laws. 42 There is here a statutory
recognition of the anti-competitive dangers which may arise when
an individual simultaneously acts as a director of two or more
competing corporations. A common director of two or more
competing corporations would have access to confidential sales,
pricing and marketing information and would be in a position to
coordinate policies or to aid one corporation at the expense of
another, thereby stifling competition. This situation has been aptly
explained by Travers, thus:
The argument for prohibiting competing corporations
from sharing even one director is that theinterlock
permits the coordination of policies between
nominally independent firms to an extent that
competition between them may be completely
eliminated. Indeed, if a director, for example, is to be
faithful to both corporations, some accommodation
must result. Suppose X is a director of both
Corporation A and Corporation B. X could hardly vote
for a policy by A that would injure B without violating
his duty of loyalty to B at the same time he could
hardly abstain from voting without depriving A of his
best judgment. If the firms really do compete in the
sense of vying for economic advantage at the
expense of the other there can hardly be any
reason for an interlock between competitors other
than the suppression of competition. 43 (Emphasis
supplied.)
According to the Report of the House Judiciary Committee of the
U. S. Congress on section 9 of the Clayton Act, it was established
that: "By means of the interlocking directorates one man or group
of men have been able to dominate and control a great number of
corporations ... to the detriment of the small ones dependent upon
them and to the injury of the public. 44
Shared information on cost accounting may lead to price fixing.
Certainly, shared information on production, orders, shipments,
capacity and inventories may lead to control of production for the
purpose of controlling prices.
Obviously, if a competitor has access to the pricing policy and cost
conditions of the products of San Miguel Corporation, the essence
of competition in a free market for the purpose of serving the
lowest priced goods to the consuming public would be frustrated,
The competitor could so manipulate the prices of his products or
vary its marketing strategies by region or by brand in order to get
the most out of the consumers. Where the two competing firms
control a substantial segment of the market this could lead to
collusion and combination in restraint of trade. Reason and
experience point to the inevitable conclusion that the inherent
tendency of interlocking directorates between companies that are
related to each other as competitors is to blunt the edge of rivalry
between the corporations, to seek out ways of compromising
opposing interests, and thus eliminate competition. As respondent
SMC aptly observes, knowledge by CFC-Robina of SMC's costs in
various industries and regions in the country win enable the former
to practice price discrimination. CFC-Robina can segment the
entire consuming population by geographical areas or income
groups and change varying prices in order to maximize profits from
every market segment. CFC-Robina could determine the most
profitable volume at which it could produce for every product line in
which it competes with SMC. Access to SMC pricing policy by
CFC-Robina would in effect destroy free competition and deprive
the consuming public of opportunity to buy goods of the highest
possible quality at the lowest prices.
Finally, considering that both Robina and SMC are, to a certain
extent, engaged in agriculture, then the election of petitioner to the
Board of SMC may constitute a violation of the prohibition
contained in section 13(5) of the Corporation Law. Said section
provides in part that "any stockholder of more than one corporation
organized for the purpose of engaging in agriculture may hold his
stock in such corporations solely for investment and not for the
60
purpose of bringing about or attempting to bring about a
combination to exercise control of incorporations ... ."
Neither are We persuaded by the claim that the by-law was
Intended to prevent the candidacy of petitioner for election to the
Board. If the by-law were to be applied in the case of one
stockholder but waived in the case of another, then it could be
reasonably claimed that the by-law was being applied in a
discriminatory manner. However, the by law, by its terms, applies to
all stockholders. The equal protection clause of the Constitution
requires only that the by-law operate equally upon all persons of a
class. Besides, before petitioner can be declared ineligible to run
for director, there must be hearing and evidence must be submitted
to bring his case within the ambit of the disqualification. Sound
principles of public policy and management, therefore, support the
view that a by-law which disqualifies a competition from election to
the Board of Directors of another corporation is valid and
reasonable.
In the absence of any legal prohibition or overriding public policy,
wide latitude may be accorded to the corporation in adopting
measures to protect legitimate corporation interests. Thus, "where
the reasonableness of a by-law is a mere matter of judgment, and
upon which reasonable minds must necessarily differ, a court
would not be warranted in substituting its judgment instead of the
judgment of those who are authorized to make by-laws and who
have expressed their authority. 45
Although it is asserted that the amended by-laws confer on the
present Board powers to perpetua themselves in power such fears
appear to be misplaced. This power, but is very nature, is subject
to certain well established limitations. One of these is inherent in
the very convert and definition of the terms "competition" and
"competitor". "Competition" implies a struggle for advantage
between two or more forces, each possessing, in substantially
similar if not Identical degree, certain characteristics essential to
the business sought. It means an independent endeavor of two or
more persons to obtain the business patronage of a third by
offering more advantageous terms as an inducement to secure
trade. 46 The test must be whether the business does in fact
compete, not whether it is capable of an indirect and highly
unsubstantial duplication of an isolated or non-characteristics
activity. 47 It is, therefore, obvious that not every person or entity
engaged in business of the same kind is a competitor. Such factors
as quantum and place of business, Identity of products and area of
competition should be taken into consideration. It is, therefore,
necessary to show that petitioner's business covers a substantial
portion of the same markets for similar products to the extent of not
less than 10% of respondent corporation's market for competing
products. While We here sustain the validity of the amended by-
laws, it does not follow as a necessary consequence that petitioner
is ipso facto disqualified. Consonant with the requirement of due
process, there must be due hearing at which the petitioner must be
given the fullest opportunity to show that he is not covered by the
disqualification. As trustees of the corporation and of the
stockholders, it is the responsibility of directors to act with fairness
to the stockholders. 48 Pursuant to this obligation and to remove any
suspicion that this power may be utilized by the incumbent
members of the Board to perpetuate themselves in power, any
decision of the Board to disqualify a candidate for the Board of
Directors should be reviewed by the Securities behind Exchange
Commission en banc and its decision shall be final unless reversed
by this Court on certiorari. 49 Indeed, it is a settled principle that
where the action of a Board of Directors is an abuse of discretion,
or forbidden by statute, or is against public policy, or is ultra vires,
or is a fraud upon minority stockholders or creditors, or will result in
waste, dissipation or misapplication of the corporation assets, a
court of equity has the power to grant appropriate relief. 50
III
Whether or not respondent SEC gravely abused its discretion in
denying petitioner's request for an examination of the records of
San Miguel International Inc., a fully owned subsidiary of San
Miguel Corporation
Respondent San Miguel Corporation stated in its memorandum
that petitioner's claim that he was denied inspection rights as
61
stockholder of SMC "was made in the teeth of undisputed facts
that, over a specific period, petitioner had been furnished
numerous documents and information," to wit: (1) a complete list of
stockholders and their stockholdings; (2) a complete list of proxies
given by the stockholders for use at the annual stockholders'
meeting of May 18, 1975; (3) a copy of the minutes of the
stockholders' meeting of March 18,1976; (4) a breakdown of SMC's
P186.6 million investment in associated companies and other
companies as of December 31, 1975; (5) a listing of the salaries,
allowances, bonuses and other compensation or remunerations
received by the directors and corporate officers of SMC; (6) a copy
of the US $100 million Euro-Dollar Loan Agreement of SMC; and
(7) copies of the minutes of all meetings of the Board of Directors
from January 1975 to May 1976, with deletions of sensitive data,
which deletions were not objected to by petitioner.
Further, it was averred that upon request, petitioner was informed
in writing on September 18, 1976; (1) that SMC's foreign
investments are handled by San Miguel International, Inc.,
incorporated in Bermuda and wholly owned by SMC; this was
SMC's first venture abroad, having started in 1948 with an initial
outlay of ?500,000.00, augmented by a loan of Hongkong $6
million from a foreign bank under the personal guaranty of SMC's
former President, the late Col. Andres Soriano; (2) that as of
December 31, 1975, the estimated value of SMI would amount to
almost P400 million (3) that the total cash dividends received by
SMC from SMI since 1953 has amount to US $ 9.4 million; and (4)
that from 1972-1975, SMI did not declare cash or stock dividends,
all earnings having been used in line with a program for the setting
up of breweries by SMI
These averments are supported by the affidavit of the Corporate
Secretary, enclosing photocopies of the afore-mentioned
documents. 51
Pursuant to the second paragraph of section 51 of the Corporation
Law, "(t)he record of all business transactions of the corporation
and minutes of any meeting shall be open to the inspection of any
director, member or stockholder of the corporation at reasonable
hours."
The stockholder's right of inspection of the corporation's books and
records is based upon their ownership of the assets and property
of the corporation. It is, therefore, an incident of ownership of the
corporate property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a
52
ownership. This right is predicated upon the necessity of self-
protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him
as such and must be exercised by him with respect to his interest
as a stockholder and for some purpose germane thereto or in the
interest of the corporation. 53 In other words, the inspection has to
be germane to the petitioner's interest as a stockholder, and has to
be proper and lawful in character and not inimical to the interest of
the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that
"the right to examine the books of the corporation must be
exercised in good faith, for specific and honest purpose, and not to
gratify curiosity, or for specific and honest purpose, and not to
gratify curiosity, or for speculative or vexatious purposes. The
weight of judicial opinion appears to be, that on application for
mandamus to enforce the right, it is proper for the court to inquire
into and consider the stockholder's good faith and his purpose and
motives in seeking inspection. 56 Thus, it was held that "the right
given by statute is not absolute and may be refused when the
information is not sought in good faith or is used to the detriment of
the corporation." 57 But the "impropriety of purpose such as will
defeat enforcement must be set up the corporation defensively if
the Court is to take cognizance of it as a qualification. In other
words, the specific provisions take from the stockholder the burden
of showing propriety of purpose and place upon the corporation the
burden of showing impropriety of purpose or motive. 58 It appears
to be the general rule that stockholders are entitled to full
information as to the management of the corporation and the
manner of expenditure of its funds, and to inspection to obtain such
62
information, especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit of
officers or directors or certain of the stockholders to the exclusion
of others." 59
While the right of a stockholder to examine the books and records
of a corporation for a lawful purpose is a matter of law, the right of
such stockholder to examine the books and records of a wholly-
owned subsidiary of the corporation in which he is a stockholder is
a different thing.
Some state courts recognize the right under certain conditions,
while others do not. Thus, it has been held that where a
corporation owns approximately no property except the shares of
stock of subsidiary corporations which are merely agents or
instrumentalities of the holding company, the legal fiction of distinct
corporate entities may be disregarded and the books, papers and
documents of all the corporations may be required to be produced
for examination, 60 and that a writ of mandamus, may be granted,
as the records of the subsidiary were, to all incontents and
purposes, the records of the parent even though subsidiary was
not named as a party. 61 mandamus was likewise held proper to
inspect both the subsidiary's and the parent corporation's books
upon proof of sufficient control or dominion by the parent showing
the relation of principal or agent or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was
refused where the subsidiary corporation is a separate and distinct
corporation domiciled and with its books and records in another
jurisdiction, and is not legally subject to the control of the parent
company, although it owned a vast majority of the stock of the
subsidiary. 63 Likewise, inspection of the books of an allied
corporation by stockholder of the parent company which owns all
the stock of the subsidiary has been refused on the ground that the
stockholder was not within the class of "persons having an
interest." 64
In the Nash case, 65 The Supreme Court of New York held that the
contractual right of former stockholders to inspect books and
records of the corporation included the right to inspect corporation's
subsidiaries' books and records which were in corporation's
possession and control in its office in New York."
In the Bailey case, 66 stockholders of a corporation were held
entitled to inspect the records of a controlled subsidiary corporation
which used the same offices and had Identical officers and
directors.
In his "Urgent Motion for Production and Inspection of Documents"
before respondent SEC, petitioner contended that respondent
corporation "had been attempting to suppress information for the
stockholders" and that petitioner, "as stockholder of respondent
corporation, is entitled to copies of some documents which for
some reason or another, respondent corporation is very reluctant in
revealing to the petitioner notwithstanding the fact that no harm
would be caused thereby to the corporation." 67 There is no
question that stockholders are entitled to inspect the books and
records of a corporation in order to investigate the conduct of the
management, determine the financial condition of the corporation,
and generally take an account of the stewardship of the officers
and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly
owned by respondent San Miguel Corporation and, therefore,
under its control, it would be more in accord with equity, good faith
and fair dealing to construe the statutory right of petitioner as
stockholder to inspect the books and records of the corporation as
extending to books and records of such wholly subsidiary which
are in respondent corporation's possession and control.
IV
Whether or not respondent SEC gravely abused its discretion in
allowing the stockholders of respondent corporation to ratify the
investment of corporate funds in a foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that
respondent corporation invested corporate funds in SMI without
63
prior authority of the stockholders, thus violating section 17-1/2 of
the Corporation Law, and alleges that respondent SEC should
have investigated the charge, being a statutory offense, instead of
allowing ratification of the investment by the stockholders.
Respondent SEC's position is that submission of the investment to
the stockholders for ratification is a sound corporate practice and
should not be thwarted but encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to
"invest its funds in any other corporation or business or for any
purpose other than the main purpose for which it was organized"
provided that its Board of Directors has been so authorized by the
affirmative vote of stockholders holding shares entitling them to
exercise at least two-thirds of the voting power. If the investment is
made in pursuance of the corporate purpose, it does not need the
approval of the stockholders. It is only when the purchase of
shares is done solely for investment and not to accomplish the
purpose of its incorporation that the vote of approval of the
stockholders holding shares entitling them to exercise at least two-
thirds of the voting power is necessary. 69
As stated by respondent corporation, the purchase of beer
manufacturing facilities by SMC was an investment in the same
business stated as its main purpose in its Articles of Incorporation,
which is to manufacture and market beer. It appears that the
original investment was made in 1947-1948, when SMC, then San
Miguel Brewery, Inc., purchased a beer brewery in Hongkong
(Hongkong Brewery & Distillery, Ltd.) for the manufacture and
marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in
Bermuda as a tax free reorganization.
Under these circumstances, the ruling in De la Rama v. Manao
Sugar Central Co., Inc., supra, appears relevant. In said case, one
of the issues was the legality of an investment made by Manao
Sugar Central Co., Inc., without prior resolution approved by the
affirmative vote of 2/3 of the stockholders' voting power, in the
Philippine Fiber Processing Co., Inc., a company engaged in the
manufacture of sugar bags. The lower court said that "there is
more logic in the stand that if the investment is made in a
corporation whose business is important to the investing
corporation and would aid it in its purpose, to require authority of
the stockholders would be to unduly curtail the power of the Board
of Directors." This Court affirmed the ruling of the court a quo on
the matter and, quoting Prof. Sulpicio S. Guevara, said:
"j. Power to acquire or dispose of shares or
securities. A private corporation, in order to
accomplish is purpose as stated in its articles of
incorporation, and subject to the limitations imposed
by the Corporation Law, has the power to acquire,
hold, mortgage, pledge or dispose of shares, bonds,
securities, and other evidence of indebtedness of any
domestic or foreign corporation. Such an act, if done
in pursuance of the corporate purpose, does not
need the approval of stockholders; but when the
purchase of shares of another corporation is done
solely for investment and not to accomplish the
purpose of its incorporation, the vote of approval of
the stockholders is necessary. In any case, the
purchase of such shares or securities must be
subject to the limitations established by the
Corporations law; namely, (a) that no agricultural or
mining corporation shall be restricted to own not more
than 15% of the voting stock of nay agricultural or
mining corporation; and (c) that such holdings shall
be solely for investment and not for the purpose of
bringing about a monopoly in any line of commerce of
combination in restraint of trade." The Philippine
Corporation Law by Sulpicio S. Guevara, 1967 Ed., p.
89) (Emphasis supplied.)
40. Power to invest corporate funds. A private
corporation has the power to invest its corporate
funds "in any other corporation or business, or for any
purpose other than the main purpose for which it was
organized, provide that 'its board of directors has
64
 been so authorized in a resolution by the affirmative
vote of stockholders holding shares in the corporation
entitling them to exercise at least two-thirds of the
voting power on such a propose at a stockholders'
meeting called for that purpose,' and provided further,
that no agricultural or mining corporation shall in
anywise be interested in any other agricultural or
mining corporation. When the investment is
necessary to accomplish its purpose or purposes as
stated in its articles of incorporation the approval of
the stockholders is not necessary."" (Id., p. 108)
(Emphasis ours.) (pp. 258-259).
Assuming arguendo that the Board of Directors of SMC had no
authority to make the assailed investment, there is no question that
a corporation, like an individual, may ratify and thereby render
binding upon it the originally unauthorized acts of its officers or
other agents. 70 This is true because the questioned investment is
neither contrary to law, morals, public order or public policy. It is a
corporate transaction or contract which is within the corporate
powers, but which is defective from a supported failure to observe
in its execution the. requirement of the law that the investment
must be authorized by the affirmative vote of the stockholders
holding two-thirds of the voting power. This requirement is for the
benefit of the stockholders. The stockholders for whose benefit the
requirement was enacted may, therefore, ratify the investment and
its ratification by said stockholders obliterates any defect which it
may have had at the outset. "Mere ultra vires acts", said this Court
in Pirovano, 71 "or those which are not illegal and void ab initio, but
are not merely within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable when
ratified by the stockholders.
Besides, the investment was for the purchase of beer
manufacturing and marketing facilities which is apparently relevant
to the corporate purpose. The mere fact that respondent
corporation submitted the assailed investment to the stockholders
for ratification at the annual meeting of May 10, 1977 cannot be
construed as an admission that respondent corporation had
committed an ultra vires act, considering the common practice of
corporations of periodically submitting for the gratification of their
stockholders the acts of their directors, officers and managers.
WHEREFORE, judgment is hereby rendered as follows:
The Court voted unanimously to grant the petition insofar as it
prays that petitioner be allowed to examine the books and records
of San Miguel International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of respondent
San Miguel Corporation, six (6) Justices, namely, Justices Barredo,
Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to
sustain the validity per se of the amended by-laws in question and
to dismiss the petition without prejudice to the question of the
actual disqualification of petitioner John Gokongwei, Jr. to run and
if elected to sit as director of respondent San Miguel Corporation
being decided, after a new and proper hearing by the Board of
Directors of said corporation, whose decision shall be appealable
to the respondent Securities and Exchange Commission
deliberating and acting en banc and ultimately to this Court. Unless
disqualified in the manner herein provided, the prohibition in the
afore-mentioned amended by-laws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice
Fernando, voted to declare the issue on the validity of the foreign
investment of respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of
the amended by-laws, pending hearing by this Court on the
applicability of section 13(5) of the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject
amendment to the by-laws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr.,
Fernandez and Guerrero filed a separate opinion, wherein they
voted against the validity of the questioned amended bylaws and
that this question should properly be resolved first by the SEC as
65
the agency of primary jurisdiction. They concur in the result that
petitioner may be allowed to run for and sit as director of
respondent SMC in the scheduled May 6, 1979 election and
subsequent elections until disqualified after proper hearing by the
respondent's Board of Directors and petitioner's disqualification
shall have been sustained by respondent SEC en banc and
ultimately by final judgment of this Court.
In resume, subject to the qualifications aforestated judgment is
hereby rendered GRANTING the petition by allowing petitioner to
examine the books and records of San Miguel International, Inc. as
specified in the petition. The petition, insofar as it assails the
validity of the amended by- laws and the ratification of the foreign
investment of respondent corporation, for lack of necessary votes,
is hereby DISMISSED. No costs.
Makasiar, Santos Abad Santos and De Castro, JJ., concur.
[G.R. No. 132451. December 17, 1999]
CONGRESSMAN ENRIQUE T. GARCIA, petitioner, vs. HON.
RENATO C. CORONA, in his capacity as the Executive
Secretary, HON. FRANCISCO VIRAY, in his capacity as the
Secretary of Energy, CALTEX PHILIPPINES INC., PILIPINAS
SHELL PETROLEUM CORP. and PETRON CORP., respondents.
DECISION
YNARES-SANTIAGO, J.:
On November 5, 1997, this Court in Tatad v. Secretary of the
Department of Energy and Lagman, et al., v. Hon. Ruben Torres, et
al.,[1] declared Republic Act No. 8180, entitled An Act Deregulating
the Downstream Oil Industry and For Other Purposes,
unconstitutional, and its implementing Executive Order No. 392
void.
R.A. 8180 was struck down as invalid because three key
provisions intended to promote free competition were shown to
achieve the opposite result. More specifically, this Court ruled that
its provisions on tariff differential, stocking of inventories, and
predatory pricing inhibit fair competition, encourage monopolistic
power, and interfere with the free interaction of the market forces.
While R.A. 8180 contained a separability clause, it was
declared unconstitutional in its entirety since the three (3) offending
provisions so permeated the law that they were so intimately
the esse of the law. Thus, the whole statute had to be invalidated.
As a result of the Tatad decision, Congress enacted Republic
Act No. 8479, a new deregulation law without the offending
provisions of the earlier law. Petitioner Enrique T. Garcia, a
member of Congress, has now brought this petition seeking to
declare Section 19 thereof, which sets the time of full deregulation,
unconstitutional. After failing in his attempts to have Congress
incorporate in the law the economic theory he espouses, petitioner
now asks us, in the name of upholding the Constitution, to undo a
violation which he claims Congress has committed.
The assailed Section 19 of R.A. 8479 states in full:
SEC. 19. Start of Full Deregulation. --- Full deregulation of the
Industry shall start five (5) months following the effectivity of this
Act: Provided, however, That when the public interest so requires,
the President may accelerate the start of full deregulation upon the
recommendation of the DOE and the Department of Finance (DOF)
when the prices of crude oil and petroleum products in the world
market are declining and the value of the peso in relation to the US
dollar is stable, taking into account relevant trends and
prospects; Provided, further, That the foregoing provision
notwithstanding, the five (5)-month Transition Phase shall continue
66
to apply to LPG, regular gasoline and kerosene as socially-
sensitive petroleum products and said petroleum products shall be
covered by the automatic pricing mechanism during the said
period.
Upon the implementation of full deregulation as provided herein,
the Transition Phase is deemed terminated and the following laws
are repealed:
a) Republic Act No. 6173, as amended;
b) Section 5 of Executive Order No. 172, as amended;
c) Letter of Instruction No. 1431, dated October 15, 1984;
d) Letter of Instruction No. 1441, dated November 20, 1984, as
amended;
e) Letter of Instruction No. 1460, dated May 9, 1985;
f) Presidential Decree No. 1889; and
g) Presidential Decree No. 1956, as amended by Executive Order
No. 137:
Provided, however, That in case full deregulation is started by the
President in the exercise of the authority provided in this Section,
the foregoing laws shall continue to be in force and effect with
respect to LPG, regular gasoline and kerosene for the rest of the
five (5)-month period.
Petitioner contends that Section 19 of R.A. 8479, which
prescribes the period for the removal of price control on gasoline
and other finished products and for the full deregulation of the local
downstream oil industry, is patently contrary to public interest and
therefore unconstitutional because within the short span of five
months, the market is still dominated and controlled by an oligopoly
of the three (3) private respondents, namely, Shell, Caltex and
Petron.
The objective of the petition is deceptively simple. It states that
if the constitutional mandate against monopolies and combinations
in restraint of trade[2] is to be obeyed, there should be indefinite and
open-ended price controls on gasoline and other oil products for as
long as necessary. This will allegedly prevent the Big 3 --- Shell,
Caltex and Petron --- from price-fixing and overpricing. Petitioner
calls the indefinite retention of price controls as partial
deregulation.
The grounds relied upon in the petition are:
A.
SECTION 19 OF R.A. NO. 8479 WHICH PROVIDES FOR FULL
DEREGULATION FIVE (5) MONTHS OR EARLIER FOLLOWING
THE EFFECTIVITY OF THE LAW, IS GLARINGLY PRO-
OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, AND IS
THEREFORE PATENTLY UNCONSTITUTIONAL FOR BEING IN
GROSS AND CYNICAL CONTRAVENTION OF THE
CONSTITUTIONAL POLICY AND COMMAND EMBODIED IN
ARTCLE XII, SECTION 19 OF THE 1987 CONSTITUTION
AGAINST MONOPOLIES AND COMBINATIONS IN RESTRAINT
OF TRADE.
B.
SAID SECTION 19 OF R.A. No. 8479 IS GLARINGLY PRO-
OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, FOR THE
FURTHER REASON THAT IT PALPABLY AND CYNICALLY
VIOLATES THE VERY OBJECTIVE AND PURPOSE OF R.A. NO.
8479, WHICH IS TO ENSURE A TRULY COMPETITIVE MARKET
UNDER A REGIME OF FAIR PRICES.
C.
SAID SECTION 19 OF R.A. No. 8479, BEING GLARINGLY PRO-
OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, BEING
PATENTLY UNCONSTITUTIONAL AND BEING PALPABLY
VIOLATIVE OF THE LAWS POLICY AND PURPOSE OF
ENSURING A TRULY COMPETITIVE MARKET UNDER A
67
REGIME OF FAIR PRICES, IS A VERY GRAVE AND GRIEVOUS Stabilization Fund, the choice between government subsidies
ABUSE OF DISCRETION ON THE PART OF THE LEGISLATIVE taken from the regular taxpaying public on one hand and the
AND EXECUTIVE BRANCHES OF GOVERNMENT. increased costs being shouldered only by users of oil products on
the other, and most important, the immediate repeal of the oil
D. deregulation law as wrong policy. Petitioner wants the setting of
prices to be done by Government instead of being determined by
PREMATURE FULL DEREGULATION UNDER SECTION 19 OF free market forces. His preference is continued price control with
R.A. NO. 8479 MAY AND SHOULD THEREFORE BE DECLARED no fixed end in sight. A simple glance at the factors surrounding the
NULL AND VOID EVEN AS THE REST OF ITS PROVISIONS present problems besetting the oil industry shows that they are
REMAIN IN FORCE, SUCH AS THE TRANSITION PHASE OR economic in nature.
PARTIAL DEREGULATION WITH PRICE CONTROLS THAT
R.A. 8479, the present deregulation law, was enacted to
ENSURES THE PROTECTION OF THE PUBLIC INTEREST BY
implement Article XII, Section 19 of the Constitution which
PREVENTING THE BIG 3 OLIGOPOLYS PRICE-FIXING AND
provides:
OVERPRICING.[3]
The State shall regulate or prohibit monopolies when the public
The issues involved in the deregulation of the downstream oil
interest so requires. No combinations in restraint of trade or unfair
industry are of paramount significance. The ramifications,
competition shall be allowed.
international and local in scope, are complex. The impact on the
nations economy is pervasive and far-reaching. The amounts
This is so because the Government believes that deregulation
involved in the oil business are immense. Fluctuations in the supply
will eventually prevent monopoly. The simplest form of monopoly
and price of oil products have a dramatic effect on economic
exists when there is only one seller or producer of a product or
development and public welfare.As pointed out in
service for which there are no substitutes. In its more complex
the Tatad decision, few cases carry a surpassing importance on the
form, monopoly is defined as the joint acquisition or maintenance
daily life of every Filipino. The issues affect everybody from the
by members of a conspiracy, formed for that purpose, of the power
poorest wage-earners and their families to the richest
to control and dominate trade and commerce in a commodity to
entrepreneurs, from industrial giants to humble consumers.
such an extent that they are able, as a group, to exclude actual or
Our decision in this case is complicated by the unstable oil potential competitors from the field, accompanied with the intention
prices in the world market. Even as this case is pending, the price and purpose to exercise such power.[4]
of OPEC oil is escalating to record levels. We have to emphasize
Where two or three or a few companies act in concert to
that our decision has nothing to do with worldwide fluctuations in oil
control market prices and resultant profits, the monopoly is called
prices and the counter-measures of Government each time a new
an oligopoly or cartel. It is a combination in restraint of trade.
development takes place.
The perennial shortage of oil supply in the Philippines is
The most important part of deregulation is freedom from price
exacerbated by the further fact that the importation, refining, and
control. Indeed, the free play of market forces through deregulation
marketing of this precious commodity are in the hands of a cartel,
and when to implement it represent one option to solve the
local but made up of foreign-owned corporations. Before the start
problems of the oil-consuming public. There are other
of deregulation, the three private respondents controlled the entire
considerations which may be taken into account such as the
oil industry in the Philippines.
reduction of taxes on oil products, the reinstitution of an Oil Price
68
 It bears reiterating at the outset that the deregulation of the oil
industry is a policy determination of the highest order. It is
unquestionably a priority program of Government. The Department
of Energy Act of 1992 [5] expressly mandates that the development
and updating of the existing Philippine energy program shall
include a policy direction towards deregulation of the power and
energy industry.
Be that as it may, we are not concerned with whether or not
there should be deregulation. This is outside our jurisdiction. The
judgment on the issue is a settled matter and only Congress can
reverse it.Rather, the question that we should address here is ---
are the method and the manner chosen by Government to
accomplish its cherished goal offensive to the Constitution? Is
indefinite price control in the manner proposed by petitioner the
only feasible and legal way to achieve it?
Petitioner has taken upon himself a most challenging
task. Unquestionably, the direction towards which the nations
efforts at economic and social upliftment should be addressed is a
function of Congress and the President. In the exercise of this
function, Congress and the President have obviously determined
that speedy deregulation is the answer to the acknowledged
dominion by oligopolistic forces of the oil industry. Thus,
immediately after R.A. 8180 was declared unconstitutional in
the Tatad case, Congress took resolute steps to fashion new
legislation towards the objective of the earlier law. Invoking the
Constitution, petitioner now wants to slow down the process.
While the Court respects the firm resolve displayed by
Congress and the President, all departments of Government are
equally bound by the sovereign will expressed in the commands of
the Constitution. There is a need for utmost care if this Court is to
faithfully discharge its duties as arbitral guardian of the
Constitution. We cannot encroach on the policy functions of the two
other great departments of Government. But neither can we ignore
any overstepping of constitutional limitations. Locating the correct
balance between legality and policy, constitutional boundaries and
freedom of action, and validity and expedition is this Courts
dilemma as it resolves the legitimacy of a Government program
aimed at giving every Filipino a more secure, fulfilling and
abundant life.
Our ruling in Tatad is categorical that the Constitutions Article
XII, Section 19, is anti-trust in history and spirit. It espouses
competition. We have stated that only competition which is fair can
release the creative forces of the market. We ruled that the
principle which underlies the constitutional provision is
competition. Thus:
Section 19, Article XII of our Constitution is anti-trust in history and
in spirit. It espouses competition. The desirability of competition is
the reason for the prohibition against restraint of trade, the reason
for the interdiction of unfair competition, and the reason for
regulation of unmitigated monopolies. Competition is thus the
underlying principle of section 19, Article XII of our Constitution
which cannot be violated by R.A. No. 8180. We subscribe to the
observation of Prof. Gellhorn that the objective of anti-trust law is to
assure a competitive economy, based upon the belief that through
competition producers will strive to satisfy consumer wants at the
lowest price with the sacrifice of the fewest resources. Competition
among producers allows consumers to bid for goods and services,
and thus matches their desires with societys opportunity costs. He
adds with appropriateness that there is a reliance upon the
operation of the market system (free enterprise) to decide what
shall be produced, how resources shall be allocated in the
production process, and to whom the various products will be
distributed. The market system relies on the consumer to decide
what and how much shall be produced, and on competition, among
producers to determine who will manufacture it.[6]
In his recital of the antecedent circumstances, petitioner
repeats in abbreviated form the factual findings and conclusions
which led the Court to declare R.A. 8180 unconstitutional. The
foreign oligopoly or cartel formed by respondents Shell, Caltex and
Petron, their indulging in price-fixing and overpricing, their blockade
tactics which effectively obstructed the entry of genuine
competitors, the dangers posed by the oil cartel to national security
and economic development, and other prevailing sentiments are
69
stated as axiomatic truths. They are repeated in capsulized context
as the current background facts of the present petition.
The empirical existence of this deplorable situation was
precisely the reason why Congress enacted the oil deregulation
law. The evils arising from conspiratorial acts of monopoly are
recognized as clear and present. But the enumeration of the evils
by our Tatad decision was not for the purpose of justifying
continued government control, especially price control. The
objective was, rather, the opposite. The evils were emphasized to
show the need for free competition in a deregulated industry. And
to be sure, the measures to address these evils are for Congress
to determine, but they have to meet the test of constitutional
validity.
The Court respects the legislative finding that deregulation is
the policy answer to the problems. It bears stressing that R.A. 8180
was declared invalid not because deregulation is
unconstitutional. The law was struck down because, as crafted,
three key provisions plainly encouraged the continued existence if
not the proliferation of the constitutionally proscribed evils of
monopoly and restraint of trade.
In sharp contrast, the present petition lacks a factual
foundation specifically highlighting the need to declare the
challenged provision unconstitutional. There is a dearth of relevant,
reliable, and substantial evidence to support petitioners theory that
price control must continue even as Government is trying its best to
get out of regulating the oil industry. The facts of the petition are, in
the main, a general dissertation on the evils of monopoly.
Petitioner overlooks the fact that Congress enacted the
deregulation law exactly because of the monopoly evils he
mentions in his petition. Congress instituted the lifting of price
controls in the belief that free and fair competition was the best
remedy against monopoly power. In other words, petitioners facts
are also the reasons why Congress lifted price controls and why
the President accelerated the process.The facts adduced in favor
of continued and indefinite price control are the same facts which
supported what Congress believes is an exercise of wisdom and
discretion when it chose the path of speedy deregulation and
rejected Congressman Garcias economic theory.
The petition states that it is using the very thoughts and words
of the Court in its Tatad decision. Those thoughts and words,
however, were directed against the tariff differential, the inventory
requirement, and predatory pricing, not against deregulation as a
policy and not against the lifting of price controls.
A dramatic, at times expansive and grandiloquent, reiteration of
the same background circumstances narrated in Tatad does not
squarely sustain petitioners novel thesis that there can be
deregulation without lifting price controls.
Petitioner may call the industry subject to price controls as
deregulated. In enacting the challenged provision, Congress, on
the other hand, has declared that any industry whose prices and
profits are fixed by government authority remains a highly
regulated one.
Petitioner, therefore, engages in a legal paradox. He fails to
show how there can be deregulation while retaining government
price control. Deregulation means the lifting of control, governance
and direction through rule or regulation. It means that the regulated
industry is freed from the controls, guidance, and restrictions to
which it used to be subjected. The use of the word partial to qualify
deregulation is sugar-coating. Petitioner is really against
deregulation at this time.
Petitioner states that price control is good. He claims that it
was the regulation of the importation of finished oil products which
led to the exit of competitors and the consolidation and dominion of
the market by an oligopoly, not price control. Congress and the
President think otherwise.
The argument that price control is not the villain in the intrusion
and growth of monopoly appears to be pure theory not validated by
experience. There can be no denying the fact that the evils
mentioned in the petition arose while there was price control. The
dominance of the so-called Big 3 became entrenched during the
regime of price control. More importantly, the ascertainment of the
cause and the method of dismantling the oligopoly thus created are
70
a matter of legislative and executive choice. The judicial process is
equipped to handle legality but not wisdom of choice and the
efficacy of solutions.
Petitioner engages in another contradiction when he puts
forward what he calls a self-evident truth. He states that a truly
competitive market and fair prices cannot be legislated into
existence. However, the truly competitive market is not being
created or fashioned by the challenged legislation. The market is
simply freed from legislative controls and allowed to grow and
develop free from government interference. R.A. 8479 actually
allows the free play of supply and demand to dictate
prices. Petitioner wants a government official or board to continue
performing this task. Indefinite and open-ended price control as
advocated by petitioner would be to continue a regime of legislated
regulation where free competition cannot possibly flourish. Control
is the antithesis of competition. To grant the petition would mean
that the Government is not keen on allowing a free market to
develop. Petitioners self-evident truth thus supports the validity of
the provision of law he opposes.
New players in the oil industry intervened in this
case. According to them, it is the free market policy and
atmosphere of deregulation which attracted and brought the new
participants, themselves included, into the market. The intervenors
express their fear that this Court would overrule legislative policy
and replace it with petitioners own legislative program.
The factual allegations of the intervenors have not been refuted
and we see no reason to doubt them. Their argument that the co-
existence of many viable rivals create free market conditions
induces competition in product quality and performance and makes
available to consumers an expanded range of choices cannot be
seriously disputed.
On the other hand, the pleadings of public and private
respondents both put forth the argument that the challenged
provision is a policy decision of Congress and that the wisdom of
the provision is outside the authority of this Court to consider. We
agree. As we have ruled in Morfe v. Mutuc[7]:
(I)t is well to remember that this Court, in the language of Justice
Laurel, does not pass upon question or wisdom, justice or
expediency of legislation. As expressed by Justice Tuason: It is not
the province of the courts to supervise legislation and keep it within
the bounds of propriety and common sense. That is primarily and
exclusively a legislative concern. There can be no possible
objection then to the observation of Justice Montemayor: As long
as laws do not violate any Constitutional provision, the Courts
merely interpret and apply them regardless of whether or not they
are wise or salutary. For they, according to Justice Labrador, are
not supposed to override legitimate policy and x x x never inquire
into the wisdom of the law.
It is thus settled, to paraphrase Chief Justice Concepcion
in Gonzales v. Commission on Elections, that only congressional
power or competence, not the wisdom of the action taken, may be
the basis for declaring a statute invalid. This is as it ought to
be. The principle of separation of powers has in the main wisely
allocated the respective authority of each department and confined
its jurisdiction to such a sphere. There would then be intrusion not
allowable under the Constitution if on a matter left to the discretion
of a coordinate branch, the judiciary would substitute its own. If
there be adherence to the rule of law, as there ought to be, the last
offender should be the courts of justice, to which rightly litigants
submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions.The attack on the
validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent, on its wisdom cannot be
sustained.
In this petition, Congressman Garcia seeks to revive the long
settled issue of the timeliness of full deregulation, which issue he
had earlier submitted to this Court by way of a Partial Motion for
Reconsideration in the Tatad case. In our Resolution dated
December 3, 1997, which has long become final and executory, we
stated:
We shall first resolve petitioner Garcias linchpin contention that the
full deregulation decreed by R.A. No. 8180 to start at the end of
71
March 1997 is unconstitutional. For prescinding from this premise,
petitioner suggests that we simply go back to the transition period,
price control will be revived through the automatic pricing
mechanism based on Singapore Posted Prices. The Energy
Regulatory Board x xx would play a limited and ministerial role of
computing the monthly price ceiling of each and every petroleum
fuel product, using the automatic pricing formula. While the OPSF
would return, this coverage would be limited to monthly price
increases in excess of P0.50 per liter.
We are not impressed by petitioner Garcias submission. Petitioner
has no basis in condemning as unconstitutional per se the date
fixed by Congress for the beginning of the full deregulation of the
downstream oil industry. Our Decision merely faulted the Executive
for factoring the depletion of OPSF in advancing the date of full
deregulation to February 1997. Nonetheless, the error of the
Executive is now a non-issue for the full deregulation set by
Congress itself at the end of March 1997 has already come to
pass. March 1997 is not an arbitrary date. By that date, the
transition period has ended and it was expected that the people
would have adjusted to the role of market forces in shaping the
prices of petroleum and its products. The choice of March 1997 as
the date of full deregulation is a judgment of Congress and its
judgment call cannot be impugned by this Court.[8]
Reduced to its basic arguments, it can be seen that the
challenge in this petition is not against the legality of
deregulation. Petitioner does not expressly challenge
deregulation. The issue, quite simply, is the timeliness or the
wisdom of the date when full deregulation should be effective.
In this regard, what constitutes reasonable time is not for
judicial determination. Reasonable time involves the appraisal of a
great variety of relevant conditions, political, social and
economic. They are not within the appropriate range of evidence in
a court of justice. It would be an extravagant extension of judicial
authority to assert judicial notice as the basis for the determination.
[9]
We repeat that what petitioner decries as unsuccessful is not a
final result. It is only a beginning. The Court is not inclined to stifle
deregulation as enacted by Congress from its very start. We leave
alone the program of deregulation at this stage. Reasonable time
will prove the wisdom or folly of the deregulation program for which
Congress and not the Court is accountable.
Petitioner argues further that the public interest requires price
controls while the oligopoly exists, for that is the only way the
public can be protected from monopoly or oligopoly pricing. But is
indefinite price control the only feasible and legal way to enforce
the constitutional mandate against oligopolies?
Article 186 of the Revised Penal Code, as amended, punishes
as a felony the creation of monopolies and combinations in
restraint of trade. The Solicitor General, on the other hand, cites
provisions of R.A. 8479 intended to prevent competition from being
corrupted or manipulated. Section 11, entitled Anti-Trust
Safeguards, defines and prohibits cartelization and predatory
pricing. It penalizes the persons and officers involved with
imprisonment of three (3) to seven (7) years and fines ranging from
One million to Two million pesos. For this purpose, a Joint Task
Force from the Department of Energy and Department of Justice is
created under Section 14 to investigate and order the prosecution
of violations.
Sections 8 and 9 of the Act, meanwhile, direct the Departments
of Foreign Affairs, Trade and Industry, and Energy to undertake
strategies, incentives and benefits, including international
information campaigns, tax holidays and various other agreements
and utilizations, to invite and encourage the entry of new
participants. Section 6 provides for uniform tariffs at three percent
(3%).
Section 13 of the Act provides for Remedies, under which the
filing of actions by government prosecutors and the investigation of
private complaints by the Task Force is provided. Sections 14 and
15 provide how the Department of Energy shall monitor and
prevent the occurrence of collusive pricing in the industry.
It can be seen, therefore, that instead of the price controls
advocated by the petitioner, Congress has enacted anti-trust
72
measures which it believes will promote free and fair
competition. Upon the other hand, the disciplined, determined,
consistent and faithful execution of the law is the function of the
President. As stated by public respondents, the remedy against
unreasonable price increases is not the nullification of Section 19
of R.A. 8479 but the setting into motion of its various other
provisions.
For this Court to declare unconstitutional the key provision
around which the laws anti-trust measures are clustered would
mean a constitutionally interdicted distrust of the wisdom of
Congress and of the determined exercise of executive power.
[G.R. No. 12306. October 22, 1918. ]
Having decided that deregulation is the policy to follow,
Congress and the President have the duty to set up the proper and SIMONA MANZANARES, Plaintiff-Appellee, v. RAFAEL
effective machinery to ensure that it works. This is something MORETA, Defendant-Appellant.
which cannot be adjudicated into existence. This Court is only an
umpire of last resort whenever the Constitution or a law appears to Sanz & Luzuriaga, for Appellant.
have been violated. There is no showing of a constitutional
violation in this case. .Jose C. Zulueta, for Appellee.
WHEREFORE, the petition is DISMISSED.
SYLLABUS
SO ORDERED.
1. DAMAGES; AUTOMOBILES; LIABILITY FOR FAULT OR
NEGLIGENCE IN OPERATION. Held: It being shown by the
records that the death of the child Salvador Bona, of from 8 to 9
years of age, was the result of his having been run over by an
automobile, through the fault and negligence of the defendant who
managed and directed said vehicle, it follows that said defendant is
liable for the great damage so caused, and should indemnify the
plaintiff, mother of the deceased, who has thus prematurely lost a
child and has been deprived of the aid and assistance, which, it is
presumed, she would be entitled to in her old age, if said child
should have lived to be a man. (Art. 1902 of the Civil Code.)

Per MALCOLM and FISHER, JJ., concurring:chanrob1es virtual

1aw library

2. DAMAGES; COMPARATIVE JURISPRUDENCE. The Civil

law jurisprudence as existing in Spain, France, Porto Rico and
73
Louisiana, and the common law jurisprudence, on the subject of
damages, investigated, compared, and discussed.
3. ID; DEATH; RIGHT OF ACTION. Both because of the civil
origin of the applicable law in the Philippines, because not fettered
by the harsh common law rule on the subject, because it is the
modern and more equitable principle, and because reason and
natural justice are eloquent advocates, an action for damages can
be maintained in this jurisdiction.
4. ID.; ID.; ID.; AMOUNT OF RECOVERY; PROOF. Of whatever
nature the damages be, and from whatever cause it may proceed,
the person who has done the injury ought to repair it by an
indemnity proportionate to his fault and to the loss caused thereby.
(1 Cushing, Domat s Civil Law, p. 741.)
5. ID.; ID.; ID.; ID.; ID. In order to give rise to the obligation
imposed by article 1902 of the Civil Code, derived from Partida 7,
Title 15, Law 3, the coincidence of two distinct requisites is
necessary, viz: (1) That there exist an injury or damage not
originating in acts or omissions of the prejudiced person himself,
and its existence be duly proven by the person demanding
indemnification therefor; (2) that said injury or damage be caused
by the fault or negligence of a person other than the sufferer. (12
Manresa, Comentarios al Codigo Civil, p. 604.)
6. ID., ID.; ID.; ID.; ID. Those seeking to recoup damages must
ordinarily establish their pecuniary loss by satisfactory proof. Put in
certain cases the law presumes a loss because of the impossibility
of exact proof and computation in respect to the amount of the loss
sustained. In other words, the loss can be proved either by
evidence or by presumption. For instance, where the relation of
husband and wife or parent and child exist, provided the child is
shown to be a minor, the law presumes a pecuniary loss from the
fact of death and it is not necessary to submit proof as to such
loss.
7. ID.; ID.; ID.; ID.; ID. The discretion of a jury, where there is a
jury, or of the trial court, where the court possesses such faculty, in
fixing the amount of damages, will not be interfered with by the
appellate court unless this discretion has been palpably abused.
8. ID; ID.; ID.; ID.; ID. Many American statutes have arbitrarily
limited the amounts that could be recovered to $5,000 or $10,000.
In Louisiana, $2,500, $3,000 $4,000 and $6,000 were allowed in
the respective cases for the death of a child. In Porto Rico, $1,000
and $1,500 has been allowed for such a loss. In the Philippines,
the rule has been in criminal cases to allow as a matter of course
P1,000 as indemnity to the heirs of the deceased.
9. ID.; ID.; ID.; ID.; ID. In certain cases, there is no doubt but
what the damages could be greatly enhanced by showing the
personal characteristics of the deceased.
10. ID.; ID.; ID; ID.; ID. A male child, 8 or 9 years of age, was
killed through the negligence of the defendant in driving his
automobile. The mother of the dead boy is a widow, a poor
washerwoman. She brings action against the defendant to recover
damages for her loss in the amount of P5,000. Without there
having been tendered any special proof of the amount of damage
suffered, the trial court found the defendant responsible and
condemned him to pay the plaintiff the sum of P1,000. Held: (1)
That the plaintiff, having shown that the deceased was her son, 8
or 9 years of age at the time of death, it was neither necessary nor
possible to prove loss of services or support, or to prove special
damage; (2) that the amount in the nature of an indemnity allowed
by the trial court is neither excessive nor immoderately inadequate,
and should stand.
DECISION
TORRES, J. :
In this case which is brought for the recovery of the damages
resulting from the death of the child Salvador Bona, of from 8 to 9
years of age, who had been run over by an automobile driven and
74
managed by the defendant on the morning of March 5, 1916, a
judgment was rendered on August 3, 1916, whereby the said
defendant was sentenced to pay the sum of P1,000 as indemnity to
the plaintiff, the mother of the deceased child, and to pay the costs.
From this judgment, an appeal was taken by the defendant after
his motion for a new trial had been overruled, and the case is now
before this court by bill of exceptions.
The statement of facts is at once admitted, and we find no reason
for disturbing the findings made by the trial judge in his judgment
appealed from, wherein the defendant was found liable for the
accident which occurred to the said child on Solana Street on the
morning of said day, and consequently, the defendant, as the one
who had caused the accident, is bound to indemnify the mother of
the deceased child in the amount of P1,000, which was deemed by
the trial judge to be the value of the damages occasioned to the
mother for the loss and death of a member of her family.
To the reasons given by the trial judge as grounds for his decision,
we deem pertinent to add the following:chanrob1es virtual 1aw
library
If it were true that the defendant, in coming from the southern part
of Solana Street, had to stop his auto before crossing Real Street,
because he had met vehicles which were going along the latter
street or were coming from the opposite direction along Solana
Street, it is to be believed that, when he again started to run his
auto across said Real Street and to continue its way along Solana
Street northward, he should have adjusted the speed of the auto
which he was operating until he had fully crossed Real Street and
had completely reached a clear way on Solana Street. But, as the
child was run over by the auto precisely at the entrance of Solana
Street, this accident could not have occurred, if the auto had been
running at a slow speed, aside from the fact that the defendant, at
the moment of crossing Real Street and entering Solana Street, in
a northward direction, could have seen the child in the act of
crossing the latter street from the sidewalk on the right to that on
the left; and if the accident had occurred in such a way that after
the automobile had run over the body of the child, and the childs
body had already been stretched out on the ground, the automobile
still moved along a distance of about 2 meters, this circumstance
shows the fact that the automobile entered Solana Street from Real
Street, at a high speed without the defendant having blown the
horn. If these precautions had been taken by the defendant, the
deplorable accident which caused the death of the child would not
have occurred.
In view of the foregoing considerations as well as those contained
in the judgment of the trial court, which, we believe to be in
accordance with law and the evidence of record, we believe that
the errors assigned by the appellant are thereby refuted and that
therefore the judgment appealed from, should be, as it hereby is,
affirmed, with the costs against the appellant. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 83589 March 13, 1991
RAMON FAROLAN as ACTING COMMISSIONER OF CUSTOMS,
and GUILLERMO PARAYNO, as CHIEF OF CUSTOM
INTELLIGENCE and INVESTIGATION DIVISION, petitioners,
vs.
SOLMAC MARKETING CORPORATION and COURT OF
APPEALS, respondents.
Dakila F. Castro & Associates for private respondent.
75
SARMIENTO, J.:
This petition for review on certiorari, instituted by the Solicitor
General on behalf of the public officers-petitioners, seek the
nullification and setting aside of the Resolution 1 dated May 25,
1988 of the Court of Appeals in CA-G.R. No. SP-10509, entitled
"Solmac Marketing Corporation vs. Ramon Farolan, Acting
Commissioner of Customs, and Guillermo Parayno, Chief of
Customs Intelligence and Investigation Division," which adjudged
these public officers to pay solidarily and in their private personal
capacities respondent Solmac Marketing Corporation temperate
damages in the sum of P100,000.00, exemplary damages in the
sum of P50,000.00, and P25,000.00, as attorney's fees and
expenses of litigation. This challenged resolution of the respondent
court modified its decision 2 of July 27, 1987 by reducing into
halves the original awards of P100,000.00 and P50,000.00 for
exemplary damages and attorney's fees and litigation expenses,
respectively, keeping intact the original grant of P100,000.00 in the
concept of temperate damages. (Strangely, the first name of
petitioner Farolan stated in the assailed resolution, as well as in the
decision, of the respondent court is "Damian" when it should be
"Ramon", his correct given name. Strictly speaking, petitioner
Ramon Farolan could not be held liable under these decision and
resolution for he is not the one adjudged to pay the huge damages
but a different person. Nonetheless, that is of no moment now
considering the disposition of this ponencia.)
The relevant facts, as culled from the records, are as follows:
At the time of the commission of the acts complained of by the
private respondent, which was the subject of the latter's petition
for mandamus and injunction filed with the Regional Trial Court
(RTC) of Manila in Civil Case No. 84-23537, petitioner Ramon
Farolan was then the Acting Commissioner of Customs while
petitioner Guillermo Parayno was then the Acting Chief, Customs
Intelligence and Investigation Division. They were thus sued in their
official capacities as officers in the government as clearly indicated
in the title of the case in the lower courts and even here in this
Court. Nevertheless, they were both held personally liable for the
awarded damages "(s)ince the detention of the goods by the
defendants (petitioners herein) was irregular and devoid of legal
basis, hence, not done in the regular performance of official duty . .
. ." 3
However, as adverted to at the outset, in the dispositive portion of
the challenged resolution, the one held personally liable is a
"Damian Farolan" and not the petitioner, Ramon Farolan. Also as
earlier mentioned, we will ignore that gross error.
Private respondent Solmac Marketing Corporation is a corporation
organized and existing under the laws of the Philippines. It was the
assignee, transferee, and owner of an importation of Clojus
Recycling Plastic Products of 202,204 kilograms of what is
technically known as polypropylene film, valued at US$69,250.05.
Polypropylene is a substance resembling polyethelyne which is
one of a group of partially crystalline lightweight thermoplastics
used chiefly in making fibers, films, and molded and extruded
products. 4
Without defect, polypropylene film is sold at a much higher price as
prime quality film. Once rejected as defective due to blemishes,
discoloration, defective winding, holes, etc., polypropylene film is
sold at a relatively cheap price without guarantee or return, and the
buyer takes the risk as to whether he can recover an average 30%
to 50% usable matter. 5 This latter kind of polypropylene is known
as OPP film waste/scrap and this is what respondent SOLMAC
claimed the Clojus shipment to be.
The subject importation, consisting of seventeen (17) containers,
arrived in December, 1981. Upon application for entry, the Bureau
of Customs asked respondent SOLMAC for its authority from any
government agency to import the goods described in the bill of
lading. Respondent SOLMAC presented a Board of Investment
(BOI) authority for polypropylene film scrap. However, upon
examination of the shipment by the National Institute of Science
and Technology (NIST), it turned out that the fibers of the
importation were oriented in such a way that the materials were
76
stronger than OPP film scrap. 6 In other words, the Clojus shipment
was not OPP film scrap, as declared by the assignee respondent
SOLMAC to the Bureau of Customs and BOI Governor Lilia R.
Bautista, but oriented polypropylene the importation of which is
restricted, if not prohibited, under Letter of Instructions (LOI) No.
658-B. Specifically, Sections 1 and 2 of LOI No. 658-B provide that:
xxx xxx xxx
1. The importation of cellophane shall be allowed only for
quantities and types of cellophane that cannot be produced
by Philippine Cellophane Film Corporation. The Board of
Investments shall issue guidelines regulating such
importations.
2. The Collector of Customs shall see to the apprehension
of all illegal importations of cellophane and oriented
polypropylene (OPP) and the dumping of imported stock lots
of cellophane and OPP.
xxx xxx xxx
Considering that the shipment was different from what had been
authorized by the BOI and by law, petitioners Parayno and Farolan
withheld the release of the subject importation.
On June 7, 1982, petitioner Parayno, then Chief of Customs
Intelligence and Investigation Division, wrote the BOI asking for the
latter's advice on whether or no t the subject importation may be
released 7 A series of exchange of correspondence between the
BOI and the Bureau of Customs, on one hand, and between the
late Dakila Castro, counsel for the private respondent, and the BOI
and the Bureau of Customs, on the other, ensued, to wit:
xxx xxx xxx
4. In a letter dated August 17, 1982, the BOI agreed that the
subject imports may be released but that holes may be
drilled on them by the Bureau of Customs prior to their
release.
5. On January 20, 1983, (the late) Atty. Dakila Castro, (then)
counsel of private respondent wrote to petitioner
Commissioner Farolan of Customs asking for the release of
the importation. The importation was not released, however,
on the ground that holes had to be drilled on them first.
6. Atty. Dakila Castro then wrote a letter dated October 6,
1983, to BOI Governor Hermenigildo Zayco stressing the
reasons why the subject importation should be released
without drilling of holes.
7. On November 8, 1983, BOI Governor H. Zayco wrote a
letter to the Bureau of Customs stating that the subject
goods may be released without drilling of holes inasmuch as
the goods arrived prior to the endorsement on August 17,
1982 to the drilling of holes on all importations of
waste/scrap films.
8. On February 1, 1984, petitioner Commissioner Farolan
wrote the BOI requesting for definite guidelines regarding
the disposition of importations of Oriented Polypropylene
(OPP) and Polypropylene (PP) then being held at the
Bureau of Customs.
9. On March 12, 1984, Minister Roberto Ongpin of Trade,
the BOI Chairman, wrote his reply to petitioner Farolan . . . .
8
(This reply of Minister Ongpin is copied in full infra.)
On March 26, 1984, respondent Solmac filed the action
for mandamus and injunction with the RTC as above mentioned. It
prayed for the unconditional release of the subject importation. It
also prayed for actual damages, exemplary damages, and
attorney's fees. As prayed for, the trial court issued a writ of
preliminary injunction.
77
After hearing on the merits, the RTC rendered a decision on
February 5, 1985, the dispositive portion of which reads as follows:
Premises considered, judgment is hereby rendered
ordering defendants to release the subject importation
immediately without drilling of holes, subject only to the
normal requirements of the customs processing for such
release to be done with utmost dispatch as time is of the
essence; and the preliminary injunction hereto issued is
hereby made permanent until actual physical release of the
merchandise and without pronouncement as to costs.
SO ORDERED. 9
From the decision of the trial court, Solmac, the plaintiff below and
the private respondent herein, appealed to the Court of Appeals
only insofar as to the denial of the award of damages is concerned.
On the other hand, the petitioners did not appeal from this decision.
They did not see any need to appeal because as far as they were
concerned, they had already complied with their duty. They had
already ordered the release of the importation "without drilling of
holes," as in fact it was so released, in compliance with the advice
to effect such immediate release contained in a letter of BOI dated
October 9, 1984, to Commissioner Farolan. Thus, to stress, even
before the RTC rendered its decision on February 5, 1984, the
Clojus shipment of OPP was released 10 to the private respondent
in its capacity as assignee of the same. Be that it may, the private
respondent filed its appeal demanding that the petitioners be held,
in their personal and private capacities, liable for damages despite
the finding of lack of bad faith on the part of the public officers.
After due proceeding, the Court of Appeals rendered a
decision 11 on July 27, 1987, the dispositive portion which reads as
follows:
WHEREFORE, the appealed judgment is modified by
ordering the defendants Ramon Farolan and Guillermo
Parayno solidarity, in their personal capacity, to pay the
plaintiff temperate damages in the sum of P100,000,
exemplary damages in the sum of P100,000 and P50,000
as attorney's fees and expenses of litigation. Costs against
the defendants.
SO ORDERED.
On August 14, 1987, the petitioners filed a motion for
reconsideration of the decision of the Court of Appeals.
On May 25, 1988, the Court of Appeals issued its resolution
modifying the award of damages, to wit: temperate damages in the
sum of P100,000,00, exemplary damages in the sum of
P50,000.00, and P25,000.00 as attorney's fees and expenses of
litigation. The respondent court explained the reduction of the
awards for exemplary damages and attorney's fees and expenses
of litigation in this wise:
3. In our decision of July 27, 1987, We awarded to plaintiff-
appellant Pl00,000 as temperate damages, Pl00,000.00 as
exemplary damages, and P50,000.00 as attorney's fees and
expenses of litigation. Under Art. 2233 of the Civil Code,
recovery of exemplary damages is not a matter of right but
depends upon the discretion of the court. Under Article 2208
of the Civil Code, attorney's fees and expenses of litigation
must always be reasonable. In view of these provisions of
the law, and since the award of temperate damages is only
P100,000.00, the amount of exemplary damages may not
be at par as temperate damages. An award of P50,000.00,
as exemplary damages may already serve the purpose, i.e.,
as an example for the public good. Likewise, the attorney's
fees and expenses of litigation have to be reduced to 25% of
the amount of temperate damages, or P25,000.00, if the
same have to be reasonable. The reduction in the amount of
exemplary damages, and attorney's fees and expenses of
litigation would be in accord with justice and fairness. 12
The petitioners now come to this Court, again by the Solicitor
General, assigning the following errors allegedly committed by the
respondent court:
78
 I We had reviewed the evidence on record carefully and we did not
The Court of Appeals erred in disregarding the finding of the
trial court that the defense of good faith of petitioners
(defendants) cannot be discredited.
II
The Court of Appeals erred in adjudging petitioners liable to
pay temperate damages, exemplary damages, attorney's
fees and expenses of litigation. 13
These two issues boil down to a single question, i.e., whether or
not the petitioners acted in good faith in not immediately releasing
the questioned importation, or, simply, can they be held liable, in
their personal and private capacities, for damages to the private
respondent.
We rule for the petitioners.
The respondent court committed a reversible error in overruling the
trial court's finding that:
. . . with reference to the claim of plaintiff to damages, actual
and exemplary, and attorney's fees, the Court finds it difficult
to discredit or disregard totally the defendants' defense of
good faith premised on the excuse that they were all the
time awaiting clarification of the Board of Investments on the
matter. 14
We hold that this finding of the trial court is correct for good faith is
always presumed and it is upon him who alleges the contrary that
the burden of proof lies. 15 In Abando v. Lozada, 16 we defined good
faith as "refer[ring] to a state of the mind which is manifested by the
acts of the individual concerned. It consists of the honest intention
to abstain from taking an unconscionable and unscrupulous
advantage of another. It is the opposite of fraud, and its absence
should be established by convincing evidence."
see any clear and convincing proof showing the alleged bad faith of
the petitioners. On the contrary, the record is replete with evidence
bolstering the petitioners' claim of good faith. First, there was the
report of the National Institute of Science and Technology (NIST)
dated January 25, 1982 that, contrary to what the respondent
claimed, the subject importation was not OPP film scraps but
oriented polypropylene, a plastic product of stronger material,
whose importation to the Philippines was restricted, if not
prohibited, under LOI
658-B. 17 It was on the strength of this finding that the petitioners
withheld the release of the subject importation for being contrary to
law. Second, the petitioners testified that, on many occasions, the
Bureau of Customs sought the advice of the BOI on whether the
subject importation might be released. 18 Third, petitioner Parayno
also testified during the trial that up to that time (of the trial) there
was no clear-cut policy on the part of the BOI regarding the entry
into the Philippines of oriented polypropylene (OPP), as the letters
of BOI Governors Tordesillas and Zayco of November 8, 1983 and
September 24, 1982, respectively, ordering the release of the
subject importation did not clarify the BOI policy on the matter. He
then testified on the letter of the BOI Chairman Roberto Ongpin
dated March 12, 1984, which states in full:
Thank you for your letter of 1 February 1984, on the subject
of various importations of Oriented Polypropylene (OPP)
and Polypropylene (PP) withheld by Customs and the
confusion over the disposition of such imports.
I have discussed the matter with Vice-Chairman Tordesillas
and Governor Zayco of the Board of Investments and the
following is their explanation:
1. On 22 June 1982, the BOI ruled that importation of
OPP/PP film scraps intended for recycling or repelletizing
did not fall within the purview of LOI 658-B.
79
2. On 17 August l982, the BOI agreed that holes could be
drilled on subject film imports to prevent their use for other
purposes.
3. For importations authorized prior to 22 June 1982, the
drilling of holes should depend on purpose for which the
importations was approved by the BOI that is, for direct
packaging use or for recycling/repelletizing into raw material.
The exemption from drilling of holes on Solmac Marketing's
importation under Certificates of Authority issued on 1 April
1982 and 5 May 1982 and on Clojus' importation authorized
in 1982 were endorsed by the BOI on the premise that these
were not intended for recycling/repelletizing.
Should your office have any doubts as to the authorized
intended use of any imported lots of OPP/PP film scraps
that you have confiscated, we have no objection to the
drilling of holes to ensure that these are indeed recycled.
I have requested Governor Zayco to contact your office in
order to offer any further assistance which you may
require. 19
It can be seen from all the foregoing that even the highest officers
(Chairman Ongpin, Vice-Chairman Tordesillas, and Governor
Zayco) of the BOI themselves were not in agreement as to what
proper course to take on the subject of the various importations of
Oriented Polypropylene (OPP) and Polypropylene (PP) withheld by
the Bureau of Customs. The conflicting recommendations of the
BOI on this score prompted the petitioners to seek final clarification
from the former with regard to its policy on these importations. This
resulted in the inevitable delay in the release of the Clojus
shipment, one of the several of such importations. The confusion
over the disposition of this particular importation obviates bad faith.
Thus the trial court's finding that the petitioners acted in good faith
in not immediately releasing the Clojus shipment pending a
definitive policy of the BOI on this matter is correct. It is supported
by substantial evidence on record, independent of the presumption
of good faith, which as stated earlier, was not successfully
rebutted.
When a public officer takes his oath of office, he binds himself to
perform the duties of his office faithfully and to use reasonable skill
and diligence, and to act primarily for the benefit of the public.
Thus, in the discharge of his duties, he is to use that prudence,
caution, and attention which careful men use in the management of
their affairs. In the case at bar, prudence dictated that petitioners
first obtain from the BOI the latter's definite guidelines regarding
the disposition of the various importations of oriented
polypropylene (OPP) and polypropylene (PP) then being withheld
at the Bureau of Customs. These cellophane/film products were
competing with locally manufactured polypropylene and oriented
polypropylene as raw materials which were then already sufficient
to meet local demands, hence, their importation was restricted, if
not prohibited under LOI 658-B. Consequently, the petitioners can
not be said to have acted in bad faith in not immediately releasing
the import goods without first obtaining the necessary clarificatory
guidelines from the BOI. As public officers, the petitioners had the
duty to see to it that the law they were tasked to implement, i.e.,
LOI 658-B, was faithfully complied with.
80
But even granting that the petitioners committed a mistake in
withholding the release of the subject importation because indeed it
was composed of OPP film scraps, 20 contrary to the evidence
submitted by the National Institute of Science and Technology that
the same was pure oriented OPP, nonetheless, it is the duty of the
Court to see to it that public officers are not hampered in the
performance of their duties or in making decisions for fear of
personal liability for damages due to honest
mistake.1wphi1 Whatever damage they may have caused as a
result of such an erroneous interpretation, if any at all, is in the
nature of a damnum absque injuria. Mistakes concededly
committed by public officers are not actionable absent any clear
showing that they were motivated by malice or gross negligence
amounting to bad faith. 21 After all, "even under the law of public
officers, the acts of the petitioners are protected by the
presumption of good faith. 22

In the same vein, the presumption, disputable though it may be,

that an official duty has been regularly performed 23 applies in favor [G.R. No. 107518. October 8, 1998]
of the petitioners. Omnia praesumuntur rite et solemniter esse
acta. (All things are presumed to be correctly and solemnly done.)
It was private respondent's burden to overcome this juris
tantum presumption. We are not persuaded that it has been able to PNOC SHIPPING AND TRANSPORT
do so. CORPORATION, petitioner, vs. HONORABLE COURT OF
APPEALS and MARIA EFIGENIA FISHING
WHEREFORE, the petition is hereby GRANTED, the assailed CORPORATION, respondents.
Resolution of the respondent court, in CA-G.R. SP No. 10509,
dated May 25, 1988, is SET ASIDE and ANNULLED. No costs. DECISION
ROMERO, J.:
SO ORDERED.
A party is entitled to adequate compensation only for such
Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur. pecuniary loss actually suffered and duly proved. [1] Indeed, basic is
the rule that to recover actual damages, the amount of loss must
not only be capable of proof but must actually be proven with a
reasonable degree of certainty, premised upon competent proof or
best evidence obtainable of the actual amount thereof. [2] The
claimant is duty-bound to point out specific facts that afford a basis
for measuring whatever compensatory damages are borne. [3] A
court cannot merely rely on speculations, conjectures, or
81
guesswork as to the fact and amount of damages [4] as well as
hearsay[5] or uncorroborated testimony whose truth is suspect.
[6]
Such are the jurisprudential precepts that the Court now applies
in resolving the instant petition.
The records disclose that in the early morning of September
21, 1977, the M/V Maria Efigenia XV, owned by private respondent
Maria Efigenia Fishing Corporation, was navigating the waters near
Fortune Island in Nasugbu, Batangas on its way to Navotas, Metro
Manila when it collided with the vessel Petroparcel which at the
time was owned by the Luzon Stevedoring Corporation (LSC).
After investigation was conducted by the Board of Marine
Inquiry, Philippine Coast Guard Commandant Simeon N. Alejandro
rendered a decision finding the Petroparcel at fault. Based on this
finding by the Board and after unsuccessful demands on petitioner,
[7]
private respondent sued the LSC and the Petroparcel captain,
Edgardo Doruelo, before the then Court of First Instance of
Caloocan City, paying thereto the docket fee of one thousand two
hundred fifty-two pesos (P1,252.00) and the legal research fee of
two pesos (P2.00).[8] In particular, private respondent prayed for an
award of P692,680.00, allegedly representing the value of the
fishing nets, boat equipment and cargoes of M/V Maria Efigenia
XV, with interest at the legal rate plus 25% thereof as attorneys
fees. Meanwhile, during the pendency of the case, petitioner
PNOC Shipping and Transport Corporation sought to be
substituted in place of LSC as it had already acquired ownership of
the Petroparcel.[9]
For its part, private respondent later sought the amendment of
its complaint on the ground that the original complaint failed to
plead for the recovery of the lost value of the hull of M/V Maria
Efigenia XV.[10] Accordingly, in the amended complaint, private
respondent averred that M/V Maria Efigenia XV had an actual
value of P800,000.00 and that, after deducting the insurance
payment of P200,000.00, the amount of P600,000.00 should
likewise be claimed. The amended complaint also alleged that
inflation resulting from the devaluation of the Philippine peso had
affected the replacement value of the hull of the vessel, its
equipment and its lost cargoes, such that there should be a
reasonable determination thereof. Furthermore, on account of the
sinking of the vessel, private respondent supposedly incurred
unrealized profits and lost business opportunities that would
thereafter be proven.[11]
Subsequently, the complaint was further amended to include
petitioner as a defendant[12] which the lower court granted in its
order of September 16, 1985. [13] After petitioner had filed its answer
to the second amended complaint, on February 5, 1987, the lower
court issued a pre-trial order [14] containing, among other things, a
stipulations of facts, to wit:
1. On 21 September 1977, while the fishing boat `M/V
MARIA EFIGENIA owned by plaintiff was navigating in the
vicinity of Fortune Island in Nasugbu, Batangas, on its way
to Navotas, Metro Manila, said fishing boat was hit by the
LSCO tanker Petroparcel causing the former to sink.
2. The Board of Marine Inquiry conducted an investigation
of this marine accident and on 21 November 1978, the
Commandant of the Philippine Coast Guard, the Honorable
Simeon N. Alejandro, rendered a decision finding the cause
of the accident to be the reckless and imprudent manner in
which Edgardo Doruelo navigated the LSCO Petroparcel
and declared the latter vessel at fault.
3. On 2 April 1978, defendant Luzon Stevedoring
Corporation (LUSTEVECO), executed in favor of PNOC
Shipping and Transport Corporation a Deed of Transfer
involving several tankers, tugboats, barges and pumping
stations, among which was the LSCO Petroparcel.
4. On the same date on 2 April 1979 (sic), defendant PNOC
STC again entered into an Agreement of Transfer with co-
defendant Lusteveco whereby all the business properties
and other assets appertaining to the tanker and bulk oil
departments including the motor tanker LSCO Petroparcel
of defendant Lusteveco were sold to PNOC STC.
5. The aforesaid agreement stipulates, among others, that
PNOC-STC assumes, without qualifications, all obligations
arising from and by virtue of all rights it obtained over the
LSCO `Petroparcel.
82
 6. On 6 July 1979, another agreement between defendant
LUSTEVECO and PNOC-STC was executed wherein
Board of Marine Inquiry Case No. 332 (involving the sea
accident of 21 September 1977) was specifically identified
and assumed by the latter.
7. On 23 June 1979, the decision of Board of Marine
Inquiry was affirmed by the Ministry of National Defense, in
its decision dismissing the appeal of Capt. Edgardo
Doruelo and Chief mate Anthony Estenzo of LSCO
`Petroparcel.
8. LSCO `Petroparcel is presently owned and operated by
PNOC-STC and likewise Capt. Edgardo Doruelo is still in
their employ.
9. As a result of the sinking of M/V Maria Efigenia caused
by the reckless and imprudent manner in which LSCO
Petroparcel was navigated by defendant Doruelo, plaintiff
suffered actual damages by the loss of its fishing nets, boat
equipments (sic) and cargoes, which went down with the
ship when it sank the replacement value of which should be
left to the sound discretion of this Honorable Court.
After trial, the lower court[15] rendered on November 18, 1989
its decision disposing of Civil Case No. C-9457 as follows:
WHEREFORE, and in view of the foregoing, judgment is
hereby rendered in favor of the plaintiff and against the
defendant PNOC Shipping & Transport Corporation, to pay
the plaintiff:
a. The sum of P6,438,048.00 representing the value of the
fishing boat with interest from the date of the filing of the
complaint at the rate of 6% per annum;
b. The sum of P50,000.00 as and for attorneys fees; and
c. The costs of suit.
The counterclaim is hereby DISMISSED for lack of
merit. Likewise, the case against defendant Edgardo
Doruelo is hereby DISMISSED, for lack of jurisdiction.
SO ORDERED.
In arriving at the above disposition, the lower court cited the
evidence presented by private respondent consisting of the
testimony of its general manager and sole witness, Edilberto del
Rosario. Private respondents witness testified that M/V Maria
Efigenia XV was owned by private respondent per Exhibit A, a
certificate of ownership issued by the Philippine Coast Guard
showing that M/V Maria Efigenia XV was a wooden motor boat
constructed in 1965 with 128.23 gross tonnage. According to him,
at the time the vessel sank, it was then carrying 1,060 tubs
(baeras) of assorted fish the value of which was never
recovered. Also lost with the vessel were two cummins engines
(250 horsepower), radar, pathometer and compass. He further
added that with the loss of his flagship vessel in his fishing fleet of
fourteen (14) vessels, he was constrained to hire the services of
counsel whom he paid P10,000 to handle the case at the Board of
Marine Inquiry and P50,000.00 for commencing suit for damages in
the lower court.
As to the award of P6,438,048.00 in actual damages, the lower
court took into account the following pieces of documentary
evidence that private respondent proffered during trial:
(a) Exhibit A certified xerox copy of the certificate of
ownership of M/V Maria Efigenia XV;
(b) Exhibit B a document titled Marine Protest executed
by Delfin Villarosa, Jr. on September 22, 1977
stating that as a result of the collision, the M/V
Maria Efigenia XVsustained a hole at its left side
that caused it to sink with its cargo of
1,050 baeras valued at P170,000.00;
(c) Exhibit C a quotation for the construction of a 95-
footer trawler issued by Isidoro A. Magalong of I.
A. Magalong Engineering and Construction on
January 26, 1987 to Del Rosario showing that
83
 construction of such trawler would
cost P2,250,000.00;
(d) Exhibit D pro forma invoice No. PSPI-05/87-NAV
issued by E.D. Daclan of Power Systems,
Incorporated on January 20, 1987 to Del Rosario
showing that two (2) units of CUMMINS Marine
Engine model N855-M, 195 bhp. at 1800 rpm.
would cost P1,160,000.00;
(e) Exhibit E quotation of prices issued by Scan Marine
Inc. on January 20, 1987 to Del Rosario showing
that a unit of Furuno Compact Daylight Radar,
Model FR-604D, would cost P100,000.00 while a
unit of Furuno Color Video Sounder, Model FCV-
501 would cost P45,000.00 so that the two units
would cost P145,000.00;
(f) Exhibit F quotation of prices issued by Seafgear
Sales, Inc. on January 21, 1987 to Del Rosario
showing that two (2) rolls of nylon rope (5 cir. X
300fl.) would cost P140,000.00; two (2) rolls of
nylon rope (3 cir. X 240fl.), P42,750.00; one (1)
binocular (7 x 50), P1,400.00, one (1) compass
(6), P4,000.00 and 50 pcs. of floats, P9,000.00 or
a total of P197, 150.00;
(g) Exhibit G retainer agreement between Del Rosario
and F. Sumulong Associates Law Offices
stipulating an acceptance fee of P5,000.00, per
appearance fee of P400.00, monthly retainer
of P500.00, contingent fee of 20% of the total
amount recovered and that attorneys fee to be
awarded by the court should be given to Del
Rosario; and
(h) Exhibit H price quotation issued by Seafgear Sales,
Inc. dated April 10, 1987 to Del Rosario showing
the cost of poly nettings as: 50 rolls of 400/18
3kts. 100md x 100mtrs., P70,000.00; 50 rolls of
400/18 5kts. 100md x 100mtrs., P81,500.00; 50
rolls of 400/18 8kts. 100md x
100mtrs., P116,000.00, and 50 rolls of 400/18
10kts. 100md x 100mtrs., P146,500
and banera (tub) at P65.00 per piece or a total
of P414,065.00
The lower court held that the prevailing replacement value
of P6,438,048.00 of the fishing boat and all its equipment would
regularly increase at 30% every year from the date the quotations
were given.
On the other hand, the lower court noted that petitioner only
presented Lorenzo Lazaro, senior estimator at PNOC Dockyard &
Engineering Corporation, as sole witness and it did not bother at all
to offer any documentary evidence to support its position. Lazaro
testified that the price quotations submitted by private respondent
were excessive and that as an expert witness, he used the
quotations of his suppliers in making his estimates. However, he
failed to present such quotations of prices from his suppliers,
saying that he could not produce a breakdown of the costs of his
estimates as it was a sort of secret scheme. For this reason, the
lower court concluded:
Evidently, the quotation of prices submitted by the plaintiff
relative to the replacement value of the fishing boat and its
equipments in the tune of P6,438,048.00 which were lost
due to the recklessness and imprudence of the herein
defendants were not rebutted by the latter with sufficient
evidence. The defendants through their sole witness
Lorenzo Lazaro relied heavily on said witness bare claim
that the amount afore-said is excessive or bloated, but they
did not bother at all to present any documentary evidence
to substantiate such claim. Evidence to be believed, must
not only proceed from the mouth of the credible witness,
but it must be credible in itself. (Vda. de Bonifacio vs. B. L.
T. Bus Co., Inc. L-26810, August 31, 1970).
Aggrieved, petitioner filed a motion for the reconsideration of
the lower courts decision contending that: (1) the lower court erred
in holding it liable for damages; that the lower court did not acquire
jurisdiction over the case by paying only P1,252.00 as docket fee;
(2) assuming that plaintiff was entitled to damages, the lower court
84
erred in awarding an amount greater than that prayed for in the
second amended complaint; and (3) the lower court erred when it
failed to resolve the issues it had raised in its memorandum.
[16]
Petitioner likewise filed a supplemental motion for
reconsideration expounding on whether the lower court acquired
jurisdiction over the subject matter of the case despite therein
plaintiffs failure to pay the prescribed docket fee. [17]
On January 25, 1990, the lower court declined reconsideration
for lack of merit.[18] Apparently not having received the order
denying its motion for reconsideration, petitioner still filed a motion
for leave to file a reply to private respondents opposition to said
motion.[19] Hence, on February 12, 1990, the lower court denied
said motion for leave to file a reply on the ground that by the
issuance of the order of January 25, 1990, said motion had
become moot and academic.[20]
Unsatisfied with the lower courts decision, petitioner elevated
the matter to the Court of Appeals which, however, affirmed the
same in toto on October 14, 1992.[21] On petitioners assertion that
the award of P6,438,048.00 was not convincingly proved by
competent and admissible evidence, the Court of Appeals ruled
that it was not necessary to qualify Del Rosario as an expert
witness because as the owner of the lost vessel, it was well within
his knowledge and competency to identify and determine the
equipment installed and the cargoes loaded on the
vessel. Considering the documentary evidence presented as in the
nature of market reports or quotations, trade journals, trade
circulars and price lists, the Court of Appeals held, thus:
Consequently, until such time as the Supreme Court
categorically rules on the admissibility or inadmissibility of
this class of evidence, the reception of these documentary
exhibits (price quotations) as evidence rests on the sound
discretion of the trial court. In fact, where the lower court is
confronted with evidence which appears to be of doubtful
admissibility, the judge should declare in favor of
admissibility rather than of non-admissibility (The Collector
of Palakadhari, 124 [1899], p. 43, cited in Francisco,
Revised Rules of Court, Evidence, Volume VII, Part I, 1990
Edition, p. 18). Trial courts are enjoined to observe the
strict enforcement of the rules of evidence which
crystallized through constant use and practice and are very
useful and effective aids in the search for truth and for the
effective administration of justice. But in connection with
evidence which may appear to be of doubtful relevancy or
incompetency or admissibility, it is the safest policy to be
liberal, not rejecting them on doubtful or technical grounds,
but admitting them unless plainly irrelevant, immaterial or
incompetent, for the reason that their rejection places them
beyond the consideration of the court. If they are thereafter
found relevant or competent, can easily be remedied by
completely discarding or ignoring them. (Banaria vs.
Banaria, et al., C.A. No. 4142, May 31, 1950; cited in
Francisco, Supra). [Underscoring supplied].
Stressing that the alleged inadmissible documentary exhibits
were never satisfactorily rebutted by appellants own sole witness in
the person of Lorenzo Lazaro, the appellate court found that
petitioner ironically situated itself in an inconsistent posture by the
fact that its own witness, admittedly an expert one, heavily relies on
the very same pieces of evidence (price quotations) appellant has
so vigorously objected to as inadmissible evidence. Hence, it
concluded:
x x x. The amount of P6,438,048.00 was duly established
at the trial on the basis of appellees documentary exhibits
(price quotations) which stood uncontroverted, and which
already included the amount by way of adjustment as
prayed for in the amended complaint. There was therefore
no need for appellee to amend the second amended
complaint in so far as to the claim for damages is
concerned to conform with the evidence presented at the
trial. The amount of P6,438,048.00 awarded is clearly
within the relief prayed for in appellees second amended
complaint.
On the issue of lack of jurisdiction, the respondent court held
that following the ruling in Sun Insurance Ltd. v. Asuncion,[22] the
additional docket fee that may later on be declared as still owing
the court may be enforced as a lien on the judgment.
85
 Hence, the instant recourse. x x x. If the market value of the ship reflects the fact that it
is in any case virtually certain of profitable employment,
In assailing the Court of Appeals decision, petitioner posits the
then nothing can be added to that value in respect of
view that the award of P6,438,048 as actual damages should have
charters actually lost, for to do so would be pro tanto to
been in light of these considerations, namely: (1) the trial court did
compensate the plaintiff twice over. On the other hand, if
not base such award on the actual value of the vessel and its
the ship is valued without reference to its actual future
equipment at the time of loss in 1977; (2) there was no evidence on
engagements and only in the light of its profit-earning
extraordinary inflation that would warrant an adjustment of the
potentiality, then it may be necessary to add to the value
replacement cost of the lost vessel, equipment and cargo; (3) the
thus assessed the anticipated profit on a charter or other
value of the lost cargo and the prices quoted in respondents
engagement which it was unable to fulfill. What the court
documentary evidence only amount to P4,336,215.00; (4) private
has to ascertain in each case is the `capitalised value of
respondents failure to adduce evidence to support its claim for
the vessel as a profit-earning machine not in the abstract
unrealized profit and business opportunities; and (5) private
but in view of the actual circumstances, without, of course,
respondents failure to prove the extent and actual value of
taking into account considerations which were too remote
damages sustained as a result of the 1977 collision of the vessels.
[23] at the time of the loss.[27] [Underscoring supplied].
As stated at the outset, to enable an injured party to recover
Under Article 2199 of the Civil Code, actual or compensatory
actual or compensatory damages, he is required to prove the
damages are those awarded in satisfaction of, or in recompense
actual amount of loss with reasonable degree of certainty premised
for, loss or injury sustained. They proceed from a sense of natural
upon competent proof and on the best evidence available. [28] The
justice and are designed to repair the wrong that has been done, to
burden of proof is on the party who would be defeated if no
compensate for the injury inflicted and not to impose a penalty.[24] In
evidence would be presented on either side. He must establish his
actions based on torts or quasi-delicts, actual damages include all
case by a preponderance of evidence which means that the
the natural and probable consequences of the act or omission
evidence, as a whole, adduced by one side is superior to that of
complained of.[25] There are two kinds of actual or compensatory
the other.[29] In other words, damages cannot be presumed and
damages: one is the loss of what a person already possesses (dao
courts, in making an award must point out specific facts that could
emergente), and the other is the failure to receive as a benefit that
afford a basis for measuring whatever compensatory or actual
which would have pertained to him (lucro cesante).[26] Thus:
damages are borne.[30]
Where goods are destroyed by the wrongful act of the
In this case, actual damages were proven through the sole
defendant the plaintiff is entitled to their value at the time of
testimony of private respondents general manager and certain
destruction, that is, normally, the sum of money which he
pieces of documentary evidence. Except for Exhibit B where the
would have to pay in the market for identical or essentially
value of the 1,050 baeras of fish were pegged at their September
similar goods, plus in a proper case damages for the loss
1977 value when the collision happened, the pieces of
of use during the period before replacement. In other
documentary evidence proffered by private respondent with
words, in the case of profit-earning chattels, what has to be
respect to items and equipment lost show similar items and
assessed is the value of the chattel to its owner as a going
equipment with corresponding prices in early 1987 or
concern at the time and place of the loss, and this means,
approximately ten (10) years after the collision. Noticeably,
at least in the case of ships, that regard must be had to
petitioner did not object to the exhibits in terms of the time index for
existing and pending engagements.x x x.
valuation of the lost goods and equipment. In objecting to the same
86
pieces of evidence, petitioner commented that these were not duly
authenticated and that the witness (Del Rosario) did not have
personal knowledge on the contents of the writings and neither was
he an expert on the subjects thereof. [31] Clearly ignoring petitioners
objections to the exhibits, the lower court admitted these pieces of
evidence and gave them due weight to arrive at the award
of P6,438,048.00 as actual damages.
The exhibits were presented ostensibly in the course of Del
Rosarios testimony. Private respondent did not present any other
witnesses especially those whose signatures appear in the price
quotations that became the bases of the award. We hold, however,
that the price quotations are ordinary private writings which under
the Revised Rules of Court should have been proffered along with
the testimony of the authors thereof. Del Rosario could not have
testified on the veracity of the contents of the writings even though
he was the seasoned owner of a fishing fleet because he was not
the one who issued the price quotations. Section 36, Rule 130 of
the Revised Rules of Court provides that a witness can testify only
to those facts that he knows of his personal knowledge.
For this reason, Del Rosarios claim that private respondent
incurred losses in the total amount of P6,438,048.00 should be
admitted with extreme caution considering that, because it was a
bare assertion, it should be supported by independent
evidence. Moreover, because he was the owner of private
respondent corporation[32] whatever testimony he would give with
regard to the value of the lost vessel, its equipment and cargoes
should be viewed in the light of his self-interest therein. We agree
with the Court of Appeals that his testimony as to the equipment
installed and the cargoes loaded on the vessel should be given
credence[33] considering his familiarity thereto. However, we do not
subscribe to the conclusion that his valuationof such equipment,
cargo and the vessel itself should be accepted as gospel truth.
[34]
We must, therefore, examine the documentary evidence
presented to support Del Rosarios claim as regards the amount of
losses.
The price quotations presented as exhibits partake of the
nature of hearsay evidence considering that the persons who
issued them were not presented as witnesses. [35] Any evidence,
whether oral or documentary, is hearsay if its probative value is not
based on the personal knowledge of the witness but on the
knowledge of another person who is not on the witness
stand. Hearsay evidence, whether objected to or not, has no
probative value unless the proponent can show that the evidence
falls within the exceptions to the hearsay evidence rule. [36] On this
point, we believe that the exhibits do not fall under any of the
exceptions provided under Sections 37 to 47 of Rule 130. [37]
It is true that one of the exceptions to the hearsay rule pertains
to commercial lists and the like under Section 45, Rule 130 of the
Revised Rules on Evidence. In this respect, the Court of Appeals
considered private respondents exhibits as commercial lists. It
added, however, that these exhibits should be admitted in evidence
until such time as the Supreme Court categorically rules on the
admissibility or inadmissibility of this class of evidence because the
reception of these documentary exhibits (price quotations) as
evidence rests on the sound discretion of the trial court.
[38]
Reference to Section 45, Rule 130, however, would show that
the conclusion of the Court of Appeals on the matter was arbitrarily
arrived at. This rule states:
Commercial lists and the like. Evidence of statements of
matters of interest to persons engaged in an occupation
contained in a list, register, periodical, or other published
compilation is admissible as tending to prove the truth of
any relevant matter so stated if that compilation is
published for use by persons engaged in that occupation
and is generally used and relied upon by them there.
Under Section 45 of the aforesaid Rule, a document is a
commercial list if: (1) it is a statement of matters of interest to
persons engaged in an occupation; (2) such statement is contained
in a list, register, periodical or other published compilation; (3) said
compilation is published for the use of persons engaged in that
occupation, and (4) it is generally used and relied upon by persons
in the same occupation.
Based on the above requisites, it is our considered view that
Exhibits B, C, D, E, F and H [39] are not commercial lists for these do
not belong to the category of other published compilations under
87
Section 45 aforequoted. Under the principle of ejusdem
generis, (w)here general words follow an enumeration of persons
or things, by words of a particular and specific meaning, such
general words are not to be construed in their widest extent, but
are to be held as applying only to persons or things of the same
kind or class as those specifically mentioned. [40] The exhibits
mentioned are mere price quotations issued personally to Del
Rosario who requested for them from dealers of equipment similar
to the ones lost at the collision of the two vessels. These are not
published in any list, register, periodical or other compilation on the
relevant subject matter. Neither are these market reports or
quotations within the purview of commercial lists as these are not
standard handbooks or periodicals, containing data of everyday
professional need and relied upon in the work of the occupation.
[41]
These are simply letters responding to the queries of Del
Rosario. Thus, take for example Exhibit D which reads:
January 20, 1987
PROFORMA INVOICE NO. PSPI-05/87-NAV
MARIA EFIGINIA FISHING CORPORATION
Navotas, Metro Manila
Attention: MR. EDDIE DEL ROSARIO
Gentlemen:
In accordance to your request, we are pleased to quote our
Cummins Marine Engine, to wit.
Two (2) units CUMMINS Marine Engine model
N855-M, 195 bhp.
at 1800 rpm., 6-cylinder in-line, 4-stroke
cycle, natural aspirated, 5 in. x 6 in. bore
and stroke, 855 cu. In. displacement,
keel-cooled, electric starting coupled with
Twin-Disc Marine gearbox model MG-
509, 4.5:1 reduction ratio, includes oil
cooler, companion flange, manual and
standard accessories as per attached
sheet.
Price FOB Manila - - - - - - - - - - - - - -
- P 580,000.00/unit
Total FOB Manila - - - - - - - - - - - - - -
- P 1,160,000.00
vvvvvvvvv
T E R M S : CASH
DELIVERY : 60-90 days from date of order.
VALIDITY : Subject to our final confirmation.
WARRANTY : One (1) full year against factory defect.
Very
truly
yours,
POWER SYSTEMS, INC.
(Sgd.)
E. D. Daclan
To be sure, letters and telegrams are admissible in evidence
but these are, however, subject to the general principles of
evidence and to various rules relating to documentary evidence.
[42]
Hence, in one case, it was held that a letter from an automobile
dealer offering an allowance for an automobile upon purchase of a
new automobile after repairs had been completed, was not a price
current or commercial list within the statute which made such items
presumptive evidence of the value of the article specified
therein. The letter was not admissible in evidence as a commercial
list even though the clerk of the dealer testified that he had written
the letter in due course of business upon instructions of the dealer.
[43]
88
 But even on the theory that the Court of Appeals correctly ruled
on the admissibility of those letters or communications when it
held that unless plainly irrelevant, immaterial or incompetent,
evidence should better be admitted rather than rejected on doubtful
or technical grounds,[44] the same pieces of evidence, however,
should not have been given probative weight. This is a distinction
we wish to point out. Admissibility of evidence refers to the
question of whether or not the circumstance (or evidence) is to
considered at all.[45] On the other hand, the probative value of
evidence refers to the question of whether or not it proves an issue.
[46]
Thus, a letter may be offered in evidence and admitted as such
but its evidentiary weight depends upon the observance of the
rules on evidence. Accordingly, the author of the letter should be
presented as witness to provide the other party to the litigation the
opportunity to question him on the contents of the letter. Being
mere hearsay evidence, failure to present the author of the letter
renders its contents suspect. As earlier stated, hearsay evidence,
whether objected to or not, has no probative value. Thus:
The courts differ as to the weight to be given to hearsay
evidence admitted without objection. Some hold that when
hearsay has been admitted without objection, the same
may be considered as any other properly admitted
testimony. Others maintain that it is entitled to no more
consideration than if it had been excluded.
The rule prevailing in this jurisdiction is the latter one. Our
Supreme Court held that although the question of
admissibility of evidence can not be raised for the first time
on appeal, yet if the evidence is hearsay it has no probative
value and should be disregarded whether objected to or
not. `If no objection is made quoting Jones on Evidence - `it
(hearsay) becomes evidence by reason of the want of such
objection even though its admission does not confer upon it
any new attribute in point of weight. Its nature and quality
remain the same, so far as its intrinsic weakness and
incompetency to satisfy the mind are concerned, and as
opposed to direct primary evidence, the latter always
prevails.
The failure of the defense counsel to object to the
presentation of incompetent evidence, like hearsay
evidence or evidence that violates the rules of res inter
alios acta, or his failure to ask for the striking out of the
same does not give such evidence any probative value. But
admissibility of evidence should not be equated with weight
of evidence. Hearsay evidence whether objected to or not
has no probative value.[47]
Accordingly, as stated at the outset, damages may not be awarded
on the basis of hearsay evidence.[48]
Nonetheless, the non-admissibility of said exhibits does not
mean that it totally deprives private respondent of any redress for
the loss of its vessel. This is because in Lufthansa German
Airlines v. Court of Appeals,[49] the Court said:
In the absence of competent proof on the actual damage
suffered, private respondent is `entitled to nominal
damages which, as the law says, is adjudicated in order
that a right of the plaintiff, which has been violated or
invaded by defendant, may be vindicated and recognized,
and not for the purpose of indemnifying the plaintiff for any
loss suffered. [Underscoring supplied].
Nominal damages are awarded in every obligation arising from
law, contracts, quasi-contracts, acts or omissions punished by law,
and quasi-delicts, or in every case where property right has been
invaded.[50] Under Article 2223 of the Civil Code, (t)he adjudication
of nominal damages shall preclude further contest upon the right
involved and all accessory questions, as between the parties to the
suit, or their respective heirs and assigns.
Actually, nominal damages are damages in name only and not
in fact. Where these are allowed, they are not treated as an
equivalent of a wrong inflicted but simply in recognition of the
existence of a technical injury.[51] However, the amount to be
awarded as nominal damages shall be equal or at least
commensurate to the injury sustained by private respondent
considering the concept and purpose of such damages. [52] The
amount of nominal damages to be awarded may also depend on
certain special reasons extant in the case.[53]
89
 Applying now such principles to the instant case, we have on the trial court, that included invoking its authority in asking for
record the fact that petitioners vessel Petroparcel was at fault as affirmative relief, effectively barred petitioner by estoppel from
well as private respondents complaint claiming the amount challenging the courts jurisdiction. Notably, from the time it filed its
of P692,680.00 representing the fishing nets, boat equipment and answer to the second amended complaint on April 16, 1985,
[57]
cargoes that sunk with the M/V Maria Efigenia XV. In its amended petitioner did not question the lower courts jurisdiction. It was
complaint, private respondent alleged that the vessel had an actual only on December 29, 1989 [58] when it filed its motion for
value of P800,000.00 but it had been paid insurance in the amount reconsideration of the lower courts decision that petitioner raised
of P200,000.00 and, therefore, it claimed only the amount the question of the lower courts lack of jurisdiction. Petitioner thus
of P600,000.00. Ordinarily, the receipt of insurance payments foreclosed its right to raise the issue of jurisdiction by its own
should diminish the total value of the vessel quoted by private inaction.
respondent in his complaint considering that such payment is
WHEREFORE, the challenged decision of the Court of Appeals
causally related to the loss for which it claimed compensation. This
dated October 14, 1992 in CA-G. R. CV No. 26680 affirming that of
Court believes that such allegations in the original and amended
the Regional Trial Court of Caloocan City, Branch 121, is hereby
complaints can be the basis for determination of a fair amount of
MODIFIED insofar as it awarded actual damages to private
nominal damages inasmuch as a complaint alleges the ultimate
respondent Maria Efigenia Fishing Corporation in the amount
facts constituting the plaintiff's cause of action. [54] Private
of P6,438,048.00 for lack of evidentiary bases
respondent should be bound by its allegations on the amount of its
therefor. Considering the fact, however, that: (1) technically
claims.
petitioner sustained injury but which, unfortunately, was not
With respect to petitioners contention that the lower court did adequately and properly proved, and (2) this case has dragged on
not acquire jurisdiction over the amended complaint increasing the for almost two decades, we believe that an award of Two Million
amount of damages claimed to P600,000.00, we agree with the (P2,000,000.00)[59] in favor of private respondent as and for
Court of Appeals that the lower court acquired jurisdiction over the nominal damages is in order.
case when private respondent paid the docket fee corresponding to
No pronouncement as to costs.
its claim in its original complaint. Its failure to pay the docket fee
corresponding to its increased claim for damages under the SO ORDERED.
amended complaint should not be considered as having curtailed
Kapunan, and Purisima, JJ., concur.
the lower courts jurisdiction. Pursuant to the ruling in Sun
Narvasa, C.J., (Chairman), on leave.
Insurance Office, Ltd. (SIOL) v. Asuncion,[55] the unpaid docket
FIRST DIVISION
fee should be considered as a lien on the judgment even though
private respondent specified the amount of P600,000.00 as its
claim for damages in its amended complaint.
Moreover, we note that petitioner did not question at all the
jurisdiction of the lower court on the ground of insufficient docket
fees in its answers to both the amended complaint and the second
amended complaint. It did so only in its motion for reconsideration
of the decision of the lower court after it had received an adverse
decision. As this Court held in Pantranco North Express, Inc. v.
Court of Appeals,[56] participation in all stages of the case before
90

[G.R. No. 141910. August 6, 2002]
FGU INSURANCE CORPORATION, petitioner, vs. G.P.
SARMIENTO TRUCKING CORPORATION and LAMBERT
M. EROLES, respondents.
DECISION
VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to
deliver on 18 June 1994 thirty (30) units of Condura S.D. white
refrigerators aboard one of its Isuzu truck, driven by Lambert
Eroles, from the plant site of Concepcion Industries, Inc., along
South Superhighway in Alabang, Metro Manila, to the Central
Luzon Appliances in Dagupan City. While the truck was traversing
the north diversion road along McArthur highway in Barangay
Anupol, Bamban, Tarlac, it collided with an unidentified truck,
causing it to fall into a deep canal, resulting in damage to the
cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment,
paid to Concepcion Industries, Inc., the value of the covered
cargoes in the sum of P204,450.00. FGU, in turn, being the
subrogee of the rights and interests of Concepcion Industries, Inc.,
sought reimbursement of the amount it had paid to the latter from
GPS. Since the trucking company failed to heed the claim, FGU
filed a complaint for damages and breach of contract of carriage
against GPS and its driver Lambert Eroles with the Regional Trial
Court, Branch 66, of Makati City. In its answer, respondents
asserted that GPS was the exclusive hauler only of Concepcion
Industries, Inc., since 1988, and it was not so engaged in business
as a common carrier. Respondents further claimed that the cause
of damage was purely accidental.
The issues having thus been joined, FGU presented its
evidence, establishing the extent of damage to the cargoes and the
amount it had paid to the assured. GPS, instead of submitting its
evidence, filed with leave of court a motion to dismiss the complaint
by way of demurrer to evidence on the ground that petitioner had
failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996, [1] granted the
motion to dismiss, explaining thusly:
Under Section 1 of Rule 131 of the Rules of Court, it is provided
that Each party must prove his own affirmative allegation, xxx.
In the instant case, plaintiff did not present any single evidence that
would prove that defendant is a common carrier.
xxxxxxxxx
Accordingly, the application of the law on common carriers is not
warranted and the presumption of fault or negligence on the part of
a common carrier in case of loss, damage or deterioration of goods
during transport under 1735 of the Civil Code is not availing.
Thus, the laws governing the contract between the owner of the
cargo to whom the plaintiff was subrogated and the owner of the
vehicle which transports the cargo are the laws on obligation and
contract of the Civil Code as well as the law on quasi delicts.
Under the law on obligation and contract, negligence or fault is not
presumed. The law on quasi delict provides for some presumption
of negligence but only upon the attendance of some
circumstances. Thus, Article 2185 provides:
Art. 2185. Unless there is proof to the contrary, it is presumed that
a person driving a motor vehicle has been negligent if at the time of
the mishap, he was violating any traffic regulation.
91
Evidence for the plaintiff shows no proof that defendant was
violating any traffic regulation. Hence, the presumption of
negligence is not obtaining.
Considering that plaintiff failed to adduce evidence that defendant
is a common carrier and defendants driver was the one negligent,
defendant cannot be made liable for the damages of the subject
cargoes.[2]
The subsequent motion for reconsideration having been
denied,[3] plaintiff interposed an appeal to the Court of Appeals,
contending that the trial court had erred (a) in holding that the
appellee corporation was not a common carrier defined under the
law and existing jurisprudence; and (b) in dismissing the complaint
on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and
ruled in favor of GPS. The appellate court, in its decision of 10
June 1999, [4] discoursed, among other things, that -
"x x x in order for the presumption of negligence provided for under
the law governing common carrier (Article 1735, Civil Code) to
arise, the appellant must first prove that the appellee is a common
carrier.Should the appellant fail to prove that the appellee is a
common carrier, the presumption would not arise; consequently,
the appellant would have to prove that the carrier was negligent.
"x x x x x x x x x
"Because it is the appellant who insists that the appellees can still
be considered as a common carrier, despite its `limited clientele,
(assuming it was really a common carrier), it follows that it
(appellant) has the burden of proving the same. It (plaintiff-
appellant) `must establish his case by a preponderance of
evidence, which means that the evidence as a whole adduced by
one side is superior to that of the other. (Summa Insurance
Corporation vs. Court of Appeals, 243 SCRA 175). This,
unfortunately, the appellant failed to do -- hence, the dismissal of
the plaintiffs complaint by the trial court is justified.
"x x x x x x x x x
"Based on the foregoing disquisitions and considering the
circumstances that the appellee trucking corporation has been `its
exclusive contractor, hauler since 1970, defendant has no choice
but to comply with the directive of its principal, the inevitable
conclusion is that the appellee is a private carrier.
"x x x x x x x x x
"x x x the lower court correctly ruled that 'the application of the law
on common carriers is not warranted and the presumption of fault
or negligence on the part of a common carrier in case of loss,
damage or deterioration of good[s] during transport under [article]
1735 of the Civil Code is not availing.' x x x.
"Finally, We advert to the long established rule that conclusions
and findings of fact of a trial court are entitled to great weight on
appeal and should not be disturbed unless for strong and valid
reasons."[5]
Petitioner's motion for reconsideration was likewise denied;
[6]
hence, the instant petition,[7] raising the following issues:
I
WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A
COMMON CARRIER AS DEFINED UNDER THE LAW AND
EXISTING JURISPRUDENCE.
II
WHETHER RESPONDENT GPS, EITHER AS A COMMON
CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED TO
HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK
TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED
WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION.
III
92
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS
APPLICABLE IN THE INSTANT CASE.
On the first issue, the Court finds the conclusion of the trial
court and the Court of Appeals to be amply justified. GPS, being an
exclusive contractor and hauler of Concepcion Industries, Inc.,
rendering or offering its services to no other individual or entity,
cannot be considered a common carrier. Common carriers are
persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both,
by land, water, or air, for hire or compensation, offering their
services to the public,[8] whether to the public in general or to a
limited clientele in particular, but never on an exclusive basis. [9] The
true test of a common carrier is the carriage of passengers or
goods, providing space for those who opt to avail themselves of its
transportation service for a fee.[10] Given accepted standards, GPS
scarcely falls within the term common carrier.
The above conclusion nothwithstanding, GPS cannot escape
from liability.
In culpa contractual, upon which the action of petitioner rests
as being the subrogee of Concepcion Industries, Inc., the mere
proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.
[11]
The law, recognizing the obligatory force of contracts, [12] will not
permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention
of the tenor thereof.[13] A breach upon the contract confers upon the
injured party a valid cause for recovering that which may have
been lost or suffered. The remedy serves to preserve the interests
of the promisee that may include his expectation interest, which is
his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been
performed, or his reliance interest, which is his interest in being
reimbursed for loss caused by reliance on the contract by being put
in as good a position as he would have been in had the contract
not been made; or his restitution interest, which is his interest in
having restored to him any benefit that he has conferred on the
other party.[14] Indeed, agreements can accomplish little, either for
their makers or for society, unless they are made the basis for
action.[15] The effect of every infraction is to create a new duty, that
is, to make recompense to the one who has been injured by the
failure of another to observe his contractual obligation [16] unless he
can show extenuating circumstances, like proof of his exercise of
due diligence (normally that of the diligence of a good father of a
family or, exceptionally by stipulation or by law such as in the case
of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing
liability.
Respondent trucking corporation recognizes the existence of a
contract of carriage between it and petitioners assured, and admits
that the cargoes it has assumed to deliver have been lost or
damaged while in its custody. In such a situation, a default on, or
failure of compliance with, the obligation in this case, the delivery of
the goods in its custody to the place of destination - gives rise to a
presumption of lack of care and corresponding liability on the part
of the contractual obligor the burden being on him to establish
otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of
his negligence or fault, may not himself be ordered to pay
petitioner. The driver, not being a party to the contract of carriage
between petitioners principal and defendant, may not be held liable
under the agreement. A contract can only bind the parties who
have entered into it or their successors who have assumed their
personality or their juridical position. [17] Consonantly with the
axiom res inter alios acta aliis neque nocet prodest, such contract
can neither favor nor prejudice a third person. Petitioners civil
action against the driver can only be based on culpa
aquiliana, which, unlike culpa contractual, would require the
claimant for damages to prove negligence or fault on the part of the
defendant.[18]
A word in passing. Res ipsa loquitur, a doctrine being invoked
by petitioner, holds a defendant liable where the thing which
caused the injury complained of is shown to be under the latters
management and the accident is such that, in the ordinary course
of things, cannot be expected to happen if those who have its
management or control use proper care. It affords reasonable
93
evidence, in the absence of explanation by the defendant, that the If a demurrer to evidence is granted but on appeal the order of
accident arose from want of care.[19] It is not a rule of substantive dismissal is reversed, the movant shall be deemed to have waived
law and, as such, it does not create an independent ground of the right to present evidence. [24] Thus, respondent corporation may
liability. Instead, it is regarded as a mode of proof, or a mere no longer offer proof to establish that it has exercised due care in
procedural convenience since it furnishes a substitute for, and transporting the cargoes of the assured so as to still warrant a
relieves the plaintiff of, the burden of producing specific proof of remand of the case to the trial court.
negligence. The maxim simply places on the defendant the burden
WHEREFORE, the order, dated 30 April 1996, of the Regional
of going forward with the proof. [20] Resort to the doctrine, however,
Trial Court, Branch 66, of Makati City, and the decision, dated 10
may be allowed only when (a) the event is of a kind which does not
June 1999, of the Court of Appeals, are AFFIRMED only insofar as
ordinarily occur in the absence of negligence; (b) other responsible
respondent Lambert M. Eroles is concerned, but said assailed
causes, including the conduct of the plaintiff and third persons, are
order of the trial court and decision of the appellate court are
sufficiently eliminated by the evidence; and (c) the indicated
REVERSED as regards G.P. Sarmiento Trucking Corporation
negligence is within the scope of the defendant's duty to the
which, instead, is hereby ordered to pay FGU Insurance
plaintiff.[21] Thus, it is not applicable when an unexplained accident
Corporation the value of the damaged and lost cargoes in the
may be attributable to one of several causes, for some of which the
amount of P204,450.00. No costs.
defendant could not be responsible.[22]
SO ORDERED.
Res ipsa loquitur generally finds relevance whether or not a
contractual relationship exists between the plaintiff and the Davide, Jr., C.J., (Chairman), Kapunan, Ynares-
defendant, for the inference of negligence arises from the Santiago, and Austria-Martinez, JJ., concur.
circumstances and nature of the occurrence and not from the
nature of the relation of the parties. [23] Nevertheless, the
requirement that responsible causes other than those due to
defendants conduct must first be eliminated, for the doctrine to
apply, should be understood as being confined only to cases of
pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out,
immediately attaches by a failure of the covenant or its tenor. In the
case of the truck driver, whose liability in a civil action is predicated
on culpa acquiliana, while he admittedly can be said to have been
in control and management of the vehicle which figured in the
accident, it is not equally shown, however, that the accident could
have been exclusively due to his negligence, a matter that can
allow, forthwith, res ipsa loquitur to work against him.

94
 The case originated from a Complaint [5] for recovery of possession
filed by Annie Tan (respondent) against Optimum Motor Center
Corporation (Optimum) and Cesar Pea (Pea) with the RTC of
Manila. Respondent is doing business under the name and style,
AJ & T Trading which is engaged in transportation of cargoes. [6] AJ
& T Trading is the registered owner [7] of an Isuzu cargo truck with
Plate No. NWM 418, the subject of this complaint. Optimum is a
SECOND DIVISION domestic corporation which owned and operated an auto repair
OPTIMUM MOTOR CENTER G.R. No. 170202
CORPORATION, shop located at 120 Del Monte Avenue, Quezon City.[8]
Petitioner, QUISUMBING, J.,
Chairperson, Respondents version of the facts is as follows.
CARPIO MORALES,
- versus - TINGA,
VELASCO, JR., and On 14 January 1994, she brought the subject truck to
BRION, JJ. Optimum for body repair and painting. Pea introduced himself as
the owner and manager of Optimum. Respondent verbally
ANNIE TAN, doing business under the
name & style AJ & T Trading, Promulgated: contracted with Pea for the repair of the damaged portions of the
Respondent. truck, repainting and upholstery replacement. It was then agreed
July 14, 2008
that the work would take thirty (30) days to complete and would
x----------------------------------------------------------------------------x thus be finished on 15 February 1994.[9] Leopoldo Daza, a security
guard assigned to Optimum, received the truck and prepared a
checklist[10] of the items found therein. On 20 January 1994, an
DECISION
estimate[11] detailing the description and price rates for the repair
TINGA, J.: was sent to respondent. To bring down the repair costs, the parties
agreed that respondent would supply the necessari materials such
This Petition for Review[1] seeks to reverse the Decision[2] and as windshield glasses for the front and back of the truck, rubber
Resolution[3] of the Court of Appeals in CA-G.R. CV No. 63985. The strip and quartered glass panel.[12]
decision affirmed with modification the judgment[4] of the Regional
Trial Court (RTC) of Manila, Branch 19 in Civil Case No. 94-71847. On 15 February 1994, respondent went to Optimum but was
told to come back in March as the repair was not yet finished. [13] On
several occasions, respondent tried to claim her truck from
95
Optimum[14] to no avail. On 4 March 1994, she again went to
Optimums repair shop and was surprised to see that the trade
name AJ & T Trading painted in the middle and side doors of the
truck had been scraped off. She also noticed that the 100-meter
skyline rope, oil stick gauge and right side mirror were missing.
[15]
On 22 April 1994, she found her truck abandoned and
unrepaired at Optimums compound. On 16 May 1994, she
discovered that Optimum had already vacated its shop in Del
Monte and that her truck was nowhere to be found. [16] Later, she
learned that Optimum had transferred to a new location but her still
unrepaired truck was found in Valenzuela City.
This prompted respondent to file the instant complaint with
the trial court on 5 October 1994.[17] She prayed for the recovery of
possession of the truck or, in the alternative, the payment of the
value thereof. She also sought the award of attorneys fees, moral
damages and costs of suit. [18] At the trial of the case, two
witnesses, Maximo Merigildo[19] and Bel Eduardo Nitafan,
[20]
testified on the dilapidated condition of the truck when they saw
it on separate occasions.
On 20 October 1994, the trial court issued an order directing
the seizure of the vehicle upon respondents filing of a bond in the
amount of P1,200,000.00.[21] Respondent posted the required bond.
[22]
Optimum posted a counterbond to lift said order.[23]
Optimum controverted the allegations of respondent. In its
own account of the facts, it denied guaranteeing that the repair
work would be completed within 30 days from 15 January 1994. It
claimed that the repairs were completed only on 8 May 1994 due to
delay in
respondents delivery of the parts. [24] It presented as its witnesses
the employees who had undertaken the
[25] [26] [27]
tinsmithing painting and electrical works on the truck.
Optimum also explained that by virtue of a writ of
execution[28] issued against it by the Metropolitan Trial Court of
Quezon City, it was forced to vacate its repair shopand to transfer
all its equipment, tools and all the vehicles in its possession and
custody, including respondents truck, to the IIC Compound in Sitio
Malinis, Bagbaguin,Valenzuela City. It claimed that it tried to get in
touch with respondent to ask her to claim the truck but she was not
available.
Optimum claimed its right to retain possession of the truck,
by virtue of Article 1731 of the Civil Code, until the cost of repairs is
paid. By way of counterclaim, it asked for the payment
of P79,370.00 as the unpaid cost of repairs and P25,000.00 as
attorneys fees.[29]
On 31 May 1999, the trial court rendered a decision in favor of
respondent, thus:
WHEREFORE, premises considered, judgment is
hereby rendered ordering defendants Optimum Motor
Center Corporation and/or any person acting for and
in its behalf, to surrender in good running condition
the Isuzu Cargo Truck, subject matter of this
complaint and if this is not feasible, to jointly and
96
 severally pay the sum of P600,000.00 with legal
interest from the date (October 5, 1994) the complaint
was filed, until fully satisfied, moral damages
of P50,000.00 and litigation expenses of P30,000.00
plus 25% of the amount awarded from defendants as
and for attorneys fees. The counterclaim of
defendants is hereby DISMISSED for lack of merit.
SO ORDERED. [30]
Of the two opposing contentions, the trial court accepted the
version of respondent that the repairs on her truck had not been
accomplished. It observed:
x x x Plaintiff claimed that even after the thirty
(30) day period for the completion of the repair on the
truck, the same remained unrepaired. This was
supported by the testimonies of the Courts personnel,
namely: Maximo Merigildo of the RTC, Branch
31, Quezon City, who served on April 25, 1994 the
Writ of Execution in the Ejectment case against
defendants and implemented the same on May 14,
1994. He observed that the three (3) tires were not
installed and there were no left side mirror and
door. Eduardo Bel Nitafan, Process Server, declared
in open court that the Isuzu Cargo Truck was now
parked at the I.I.C. Compound in Valenzuela, Metro
Manila. The truck was surrounded with piles of
lumber, about eight (8) feet in height.Missing were the
two (2) batteries, one spare tire, front side glass,
skyline rope and the light on top of the cowl. The
electrical wirings were not in order. The interior
portion appeared to be newly-painted but the outer
portion looked rusty. He could not categorically tell if
the truck was in good running condition, because the
batteries and ignition key were missing. The
testimonies of these witnesses were not rebutted by
the defendants. They are independent witnesses
whose testimonies deserve full faith and credit being
neutral parties to the case. Even defendant Cesar
Pea admitted that the repair was not completed after
thirty (30) days from receipt of the Cargo Truck.[31]
Furthermore, the trial court held Optimum liable for damages
for its failure to execute its part of the contract on time, pursuant to
Article 1170 of the Civil Code.[32]
Optimum filed a Notice of Appeal,[33] whereas respondent
moved for reconsideration on the ground that the trial court failed to
award actual damages and that Oriental Assurance Corporation,
the bonding company of Optimum, should have been adjudged
liable for damages payable by the latter.[34] On 5 August 1999, the
trial court issued an order denying the motion for reconsideration
on the ground that it has already lost jurisdiction over the case.
[35]
Thus, respondent filed her Notice of Appeal [36] on 25 August
1999.
On 28 June 2005, the Court of Appeals promulgated its
Decision affirming with modification the ruling of the RTC, to wit:
WHEREFORE, the appealed Decision is hereby
AFFIRMED with the following MODIFICATIONS:
1. Appellant Optimum is ordered to return
the cargo truck or to reimburse its value in the
amount of P600,000.00 plus legal interest from the
time of the commencement of the action until fully
satisfied;
97
 2. Temperate or moderate damages in the
amount of Thirty Thousand Pesos (P30,000.00) is
awarded;
3. Twenty percent (20%) of the total award
is hereby given to appellee/appellant Tan for both
attorneys fees and litigation expenses; and
4. The award of moral damages is deleted.
SO ORDERED.[37]
The Court of Appeals adhered to the trial courts findings that
the repairs on the truck had not been completed and that Optimum
is liable for damages. It likewise ordered the return of the truck to
respondent. It noted:
The trial court, in giving credence to the claim of
appellee/appellant Tan that the repair of the cargo
truck was not in accordance with her agreement with
appellant Optimum, found the testimonies of a court
personnel and a process server to be deserving of full
faith and credit, being neutral parties. These
witnesses categorically declared in favor of
appellee/appellant Tan that the cargo truck was not
yet repaired as of April 25, 1994 and May 14, 1994,
respectively. Thus, even if We admit appellant
Optimums defense that the repair was delayed by the
late delivery on May 7, 1994 of the quarter glass
panel and the rubber strips, the fact remains that
even after the said delivery on May 7, 1994, no such
repair was yet done. The trial court found the defense
of late delivery to be even toppled by a rebuttal
witness for appellee/appellant Tan who testified that
the said glass need not even be repaired or that it
was not necessary for the complete repair of the
cargo truck since they were not damaged at the time
he had inspected the cargo truck prior to its delivery
for repair to appellant Optimum.
Necessarily then, appellant Optimum was
already liable to appellee/appellant Tan for damages
from the time the latter demanded delivery of the
cargo truck and the latter could not as yet deliver the
same despite the lapse of the agreed period. The trial
court rightly concluded that appellant Optimum was
already remiss in the performance of its part of the
contract for repair from the time of such
demand. Hence, its liability accrues by virtue of
Article 1170 of the Civil Code that states: Those who
in the performance of their obligation are guilty of
fraud, negligence or delay and those who in any
manner contravene the tenor thereof are liable for
damages. Thus, appellant Optimum may be
compelled to deliver the cargo truck to
appellee/appellant Tan despite that the agreed repair
was not totally made or to reimburse the value
thereof in the claimed amount of Six Hundred
Thousand Pesos (P600,000.00), plus the legal
interest of six percent (6%) thereof from the filing of
the complaint for recovery.[38]
Both parties moved for reconsideration. For her part,
respondent reiterated that her claim for compensatory damages is
supported by statement of accounts showing the earnings of the
truck before it was brought to Optimum for repair. She likewise
expressed disinterest in the return of the truck as it was no longer
in good condition. Instead, she sought merely the reimbursement
of its value at P600,000.00 with interest. Both motions were denied
98
in a Resolution dated 17 October 2005. The appellate court
however made the following clarifications:
Nonetheless, this Court wishes to clarify that
the order for the return of the cargo truck must be
qualified by the phrase if feasible AND that the
payment of legal interest applies in both
circumstances, i.e., whether there would be the return
of such truck OR there would be mere reimbursement
of its value pegged at Six Hundred Thousand Pesos
(P600,000.00), with the same amount being the basis
of the computation of legal interest.[39]
Unfazed by the unfavorable judgment, Optimum now comes
to this Court via a petition for review.
In refusing to abide by the appellate courts ruling, Optimum
reiterates its claim for mechanics lien to justify its retention of the
truck. It advances the view that by virtue of the repairs it has
actually performed on respondents truck, it has the right under
Article 1731 of the Civil Code [40] to enforce the mechanics lien. It
maintains that the lien applies and can be availed of whether or not
the repair work was completely executed. Accordingly, it prays for
the payment of the cost of repairs amounting to P69,145.00 in
exchange for the return of the subject truck, as well as for the
award of temperate damages in the sum of P30,000.00 and
attorneys fees.[41]
Respondent counters that Optimum cannot avail of the
mechanics lien because it was found by the lower courts that the
repairs on the truck had not been accomplished.
Respondent prevails.
The concept of a mechanics lien is articulated in Article 1731
of the Civil Code, which provides:
ARTICLE 1731. He who has executed work upon a
movable has a right to retain it by way of pledge until
he is paid.
The mechanics lien is akin to a contractors or
warehousemans lien in that by way of pledge, the repairman has
the right to retain possession of the movable until he is
paid.However, the right of retention is conditioned upon the
execution of work upon the movable. The creation of a mechanic's
lien does not depend upon the owner's nonpayment. Rather, the
contractor "creates" his or her own lien by performing the work or
furnishing the materials.[42]
In Bachrach Motor Co. v. Mendoza,[43] the Court had the
occasion to rule that a person who has made repairs upon an
automobile at the request of the owner is entitled to retain it until he
has been paid the price of the work executed. [44]
Optimums invocation of the mechanics lien is apparently
based on the repairs it executed on the truck. However, the lower
courts had already come up with a categorical finding based on
testimonies of independent witnesses that the repairs had not been
accomplished in accordance with the agreement of the parties. We
have to sustain these factual findings, for basic is the tenet that the
trial court's findings of facts as affirmed by the Court of Appeals are
99
binding on this Court, unless the lower courts overlooked, issue has obtained finality and this Court need not pass upon the
misconstrued or misinterpreted facts and circumstances of same.
substance which, if considered, would change the outcome of the
case.[45] Nevertheless, temperate damages have been properly
imposed by the appellate court. Under Article 2224 of the Civil
As a result of the failure to accomplish the repairs on the Code, temperate damages may be recovered when the court finds
truck, the right to retain the truck in accordance with Article 1731 that some pecuniary loss has been suffered but its amount cannot,
did not arise. Optimums continuous possession or detention of the from the nature of the case, be proved with certainty.
truck turned to be that of a deforciant and so respondent has every
right to recover possession of it. WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals dated 28 June 2005 is AFFIRMED.
From another perspective, Optimum is obliged to take care
of the truck with the proper diligence of a good father to a family SO ORDERED.
while the same is in its possession.[46]Records show that the
subject truck had already deteriorated while in the possession of
Optimum. Taking into consideration the last known condition of the
truck in tandem with the fact that the court proceedings have
spanned almost a decade, it can be readily inferred that the truck
has become wholly useless. Since restitution is no longer feasible,
Optimum is bound to pay the value of the truck.

Republic of the Philippines

The value of the truck should be based on the fair market SUPREME COURT
value that the property would command at the time it was entrusted Manila
to Optimum. Such recoverable value is fair and reasonable
THIRD DIVISION
considering that the value of a motor vehicle depreciates. This
value may be recovered without prejudice to such other damages a G.R. No. L-56487 October 21, 1991
claimant is entitled to under applicable laws.[47]
REYNALDA GATCHALIAN, petitioner,
vs.
In this case, however, respondent did not appeal the ARSENIO DELIM and the HON. COURT OF
appellate courts denial of compensatory damages. Hence, the APPEALS, respondents.
100
Pedro G. Peralta for petitioner.
Florentino G. Libatique for private respondent.
FELICIANO, J.:p
At noon time on 11 July 1973, petitioner Reynalda Gatchalian
boarded, as a paying passenger, respondent's "Thames" mini bus
at a point in San Eugenio, Aringay, La Union, bound for Bauang, of
the same province. On the way, while the bus was running along
the highway in Barrio Payocpoc, Bauang, Union, "a snapping
sound" was suddenly heard at one part of the bus and, shortly
thereafter, the vehicle bumped a cement flower pot on the side of
the road, went off the road, turned turtle and fell into a ditch.
Several passengers, including petitioner Gatchalian, were injured.
They were promptly taken to Bethany Hospital at San Fernando,
La Union, for medical treatment. Upon medical examination,
petitioner was found to have sustained physical injuries on the leg,
arm and forehead, specifically described as follows: lacerated
wound, forehead; abrasion, elbow, left; abrasion, knee, left;
abrasion, lateral surface, leg, left. 1
On 14 July 1973, while injured. passengers were confined in the
hospital, Mrs. Adela Delim, wife of respondent, visited them and
later paid for their hospitalization and medical expenses. She also
gave petitioner P12.00 with which to pay her transportation
expense in going home from the hospital. However, before Mrs.
Delim left, she had the injured passengers, including petitioner,
sign an already prepared Joint Affidavit which stated, among other
things:
That we were passengers of Thames with Plate No.
52-222 PUJ Phil. 73 and victims after the said
Thames met an accident at Barrio Payocpoc Norte,
Bauang, La Union while passing through the National
Highway No. 3;
That after a thorough investigation the said Thames
met the accident due to mechanical defect and went
off the road and turned turtle to the east canal of the
road into a creek causing physical injuries to us;
xxx xxx xxx
That we are no longer interested to file a complaint,
criminal or civil against the said driver and owner of
the said Thames, because it was an accident and the
said driver and owner of the said Thames have gone
to the extent of helping us to be treated upon our
injuries.
xxx xxx xxx 2
(Emphasis supplied)
Notwithstanding this document, petitioner Gathalian filed with the
then Court of First Instance of La Union an action extra contractu to
recover compensatory and moral damages. She alleged in the
complaint that her injuries sustained from the vehicular mishap had
left her with a conspicuous white scar measuring 1 by 1/2 inches
on the forehead, generating mental suffering and an inferiority
complex on her part; and that as a result, she had to retire in
seclusion and stay away from her friends. She also alleged that the
scar diminished her facial beauty and deprived her of opportunities
for employment. She prayed for an award of: P10,000.00 for loss of
employment and other opportunities; P10,000.00 for the cost of
plastic surgery for removal of the scar on her forehead; P30,000.00
for moral damages; and P1,000.00 as attorney's fees.
In defense, respondent averred that the vehicular mishap was due
to force majeure, and that petitioner had already been paid and
moreover had waived any right to institute any action against him
(private respondent) and his driver, when petitioner Gatchalian
signed the Joint Affidavit on 14 July 1973.
101
After trial, the trial court dismissed the complaint upon the ground
that when petitioner Gatchalian signed the Joint Affidavit, she
relinquished any right of action (whether criminal or civil) that she
may have had against respondent and the driver of the mini-bus.
On appeal by petitioner, the Court of Appeals reversed the trial
court's conclusion that there had been a valid waiver, but affirmed
the dismissal of the case by denying petitioner's claim for
damages:
We are not in accord, therefore, of (sic) the ground of
the trial court's dismissal of the complaint, although
we conform to the trial court's disposition of the case
its dismissal.
IN VIEW OF THE FOREGOING considerations, there
being no error committed by the lower court in
dismissing the plaintiff-appellant's complaint, the
judgment of dismissal is hereby affirmed.
Without special pronouncement as to costs.
SO ORDERED. 3
In the present Petition for Review filed in forma pauperis, petitioner
assails the decision of the Court of Appeals and ask this Court to
award her actual or compensatory damages as well as moral
damages.
We agree with the majority of the Court of Appeals who held that
no valid waiver of her cause of action had been made by petitioner.
The relevant language of the Joint Affidavit may be quoted again:
That we are no longer interested to file a complaint,
criminal or civil against the said driver and ownerof
the said Thames, because it was an accident and the
said driver and owner of the said Thames have gone
to the extent of helping us to be treated upon our
injuries. (Emphasis supplied)
A waiver, to be valid and effective, must in the first place be
couched in clear and unequivocal terms which leave no
doubt as to the intention of a person to give up a right or
benefit which legally pertains to him. 4 A waiver may not
casually be attributed to a person when the terms thereof do
not explicitly and clearly evidence an intent to abandon a
right vested in such person.
The degree of explicitness which this Court has required in
purported waivers is illustrated in Yepes and Susaya v. Samar
Express Transit (supra), where the Court in reading and rejecting a
purported waiver said:
. . . It appears that before their transfer to the Leyte
Provincial Hospital, appellees were asked to sign as,
in fact, they signed the document Exhibit I wherein
they stated that "in consideration of the expenses
which said operator has incurred in properly giving us
the proper medical treatment, we hereby manifest
our desire to waive any and all claims against the
operator of the Samar Express Transit."
xxx xxx xxx
Even a cursory examination of the document
mentioned above will readily show that appellees did
not actually waive their right to claim damages from
appellant for the latter's failure to comply with their
contract of carriage. All that said document proves is
that they expressed a "desire" to make the waiver
which obviously is not the same as making an actual
waiver of their right. A waiver of the kind invoked by
appellant must be clear and unequivocal (Decision of
the Supreme Court of Spain of July 8, 1887) which
is not the case of the one relied upon in this appeal.
(Emphasis supplied)
If we apply the standard used in Yepes and Susaya, we
would have to conclude that the terms of the Joint Affidavit
102
 in the instant case cannot be regarded as a waiver cast in
"clear and unequivocal" terms. Moreover, the circumstances
under which the Joint Affidavit was signed by petitioner
Gatchalian need to be considered. Petitioner testified that
she was still reeling from the effects of the vehicular
accident, having been in the hospital for only three days,
when the purported waiver in the form of the Joint Affidavit
was presented to her for signing; that while reading the
same, she experienced dizziness but that, seeing the other
passengers who had also suffered injuries sign the
document, she too signed without bothering to read the Joint
Affidavit in its entirety. Considering these circumstances
there appears substantial doubt whether petitioner
understood fully the import of the Joint Affidavit (prepared by
or at the instance of private respondent) she signed and
whether she actually intended thereby to waive any right of
action against private respondent.
Finally, because what is involved here is the liability of a common
carrier for injuries sustained by passengers in respect of whose
safety a common carrier must exercise extraordinary diligence, we
must construe any such purported waiver most strictly against the
common carrier. For a waiver to be valid and effective, it must not
be contrary to law, morals, public policy or good
customs. 5 To uphold a supposed waiver of any right to claim
damages by an injured passenger, under circumstances like those
exhibited in this case, would be to dilute and weaken the standard
of extraordinary diligence exacted by the law from common carriers
and hence to render that standard unenforceable. 6 We believe
such a purported waiver is offensive to public policy.
Petitioner Gatchalian also argues that the Court of Appeals, having
by majority vote held that there was no enforceable waiver of her
right of action, should have awarded her actual or compensatory
and moral damages as a matter of course.
We have already noted that a duty to exercise extraordinary
diligence in protecting the safety of its passengers is imposed upon
a common carrier. 7 In case of death or injuries to passengers, a
statutory presumption arises that the common carrier was at fault
or had acted negligently "unless it proves that it [had] observed
extraordinary diligence as prescribed in Articles 1733 and
1755." 8 In fact, because of this statutory presumption, it has been
held that a court need not even make an express finding of fault or
negligence on the part of the common carrier in order to hold it
liable. 9 To overcome this presumption, the common carrier must
slow to the court that it had exercised extraordinary diligence to
prevent the injuries. 10 The standard of extraordinary diligence
imposed upon common carriers is considerably more demanding
than the standard of ordinary diligence, i.e., the diligence of a
good paterfamilias established in respect of the ordinary relations
between members of society. A common carrier is bound to carry
its passengers safely" as far as human care and foresight can
provide, using the utmost diligence of a very cautious person, with
due regard to all the circumstances". 11
Thus, the question which must be addressed is whether or not
private respondent has successfully proved that he had exercised
extraordinary diligence to prevent the mishap involving his mini-
bus. The records before the Court are bereft of any evidence
showing that respondent had exercised the extraordinary diligence
required by law. Curiously, respondent did not even attempt, during
the trial before the court a quo, to prove that he had indeed
exercised the requisite extraordinary diligence. Respondent did try
to exculpate himself from liability by alleging that the mishap was
the result of force majeure. But allegation is not proof and here
again, respondent utterly failed to substantiate his defense of force
majeure. To exempt a common carrier from liability for death or
physical injuries to passengers upon the ground of force
majeure, the carrier must clearly show not only that the efficient
cause of the casualty was entirely independent of the human will,
but also that it was impossible to avoid. Any participation by the
common carrier in the occurrence of the injury will defeat the
defense of force majeure. In Servando v. Philippine Steam
Navigation Company, 12 the Court summed up the essential
characteristics of force majeure by quoting with approval from
the Enciclopedia Juridica Espaola:
103
 Thus, where fortuitous event or force majeure is the
immediate and proximate cause of the loss, the
obligor is exempt from liability non-performance. The
Partidas, the antecedent of Article 1174 of the Civil
Code, defines "caso fortuito" as 'an event that takes
place by accident and could not have been foreseen.
Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robber.
In its dissertation on the phrase "caso fortuito" the
Enciclopedia Juridica Espaola says: 'In legal sense
and, consequently, also in relation to contracts, a
"caso fortuito" presents the following essential
characteristics: (1) the cause of the unforeseen and
unexpected occurence, or of the failure of the debtor
to comply with his obligation, must be independent of
the human will; (2) it must be impossible to foresee
the event which constitutes the "caso fortuito", or if it
can be foreseen, it must be impossible to avoid; (3)
the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a
normal manner; and (4) the obligor must be free from
any participation in the aggravation of the injury
resulting to the creditor.
Upon the other hand, the record yields affirmative evidence of fault
or negligence on the part of respondent common carrier. In her
direct examination, petitioner Gatchalian narrated that shortly
before the vehicle went off the road and into a ditch, a "snapping
sound" was suddenly heard at one part of the bus. One of the
passengers, an old woman, cried out, "What happened?" ("Apay
addan samet nadadaelen?"). The driver replied, nonchalantly,
"That is only normal" ("Ugali ti makina dayta"). The driver did not
stop to check if anything had gone wrong with the bus. Moreover,
the driver's reply necessarily indicated that the same "snapping
sound" had been heard in the bus on previous occasions. This
could only mean that the bus had not been checked physically or
mechanically to determine what was causing the "snapping sound"
which had occurred so frequently that the driver had gotten
accustomed to it. Such a sound is obviously alien to a motor
vehicle in good operating condition, and even a modicum of
concern for life and limb of passengers dictated that the bus be
checked and repaired. The obvious continued failure of respondent
to look after the roadworthiness and safety of the bus, coupled with
the driver's refusal or neglect to stop the mini-bus after he had
heard once again the "snapping sound" and the cry of alarm from
one of the passengers, constituted wanton disregard of the
physical safety of the passengers, and hence gross negligence on
the part of respondent and his driver.
We turn to petitioner's claim for damages. The first item in that
claim relates to revenue which petitioner said she failed to realize
because of the effects of the vehicular mishap. Petitioner maintains
that on the day that the mini-bus went off the road, she was
supposed to confer with the district supervisor of public schools for
a substitute teacher's job, a job which she had held off and on as a
"casual employee." The Court of Appeals, however, found that at
the time of the accident, she was no longer employed in a public
school since, being a casual employee and not a Civil Service
eligible, she had been laid off. Her employment as a substitute
teacher was occasional and episodic, contingent upon the
availability of vacancies for substitute teachers. In view of her
employment status as such, the Court of Appeals held that she
could not be said to have in fact lost any employment after and by
reason of the accident. 13 Such was the factual finding of the Court
of Appeals, a finding entitled to due respect from this Court.
Petitioner Gatchalian has not submitted any basis for overturning
this finding of fact, and she may not be awarded damages on the
basis of speculation or conjecture. 14
Petitioner's claim for the cost of plastic surgery for removal of the
scar on her forehead, is another matter. A person is entitled to the
physical integrity of his or her body; if that integrity is violated or
diminished, actual injury is suffered for which actual or
compensatory damages are due and assessable. Petitioner
Gatchalian is entitled to be placed as nearly as possible in the
condition that she was before the mishap. A scar, especially one on
the face of the woman, resulting from the infliction of injury upon
104
her, is a violation of bodily integrity, giving raise to a legitimate
claim for restoration to her conditio ante. If the scar is relatively
small and does not grievously disfigure the victim, the cost of
surgery may be expected to be correspondingly modest.
In Araneta, et al. vs. Areglado, et al., 15 this Court awarded actual
or compensatory damages for, among other things, the surgical
removal of the scar on the face of a young boy who had been
injured in a vehicular collision. The Court there held:
We agree with the appellants that the damages
awarded by the lower court for the injuries suffered by
Benjamin Araneta are inadequate. In allowing not
more than P1,000.00 as compensation for the
"permanent deformity and something like an
inferiority complex" as well as for the "pathological
condition on the left side of the jaw" caused to said
plaintiff, the court below overlooked the clear
evidence on record that to arrest the degenerative
process taking place in the mandible and restore the
injured boy to a nearly normal condition, surgical
intervention was needed, for which the doctor's
charges would amount to P3,000.00, exclusive of
hospitalization fees, expenses and
medicines. Furthermore, the operation, according to
Dr. Dio, would probably have to be repeated in
order to effectuate a complete cure, while removal of
the scar on the face obviously demanded plastic
surgery.
xxx xxx xxx
The father's failure to submit his son to a plastic
operation as soon as possible does not prove that
such treatment is not called for. The damage to the
jaw and the existence of the scar in Benjamin
Araneta's face are physical facts that can not be
reasoned out of existence. That the injury should be
treated in order to restore him as far as possible to
his original condition is undeniable. The father's
delay, or even his negligence, should not be allowed
to prejudice the son who has no control over the
parent's action nor impair his right to a full indemnity.
. . . Still, taking into account the necessity and cost of
corrective measures to fully repair the damage;the
pain suffered by the injured party; his feelings of
inferiority due to consciousness of his present
deformity, as well as the voluntary character of the
injury inflicted; and further considering that a repair,
however, skillfully conducted, is never equivalent to
the original state, we are of the opinion that the
indemnity granted by the trial court should be
increased to a total of P18,000.00. (Emphasis
supplied)
Petitioner estimated that the cost of having her scar surgically
removed was somewhere between P10,000.00 to
P15,000.00. 16 Upon the other hand, Dr. Fe Tayao Lasam, a
witness presented as an expert by petitioner, testified that the cost
would probably be between P5,000.00 to P10,000.00. 17 In view of
this testimony, and the fact that a considerable amount of time has
lapsed since the mishap in 1973 which may be expected to
increase not only the cost but also very probably the difficulty of
removing the scar, we consider that the amount of P15,000.00 to
cover the cost of such plastic surgery is not unreasonable.
Turning to petitioner's claim for moral damages, the long-
established rule is that moral damages may be awarded where
gross negligence on the part of the common carrier is
shown. 18 Since we have earlier concluded that respondent
common carrier and his driver had been grossly negligent in
connection with the bus mishap which had injured petitioner and
other passengers, and recalling the aggressive manuevers of
respondent, through his wife, to get the victims to waive their right
to recover damages even as they were still hospitalized for their
injuries, petitioner must be held entitled to such moral damages.
Considering the extent of pain and anxiety which petitioner must
have suffered as a result of her physical injuries including the
105
permanent scar on her forehead, we believe that the amount of SO ORDERED.
P30,000.00 would be a reasonable award. Petitioner's claim for
P1,000.00 as atttorney's fees is in fact even more modest. 19 Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

WHEREFORE, the Decision of the Court of Appeals dated 24

October 1980, as well as the decision of the then Court of First
Instance of La Union dated 4 December 1975 are hereby
REVERSED and SET ASIDE.Respondent is hereby ORDERED to
pay petitioner Reynalda Gatchalian the following sums: 1)
P15,000.00 as actual or compensatory damages to cover the cost
of plastic surgery for the removal of the scar on petitioner's
forehead; 2) P30,000.00 as moral damages; and 3) P1,000.00 as
attorney's fees, the aggregate amount to bear interest at the legal
rate of 6% per annum counting from the promulgation of this
decision until full payment thereof. Costs against private
respondent.

106