Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 104408 June 21, 1993

METRO MANILA TRANSIT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS AND NENITA CUSTODIA, respondents.

Office of the Government Corporate Counsel for petitioner.

Renato P. Decena and Restituto Abjero for private respondent.

REGALADO, J.:

This appeal calls for a review of the legal validity and sufficiency of petitioner's invocation of due
diligence in the selection and supervision of employees as its defense against liability resulting
from a vehicular collision. With the facility by which such a defense can be contrived and our
country having reputedly the highest traffic accident rate in its geographical region, it is indeed
high time for us to once again address this matter which poses not only a litigation issue for the
courts but affects the very safety of our streets.

The facts of the case at bar are recounted for us by respondent court, thus —

At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita
Custodio boarded as a paying passenger a public utility jeepney with plate No.
D7 305 PUJ Pilipinas 1979, then driven by defendant Agudo Calebag and owned
by his co-defendant Victorino Lamayo, bound for her work at Dynetics
Incorporated located in Bicutan, Taguig, Metro Manila, where she then worked as
a machine operator earning P16.25 a day. While the passenger jeepney was
travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila
another fast moving vehicle, a Metro Manila Transit Corp. (MMTC, for short) bus
bearing plate no. 3Z 307 PUB (Philippines) "79 driven by defendant Godofredo C.
Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound
for its terminal at Bicutan. As both vehicles approached the intersection of DBP
Avenue and Honeydew Road they failed to slow down and slacken their speed;
neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred, the passenger jeepney
ramming the left side portion of the MMTC bus. The collision impact caused
plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger
jeepney and (she) was thrown out therefrom, falling onto the pavement
unconscious with serious physical injuries. She was brought to the Medical City
Hospital where she regained consciousness only after one (1) week. Thereat, she
was confined for twenty-four (24) days, and as a consequence, she was unable
to work for three and one half months (31/2). 1
A complaint for damages was filed by herein private respondent, who being then a minor was
2

assisted by her parents, against all of therein named defendants following their refusal to pay the
expenses incurred by the former as a result of the collision.

Said defendants denied all the material allegations in the complaint and pointed an accusing
finger at each other as being the party at fault. Further, herein petitioner Metro Manila Transit
Corporation (MMTC), a government-owned corporation and one of the defendants in the court a
quo, along with its driver, Godofredo Leonardo, contrarily averred in its answer with cross-claim
and counterclaim that the MMTC bus was driven in a prudent and careful manner by driver
3

Leonardo and that it was the passenger jeepney which was driven recklessly considering that it
hit the left middle portion of the MMTC bus, and that it was defendant Lamayo, the owner of the
jeepney and employer of driver Calebag, who failed to exercise due diligence in the selection
and supervision of employees and should thus be held solidarily liable for damages caused to
the MMTC bus through the fault and negligence of its employees.

Defendant Victorino Lamayo, for his part, alleged in his answer with cross-claim and
counterclaim that the damages suffered by therein plaintiff should be borne by defendants
4

MMTC and its driver, Godofredo Leonardo, because the latter's negligence was the sole and
proximate cause of the accident and that MMTC failed to exercise due diligence in the selection
and supervision of its employees.

By order of the trial court, defendant Calebag was declared in default for failure to file an
answer. Thereafter, as no amicable settlement was reached during the pre-trial conference, trial
5 6

on the merits ensued with the opposing parties presenting their respective witnesses and
documentary evidence.

Herein private respondent Nenita Custodia, along with her parents, were presented as witnesses
for the prosecution. In addition, Dr. Edgardo del Mundo, the attending physician, testified on the
cause, nature and extent of the injuries she sustained as a result of the vehicular mishap. On the
7

other hand, defendant MMTC presented as witnesses Godofredo Leonardo, Christian Bautista
and Milagros Garbo. Defendant Lamayo, however, failed to present any witness.

Milagros Garbo testified that, as a training officer of MMTC, she was in charge of the selection of
the company's bus drivers, conducting for this purpose a series of training programs and
examinations. According to her, new applicants for job openings at MMTC are preliminarily
required to submit certain documents such as National Bureau of Investigation (NBI) clearance,
birth or residence certificate, ID pictures, certificate or diploma of highest educational attainment,
professional driver's license, and work experience certification. Re-entry applicants, aside from
the foregoing requirements, are additionally supposed to submit company clearance for
shortages and damages and revenue performance for the preceding year. Upon satisfactory
compliance with said requisites, applicants are recommended for and subjected to a Preliminary
interview, followed by a record check to find out whether they are included in the list of
undesirable employees given by other companies.

Thereafter, she continued, if an applicant is found to be acceptable, a final interview by the Chief
Supervisor is scheduled and followed by a training program which consists of seminars and
actual driving and Psycho-physical tests and X-ray examinations. The seminars, which last for a
total of eighteen (18) days, include familiarization with assigned routes, existing traffic rules and
regulations, Constabulary Highway Patrol Group (CHPG) seminar on defensive driving,
preventive maintenance, proper vehicle handling, interpersonal relationship ,and administrative
rules on discipline and on-the-job training. Upon completion of all the seminars and tests, a final
clearance is issued, an employment contract is executed and the driver is ready to report for
duty.8

MMTC's Transport Supervisor, Christian Bautista, testified that it was his duty to monitor the daily
operation of buses in the field, to countercheck the dispatcher on duty prior to the operation of
the buses in the morning and to see to it that the bus crew follow written guidelines of the
company, which include seeing to it that its employees are in proper uniform, briefed in traffic
rules and regulations before the start of duty, fit to drive and, in general, follow other rules and
regulations of the Bureau of Land Transportation as well as of the company. 9

The reorganized trial court, in its decision of August 1, 1989, found both drivers of the colliding
10

vehicles concurrently negligent for non-observance of appropriate traffic rules and regulations
and for failure to take the usual precautions when approaching an intersection. As joint
tortfeasors, both drivers, as well as defendant Lamayo, were held solidarily liable for damages
sustained by plaintiff Custodio. Defendant MMTC, on the bases of the evidence presented was,
however, absolved from liability for the accident on the ground that it was not only careful and
diligent in choosing and screening applicants for job openings but was also strict and diligent in
supervising its employees by seeing to it that its employees were in proper uniforms, briefed in
traffic rules and regulations before the start of duty, and that it checked its employees to
determine whether or not they were positive for alcohol and followed other rules and regulations
and guidelines of the Bureau of Land Transportation and of the company.

The trial court accordingly ruled:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered

dismissing the complaint against the Metro Manila Transit Corporation and
ordering defendants Agudo P. Calebag, Victorino Lamayo and Godofredo C.
Leonardo to pay plaintiffs, jointly and severally, the following:

a) the sum of P10,000.00 by way of medical expenses;

b) the sum of P5,000.00 by way of expenses of litigation;

c) the sum of P15,000.00 by way of moral damages;

d) the sum of P2,672.00 by way of loss of earnings;

e) the sum of P5,000.00 by way of exemplary damages;

f) the sum of P6,000.00 by way of attorney's fees; and

g) costs of suit.

SO ORDERED. 11

Plaintiff's motion to have that portion of the trial court's decision absolving MMTC from liability
reconsidered having been denied for lack of merit, an appeal was filed by her with respondent
12 13

appellate court. After consideration of the appropriate pleadings on appeal and finding the appeal
meritorious, the Court of Appeals modified the trial court's decision by holding MMTC solidarily
liable with the other defendants for the damages awarded by the trial court because of their
concurrent negligence, concluding that while there is no hard and fast rule as to what constitutes
sufficient evidence to prove that an employer has exercised the due diligence required of it in the
selection and supervision of its employees, based on the quantum of evidence adduced the said
appellate court was not disposed to say that MMTC had exercised the diligence required of a
good father of a family in the selection and supervision of its driver, Godofredo Leonardo. 14

The Court of Appeals was resolute in its conclusion and denied the motions for reconsideration of
appellee Custodio and appellant MMTC in a resolution dated February 17, 1982, thus 15

prompting MMTC to file the instant petition invoking the review powers of this Court over the
decision of the Court of Appeals, raising as issues for resolution whether or not (1) the
documentary evidence to support the positive testimonies of witnesses Garbo and Bautista are
still necessary; (2) the testimonies of witnesses Garbo and Bautista may still be disturbed on
appeal; and (3) the evidence presented during the trial with respect to the proof of due diligence
of petitioner MMTC in the selection and supervision of its employees, particularly driver
Leonardo, is sufficient.

Prefatorily, private respondent questions the timeliness of the filing of the petition at bar in view of
the procedural stricture that the timely perfection of an appeal is both a mandatory and
jurisdictional requirement. This is a legitimate concern on the part of private respondent and
presents an opportune occasion to once again clarify this point as there appears to be some
confusion in the application of the rules and interpretative rulings regarding the computation of
reglementary periods at this stage of the proceedings.

The records of this case reveal that the decision of respondent Court of Appeals, dated October
31, 1991, was received by MMTC on November 18, 1991 and it seasonably filed a motion for
16

the reconsideration thereof on November 28, 1991. Said motion for reconsideration was denied
17

by respondent court in its resolution dated February 17, 1992, which in turn was received by
MMTC on March 9, 1992. Therefore, it had, pursuant to Section 1, Rule 45 of the Rules of
18

Court, fifteen (15) days therefrom or up to March 24, 1992 within which to file its petition, for
review on certiorari. Anticipating, however, that it may not be able to file said petition before the
lapse of the reglementary period therefor, MMTC filed a motion on March 19, 1992 for an
extension of thirty (30) days to file the present petition, with proof of service of copies thereof to
respondent court and the adverse parties. The Court granted said motion, with the extended
period to be counted from the expiration of the reglementary period. Consequently, private
19

respondent had thirty (30) days from March 24, 1992 within which to file its petition, or up to April
23, 1992, and the eventual filing of said petition on April 14, 1992 was well within the period
granted by the Court.

We digress to reiterate, in view of erroneous submissions that we continue to receive, that in the
case of a petition for review on certiorari from a decision rendered by the Court of Appeals,
Section 1, Rule 45 of the Rules of Court, which has long since been clarified in Lacsamana vs.
The Hon. Second Special Cases Division of the Intermediate Appellate Court, et al., allows the
20

same to be filed "within fifteen (15) days from notice of judgment or of the denial of the motion for
reconsideration filed in due time, and paying at the same time to the corresponding docket fee."
In other words, in the event a motion for reconsideration is filed and denied, the period of fifteen
(15) days begins to run all over again from notice of the denial resolution. Otherwise put, if a
motion for reconsideration is filed, the reglementary period within which to appeal the decision of
the Court of Appeals to the Supreme Court is reckoned from the date the party who intends to
appeal received the order denying the motion for reconsideration. Furthermore, a motion for
21

extension of time to file a petition for review may be filed with this Court within said reglementary
period, paying at the same time the corresponding docket fee.

1. The first two issues raised by petitioner shall be correlatively discussed in view of their
interrelation.

In its present petition, MMTC insists that the oral testimonies of its employees were presented as
witnesses in its behalf sufficiently prove, even without the presentation documentary evidence,
that driver Leonardo had complied with all the hiring and clearance requirements and had
undergone all trainings, tests and examinations preparatory to actual employment, and that said
positive testimonies spell out the rigid procedure for screening of job applicants and the
supervision of its employees in the field. It underscored the fact that it had indeed complied with
the measure of diligence in the selection and supervision of its employees as enunciated
in Campo, et al. vs. Camarote, et al. requiring an employer, in the exercise of the diligence of a
22

good father of a family, to carefully examine the applicant for employment as to his qualifications,
experience and record service, and not merely be satisfied with the possession of a professional
driver's license.
It goes on to say since the testimonies of these witnesses were allegedly neither discredited nor
impeached by the adverse party, they should be believed and not arbitrarily disregarded or
rejected nor disturbed on appeal. It assiduously argues that inasmuch as there is no law
requiring that facts alleged by petitioner be established by documentary evidence, the probative
force and weight of their testimonies should not be discredited, with the further note that the
lower court having passed upon the relevancy of the oral testimonies and considered the same
as unrebutted, its consideration should no longer be disturbed on appeal. 23

Private respondent, on the other hand, retorts that the factual findings of respondent court are
conclusive upon the High Court which cannot be burdened with the task of analyzing and
weighing the evidence all over again. 24

At this juncture, it suffices to note that factual findings of the trial court may be reversed by the
Court of Appeals, which is vested by law with the power to review both legal and factual issues, if
on the evidence of record, it appears that the trial court may have been mistaken particularly in
25

the appreciation of evidence, which is within the domain of the Court of Appeals. The general
26

rule laid down in a plethora of cases is that such findings of fact by the Court of Appeals are
conclusive upon and beyond the power of review of the Supreme Court. However, it is now well-
27

settled that while the findings of fact of the Court of Appeals are entitled to great respect, and
even finality at times, that rule is not inflexible and is subject to well established exceptions, to
wit: (1) when the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3)
where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same are contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the
trial court; (8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition, as well as in the petitioner's
main and reply briefs are not disputed by the respondents and (10) when the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and are contradicted
by the evidence on record. 28

When as in this case, the findings of the Court of Appeals and the trial court are contrary to each
other, this court may scrutinize the evidence on record, in order to arrive at a correct finding
29

based thereon. 30

A perusal of the same shows that since there is no dispute as to the finding of concurrent
negligence on the part of the defendant Calebag, the driver of the passenger jeepney, and co-
defendant Leonardo, the bus driver of petitioner MMTC, both of whom were solidarily held liable
with defendant Lamayo, the owner of the jeepney, we are spared the necessity of determining
the sufficiency of evidence establishing the fact of negligence. The contrariety is in the findings
31

of the two lower courts, and which is the subject of this present controversy, with regard to the
liability of MMTC as employer of one the erring drivers.

The trial court, in absolving MMTC from liability ruled that —

On the question as to whether defendant MMTC was successful in proving its

defense that indeed it had exercised the due diligence of a good father of a family
in the selection and supervision of defendant Leonardo, this Court finds that
based on the evidence presented during the trial, defendant MMTC was able to
prove that it was not only careful and diligent in choosing and screening
applicants for job openings but also strict (and) diligent in supervising its
employees by seeing to it that its employees were in proper uniforms, briefed in
traffic rules and regulations before the start of duty, checked employees to
determine whether they were positive for alcohol and followed other rules and
regulations and guidelines of the Bureau of Land Transportation as well as its
 company. Having successfully proven such defense, defendant MMTC therefore,
cannot be held liable for the accident.

Having reached this conclusion, the Court now, holds that defendant MMTC be
totally absolved from liability and that the complaint against it be dismissed. . . . 32

whereas respondent court was of the opinion that —

It is surprising though that witness Milagros Garbo did not testify nor present any
evidence that defendant-appellee's driver, defendant Godofredo Leonardo has
complied with or has undergone all clearances and trainings she referred to. The
clearances, result of seminars and tests which Godofredo Leonardo submitted
and complied with, if any, were not presented in court despite the fact that they
are obviously in the possession and control of defendant-appellee. Instead, it
resorted to generalities. The Court has ruled that due diligence in (the) selection
and supervision of employee(s) are not proved by mere testimonies to the effect
that its applicant has complied with all the company requirements before one is
admitted as an employee but without proof thereof. . . .

On the part of Christian Bautista, the transport supervisor of defendant-appellee,

he testified that it is his duty to monitor the operation of buses in the field; to
countercheck the dispatchers' duty prior to the operation of the buses in the
morning; to see to it that bus crew follows written guidelines of the company
(t.s.n., April 29, 1988, pp. 4-5), but when asked to present in court the alleged
written guidelines of the company he merely stated that he brought with him a
"wrong document" and defendant-appellee's counsel asked for reservation to
present such written guidelines in the next hearing but the same was (sic) never
presented in court. 33

A thorough and scrupulous review of the records of this case reveals that the conclusion of
respondent Court of Appeals is more firmly grounded on jurisprudence and amply supported by
the evidence of record than that of the court below.

It is procedurally required for each party in a case to prove his own affirmative assertion by the
degree of evidence required by law. In civil cases, the degree of evidence required of a party in
34

order to support his claim is preponderance of evidence, or that evidence adduced by one party
which is more conclusive and credible than that of the other party. It is, therefore, incumbent on
the plaintiff who is claiming a right to prove his case. Corollarily, defendant must likewise prove
own allegation to buttress its claim that it is not liable.
35

In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence required by law to obtain a favorable
judgment. It is entirely within each of the parties discretion, consonant with the theory of the
36

case it or he seeks to advance and subject to such procedural strategy followed thereby, to
present all available evidence at its or his disposal in the manner which may be deemed
necessary and beneficial to prove its or his position, provided only that the same shall measure
up to the quantum of evidence required by law. In making proof in its or his case, it is paramount
that the best and most complete evidence be formally entered. 37

Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to
hold sway, must be corroborated by documentary evidence, or even subject evidence for that
matter, inasmuch as the witnesses' testimonies dwelt on mere generalities, we cannot consider
the same as sufficiently persuasive proof that there was observance of due diligence in the
selection and supervision of employees. Petitioner's attempt to prove its diligentissimi patris
38

familias in the selection and supervision of employees through oral evidence must fail as it was
unable to buttress the same with any other evidence, object or documentary, which might obviate
the apparent biased nature of the testimony. 39

Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as
would convincingly and undoubtedly prove its observance of the diligence of a good father of a
family has its precursor in the underlying rationale pronounced in the earlier case of Central
Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., set amidst an almost
40

identical factual setting, where we held that:

. . . . This witness spoke of an "affidavit of experience" which a driver-applicant

must accomplish before he is employed by the company, a written "time
schedule" for each bus, and a record of the inspections and thorough checks
pertaining to each bus before it leaves the car barn; yet no attempt was ever
made to present in evidence any of these documents, despite the fact that they
were obviously in the possession and control of the defendant company.

xxx xxx xxx

Albert also testified that he kept records of the preliminary and final tests given
him as well as a record of the qualifications and experience of each of the drivers
of the company. It is rather strange, therefore, that he failed to produce in court
the all important record of Roberto, the driver involved in this case.

The failure of the defendant company to produce in court any "record" or other
documentary proof tending to establish that it had exercised all the diligence of a
good father of a family in the selection and supervision of its drivers and buses,
notwithstanding the calls therefor by both the trial court and the opposing
counsel, argues strongly against its pretensions.

We are fully aware that there is no hard-and-fast rule on the quantum of evidence
needed to prove due observance of all the diligence of a good father of a family
as would constitute a valid defense to the legal presumption of negligence on the
part of an employer or master whose employee has by his negligence, caused
damage to another. . . . (R)educing the testimony of Albert to its proper
proportions, we do not have enough trustworthy evidence left to go by. We are of
the considered opinion, therefore, that the believable evidence on the degree of
care and diligence that has been exercised in the selection and supervision of
Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of
negligence against the defendant company.

Whether or not the diligence of a good father of a family has been observed by petitioner is a
matter of proof which under the circumstances in the case at bar has not been clearly
established. It is not felt by the Court that there is enough evidence on record as would overturn
the presumption of negligence, and for failure to submit all evidence within its control, assuming
the putative existence thereof, petitioner MMTC must suffer the consequences of its own inaction
and indifference.

2. In any event, we do not find the evidence presented by petitioner sufficiently convincing to
prove the diligence of a good father of a family, which for an employer doctrinally translates into
its observance of due diligence in the selection and supervision of its employees but which
mandate, to use an oft-quoted phrase, is more often honored in the breach than in the
observance.

Petitioner attempted to essay in detail the company's procedure for screening job applicants and
supervising its employees in the field, through the testimonies of Milagros Garbo, as its training
officer, and Christian Bautista, as its transport supervisor, both of whom naturally and expectedly
testified for MMTC. It then concluded with its sweeping pontifications that "thus, there is no doubt
that considering the nature of the business of petitioner, it would not let any applicant-drivers to
be (sic) admitted without undergoing the rigid selection and training process with the end (in)
view of protecting the public in general and its passengers in particular; . . . thus, there is no
doubt that applicant had fully complied with the said requirements otherwise Garbo should not
have allowed him to undertake the next set of requirements . . . and the training conducted
consisting of seminars and actual driving tests were satisfactory otherwise he should have not
been allowed to drive the subject vehicle. 41

These statements strike us as both presumptuous and in the nature of petitio principii, couched
in generalities and shorn of any supporting evidence to boost their verity. As earlier observed,
respondent court could not but express surprise, and thereby its incredulity, that witness Garbo
neither testified nor presented any evidence that driver Leonardo had complied with or had
undergone all the clearances and trainings she took pains to recite and enumerate. The
supposed clearances, results of seminars and tests which Leonardo allegedly submitted and
complied with were never presented in court despite the fact that, if true, then they were
obviously in the possession and control of petitioner. 42

The case at bar is clearly within the coverage of Article 2176 and 2177, in relation to Article 2180,
of the Civil Code provisions on quasi-delicts as all the elements thereof are present, to wit: (1)
damages suffered by the plaintiff, (2) fault or negligence of the defendant or some other person
for whose act he must respond, and (3) the connection of cause and effect between fault or
negligence of the defendant and the damages incurred by plaintiff. It is to be noted that
43

petitioner was originally sued as employer of driver Leonardo under Article 2180, the pertinent
parts of which provides that:

The obligation imposed by article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former
are not engaged in any business or industry.

xxx xxx xxx

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family
to prevent damage.

The basis of the employer's vicarious liability has been explained under this ratiocination:

The responsibility imposed by this article arises by virtue of a presumption juris

tantum of negligence on the part of the persons made responsible under the
article, derived from their failure to exercise due care and vigilance over the acts
of subordinates to prevent them from causing damage. Negligence is imputed to
them by law, unless they prove the contrary. Thus, the last paragraph of the
article says that such responsibility ceases if is proved that the persons who
might be held responsible under it exercised the diligence of a good father of a
family (diligentissimi patris familias) to prevent damage. It is clear, therefore, that
it is not representation, nor interest, nor even the necessity of having somebody
else answer for the damages caused by the persons devoid of personality, but it
is the non-performance of certain duties of precaution and prudence imposed
upon the persons who become responsible by civil bond uniting the actor to
them, which forms the foundation of such responsibility. 44
The above rule is, of course, applicable only where there is an employer-employee relationship,
although it is not necessary that the employer be engaged in business or industry. Whether or
not engaged in any business or industry, the employer under Article 2180 is liable for torts
committed by his employees within the scope of their assigned tasks. But, it is necessary first to
establish the employment relationship. Once this is done, the plaintiff must show, to hold the
employer liable, that the employee was acting within the scope of his assigned task when the tort
complained of was committed. It is only then that the defendant, as employer, may find it
necessary to interpose the defense of due diligence in the selection and supervision of
employees. The diligence of a good father of a family required to be observed by employers to
45

prevent damages under Article 2180 refers to due diligence in the selection and supervision of
employees in order to protect the public. 46

With the allegation and subsequent proof of negligence against the defendant driver and of an
employer-employee relation between him and his co-defendant MMTC in this instance, the case
in undoubtedly based on a quasi-delict under Article 2180 When the employee causes damage
47

due to his own negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, rebuttable only by proof of observance of
48

the diligence of a good father of a family. For failure to rebut such legal presumption of
negligence in the selection and supervision of employees, the employer is likewise responsible
for damages, the basis of the liability being the relationship of pater familias or on the
49

employer's own negligence. 50

As early as the case of Gutierrez vs. Gutierrez, and thereafter, we have consistently held that
51

where the injury is due to the concurrent negligence of the drivers of the colliding vehicles, the
drivers and owners of the said vehicles shall be primarily, directly and solidarily liable for
damages and it is immaterial that one action is based on quasi-delict and the other on culpa
contractual, as the solidarily of the obligation is justified by the very nature thereof. 52

It should be borne in mind that the legal obligation of employers to observe due diligence in the
selection and supervision of employees is not to be considered as an empty play of words or a
mere formalism, as appears to be the fashion of the times, since the non-observance thereof
actually becomes the basis of their vicarious liability under Article 2180.

On the matter of selection of employees, Campo vs. Camarote, supra, lays down this
admonition:

. . . . In order tat the owner of a vehicle may be considered as having exercised

all diligence of a good father of a family, he should not have been satisfied with
the mere possession of a professional driver's license; he should have carefully
examined the applicant for employment as to his qualifications, his experience
and record of service. These steps appellant failed to observe; he has therefore,
failed to exercise all due diligence required of a good father of a family in the
choice or selection of driver.

Due diligence in the supervision of employees, on the other hand, includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the employer has
relations through his or its employees and the imposition of necessary disciplinary measures
upon employees in case of breach or as may be warranted to ensure the performance of acts
indispensable to the business of and beneficial to their employer. To this, we add that actual
53

implementation and monitoring of consistent compliance with said rules should be the constant
concern of the employer, acting through dependable supervisors who should regularly report on
their supervisory functions.

In order that the defense of due diligence in the selection and supervision of employees may be
deemed sufficient and plausible, it is not enough to emptily invoke the existence of said company
guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to
the presumption of negligence on the part of the employer, the latter has the burden of proving
that it has been diligent not only in the selection of employees but also in the actual supervision
of their work. The mere allegation of the existence of hiring procedures and supervisory policies,
without anything more, is decidedly not sufficient to overcome presumption.

We emphatically reiterate our holding, as a warning to all employers, that "(t)he mere formulation
of various company policies on safety without showing that they were being complied with is not
sufficient to exempt petitioner from liability arising from negligence of its employees. It is
incumbent upon petitioner to show that in recruiting and employing the erring driver the
recruitment procedures and company policies on efficiency and safety were followed." Paying
54

lip-service to these injunctions or merely going through the motions of compliance therewith will
warrant stern sanctions from the Court.

These obligations, imposed by the law and public policy in the interests and for the safety of the
commuting public, herein petitioner failed to perform. Respondent court was definitely correct in
ruling that ". . . due diligence in the selection and supervision of employee (is) not proved by
mere testimonies to the effect that its applicant has complied with all the company requirements
before one is admitted as an employee but without proof thereof." It is further a distressing
55

commentary on petitioner that it is a government-owned public utility, maintained by public funds,

and organized for the public welfare.

The Court it is necessary to once again stress the following rationale behind these all-important
statutory and jurisprudential mandates, for it has been observed that despite its pronouncement
in Kapalaran Bus Line vs. Coronado, et al., supra, there has been little improvement in the
transport situation in the country:

In requiring the highest possible degree of diligence from common carriers and
creating a presumption of negligence against them, the law compels them to curb
the recklessness of their drivers. While the immediate beneficiaries of the
standard of extraordinary diligence are, of course, the passengers and owners of
the cargo carried by a common carrier, they are not the only persons that the law
seeks to benefit. For if common carriers carefully observe the statutory standard
of extraordinary diligence in respect of their own passengers, they cannot help
but simultaneously benefit pedestrians and the owners and passengers of other
vehicles who are equally entitled to the safe and convenient use of our roads and
highways. The law seeks to stop and prevent the slaughter and maiming of
people (whether passengers or not) and the destruction of property (whether
freight or not) on our highways by buses, the very size and power of which seem
often to inflame the minds of their drivers. . . .

Finally, we believe that respondent court acted in the exercise of sound discretion when it
affirmed the trial court's award, without requiring the payment of interest thereon as an item of
damages just because of delay in the determination thereof, especially since private respondent
did not specifically pray therefor in her complaint. Article 2211 of the Civil Code provides that
in quasi-delicts, interest as a part of the damages may be awarded in the discretion of the court,
and not as a matter of right. We do not perceive that there have been international dilatory
maneuvers or any special circumstances which would justify that additional award and,
consequently, we find no reason to disturb said ruling.

WHEREFORE, the impugned decision of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J. and Nocon, JJ., concur.

Padilla, J., is on leave.

# Footnotes

1 Rollo, 24-25.

2 Civil Case No. C-8176, entitled "Nenita R. Custodio, assisted by her parents,
Rodolfo A. Custodio and Gloria R. Custodio vs. Agudo R. Calebag, Victorino
Lamayo, Godofredo C. Leonardo, and Metro Manila Transit Corporation," Court
of First Instance of Rizal, Branch 35, Caloocan City; Original Record, 1-4.

3 Ibid., 17-22.

4 Ibid., 36-41.

5 Ibid., 54.

6 Ibid., 57.

7 TSN, September 2, 1982, 4-16.

8 Ibid., June 10, 1988, 3-12.

9 Ibid., April 29, 1988, 2-8.

10 Civil Case No. 8176, Regional Trial Court, Branch 125, Caloocan City; Judge
Geronimo S. Mangay, presiding.

11 Original Record, 177.

12 Ibid., 178-181.

13 Ibid., 195.

14 Ca-G.R. CV No. 24680; per Justice Regina G. Ordoñez-Benitez, with Justices

Jose A.R. Melo and Emilio C. Cui, concurring; Rollo, 24-30.

15 Rollo, 33-34.

16 Ibid., 2.

17 Ibid., CA-G.R CV No. 24680, 63-72.

18 Rollo, 2.

19 Ibid., 7.

20 143 SCRA 643 (1986).

21 American General Insurance Co. vs. Intermediate Appellee Court, et al., 150
SCRA 133 (1987).
22 100 Phil. 459 (1956).

23 Memorandum for Petitioner, 11-15; Rollo, 16-21.

24 Comment of Private Respondent, 3-4; Rollo, 47-48.

25 San Miguel Corporation vs. Court of Appeals, et al., 185 SCRA 722 (1990).

26 Medina vs. Asistio, Jr., et al., 191 SCRA 218 (1990).

27 Cathay Insurance Co. vs. Court of Appeals, e al., 151 SCRA 710 (1987);
Hernandez vs. Court of Appeals, et al., 160 SCRA 821 (1988); Philippine National
Bank vs. Court of Appeals, et al., 183 SCRA 133 (1990); BA Finance Corporation
vs. Court of Appeals, et al., 201 SCRA 157 (1991).

28 Manlapaz vs. Court of Appeals, et al., 147 SCRA 236 (1987); Medina vs.
Asistio, Jr., supra; Calalang vs. Intermediate Appellate Court, et al., 194 SCRA
514 (1991).

29 Valenzuela, et al. vs. Court of Appeals, et al., 191 SCRA 1 (1991).

30 Roman Catholic Bishop of Malolos, et al. vs. Intermediate Appellate Court, et

al., 191 SCRA 411 (1990).

31 Cea vs. Villanueva, 18 Phil. 538 (1911); Barcelo, etc. vs. The Manila Electric
Railroad and Light Company, 29 Phil. 351 (1915); De la Riva vs. Molina, 32 Phil.
277 (1915); Agdoro vs. Philippine Mining Industrial Co., 45 Phil. 816 (1924).

32 Annex C, Petition; Rollo, 41-42.

33 Annex B, ibid.; id., 28-29.

34 Section 1, Rule 131, Rules of Court.

35 Stronghold Insurance Company, Inc. vs. Court of Appeals, et al., 173 SCRA
619 (1989).

36 Republic vs. Court of Appeals, et al., 182 SCRA 290 (1990), citing Tai Tong
Chuache & Co. vs. The Insurance Commission, et al., 158 SCRA 366 (1988);
Republic vs. Court of Appeals, et al., 204 SCRA 160 (1991).

37 U.S. vs. Tria, 17 Phil. 303 (1910).

38 See Pleno vs. Court of Appeals, et al., 161 SCRA 160 (1991).

39 See Garcia, et al. vs. Gonzales, et al., 183 SCRA 72 (1990).

40 54 O.G., No. 31, 7415 (1958).

41 Petition, 6-7; Rollo, 14-15.

42 Supra, Fn. 34.

43 Andamo, et al. vs. Intermediate Appellate Court, et al., 191 SCRA 195 (1990).
44 Tolentino, A., Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. V, 1959 ed., 519.

45 Martin vs. Court of Appeals, et al., 205 SCRA 591 (1992).

46 Barredo vs. Garcia, 73 Phil. 607 (1942).

47 Lanuzo vs. Ping, et al., 100 SCRA 205 (1980).

48 Bahia vs. Litonjua, et al., 30 Phil. 624 (1915); Campo vs. Camarote, supra;
Phoenix Construction, Inc. vs. Intermediate Appellate Court, et al., 148 SCRA 353
(1987); McKee, et al. vs. Intermediate Appellate Court, et al., 211 SCRA 517
(1992).

49 Lanuzo vs. Ping, et al., supra, and cases cited therein.

50 Bahia vs. Litonjua, et al., supra; Yamada vs. Manila Railroad Co., 33 Phil. 8
(1915); McKee, et al. vs. Intermediate Appellate Court, et al., supra.

51 56 Phil. 177 (1913); Cf. Barredo vs. Garcia, supra; Viluan vs. Court of
Appeals, et al., 16 SCRA 742, (1966); Anuran vs. Buño, 17 SCRA 224 (1966);
Malipol vs. Tan, 55 SCRA 202 (1974); Poblete vs. Fabron, 93 SCRA 200 (1979);
Pleno vs. Court of Appeals, et al., supra; Kapalaran Bus Line vs. Coronado, 176
SCRA 792 (1989).

52 Art. 1207, Civil Code.

53 Filamer Christian Institute vs. Intermediate Appellate Court, et al., 212 SCRA
637 (1992).

54 Pantranco North Express Inc. vs. Baesa, 179 SCRA 384 (1989). See also
Franco, et al. vs. Intermediate Appellate Court, et al., 178 SCRA 331 (1989).

55 Rollo, 28.
 FIRST DIVISION

[G.R. No. 141538. March 23, 2004]

Hermana R. Cerezo, petitioner, vs. David Tuazon, respondent.

DECISION
CARPIO, J.:

The Case

This is a petition for review on certiorari to annul the Resolution dated 21

[1] [2]

October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its
Resolution dated 20 January 2000denying the motion for reconsideration. The Court
of Appeals denied the petition for annulment of the Decision dated 30 May
[3]

1995 rendered by the Regional Trial Court of Angeles City, Branch 56 (trial court), in
Civil Case No. 7415. The trial court ordered petitioner Hermana R. Cerezo (Mrs.
Cerezo) to pay respondent David Tuazon (Tuazon) actual damages, loss of
earnings, moral damages, and costs of suit.

Antecedent Facts

Around noontime of 26 June 1993, a Country Bus Lines passenger bus with
plate number NYA 241 collided with a tricycle bearing plate number TC RV 126
along Captain M. Palo Street, Sta. Ines, Mabalacat, Pampanga. On 1 October 1993,
tricycle driver Tuazon filed a complaint for damages against Mrs. Cerezo, as owner
of the bus line, her husband Attorney Juan Cerezo (Atty. Cerezo), and bus driver
Danilo A. Foronda (Foronda). The complaint alleged that:

7. At the time of the incident, plaintiff [Tuazon] was in his proper lane when the
second-named defendant [Foronda], being then the driver and person in charge of
the Country Bus with plate number NYA 241, did then and there willfully,
unlawfully, and feloniously operate the said motor vehicle in a negligent, careless,
and imprudent manner without due regard to traffic rules and regulations, there
being a Slow Down sign near the scene of the incident, and without taking the
necessary precaution to prevent loss of lives or injuries, his negligence,
carelessness and imprudence resulted to severe damage to the tricycle and serious
physical injuries to plaintiff thus making him unable to walk and becoming
disabled, with his thumb and middle finger on the left hand being cut[.] [4]

On 1 October 1993, Tuazon filed a motion to litigate as a pauper. Subsequently,

the trial court issued summons against Atty. Cerezo and Mrs. Cerezo (the Cerezo
spouses) at the Makatiaddress stated in the complaint. However, the summons was
returned unserved on 10 November 1993 as the Cerezo spouses no longer held
office nor resided in Makati. On 18 April 1994, the trial court issued alias summons
against the Cerezo spouses at their address in Barangay Sta. Maria, Camiling,
Tarlac. The alias summons and a copy of the complaint were finally served on 20
April 1994 at the office of Atty. Cerezo, who was then working as Tarlac Provincial
Prosecutor. Atty. Cerezo reacted angrily on learning of the service of summons upon
his person. Atty. Cerezo allegedly told Sheriff William Canlas: Punyeta, ano ang
gusto mong mangyari? Gusto mong hindi ka makalabas ng buhay dito? Teritoryo ko
ito. Wala ka sa teritoryo mo.
[5]

The records show that the Cerezo spouses participated in the proceedings
before the trial court. The Cerezo spouses filed a comment with motion for bill of
particulars dated 29 April 1994and a reply to opposition to comment with motion
dated 13 June 1994. On 1 August 1994, the trial court issued an order directing the
[6]

Cerezo spouses to file a comment to the opposition to the bill of particulars. Atty.
Elpidio B. Valera (Atty. Valera) of Valera and Valera Law Offices appeared on behalf
of the Cerezo spouses. On 29 August 1994, Atty. Valera filed an urgent ex-parte
motion praying for the resolution of Tuazons motion to litigate as a pauper and for
the issuance of new summons on the Cerezo spouses to satisfy proper service in
accordance with the Rules of Court. [7]

On 30 August 1994, the trial court issued an order resolving Tuazons motion to
litigate as a pauper and the Cerezo spouses urgent ex-parte motion. The order
reads:

At the hearing on August 30, 1994, the plaintiff [Tuazon] testified that he is
presently jobless; that at the time of the filing of this case, his son who is working
in Malaysia helps him and sends him once in a while P300.00 a month, and that he
does not have any real property. Attached to the Motion to Litigate as Pauper are
his Affidavit that he is unemployed; a Certification by the Barangay Captain of his
poblacion that his income is not enough for his familys subsistence; and a
Certification by the Office of the Municipal Assessor that he has no landholding in
the Municipality of Mabalacat, Province of Pampanga.

The Court is satisfied from the unrebutted testimony of the plaintiff that he is
entitled to prosecute his complaint in this case as a pauper under existing rules.

On the other hand, the Court denies the prayer in the Appearance and Urgent Ex-
Parte Motion requiring new summons to be served to the defendants. The Court is
of the opinion that any infirmity in the service of the summons to the defendant
before plaintiff was allowed to prosecute his complaint in this case as a pauper has
been cured by this Order.

If within 15 days from receipt of this Order, the defendants do not question on
appeal this Order of this Court, the Court shall proceed to resolve the Motion for
Bill of Particulars. [8]

On 27 September 1994, the Cerezo spouses filed an urgent ex-parte motion for
reconsideration. The trial court denied the motion for reconsideration.
On 14 November 1994, the trial court issued an order directing the Cerezo
spouses to file their answer within fifteen days from receipt of the order. The Cerezo
spouses did not file an answer.On 27 January 1995, Tuazon filed a motion to declare
the Cerezo spouses in default. On 6 February 1995, the trial court issued an order
declaring the Cerezo spouses in default and authorizing Tuazon to present his
evidence. [9]

On 30 May 1995, after considering Tuazons testimonial and documentary

evidence, the trial court ruled in Tuazons favor. The trial court made no
pronouncement on Forondas liability because there was no service of summons on
him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show that Mrs.
Cerezos business benefited the family, pursuant to Article 121(3) of the Family
Code. The trial court held Mrs. Cerezo solely liable for the damages sustained by
Tuazon arising from the negligence of Mrs. Cerezos employee, pursuant to Article
2180 of the Civil Code.The dispositive portion of the trial courts decision reads:

WHEREFORE, judgment is hereby rendered ordering the defendant Hermana

Cerezo to pay the plaintiff:

a) For Actual Damages

1) Expenses for operation and medical
Treatment - P69,485.35
2) Cost of repair of the tricycle - 39,921.00
b) For loss of earnings - 43,300.00
c) For moral damages - 20,000.00
d) And to pay the cost of the suit.

The docket fees and other expenses in the filing of this suit shall be lien on
whatever judgment may be rendered in favor of the plaintiff.

SO ORDERED. [10]

Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10 July 1995,
Mrs. Cerezo filed before the trial court a petition for relief from judgment on the
grounds of fraud, mistake or excusable negligence. Testifying before the trial court,
both Mrs. Cerezo and Atty. Valera denied receipt of notices of hearings and of orders
of the court. Atty. Valera added that he received no notice before or during the 8 May
1995 elections, when he was a senatorial candidate for the KBL Party, and very
busy, using his office and residence as Party National Headquarters. Atty. Valera
claimed that he was able to read the decision of the trial court only after Mrs. Cerezo
sent him a copy.[11]

Tuazon did not testify but presented documentary evidence to prove the
participation of the Cerezo spouses in the case. Tuazon presented the following
exhibits:
Exhibit 1 - Sheriffs return and summons;
Exhibit 1-A - Alias summons dated April 20, 1994;
Exhibit 2 - Comment with Motion;
Exhibit 3 - Minutes of the hearing held on August 1, 1994;
Exhibit 3-A - Signature of defendants counsel;
Exhibit 4 - Minutes of the hearing held on August 30, 1994;
Exhibit 4-A - Signature of the defendants counsel;
Exhibit 5 - Appearance and Urgent Ex-Parte Motion;
Exhibit 6 - Order dated November 14, 1994;
Exhibit 6-A - Postal certification dated January 13, 1995;
Exhibit 7 - Order dated February [illegible];
Exhibit 7-A - Courts return slip addressed to Atty. Elpidio
Valera;
Exhibit 7-B - Courts return slip addressed to Spouses Juan
and Hermana Cerezo;
Exhibit 8 - Decision dated May [30], 1995
Exhibit 8-A - Courts return slip addressed to defendant Hermana
Cerezo;
Exhibit 8-B - Courts return slip addressed to defendants counsel,
Atty. Elpidio Valera;
Exhibit 9 - Order dated September 21, 1995;
Exhibit 9-A - Second Page of Exhibit 9;
Exhibit 9-B - Third page of Exhibit 9;
Exhibit 9-C - Fourth page of Exhibit 9;
Exhibit 9-D - Courts return slip addressed to Atty. Elpidio Valera;
and
Exhibit 9-E - Courts return slip addressed to plaintiffs counsel,
Atty. Norman Dick de Guzman. [12]

On 4 March 1998, the trial court issued an order denying the petition for relief
[13]

from judgment. The trial court stated that having received the decision on 25 June
1995, the Cerezo spouses should have filed a notice of appeal instead of resorting to
a petition for relief from judgment. The trial court refused to grant relief from
judgment because the Cerezo spouses could have availed of the remedy of appeal.
Moreover, the Cerezo spouses not only failed to prove fraud, accident, mistake or
excusable negligence by conclusive evidence, they also failed to prove that they had
a good and substantial defense. The trial court noted that the Cerezo spouses failed
to appeal because they relied on an expected settlement of the case.
The Cerezo spouses subsequently filed before the Court of Appeals a petition
for certiorari under Section 1 of Rule 65. The petition was docketed as CA-G.R. SP
No. 48132. The petition questioned whether the trial court acquired jurisdiction over
[14]

the case considering there was no service of summons on Foronda, whom the
Cerezo spouses claimed was an indispensable party. In a resolution dated 21 [15]

January 1999, the Court of Appeals denied the petition for certiorari and affirmed the
trial courts order denying the petition for relief from judgment. The Court of Appeals
declared that the Cerezo spouses failure to file an answer was due to their own
negligence, considering that they continued to participate in the proceedings without
filing an answer. There was also nothing in the records to show that the Cerezo
spouses actually offered a reasonable settlement to Tuazon. The Court of Appeals
also denied Cerezo spouses motion for reconsideration for lack of merit.
The Cerezo spouses filed before this Court a petition for review
on certiorari under Rule 45. Atty. Cerezo himself signed the petition, docketed as
G.R. No. 137593. On 13 April 1999, this Court rendered a resolution denying the
petition for review on certiorari for failure to attach an affidavit of service of copies of
the petition to the Court of Appeals and to the adverse parties. Even if the petition
complied with this requirement, the Court would still have denied the petition as the
Cerezo spouses failed to show that the Court of Appeals committed a reversible
error. The Courts resolution was entered in the Book of Entries and Judgments when
it became final and executory on 28 June 1999. [16]

Undaunted, the Cerezo spouses filed before the Court of Appeals on 6 July 1999
a petition for annulment of judgment under Rule 47 with prayer for restraining
order. Atty. Valera and Atty. Dionisio S. Daga (Atty. Daga) represented Mrs. Cerezo
in the petition, docketed as CA-G.R. SP No. 53572. The petition prayed for the
[17]

annulment of the 30 May 1995 decision of the trial court and for the issuance of a
writ of preliminary injunction enjoining execution of the trial courts decision pending
resolution of the petition.
The Court of Appeals denied the petition for annulment of judgment in a
resolution dated 21 October 1999. The resolution reads in part:

In this case, records show that the petitioner previously filed with the lower court a
Petition for Relief from Judgment on the ground that they were wrongfully
declared in default while waiting for an amicable settlement of the complaint for
damages. The court a quo correctly ruled that such petition is without merit. The
defendant spouses admit that during the initial hearing they appeared before the
court and even mentioned the need for an amicable settlement. Thus, the lower
court acquired jurisdiction over the defendant spouses.

Therefore, petitioner having availed of a petition for relief, the remedy of an

annulment of judgment is no longer available. The proper action for the petitioner
is to appeal the order of the lower court denying the petition for relief.

Wherefore, the instant petition could not be given due course and should
accordingly be dismissed.

SO ORDERED. [18]
 On 20 January 2000, the Court of Appeals denied the Cerezo spouses motion
for reconsideration. The Court of Appeals stated:
[19]

A distinction should be made between a courts jurisdiction over a person and its
jurisdiction over the subject matter of a case. The former is acquired by the proper
service of summons or by the parties voluntary appearance; while the latter is
conferred by law.

Resolving the matter of jurisdiction over the subject matter, Section 19(1) of
B[atas] P[ambansa] 129 provides that Regional Trial Courts shall exercise
exclusive original jurisdiction in all civil actions in which the subject of the
litigation is incapable of pecuniary estimation. Thus it was proper for the lower
court to decide the instant case for damages.

Unlike jurisdiction over the subject matter of a case which is absolute and
conferred by law; any defects [sic] in the acquisition of jurisdiction over a person
(i.e., improper filing of civil complaint or improper service of summons) may be
waived by the voluntary appearance of parties.

The lower court admits the fact that no summons was served on defendant
Foronda. Thus, jurisdiction over the person of defendant Foronda was not
acquired, for which reason he was not held liable in this case. However, it has been
proven that jurisdiction over the other defendants was validly acquired by the
court a quo.

The defendant spouses admit to having appeared in the initial hearings and in the
hearing for plaintiffs motion to litigate as a pauper. They even mentioned
conferences where attempts were made to reach an amicable settlement with
plaintiff. However, the possibility of amicable settlement is not a good and
substantial defense which will warrant the granting of said petition.

xxx

Assuming arguendo that private respondent failed to reserve his right to institute a
separate action for damages in the criminal action, the petitioner cannot now raise
such issue and question the lower courts jurisdiction because petitioner and her
husband have waived such right by voluntarily appearing in the civil case for
damages. Therefore, the findings and the decision of the lower court may bind
them.

Records show that the petitioner previously filed with the lower court a Petition for
Relief from Judgment on the ground that they were wrongfully declared in default
while waiting for an amicable settlement of the complaint for damages. The
court a quo correctly ruled that such petition is without merit, jurisdiction having
been acquired by the voluntary appearance of defendant spouses.
Once again, it bears stressing that having availed of a petition for relief, the remedy
of annulment of judgment is no longer available.

Based on the foregoing, the motion for reconsideration could not be given due
course and is hereby DENIED.

SO ORDERED. [20]

The Issues

On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone representing
her, filed the present petition for review on certiorari before this Court. Mrs. Cerezo
claims that:
1. In dismissing the Petition for Annulment of Judgment, the Court of Appeals
assumes that the issues raised in the petition for annulment is based on extrinsic
fraud related to the denied petition for relief notwithstanding that the grounds
relied upon involves questions of lack of jurisdiction.
2. In dismissing the Petition for Annulment, the Court of Appeals disregarded the
allegation that the lower court[s] findings of negligence against defendant-driver
Danilo Foronda [whom] the lower court did not summon is null and void for want
of due process and consequently, such findings of negligence which is [sic] null
and void cannot become the basis of the lower court to adjudge petitioner-
employer liable for civil damages.
3. In dismissing the Petition for Annulment, the Court of Appeals ignored the
allegation that defendant-driver Danilo A. Foronda whose negligence is the main
issue is an indispensable party whose presence is compulsory but [whom] the
lower court did not summon.
4. In dismissing the Petition for Annulment, the Court of Appeals ruled that
assuming arguendo that private respondent failed to reserve his right to institute
a separate action for damages in the criminal action, the petitioner cannot now
raise such issue and question the lower courts jurisdiction because petitioner
[has] waived such right by voluntarily appearing in the civil case for damages
notwithstanding that lack of jurisdiction cannot be waived.[21]

The Courts Ruling

The petition has no merit. As the issues are interrelated, we shall discuss them
jointly.
Remedies Available
to a Party Declared in Default
An examination of the records of the entire proceedings shows that three
lawyers filed and signed pleadings on behalf of Mrs. Cerezo, namely, Atty. Daga,
Atty. Valera, and Atty. Cerezo.Despite their number, Mrs. Cerezos counsels failed to
avail of the proper remedies. It is either by sheer ignorance or by malicious
manipulation of legal technicalities that they have managed to delay the disposition
of the present case, to the detriment of pauper litigant Tuazon.
Mrs. Cerezo claims she did not receive any copy of the order declaring the
Cerezo spouses in default. Mrs. Cerezo asserts that she only came to know of the
default order on 25 June 1995, when she received a copy of the decision. On 10 July
1995, Mrs. Cerezo filed before the trial court a petition for relief from judgment under
Rule 38, alleging fraud, mistake, or excusable negligence as grounds. On 4 March
1998, the trial court denied Mrs. Cerezos petition for relief from judgment. The trial
court stated that Mrs. Cerezo could have availed of appeal as a remedy and that she
failed to prove that the judgment was entered through fraud, accident, mistake, or
excusable negligence. Mrs. Cerezo then filed before the Court of Appeals a petition
for certiorari under Section 1 of Rule 65 assailing the denial of the petition for relief
from judgment. On 21 January 1999, the Court of Appeals dismissed Mrs. Cerezos
petition. On 24 February 1999, the appellate court denied Mrs. Cerezos motion for
reconsideration. On 11 March 1999, Mrs. Cerezo filed before this Court a petition for
review on certiorari under Rule 45, questioning the denial of the petition for relief
from judgment. We denied the petition and our resolution became final and
executory on 28 June 1999.
On 6 July 1999, a mere eight days after our resolution became final and
executory, Mrs. Cerezo filed before the Court of Appeals a petition for annulment of
the judgment of the trial court under Rule 47. Meanwhile, on 25 August 1999, the trial
court issued over the objection of Mrs. Cerezo an order of execution of the judgment
in Civil Case No. 7415. On 21 October 1999, the Court of Appeals dismissed the
petition for annulment of judgment. On 20 January 2000, the Court of Appeals
denied Mrs. Cerezos motion for reconsideration. On 7 February 2000, Mrs. Cerezo
filed the present petition for review on certiorari under Rule 45 challenging the
dismissal of her petition for annulment of judgment.
Lina v. Court of Appeals enumerates the remedies available to a party
[22]

declared in default:
a) The defendant in default may, at any time after discovery thereof and before
judgment, file a motion under oath to set aside the order of default on the
ground that his failure to answer was due to fraud, accident, mistake or
excusable negligence, and that he has a meritorious defense (Sec. 3, Rule 18
[now Sec. 3(b), Rule 9]);
b) If the judgment has already been rendered when the defendant discovered the
default, but before the same has become final and executory, he may file
a motion for new trial under Section 1 (a) of Rule 37;
c) If the defendant discovered the default after the judgment has become final and
executory, he may file a petition for relief under Section 2 [now Section 1] of
Rule 38; and
d) He may also appeal from the judgment rendered against him as contrary to the
evidence or to the law, even if no petition to set aside the order of default has
been presented by him (Sec. 2, Rule 41). (Emphasis added)
Moreover, a petition for certiorari to declare the nullity of a judgment by default is
also available if the trial court improperly declared a party in default, or even if the
trial court properly declared a party in default, if grave abuse of discretion attended
such declaration. [23]
 Mrs. Cerezo admitted that she received a copy of the trial courts decision on 25
June 1995. Based on this admission, Mrs. Cerezo had at least three remedies at her
disposal: an appeal, a motion for new trial, or a petition for certiorari.
Mrs. Cerezo could have appealed under Rule 41 from the default judgment
[24]

within 15 days from notice of the judgment. She could have availed of the power of
the Court of Appeals to try cases and conduct hearings, receive evidence, and
perform all acts necessary to resolve factual issues raised in cases falling within its
appellate jurisdiction.
[25]

Mrs. Cerezo also had the option to file under Rule 37 a motion for new trial
[26]

within the period for taking an appeal. If the trial court grants a new trial, the original
judgment is vacated, and the action will stand for trial de novo. The recorded
evidence taken in the former trial, as far as the same is material and competent to
establish the issues, shall be used at the new trial without retaking the same. [27]

Mrs. Cerezo also had the alternative of filing under Rule 65 a petition [28]

for certiorari assailing the order of default within 60 days from notice of the
judgment. An order of default is interlocutory, and an aggrieved party may file an
appropriate special civil action under Rule 65. In a petition for certiorari, the
[29]

appellate court may declare void both the order of default and the judgment of
default.
Clearly, Mrs. Cerezo had every opportunity to avail of these remedies within the
reglementary periods provided under the Rules of Court. However, Mrs. Cerezo
opted to file a petition for relief from judgment, which is available only in
exceptional cases. A petition for relief from judgment should be filed within the
reglementary period of 60 days from knowledge of judgment and six months from
entry of judgment, pursuant to
Rule 38 of the Rules of Civil Procedure. Tuason v. [30]
Court of
Appeals explained the nature of a petition for relief from judgment:
[31]

When a party has another remedy available to him, which may either be a motion
for new trial or appeal from an adverse decision of the trial court, and he was not
prevented by fraud, accident, mistake or excusable negligence from filing such
motion or taking such appeal, he cannot avail himself of this petition. Indeed, relief
will not be granted to a party who seeks avoidance from the effects of the judgment
when the loss of the remedy at law was due to his own negligence; otherwise the
petition for relief can be used to revive the right to appeal which has been lost thru
inexcusable negligence.

Evidently, there was no fraud, accident, mistake, or excusable negligence that

prevented Mrs. Cerezo from filing an appeal, a motion for new trial or a petition
for certiorari. It was error for her to avail of a petition for relief from judgment.
After our resolution denying Mrs. Cerezos petition for relief became final and
executory, Mrs. Cerezo, in her last ditch attempt to evade liability, filed before the
Court of Appeals a petition for annulment of the judgment of the trial
court. Annulment is available only on the grounds of extrinsic fraud and lack of
jurisdiction. If based on extrinsic fraud, a party must file the petition within four years
from its discovery, and if based on lack of jurisdiction, before laches or estoppel bars
the petition. Extrinsic fraud is not a valid ground if such fraud was used as a ground,
or could have been used as a ground, in a motion for new trial or petition for relief
from judgment. [32]

Mrs. Cerezo insists that lack of jurisdiction, not extrinsic fraud, was her ground
for filing the petition for annulment of judgment. However, a party may avail of the
remedy of annulment of judgment under Rule 47 only if the ordinary remedies of new
trial, appeal, petition for relief from judgment, or other appropriate remedies are no
longer available through no fault of the party. Mrs. Cerezo could have availed of a
[33]

new trial or appeal but through her own fault she erroneously availed of the remedy
of a petition for relief, which was denied with finality. Thus, Mrs. Cerezo may no
longer avail of the remedy of annulment.
In any event, the trial court clearly acquired jurisdiction over Mrs. Cerezos
person. Mrs. Cerezo actively participated in the proceedings before the trial court,
submitting herself to the jurisdiction of the trial court. The defense of lack of
jurisdiction fails in light of her active participation in the trial court
proceedings. Estoppel or laches may also bar lack of jurisdiction as a ground for
nullity especially if raised for the first time on appeal by a party who participated in
the proceedings before the trial court, as what happened in this case. [34]

For these reasons, the present petition should be dismissed for utter lack of
merit. The extraordinary action to annul a final judgment is restricted to the grounds
specified in the rules. The reason for the restriction is to prevent this extraordinary
action from being used by a losing party to make a complete farce of a duly
promulgated decision that has long become final and executory. There would be no
end to litigation if parties who have unsuccessfully availed of any of the appropriate
remedies or lost them through their fault could still bring an action for annulment of
judgment. Nevertheless, we shall discuss the issues raised in the present petition
[35]

to clear any doubt about the correctness of the decision of the trial court.
Mrs. Cerezos Liability and the
Trial Courts Acquisition of Jurisdiction

Mrs. Cerezo contends that the basis of the present petition for annulment is lack
of jurisdiction. Mrs. Cerezo asserts that the trial court could not validly render
judgment since it failed to acquire jurisdiction over Foronda. Mrs. Cerezo points out
that there was no service of summons on Foronda. Moreover, Tuazon failed to
reserve his right to institute a separate civil action for damages in the criminal
action. Such contention betrays a faulty foundation. Mrs. Cerezos contention
proceeds from the point of view of criminal law and not of civil law, while the basis of
the present action of Tuazon is quasi-delict under the Civil Code, not delict under the
Revised Penal Code.
The same negligent act may produce civil liability arising from a delict under
Article 103 of the Revised Penal Code, or may give rise to an action for a quasi-delict
under Article 2180 of the Civil Code. An aggrieved party may choose between the
two remedies. An action based on a quasi-delict may proceed independently from
the criminal action. There is, however, a distinction between civil liability arising
[36]

from a delict and civil liability arising from a quasi-delict. The choice of remedy,
whether to sue for a delict or a quasi-delict, affects the procedural and jurisdictional
issues of the action. [37]
 Tuazon chose to file an action for damages based on a quasi-delict. In his
complaint, Tuazon alleged that Mrs. Cerezo, without exercising due care and
diligence in the supervision and management of her employees and buses, hired
Foronda as her driver. Tuazon became disabled because of Forondas recklessness,
gross negligence and imprudence, aggravated by Mrs. Cerezos lack of due care and
diligence in the selection and supervision of her employees, particularly Foronda. [38]

The trial court thus found Mrs. Cerezo liable under Article 2180 of the Civil
Code. Article 2180 states in part:

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry.

Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable party to the

case. An indispensable party is one whose interest is affected by the courts action in
the litigation, and without whom no final resolution of the case is possible. However,
[39]

Mrs. Cerezos liability as an employer in an action for a quasi-delict is not only

solidary, it is also primary and direct. Foronda is not an indispensable party to the
final resolution of Tuazons action for damages against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-delict is
solidary. Where there is a solidary obligation on the part of debtors, as in this case,
[40]

each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for
the entire obligation in full. There is no merger or renunciation of rights, but only
mutual representation. Where the obligation of the parties is solidary, either of the
[41]

parties is indispensable, and the other is not even a necessary party because
complete relief is available from either. Therefore, jurisdiction over Foronda is not
[42]

even necessary as Tuazon may collect damages from Mrs. Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary and direct,
while the employers liability based on a delict is merely subsidiary. The words
[43]

primary and direct, as contrasted with subsidiary, refer to the remedy provided by law
for enforcing the obligation rather than to the character and limits of the obligation.
Although liability under Article 2180 originates from the negligent act of the
[44]

employee, the aggrieved party may sue the employer directly. When an employee
causes damage, the law presumes that the employer has himself committed an act
of negligence in not preventing or avoiding the damage. This is the fault that the law
condemns. While the employer is civilly liable in a subsidiary capacity for the
employees criminal negligence, the employer is also civilly liable directly and
separately for his own civil negligence in failing to exercise due diligence in selecting
and supervising his employee. The idea that the employers liability is solely
subsidiary is wrong. [45]

The action can be brought directly against the person responsible (for another),
without including the author of the act. The action against the principal is
accessory in the sense that it implies the existence of a prejudicial act committed
by the employee, but it is not subsidiary in the sense that it can not be instituted till
after the judgment against the author of the act or at least, that it is subsidiary to the
principal action; the action for responsibility (of the employer) is in itself a
principal action.[46]

Thus, there is no need in this case for the trial court to acquire jurisdiction over
Foronda. The trial courts acquisition of jurisdiction over Mrs. Cerezo is sufficient to
dispose of the present case on the merits.
In contrast, an action based on a delict seeks to enforce the subsidiary liability of
the employer for the criminal negligence of the employee as provided in Article 103
of the Revised Penal Code. To hold the employer liable in a subsidiary capacity
under a delict, the aggrieved party must initiate a criminal action where the
employees delict and corresponding primary liability are established. If the present
[47]

action proceeds from a delict, then the trial courts jurisdiction over Foronda is
necessary. However, the present action is clearly for the quasi-delict of Mrs. Cerezo
and not for the delict of Foronda.
The Cerezo spouses contention that summons be served anew on them is
untenable in light of their participation in the trial court proceedings. To uphold the
Cerezo spouses contention would make a fetish of a technicality. Moreover, any
[48]

irregularity in the service of summons that might have vitiated the trial courts
jurisdiction over the persons of the Cerezo spouses was deemed waived when the
Cerezo spouses filed a petition for relief from judgment. [49]

We hold that the trial court had jurisdiction and was competent to decide the
case in favor of Tuazon and against Mrs. Cerezo even in the absence of
Foronda. Contrary to Mrs. Cerezos contention, Foronda is not an indispensable party
to the present case. It is not even necessary for Tuazon to reserve the filing of a
separate civil action because he opted to file a civil action for damages against Mrs.
Cerezo who is primarily and directly liable for her own civil negligence. The words of
Justice Jorge Bocobo in Barredo v. Garcia still hold true today as much as it did in
1942:

x x x [T]o hold that there is only one way to make defendants liability effective,
and that is, to sue the driver and exhaust his (the latters) property first, would be
tantamount to compelling the plaintiff to follow a devious and cumbersome
method of obtaining relief. True, there is such a remedy under our laws, but there is
also a more expeditious way, which is based on the primary and direct
responsibility of the defendant under article [2180] of the Civil Code. Our view of
the law is more likely to facilitate remedy for civil wrongs, because the procedure
indicated by the defendant is wasteful and productive of delay, it being a matter of
common knowledge that professional drivers of taxis and other similar public
conveyances do not have sufficient means with which to pay damages. Why, then,
should the plaintiff be required in all cases to go through this roundabout,
unnecessary, and probably useless procedure? In construing the laws, courts have
endeavored to shorten and facilitate the pathways of right and justice. [50]

Interest at the rate of 6% per annum is due on the amount of damages adjudged
by the trial court. The 6% per annum interest shall commence from 30 May 1995,
[51]

the date of the decision of the trial court. Upon finality of this decision, interest at
12% per annum, in lieu of 6% per annum, is due on the amount of damages
adjudged by the trial court until full payment.
WHEREFORE, we DENY the instant petition for review. The Resolution dated 21
October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its
Resolution dated 20 January 2000 denying the motion for reconsideration,
is AFFIRMED with the MODIFICATION that the amount due shall earn legal interest
at 6% per annum computed from 30 May 1995, the date of the trial courts
decision. Upon finality of this decision, the amount due shall earn interest at 12% per
annum, in lieu of 6% per annum, until full payment.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Azcuna, JJ., concur.
Panganiban, J., on official leave.

[1]
Under Rule 45 of the Rules of Court.
[2]
Penned by Associate Justice Elvi John S. Asuncion, with Associate Justices Eubulo G. Verzola and
Artemio G. Tuquero, concurring.
[3]
Penned by Judge Carlos D. Rustia.
[4]
CA Rollo, p. 8.
[5]
Ibid., pp. 13-17.
[6]
Rollo, p. 66.
[7]
CA Rollo, pp. 18-20.
[8]
Ibid., p. 21.
[9]
Rollo, p. 4.
[10]
CA Rollo, p. 23.
[11]
Ibid., pp. 24-33.
[12]
Ibid., pp. 35-36.
[13]
Penned by Judge Lourdes F. Gatbalite.
[14]
Captioned Hermana R. Cerezo and Juan D. Cerezo, as husband, petitioners, v. Hon. Lourdes
Gatbalite and David Tuazon, respondents.
[15]
Penned by Associate Justice Romeo A. Brawner, with Associate Justices Angelina Sandoval-
Gutierrez and Martin S. Villarama, Jr., concurring.
[16]
Rollo, pp. 60-61.
[17]
Captioned Hermana R. Cerezo and Juan D. Cerezo, as husband, petitioners, v. Lourdes Gatbalite,
Presiding Judge (incumbent), RTC Branch 56, Angeles City, and David Tuazon, respondents.
[18]
Rollo, pp. 36-37.
[19]
Ibid., pp. 33-34.
[20]
Ibid., pp. 18-19.
[21]
Ibid., pp. 6-7.
[22]
No. L-63397, 9 April 1985, 135 SCRA 637.
[23]
Pacete v. Cariaga, Jr., G.R. No. 53880, 17 March 1994, 231 SCRA 321. See also Matute v. Court
of Appeals, 136 Phil. 162 (1969); Omico Mining and Industrial Corporation v. Vallejos, No. L-
38974, 25 March 1975, 63 SCRA 285.
[24]
Section 3, Rule 41.
[25]
Section 9(3), Batas Pambansa Blg. 129, as amended.
[26]
Section 1. Grounds of and period for filing motion for new trial or reconsideration. Within the period
for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or
final order and grant a new trial for one or more of the following causes materially affecting
the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have
guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the
result.
xxx
[27]
Sections 1 and 6, Rule 37.
[28]
Section 1. Petition for certiorari. When any tribunal, board, or officer exercising judicial or quasi-
judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain,
speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may
file a verified petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings of such tribunal, board or
officer, and granting such incidental reliefs as law and justice may require.
xxx
Section 4. Where petition filed. The petition may be filed not later than sixty (60) days from notice of
judgment, order or resolution sought to be assailed in the Supreme Court; or, if it relates to
the acts or omissions of a lower court or of a corporation, board, officer or person, in the
Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme
Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves acts
or omissions of a quasi-judicial agency, and unless otherwise provided by law or these Rules,
the petition shall be filed in and cognizable only by the Court of Appeals.
[29]
Section 1, Rule 41.
[30]
Section 1. Petition for relief from judgment, order, or other proceedings. When a judgment or final
order is entered, or any other proceeding is thereafter taken against a party in any court
through fraud, accident, mistake, or excusable negligence, he may file a petition in such court
and in the same case praying that the judgment, order or proceeding be set aside.
Section 3. Time for filing petition; contents and verification. A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner
learns of the judgment, final order, or other proceeding to be set aside, and not more than six
(6) months after such judgment or final order was entered, or such proceeding was taken; x x
x.
See Turqueza v. Hernando, No. L-51626, 30 April 1980, 97 SCRA 483.
[31]
326 Phil. 169 (1996).
[32]
Sections 2 and 3, Rule 47.
[33]
Cipriano M. Lazaro v. Rural Bank of Francisco Balagtas (Bulacan), Inc. and The Register of Deeds
of Valenzuela City, G.R. No. 139895, 15 August 2003; Teresita Villasor Manipol, et al., v.
Spouses Pablo and Antonia Ricafort, G.R. No. 150159, 25 July 2003.
[34]
Tijam, et al. v. Sibonghanoy, et al., 181 Phil. 556 (1968).
[35]
See Ibabao v. Intermediate Appellate Court, No. L-74848, 20 May 1987, 150 SCRA 76.
[36]
See Article 2177, Civil Code of the Philippines. Compare Sections 1 and 3, Rule 111, 1988 Rules of
Criminal Procedure with Sections 1 and 3, Rule 111, 2000 Rules of Criminal Procedure.
[37]
See Barredo v. Garcia, 73 Phil. 607 (1942).
[38]
CA Rollo, pp. 8-9.
[39]
Imson v. Court of Appeals, G.R. No. 106436, 8 December 1994, 239 SCRA 59.
[40]
Article 2194, Civil Code of the Philippines.
[41]
Quiombing v. CA, G.R. No. 93219, 30 August 1990, 189 SCRA 331 (citing Tolentino, IV Civil Code
of the Philippines 218 (1985 ed.)).
[42]
Ibid., (citing Feria, Civil Procedure 153 (1969 ed.).
[43]
Poblete v. Fabros, No. L-29803, 14 September 1979, 93 SCRA 200.
[44]
33A Words and Phrases 215 (1971 ed.)
[45]
See Barredo v. Garcia, supra note 37 (1942) (citing Amandi, 4 Cuestionario del Cdigo Civil
Reformado 429, 430).
[46]
Ibid., (citing Laurent, 20 Principles of French Civil Law 734-735 (Spanish translation)).
[47]
Poblete v. Fabros, supra note 43; Franco v. Intermediate Appellate Court, G.R. No. 71137, 5
October 1989, 178 SCRA 331.
[48]
Gumabay v. Baralin, No. L-30683, 77 SCRA 258, 31 May 1977; Rule 14, Section 20.
[49]
See J.M. Tuason & Co., Inc., v. Estabillo, No. L-20610, 9 January 1975, 62 SCRA 1.
[50]
Barredo v. Garcia, supra note 36, pp. 620-621.
[51]
Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78;
Reformina v. Tomol, Jr., No. L-59096, 11 October 1985, 139 SCRA 260.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 85044 June 3, 1992

MACARIO TAMARGO, CELSO TAMARGO and AURELIA TAMARGO, petitioners,

vs.
HON. COURT OF APPEALS, THE HON. ARISTON L. RUBIO, RTC Judge, Branch 20, Vigan,
Ilocos Sur; VICTOR BUNDOC; and CLARA BUNDOC, respondents.

FELICIANO, J.:

On 20 October 1982, Adelberto Bundoc, then a minor of 10 years of age, shot Jennifer Tamargo
with an air rifle causing injuries which resulted in her death. Accordingly, a civil complaint for
damages was filed with the Regional Trial Court, Branch 20, Vigan, Ilocos Sur, docketed as Civil
Case No. 3457-V, by petitioner Macario Tamargo, Jennifer's adopting parent, and petitioner
spouses Celso and Aurelia Tamargo, Jennifer's natural parents against respondent spouses
Victor and Clara Bundoc, Adelberto's natural parents with whom he was living at the time of the
tragic incident. In addition to this case for damages, a criminal information or Homicide through
Reckless Imprudence was filed [Criminal Case No. 1722-V] against Adelberto Bundoc. Adelberto,
however, was acquitted and exempted from criminal liability on the ground that he bad acted
without discernment.

Prior to the incident, or on 10 December 1981, the spouses Sabas and Felisa Rapisura had filed
a petition to adopt the minor Adelberto Bundoc in Special Proceedings No. 0373-T before the
then Court of First Instance of Ilocos Sur. This petition for adoption was grunted on, 18
November 1982, that is, after Adelberto had shot and killed Jennifer.

In their Answer, respondent spouses Bundoc, Adelberto's natural parents, reciting the result of
the foregoing petition for adoption, claimed that not they, but rather the adopting parents, namely
the spouses Sabas and Felisa Rapisura, were indispensable parties to the action since parental
authority had shifted to the adopting parents from the moment the successful petition for
adoption was filed.
Petitioners in their Reply contended that since Adelberto Bundoc was then actually living with his
natural parents, parental authority had not ceased nor been relinquished by the mere filing and
granting of a petition for adoption.

The trial court on 3 December 1987 dismissed petitioners' complaint, ruling that respondent
natural parents of Adelberto indeed were not indispensable parties to the action.

Petitioners received a copy of the trial court's Decision on 7 December 1987. Within the 15-day
reglementary period, or on 14 December 1987, petitioners filed a motion for reconsideration
followed by a supplemental motion for reconsideration on 15 January 1988. It appearing,
however, that the motions failed to comply with Sections 4 and 5 of Rule 15 of the Revised Rules
of Court — that notice of the motion shall be given to all parties concerned at least three (3) days
before the hearing of said motion; and that said notice shall state the time and place of hearing
— both motions were denied by the trial court in an Order dated 18 April 1988. On 28 April 1988,
petitioners filed a notice of appeal. In its Order dated 6 June 1988, the trial court dismissed the
notice at appeal, this time ruling that the notice had been filed beyond the 15-day reglementary
period ending 22 December 1987.

Petitioners went to the Court of Appeals on a petition for mandamus and certiorari questioning
the trial court's Decision dated 3 December 1987 and the Orders dated 18 April 1988 and 6 June
1988, The Court of Appeals dismissed the petition, ruling that petitioners had lost their right to
appeal.

In the present Petition for Review, petitioners once again contend that respondent spouses
Bundoc are the indispensable parties to the action for damages caused by the acts of their minor
child, Adelberto Bundoc. Resolution of this Petition hinges on the following issues: (1) whether or
not petitioners, notwithstanding loss of their right to appeal, may still file the instant Petition;
conversely, whether the Court may still take cognizance of the case even through petitioners'
appeal had been filed out of time; and (2) whether or not the effects of adoption, insofar as
parental authority is concerned may be given retroactive effect so as to make the adopting
parents the indispensable parties in a damage case filed against their adopted child, for acts
committed by the latter, when actual custody was yet lodged with the biological parents.

1. It will be recalled that, petitioners' motion (and supplemental motion) for reconsideration filed
before the trial court, not having complied with the requirements of Section 13, Rule 41, and
Section 4, Rule 15, of the Revised Rules of Court, were considered pro forma and hence did not
interrupt and suspend the reglementary period to appeal: the trial court held that the motions, not
having contained a notice of time and place of hearing, had become useless pieces of paper
which did not interrupt the reglementary period. As in fact repeatedly held by this Court, what is
1

mandatory is the service of the motion on the opposing counsel indicating the time and place of
hearing. 2

In view, however, of the nature of the issue raised in the instant. Petition, and in order that
substantial justice may be served, the Court, invoking its right to suspend the application of
technical rules to prevent manifest injustice, elects to treat the notice of appeal as having been
seasonably filed before the trial court, and the motion (and supplemental motion) for
reconsideration filed by petitioner in the trial court as having interrupted the reglementary period
for appeal. As the Court held in Gregorio v. Court of Appeals: 3

Dismissal of appeal; purely on technical grounds is frowned upon where the

policy of the courts is to encourage hearings of appeal on their merits. The rules
of procedure ought not be applied in a very rigid technical sense, rules of
procedure are used only to help secure not override, substantial justice. if d
technical and rigid enforcement of the rules is made their aim would be
defeated. 4
2. It is not disputed that Adelberto Bundoc's voluntary act of shooting Jennifer Tamargo with an
air rifle gave rise to a cause of action on quasi-delict against him. As Article 2176 of the Civil
Code provides:

Whoever by act or omission causes damage to another, there being fault or

negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasi-
delict . . .

Upon the other hand, the law imposes civil liability upon the father and, in case of his death or
incapacity, the mother, for any damages that may be caused by a minor child who lives with
them. Article 2180 of the Civil Code reads:

The obligation imposed by article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.

The father and, in case of his death or incapacity, the mother, are responsible for
the damages caused by the minor children who live in their company.

xxx xxx xxx

The responsibility treated of in this Article shall cease when the person herein
mentioned prove that they observed all the diligence of a good father of a family
to prevent damage. (Emphasis supplied)

This principle of parental liability is a species of what is frequently designated as vicarious

liability, or the doctrine of "imputed negligence" under Anglo-American tort law, where a person is
not only liable for torts committed by himself, but also for torts committed by others with whom he
has a certain relationship and for whom he is responsible. Thus, parental liability is made a
natural or logical consequence of the duties and responsibilities of parents — their parental
authority — which includes the instructing, controlling and disciplining of the child. The basis for
5

the doctrine of vicarious liability was explained by the Court in Cangco v. Manila Railroad Co. in
6

the following terms:

With respect to extra-contractual obligation arising from negligence, whether of

act or omission, it is competent for the legislature to elect — and our Legislature
has so elected — to limit such liability to cases in which the person upon whom
such an obligation is imposed is morally culpable or, on the contrary, for reasons
of public policy. to extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the negligence of those persons
whose acts or omissions are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over them. The legislature
which adopted our Civil Code has elected to limit extra-contractual liability — with
certain well-defined exceptions — to cases in which moral culpability can be
directly imputed to the persons to be charged. This moral responsibility may
consist in having failed to exercise due care in one's own acts, or in having failed
to exercise due care in the selection and control of one's agent or servants, or in
the control of persons who, by reasons of their status, occupy a position of
dependency with respect to the person made liable for their conduct. (Emphasis
7

Supplied)

The civil liability imposed upon parents for the torts of their minor children living with
them, may be seen to be based upon the parental authority vested by the Civil Code
upon such parents. The civil law assumes that when an unemancipated child living with
its parents commits a tortious acts, the parents were negligent in the performance of their
legal and natural duty closely to supervise the child who is in their custody and control.
 Parental liability is, in other words, anchored upon parental authority coupled with
presumed parental dereliction in the discharge of the duties accompanying such
authority. The parental dereliction is, of course, only presumed and the presumption can
be overtuned under Article 2180 of the Civil Code by proof that the parents had exercised
all the diligence of a good father of a family to prevent the damage.

In the instant case, the shooting of Jennifer by Adelberto with an air rifle occured when parental
authority was still lodged in respondent Bundoc spouses, the natural parents of the minor
Adelberto. It would thus follow that the natural parents who had then actual custody of the minor
Adelberto, are the indispensable parties to the suit for damages.

The natural parents of Adelberto, however, stoutly maintain that because a decree of adoption
was issued by the adoption court in favor of the Rapisura spouses, parental authority was vested
in the latter as adopting parents as of the time of the filing of the petition for adoption that
is, before Adelberto had shot Jennifer which an air rifle. The Bundoc spouses contend that they
were therefore free of any parental responsibility for Adelberto's allegedly tortious conduct.

Respondent Bundoc spouses rely on Article 36 of the Child and Youth Welfare Code 8 which reads as
follows:

Art. 36. Decree of Adoption. — If, after considering the report of the Department
of Social Welfare or duly licensed child placement agency and the evidence
submitted before it, the court is satisfied that the petitioner is qualified to maintain,
care for, and educate the child, that the trial custody period has been completed,
and that the best interests of the child will be promoted by the adoption, a decree
of adoption shall be entered, which shall be effective he date the original petition
was filed. The decree shall state the name by which the child is thenceforth to be
known. (Emphasis supplied)

The Bundoc spouses further argue that the above Article 36 should be read in relation to
Article 39 of the same Code:

Art. 39. Effect of Adoption. — The adoption shall:

xxx xxx xxx

(2) Dissolve the authority vested in the natural parents, except where the adopter
is the spouse of the surviving natural parent;

xxx xxx xxx

(Emphasis supplied)

and urge that their Parental authority must be deemed to have been dissolved as of the time the
Petition for adoption was filed.

The Court is not persuaded. As earlier noted, under the Civil Code, the basis of parental liability
for the torts of a minor child is the relationship existing between the parents and the minor child
living with them and over whom, the law presumes, the parents exercise supervision and control.
Article 58 of the Child and Youth Welfare Code, re-enacted this rule:

Article 58 Torts — Parents and guardians are responsible for the damage caused
by the child under their parental authority in accordance with the civil
Code. (Emphasis supplied)
Article 221 of the Family Code of the Philippines has similarly insisted upon the requisite that
9

the child, doer of the tortious act, shall have beer in the actual custody of the parents sought to
be held liable for the ensuing damage:

Art. 221. Parents and other persons exercising parental authority shall be civilly
liable for the injuries and damages caused by the acts or omissions of their
unemancipated children living in their companyand under their parental authority
subject to the appropriate defenses provided by law. (Emphasis supplied)

We do not believe that parental authority is properly regarded as having been retroactively
transferred to and vested in the adopting parents, the Rapisura spouses, at the time the air rifle
shooting happened. We do not consider that retroactive effect may be giver to the decree of
adoption so as to impose a liability upon the adopting parents accruing at a time when adopting
parents had no actual or physically custody over the adopted child. Retroactive affect may
perhaps be given to the granting of the petition for adoption where such is essential to permit the
accrual of some benefit or advantage in favor of the adopted child. In the instant case, however,
to hold that parental authority had been retroactively lodged in the Rapisura spouses so as to
burden them with liability for a tortious act that they could not have foreseen and which they
could not have prevented (since they were at the time in the United States and had no physical
custody over the child Adelberto) would be unfair and unconscionable. Such a result, moreover,
would be inconsistent with the philosophical and policy basis underlying the doctrine of vicarious
liability. Put a little differently, no presumption of parental dereliction on the part of the adopting
parents, the Rapisura spouses, could have arisen since Adelberto was not in fact subject to their
control at the time the tort was committed.

Article 35 of the Child and Youth Welfare Code fortifies the conclusion reached above. Article 35
provides as follows:

Art. 35. Trial Custody. — No petition for adoption shall be finally granted unless
and until the adopting parents are given by the courts a supervised trial custody
period of at least six months to assess their adjustment and emotional readiness
for the legal union. During the period of trial custody, parental authority shall be
vested in the adopting parents. (Emphasis supplied)

Under the above Article 35, parental authority is provisionally vested in the adopting parents
during the period of trial custody, i.e., before the issuance of a decree of adoption, precisely
because the adopting parents are given actual custody of the child during such trial period. In the
instant case, the trial custody period either had not yet begun or bad already been completed at
the time of the air rifle shooting; in any case, actual custody of Adelberto was then with his
natural parents, not the adopting parents.

Accordingly, we conclude that respondent Bundoc spouses, Adelberto's natural parents, were
indispensable parties to the suit for damages brought by petitioners, and that the dismissal by the
trial court of petitioners' complaint, the indispensable parties being already before the court,
constituted grave abuse of discretion amounting to lack or excess of jurisdiction.

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED DUE
COURSE and the Decision of the Court of Appeals dated 6 September 1988, in C.A.-G.R. No.
SP-15016 is hereby REVERSED and SET ASIDE. Petitioners' complaint filed before the trial
court is hereby REINSTATED and this case is REMANDED to that court for further proceedings
consistent with this Decision. Costs against respondent Bundoc spouses. This Decision is
immediately executory.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, concur.

Footnotes

1 Pojas v. Hon. Gozo-Dalole, 192 SCRA 575 (1990).

2 Fecundo v. Berjamen, 180 SCRA 235 (1989); Filipinas Fabricators and Sales,
Inc. v. Magsino, 157 SCRA 469 (1988).

3 72 SCRA 120 (1976).

4 Id., at 126.

5 See in this connection. Art. 311, 316. 357, Civil Code; Exconde v. Capuno, 101
Phil. 843 (1957).

6 38 Phil. 768 (1918).

7 Id., at 775-776.

8 Presidential Decree No. 603, dated 10 December 1974.

9 Executive Order No. 209, dated 6 July 1967.

 FIRST DIVISION

[G.R. No. 132266. December 21, 1999]

CASTILEX INDUSTRIAL CORPORATION, petitioner, vs. VICENTE

VASQUEZ, JR. and LUISA SO VASQUEZ, and CEBU DOCTORS
HOSPITAL, INC., respondents.

DECISION
DAVIDE, JR., C.J.:

The pivotal issue in this petition is whether an employer may be held vicariously
liable for the death resulting from the negligent operation by a managerial employee of a
company-issued vehicle.
The antecedents, as succinctly summarized by the Court of Appeals, are as follows:

On 28 August 1988, at around 1:30 to 2:00 in the morning, Romeo So

Vasquez, was driving a Honda motorcycle around Fuente Osmea Rotunda. He
was traveling counter-clockwise, (the normal flow of traffic in a rotunda) but
without any protective helmet or goggles. He was also only carrying a
Students Permit to Drive at the time. Upon the other hand, Benjamin Abad
[was a] manager of Appellant Castilex Industrial Corporation, registered
owner [of] a Toyota Hi-Lux Pick-up with plate no. GBW-794. On the same
date and time, Abad drove the said company car out of a parking lot but
instead of going around the Osmea rotunda he made a short cut against [the]
flow of the traffic in proceeding to his route to General Maxilom St. or to
Belvic St.
In the process, the motorcycle of Vasquez and the pick-up of Abad collided
with each other causing severe injuries to the former. Abad stopped his vehicle
and brought Vasquez to the Southern Islands Hospital and later to the Cebu
Doctors Hospital.

On September 5, 1988, Vasquez died at the Cebu Doctors Hospital. It was

there that Abad signed an acknowledgment of Responsible Party (Exhibit K)
wherein he agreed to pay whatever hospital bills, professional fees and other
incidental charges Vasquez may incur.

After the police authorities had conducted the investigation of the accident, a Criminal
Case was filed against Abad but which was subsequently dismissed for failure to
prosecute. So, the present action for damages was commenced by Vicente Vasquez, Jr.
and Luisa So Vasquez, parents of the deceased Romeo So Vasquez, against Jose
Benjamin Abad and Castilex Industrial Corporation. In the same action, Cebu Doctors
Hospital intervened to collect unpaid balance for the medical expense given to Romeo
So Vasquez.[1]

The trial court ruled in favor of private respondents Vicente and Luisa Vasquez and
ordered Jose Benjamin Abad (hereafter ABAD) and petitioner Castilex Industrial
Corporation (hereafter CASTILEX) to pay jointly and solidarily (1) Spouses Vasquez,
the amounts of P8,000.00 for burial expenses; P50,000.00 as moral
damages; P10,000.00 as attorneys fees; and P778,752.00 for loss of earning capacity;
and (2) Cebu Doctors Hospital, the sum of P50,927.83 for unpaid medical and hospital
bills at 3% monthly interest from 27 July 1989 until fully paid, plus the costs of
litigation.[2]
CASTILEX and ABAD separately appealed the decision.
In its decision[3] of 21 May 1997, the Court of Appeals affirmed the ruling of the
trial court holding ABAD and CASTILEX liable but held that the liability of the latter is
only vicarious and not solidary with the former. It reduced the award of damages
representing loss of earning capacity from P778,752.00 to P214,156.80; and the interest
on the hospital and medical bills, from 3% per month to 12% per annum from 5
September 1988 until fully paid.
Upon CASTILEXs motion for reconsideration, the Court of Appeals modified its
decision by (1) reducing the award of moral damages from P50,000 to P30,000 in view
of the deceaseds contributory negligence; (b) deleting the award of attorneys fees for
lack of evidence; and (c) reducing the interest on hospital and medical bills to 6% per
annum from 5 September 1988 until fully paid.[4]
Hence, CASTILEX filed the instant petition contending that the Court of Appeals
erred in (1) applying to the case the fifth paragraph of Article 2180 of the Civil Code,
instead of the fourth paragraph thereof; (2) that as a managerial employee, ABAD was
deemed to have been always acting within the scope of his assigned task even outside
office hours because he was using a vehicle issued to him by petitioner; and (3) ruling
that petitioner had the burden to prove that the employee was not acting within the
scope of his assigned task.
 Jose Benjamin ABAD merely adopted the statement of facts of petitioner which
holds fast on the theory of negligence on the part of the deceased.
On the other hand, respondents Spouses Vasquez argue that their sons death was
caused by the negligence of petitioners employee who was driving a vehicle issued by
petitioner and who was on his way home from overtime work for petitioner; and that
petitioner is thus liable for the resulting injury and subsequent death of their son on the
basis of the fifth paragraph of Article 2180. Even if the fourth paragraph of Article 2180
were applied, petitioner cannot escape liability therefor. They moreover argue that the
Court of Appeals erred in reducing the amount of compensatory damages when the
award made by the trial court was borne both by evidence adduced during the trial
regarding deceaseds wages and by jurisprudence on life expectancy. Moreover, they
point out that the petition is procedurally not acceptable on the following grounds: (1)
lack of an explanation for serving the petition upon the Court of Appeals by registered
mail, as required under Section 11, Rule 13 of the Rules of Civil Procedure; and (2) lack
of a statement of the dates of the expiration of the original reglementary period and of
the filing of the motion for extension of time to file a petition for review.
For its part, respondent Cebu Doctors Hospital maintains that petitioner
CASTILEX is indeed vicariously liable for the injuries and subsequent death of Romeo
Vasquez caused by ABAD, who was on his way home from taking snacks after doing
overtime work for petitioner. Although the incident occurred when ABAD was not
working anymore the inescapable fact remains that said employee would not have been
situated at such time and place had he not been required by petitioner to do overtime
work. Moreover, since petitioner adopted the evidence adduced by ABAD, it cannot, as
the latters employer, inveigle itself from the ambit of liability, and is thus estopped by
the records of the case, which it failed to refute.
We shall first address the issue raised by the private respondents regarding some
alleged procedural lapses in the petition.
Private respondents contention of petitioners violation of Section 11 of Rule 13 and
Section 4 of Rule 45 of the 1997 Rules of Civil Procedure holds no water.
Section 11 of Rule 13 provides:

SEC. 11. Priorities in modes of service and filing. -- Whenever practicable,

the service and filing of pleadings and other papers shall be done
personally. Except with respect to papers emanating from the court, a resort to
other modes must be accompanied by a written explanation why the service or
filing was not done personally. A violation of this Rule may be cause to
consider the paper as not filed.

The explanation why service of a copy of the petition upon the Court of Appeals
was done by registered mail is found on Page 28 of the petition. Thus, there has been
compliance with the aforequoted provision.
As regards the allegation of violation of the material data rule under Section 4 of
Rule 45, the same is unfounded. The material dates required to be stated in the petition
are the following: (1) the date of receipt of the judgment or final order or resolution
subject of the petition; (2) the date of filing of a motion for new trial or reconsideration,
if any; and (3) the date of receipt of the notice of the denial of the motion. Contrary to
private respondents claim, the petition need not indicate the dates of the expiration of
the original reglementary period and the filing of a motion for extension of time to file
the petition. At any rate, aside from the material dates required under Section 4 of Rule
45, petitioner CASTILEX also stated in the first page of the petition the date it filed the
motion for extension of time to file the petition.
Now on the merits of the case.
The negligence of ABAD is not an issue at this instance. Petitioner CASTILEX
presumes said negligence but claims that it is not vicariously liable for the injuries and
subsequent death caused by ABAD.
Petitioner contends that the fifth paragraph of Article 2180 of the Civil Code should
only apply to instances where the employer is not engaged in business or
industry. Since it is engaged in the business of manufacturing and selling furniture it is
therefore not covered by said provision. Instead, the fourth paragraph should apply.
Petitioners interpretation of the fifth paragraph is not accurate. The phrase even
though the former are not engaged in any business or industry found in the fifth
paragraph should be interpreted to mean that it is not necessary for the employer to be
engaged in any business or industry to be liable for the negligence of his employee who
is acting within the scope of his assigned task.[5]
A distinction must be made between the two provisions to determine what is
applicable. Both provisions apply to employers: the fourth paragraph, to owners and
managers of an establishment or enterprise; and the fifth paragraph, to employers in
general, whether or not engaged in any business or industry. The fourth paragraph
covers negligent acts of employees committed either in the service of the branches or on
the occasion of their functions, while the fifth paragraph encompasses negligent acts of
employees acting within the scope of their assigned task. The latter is an expansion of
the former in both employer coverage and acts included. Negligent acts of employees,
whether or not the employer is engaged in a business or industry, are covered so long as
they were acting within the scope of their assigned task, even though committed neither
in the service of the branches nor on the occasion of their functions. For, admittedly,
employees oftentimes wear different hats. They perform functions which are beyond
their office, title or designation but which, nevertheless, are still within the call of duty.
This court has applied the fifth paragraph to cases where the employer was engaged
in a business or industry such as truck operators [6] and banks.[7] The Court of Appeals
cannot, therefore, be faulted in applying the said paragraph of Article 2180 of the Civil
Code to this case.
Under the fifth paragraph of Article 2180, whether or not engaged in any business
or industry, an employer is liable for the torts committed by employees within the scope
of his assigned tasks. But it is necessary to establish the employer-employee
relationship; once this is done, the plaintiff must show, to hold the employer liable, that
the employee was acting within the scope of his assigned task when the tort complained
of was committed. It is only then that the employer may find it necessary to interpose
the defense of due diligence in the selection and supervision of the employee.[8]
It is undisputed that ABAD was a Production Manager of petitioner CASTILEX at
the time of the tort occurrence. As to whether he was acting within the scope of his
assigned task is a question of fact, which the court a quo and the Court of Appeals
resolved in the affirmative.
 Well-entrenched in our jurisprudence is the rule that the factual findings of the
Court of Appeals are entitled to great respect, and even finality at times. This rule is,
however, subject to exceptions such as when the conclusion is grounded on
speculations, surmises, or conjectures.[9] Such exception obtain in the present case to
warrant review by this Court of the finding of the Court of Appeals that since ABAD
was driving petitioners vehicle he was acting within the scope of his duties as a
manager.
Before we pass upon the issue of whether ABAD was performing acts within the
range of his employment, we shall first take up the other reason invoked by the Court of
Appeals in holding petitioner CASTILEX vicariously liable for ABADs negligence, i.e.,
that the petitioner did not present evidence that ABAD was not acting within the scope
of his assigned tasks at the time of the motor vehicle mishap. Contrary to the ruling of
the Court of Appeals, it was not incumbent upon the petitioner to prove the same. It was
enough for petitioner CASTILEX to deny that ABAD was acting within the scope of his
duties; petitioner was not under obligation to prove this negative averment. Ei incumbit
probatio qui dicit, non qui negat (He who asserts, not he who denies, must prove). The
Court has consistently applied the ancient rule that if the plaintiff, upon whom rests the
burden of proving his cause of action, fails to show in a satisfactory manner facts which
he bases his claim, the defendant is under no obligation to prove his exception or
defense.[10]
Now on the issue of whether the private respondents have sufficiently established
that ABAD was acting within the scope of his assigned tasks.
ABAD, who was presented as a hostile witness, testified that at the time of the
incident, he was driving a company-issued vehicle, registered under the name of
petitioner. He was then leaving the restaurant where he had some snacks and had a chat
with his friends after having done overtime work for the petitioner.
No absolutely hard and fast rule can be stated which will furnish the complete
answer to the problem of whether at a given moment, an employee is engaged in his
employers business in the operation of a motor vehicle, so as to fix liability upon the
employer because of the employees action or inaction; but rather, the result varies with
each state of facts.[11]
In Filamer Christian Institute v. Intermediate Appellate Court,[12] this Court had the
occasion to hold that acts done within the scope of the employees assigned tasks
includes any act done by an employee in furtherance of the interests of the employer or
for the account of the employer at the time of the infliction of the injury or damages.
The court a quo and the Court of Appeals were one in holding that the driving by a
manager of a company-issued vehicle is within the scope of his assigned tasks
regardless of the time and circumstances.
We do not agree. The mere fact that ABAD was using a service vehicle at the time
of the injurious incident is not of itself sufficient to charge petitioner with liability for
the negligent operation of said vehicle unless it appears that he was operating the
vehicle within the course or scope of his employment.
The following are principles in American Jurisprudence on the employers liability
for the injuries inflicted by the negligence of an employee in the use of an employers
motor vehicle:
 I. Operation of Employers Motor Vehicle in Going to or from Meals

It has been held that an employee who uses his employers vehicle in going from his
work to a place where he intends to eat or in returning to work from a meal is not
ordinarily acting within the scope of his employment in the absence of evidence of some
special business benefit to the employer. Evidence that by using the employers vehicle
to go to and from meals, an employee is enabled to reduce his time-off and so devote
more time to the performance of his duties supports the finding that an employee is
acting within the scope of his employment while so driving the vehicle.[13]

II. Operation of Employers Vehicle in Going to or from Work

In the same vein, traveling to and from the place of work is ordinarily a personal
problem or concern of the employee, and not a part of his services to his
employer. Hence, in the absence of some special benefit to the employer other than the
mere performance of the services available at the place where he is needed, the
employee is not acting within the scope of his employment even though he uses his
employers motor vehicle.[14]
The employer may, however, be liable where he derives some special benefit from
having the employee drive home in the employers vehicle as when the employer
benefits from having the employee at work earlier and, presumably, spending more time
at his actual duties. Where the employees duties require him to circulate in a general
area with no fixed place or hours of work, or to go to and from his home to various
outside places of work, and his employer furnishes him with a vehicle to use in his
work, the courts have frequently applied what has been called the special errand or
roving commission rule, under which it can be found that the employee continues in the
service of his employer until he actually reaches home. However, even if the employee
be deemed to be acting within the scope of his employment in going to or from work in
his employers vehicle, the employer is not liable for his negligence where at the time of
the accident, the employee has left the direct route to his work or back home and is
pursuing a personal errand of his own.

III. Use of Employers Vehicle Outside Regular Working Hours

An employer who loans his motor vehicle to an employee for the latters personal
use outside of regular working hours is generally not liable for the employees negligent
operation of the vehicle during the period of permissive use, even where the employer
contemplates that a regularly assigned motor vehicle will be used by the employee for
personal as well as business purposes and there is some incidental benefit to the
employer. Even where the employees personal purpose in using the vehicle has been
accomplished and he has started the return trip to his house where the vehicle is
normally kept, it has been held that he has not resumed his employment, and the
employer is not liable for the employees negligent operation of the vehicle during the
return trip.[15]
 The foregoing principles and jurisprudence are applicable in our jurisdiction albeit
based on the doctrine of respondeat superior, not on the principle of bonus pater
familias as in ours. Whether the fault or negligence of the employee is conclusive on his
employer as in American law or jurisprudence, or merely gives rise to the
presumption juris tantum of negligence on the part of the employer as in ours, it is
indispensable that the employee was acting in his employers business or within the
scope of his assigned task.[16]
In the case at bar, it is undisputed that ABAD did some overtime work at the
petitioners office, which was located in Cabangcalan, Mandaue City. Thereafter, he went
to Goldies Restaurant in Fuente Osmea, Cebu City, which is about seven kilometers
away from petitioners place of business.[17] A witness for the private respondents, a
sidewalk vendor, testified that Fuente Osmea is a lively place even at dawn because
Goldies Restaurant and Back Street were still open and people were drinking
thereat. Moreover, prostitutes, pimps, and drug addicts littered the place.[18]
At the Goldies Restaurant, ABAD took some snacks and had a chat with friends. It
was when ABAD was leaving the restaurant that the incident in question occurred. That
same witness for the private respondents testified that at the time of the vehicular
accident, ABAD was with a woman in his car, who then shouted: Daddy, Daddy![19] This
woman could not have been ABADs daughter, for ABAD was only 29 years old at the
time.
To the mind of this Court, ABAD was engaged in affairs of his own or was carrying
out a personal purpose not in line with his duties at the time he figured in a vehicular
accident. It was then about 2:00 a.m. of 28 August 1988, way beyond the normal
working hours. ABADs working day had ended; his overtime work had already been
completed. His being at a place which, as petitioner put it, was known as a haven for
prostitutes, pimps, and drug pushers and addicts, had no connection to petitioners
business; neither had it any relation to his duties as a manager. Rather, using his service
vehicle even for personal purposes was a form of a fringe benefit or one of the perks
attached to his position.
Since there is paucity of evidence that ABAD was acting within the scope of the
functions entrusted to him, petitioner CASTILEX had no duty to show that it exercised
the diligence of a good father of a family in providing ABAD with a service
vehicle. Thus, justice and equity require that petitioner be relieved of vicarious liability
for the consequences of the negligence of ABAD in driving its vehicle.[20]
WHEREFORE, the petition is GRANTED, and the appealed decision and
resolution of the Court of Appeals is AFFIRMED with the modification that petitioner
Castilex Industrial Corporation be absolved of any liability for the damages caused by
its employee, Jose Benjamin Abad.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

[1]
Rollo, 44-45.
[2]
Per Judge Pedro T. Garcia. Rollo, 58-75.
[3]
Per Vasquez, C. Jr., J., with De Pano, N., and Salas, B. Jr., JJ., concurring. Rollo, 44-51.
[4]
Rollo, 56.
[5]
V Arturo M. Tolentino, Civil Code of the Philippines 615 (1992).
[6]
Lanuzo v. Ping, 100 SCRA 205, 209-210 [1980]; Layugan v. Intermediate Appellate Court, 167 SCRA 363,
377 [1988].
[7]
Pacific Banking Corporation v. Court of Appeals, 173 SCRA 102, 117 [1989]; Go v. Intermediate Appellate
Court, 197 SCRA 22, 31 [1991]
[8]
Martin v. Court of Appeals, 205 SCRA 591 [1992]; Metro Manila Transit Corp. v. Court of Appeals, 223
SCRA 521, 539 [1993].
[9]
Layugan v. IAC, supra note 6, at 370-371; Vda. de Alcantara v. Court of Appeals, 252 SCRA 457, 468 [1996]
[10]
Belen v. Belen, 13 Phil. 202, 206 [1909], cited in Martin v. Court of Appeals, supra note 8.
[11]
7A AM. JUR. 2D AUTOMOBILES AND HIGHWAY TRAFFIC 687 (1980).
[12]
212 SCRA 637, 643 [1992].
[13]
7A AM. JUR. 2D AUTOMOBILES AND HIGHWAY TRAFFIC 699.
[14]
Id., 700.
[15]
7A AM. JUR. 2D AUTOMOBILES AND HIGHWAY TRAFFIC 698.
[16]
2 Cezar S. Sangco, Philippine Law On Torts And Damages 573 (1993) [Hereafter 2 Sangco].
[17]
TSN, 9 July 1991, 2-3, 13.
[18]
TSN, 10 October 1989, 3; 7 August 1989, 8, 10.
[19]
TSN, 7 August 1989, 7-8.
[20]
2 SANGCO 573.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 82248 January 30, 1992

ERNESTO MARTIN, petitioner,

vs.
HON. COURT OF APPEALS and MANILA ELECTRIC COMPANY, respondents.

Roberto M. Cabangis for petitioner.

Benjamin R. Reonal for private respondent.

CRUZ, J.:

This case turns on the proper application of the familiar rule that he who alleges must prove his
allegation.

Ernesto Martin was the owner of a private car bearing license plate No. NPA-930. At around 2
o'clock in the morning of May 11, 1982, while being driven by Nestor Martin, it crashed into a
Meralco electric post on Valley Golf Road, in Antipolo, Rizal. The car was wrecked and the pole
severely damaged. Meralco subsequently demanded reparation from Ernesto Martin, but the
demand was rejected. It thereupon sued him for damages in the Regional Trial Court of Pasig,
alleging inter alia that he was liable to it in the sum of P17,352.00 plus attorney's fees and
litigation costs as the employer of Nestor Martin. The petitioner's main defense was that Nestor
Martin was not his employee.

After the plaintiff had rested, the defendant moved to dismiss the complaint on the ground that no
evidence had been adduced to show that Nestor Martin was his employee. The motion was
denied. The case was considered submitted for decision with the express waiver by the
defendant of his right to present his own evidence. The defendant thus did not rebut the plaintiff's
allegation that he was Nestor Martin's employer.

In the decision dated August 27, 1985, Judge Eutropio Migriño held in favor of the plaintiff,
awarding him the amount claimed, with 12% interest, and P4,000.00 attorney's fees, plus
costs. The decision was seasonably elevated to the Court of Appeals, which affirmed it in toto on
1

February 22, 1988, prompting this petition for review.

2

The petition has merit.

It is important to stress that the complaint for damages was filed by the private respondent
against only Ernesto Martin as alleged employer of Nestor Martin, the driver of the car at the time
of the accident. Nestor Martin was not impleaded. The action was based on tort under Article
2180 of the Civil Code, providing in part that:

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry.

The above rule is applicable only if there is an employer-employee relationship although it is not
necessary that the employer be engaged in any business or industry. It differs in this sense from
Article 103 of the Revised Penal Code, which requires that the employer be engaged in an
industry to be subsidiarily liable for the felony committed by his employee in the course of his
employment.

Whether or not engaged in any business or industry, the employer under Article 2180 is liable for
the torts committed by his employees within the scope of their assigned task. But it is necessary
first to establish the employment relationship. Once this is done, the plaintiff must show, to hold
the employer liable, that the employee was acting within the scope of his assigned task when the
tort complained of was committed. It is only then that the defendant, as employer, may find it
necessary to interpose the defense of due diligence in the selection and supervision of the
employee as allowed in that article. 3

In the case at bar, no evidence whatsoever was adduced by the plaintiff to show that the
defendant was the employer of Nestor Martin at the time of the accident. The trial court
merely presumed the existence of the employer-employee relationship and held that the
petitioner had not refuted that presumption. It noted that although the defendant alleged that he
was not Nestor Martin's employer, "he did not present any proof to substantiate his allegation."

As the trial court put it:

There is no need to stretch one's imagination to realize that a car owner entrusts
his vehicle only to his driver or to anyone whom he allows to drive it. Since
neither plaintiff nor defendant has presented any evidence on the status of Nestor
Martin, the Court presumes that he was at the time of the incident, an employee
of the defendant. It is elementary that he who makes an allegation is required to
prove the same. Defendant alleges that Nestor Martin was not his employee but
he did not present any proof to substantiate his allegation. While it is true plaintiff
did not present evidence on its allegation that Nestor Martin was defendant's
 employee, the Court believes and so holds, that there was no need for such
evidence. As above adverted to, the Court can proceed on the presumption that
one who drives the motor vehicle is an employee of the owner thereof.

A presumption is defined as an inference as to the existence of a fact not actually known, arising
from its usual connection with another which is known, or a conjecture based on past
4

experience as to what course human affairs ordinarily take. It is either a presumption juris, or of
5

law, or a presumption hominis, or of fact. 6

There is no law directing the deduction made by the courts below from the particular facts
presented to them by the parties. Such deduction is not among the conclusive presumptions
under Section 2 or the disputable presumptions under Section 3 of Rule 131 of the Rules of
Court. In other words, it is not a presumption juris.

Neither is it a presumption hominis, which is a reasonable deduction from the facts proved
without an express direction of law to that effect. The facts proved, or not denied, viz., the
7

ownership of the car and the circumstances of the accident, are not enough bases for the
inference that the petitioner is the employer of Nestor Martin.

In the modern urban society, most male persons know how to drive and do not have to employ
others to drive for them unless this is needed for business reasons. Many cannot afford this
luxury, and even if they could, may consider it an unnecessary expense and inconvenience. In
the present case, the more plausible assumption is that Nestor Martin is a close relative of
Ernesto Martin and on the date in question borrowed the car for some private purpose. Nestor
would probably not have been accommodated if he were a mere employee for employees do not
usually enjoy the use of their employer's car at two o'clock in the morning.

As the employment relationship between Ernesto Martin and Nestor Martin could not be
presumed, it was necessary for the plaintiff to establish it by evidence. Meralco had the burden of
proof, or the duty "to present evidence on the fact in issue necessary to establish his claim" as
required by Rule 131, Section 1 of the Revised Rules of Court. Failure to do this was fatal to its
action.

It was enough for the defendant to deny the alleged employment relationship, without more, for
he was not under obligation to prove this negative
averment. Ei incumbit probatio qui dicit, non qui negat. 8 This Court has consistently applied the ancient rule that
"if the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon which
he bases his claim, the defendant is under no obligation to prove his exception or defense." 9

The case of Amor v. Soberano, a Court of Appeals decision not elevated to this Court, was
10

misapplied by the respondent court in support of the petitioner's position. The vehicle involved in
that case was a six-by-six truck, which reasonably raised the factual presumption that it was
engaged in business and that its driver was employed by the owner of the vehicle. The case at
bar involves a private vehicle as its license plate indicates. No evidence was ever offered that it
was being used for business purposes or that, in any case, its driver at the time of the accident
was an employee of the petitioner.

It is worth mentioning in this connection that

in Filamer Christian Institute v. Court of Appeals, the owner of the jeep involved in the accident
11

was absolved from liability when it was shown that the driver of the vehicle was not employed as
such by the latter but was a "working scholar" as that term is defined by the Omnibus Rules
Implementing the Labor Code. He was assigned to janitorial duties. Evidence was introduced to
12

establish the employment relationship but it failed nonetheless to hold the owner responsible.
Significantly, no similar evidence was even presented in the case at bar, the private respondent
merely relying on its mere allegation that Nestor Martin was the petitioner's employee. Allegation
is not synonymous with proof.
The above observations make it unnecessary to examine the question of the driver's alleged
negligence or the lack of diligence on the part of the petitioner in the selection and supervision of
his employee. These questions have not arisen because the employment relationship
contemplated in Article 1860 of the Civil Code has not been established.

WHEREFORE, the petition is GRANTED. The decision of the respondent court is REVERSED,
and Civil Case No. 48045 in the Regional Trial Court of Pasig, Branch 151, is DISMISSED, with
costs against the respondent. It is so ordered.

Narvasa, C.J., Griño-Aquino and Medidialdea, JJ., concur.

Footnotes

1 Original Records, p. 103.

2 Penned by Herrera, O., J., with Ejercito and Torres, JJ., concurring.

3 Cerf v. Medel, 33 Phil. 37.

4 Moran, Comments on the Rules of Court, Vol. 6, 1980 ed., p. 12.

5 Perez v. Ysip, 81 Phil. 218.

6 Moran, supra.

7 Ibid.

8 "He who asserts, not he who denies, must prove."

9 Belen v. Belen, 13 Phil. 202.

10 63 O.G. No. 32. 6850.

11 190 SCRA 485.

12 Sec. 14, Rule X of Book III of the Omnibus Rules Implementing the Labor
Code.

Ernesto Martin v. Hon. Court of Appeals and Manila Electric

Company
G. R. No. 82248, January 30, 1992

Facts:

The private car of Ernesto Martin was being driven by Nestor Martin
when it crashed into a Meralco electric post. The car was wrecked and
the pole severely damaged. Thus, Meralco demanded reparation from
Ernesto Martin, but the demand was rejected. It thereupon sued him for
damages, alleging inter alia that he was liable as the employer of Nestor
Martin. The petitioner's main defense was that Nestor Martin was not his
employee.
The complaint for damages was filed by the private respondent against
Ernesto Martin only as alleged employer of Nestor Martin, the driver of
the car at the time of the accident. Nestor Martin was not impleaded. The
action was based on tort under Article 2180 of the Civil Code.

The defendant moved to dismiss the complaint on the ground that no

evidence had been adduced to show that Nestor Martin was his
employee. The motion was denied. The RTC held in favor of the plaintiff.
The CA affirmed it in toto.

Issue:

WON Ernesto is liable for the damage caused by Nestor.

Ruling:

NO. Whether or not engaged in any business or industry, the

employer under Article 2180 is liable for the torts committed by his
employees within the scope of their assigned task. But it is necessary
first to establish the employment relationship.

In the case at bar, no evidence whatsoever was adduced by the

plaintiff to show that the defendant was the employer of Nestor Martin at
the time of the accident. The trial court merely presumed the existence of
the employer-employee relationship and held that the petitioner had not
refuted that presumption. It noted that although the defendant alleged
that he was not Nestor Martin's employer, "he did not present any proof
to substantiate his allegation”.

The ownership of the car and the circumstances of the accident,

are not enough bases for the inference that the petitioner is the
employer of Nestor Martin.

As the employment relationship between Ernesto Martin and Nestor

4/1
Martin could not be presumed, it was necessary for the plaintiff to
establish it by evidence. Meralco had the burden of proof, or the duty "to
present evidence on the fact in issue necessary to establish his claim" as
required by Rule 131, Section 1 of the Revised Rules of Court. Failure to
do this is fatal to its action.

It was enough for the defendant to deny the alleged employment

relationship, without more, for he was not under obligation to prove this
negative averment.

It is unnecessary to examine the question of the driver's alleged

negligence or the lack of diligence on the part of the petitioner in the
selection and supervision of his employee. These questions have not
arisen because the employment relationship has not been established.

PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE

COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON,
DIGNA DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP.,
represented by ROMEO LIPANA, its President & General
Manager, respondents
G.R. No. 97626 March 14, 1997

Facts:

On May 5, 1975 to July 16, 1976, Romeo Lipana claims to have

entrusted RMC funds in the form of cash totaling P304, 979.74 to his
secretary, Irene Yabut, for the purpose of depositing said funds in the
current accounts of RMC with Philippine Bank of Commerce (PBC). They
were not credited to RMC's account but were instead deposited to
Yabut's husband, Bienvenido Cotas. Lipana never checked their monthly
statements of account reposing complete trust and confidence on PBC.

Yabut's modus operandi was to furnish 2 copies of deposit slip upon

and both are always validated and stamped by the teller Azucena
Mabayad; original showed the name of her husband as depositor and his
current account number - retained by the bank; duplicate copy was
written the account number of her husband but the name of the account
holder was left blank; after validation, Yabut would then fill up the name
of RMC in the space left blank in the duplicate copy and change
the account number to RMC's account number. This went on in a span of
more than 1 year without private respondent's knowledge. Upon
discovery of the loss of its funds, RMC demanded from PBC the return of
its money.

Issues:

1. Whether applying the last clear chance, PBC's teller is negligent

for failing to avoid the injury by not exercising the
proper validation procedure.
2. Whether there was contributory negligence by RMC.

Ruling:
 1. Yes. Under the doctrine of "last clear chance" (also referred to, at
times as "supervening negligence" or as "discovered peril"), petitioner
bank was indeed the culpable party. This doctrine, in essence, states that
where both parties are negligent, but the negligent act of one is
appreciably later in time than that of the other, or when it is impossible
to determine whose fault or negligence should be attributed to the
incident, the one who had the last clear opportunity to avoid the
impending harm and failed to do so is chargeable with the consequences
thereof. Stated differently, the rule would also mean that an antecedent
negligence of a person does not preclude the recovery of damages for the
supervening negligence of, or bar a defense against liability sought by
another, if the latter, who had the last fair chance, could have avoided the
impending harm by the exercise of due diligence. Here, assuming that
private respondent RMC was negligent in entrusting cash to a dishonest
employee, thus providing the latter with the opportunity to defraud the
company, as advanced by the petitioner, yet it cannot be denied that the
petitioner bank, thru its teller, had the last clear opportunity to avert the
injury incurred by its client, simply by faithfully observing their self-
imposed validation procedure.

2. Yes. While it is true that had private respondent checked the

monthly statements of account sent by the petitioner bank to RMC, the
latter would have discovered the loss early on, such cannot be used by
the petitioners to escape liability. This omission on the part of the private
respondent does not change the fact that were it not for the wanton and
reckless negligence of the petitioners' employee in validating the
incomplete duplicate deposit slips presented by Ms. Irene Yabut, the loss
would not have occurred. Considering, however, that the fraud was
committed in a span of more than one (1) year covering various deposits,
common human experience dictates that the same would not have been
possible without any form of collusion between Ms. Yabut and bank teller
Mabayad. Ms. Mabayad was negligent in the performance of her duties
as bank teller nonetheless. Thus, the petitioners are entitled to claim
reimbursement from her for whatever they shall be ordered to pay in this
case.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 97626 March 14, 1997

PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL

INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA
PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO
LIPANA, its President & General Manager, respondents.

HERMOSISIMA, JR., J.:

Challenged in this petition for review is the Decision dated February 28, 1991 rendered by public
1

respondent Court of Appeals which affirmed the Decision dated November 15, 1985 of the
Regional Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig City, in Civil
Case No. 27288 entitled "Rommel's Marketing Corporation, etc. v. Philippine Bank of Commerce,
now absorbed by Philippine Commercial and Industrial Bank."

The case stemmed from a complaint filed by the private respondent Rommel's Marketing
Corporation (RMC for brevity), represented by its President and General Manager Romeo
Lipana, to recover from the former Philippine Bank of Commerce (PBC for brevity), now
absorbed by the Philippine Commercial International Bank, the sum of P304,979.74 representing
various deposits it had made in its current account with said bank but which were not credited to
its account, and were instead deposited to the account of one Bienvenido Cotas, allegedly due to
the gross and inexcusable negligence of the petitioner bank.

RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and 53-
01748-7, with the Pasig Branch of PBC in connection with its business of selling appliances.

In the ordinary and usual course of banking operations, current account deposits are accepted
by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's
agent or representative, who indicates therein the current account number to which the deposit is
to be credited, the name of the depositor or current account holder, the date of the deposit, and
the amount of the deposit either in cash or checks. The deposit slip has an upper portion or stub,
which is detached and given to the depositor or his agent; the lower portion is retained by the
bank. In some instances, however, the deposit slips are prepared in duplicate by the depositor.
The original of the deposit slip is retained by the bank, while the duplicate copy is returned or
given to the depositor.

From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC
funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of RMC with PBC. It turned out, however, that these
deposits, on all occasions, were not credited to RMC's account but were instead deposited to
Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise maintains an
account with the same bank. During this period, petitioner bank had, however, been regularly
furnishing private respondent with monthly statements showing its current accounts balances.
Unfortunately, it had never been the practice of Romeo Lipana to check these monthly
statements of account reposing complete trust and confidence on petitioner bank.

Irene Yabut's modus operandi is far from complicated. She would accomplish two (2) copies of
the deposit slip, an original and a duplicate. The original showed the name of her husband as
depositor and his current account number. On the duplicate copy was written the account
number of her husband but the name of the account holder was left blank. PBC's teller, Azucena
Mabayad, would, however, validate and stamp both the original and the duplicate of these
deposit slips retaining only the original copy despite the lack of information on the duplicate slip.
The second copy was kept by Irene Yabut allegedly for record purposes. After validation, Yabut
would then fill up the name of RMC in the space left blank in the duplicate copy and change the
account number written thereon, which is that of her husband's, and make it appear to be RMC's
account number, i.e., C.A. No. 53-01980-3. With the daily remittance records also prepared by
Ms. Yabut and submitted to private respondent RMC together with the validated duplicate slips
with the latter's name and account number, she made her company believe that all the while the
amounts she deposited were being credited to its account when, in truth and in fact, they were
being deposited by her and credited by the petitioner bank in the account of Cotas. This went on
in a span of more than one (1) year without private respondent's knowledge.

Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its
money, but as its demand went unheeded, it filed a collection suit before the Regional Trial Court
of Pasig, Branch 160. The trial court found petitioner bank negligent and ruled as follows:

WHEREFORE, judgment is hereby rendered sentencing defendant Philippine

Bank of Commerce, now absorbed by defendant Philippine Commercial &
Industrial Bank, and defendant Azucena Mabayad to pay the plaintiff, jointly and
severally, and without prejudice to any criminal action which may be instituted if
found warranted:

1. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest

thereon at the legal rate from the filing of the complaint;

2. A sum equivalent to 14% thereof, as exemplary damages;

3. A sum equivalent to 25% of the total amount due, as and for attorney's fees;
and

4. Costs.

Defendants' counterclaim is hereby dismissed for lack of merit. 2

On appeal, the appellate court affirmed the foregoing decision with modifications, viz:

WHEREFORE, the decision appealed from herein is MODIFIED in the sense that
the awards of exemplary damages and attorney's fees specified therein are
eliminated and instead, appellants are ordered to pay plaintiff, in addition to the
principal sum of P304,979.74 representing plaintiff's lost deposit plus legal
interest thereon from the filing of the complaint, P25,000.00 attorney's fees and
costs in the lower court as well as in this Court.
3

Hence, this petition anchored on the following grounds:

1) The proximate cause of the loss is the negligence of respondent Rommel

Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest
employee.

2) The failure of respondent Rommel Marketing Corporation to cross-check the

bank's statements of account with its own records during the entire period of
more than one (1) year is the proximate cause of the commission of subsequent
frauds and misappropriation committed by Ms. Irene Yabut.

3) The duplicate copies of the deposit slips presented by respondent Rommel

Marketing Corporation are falsified and are not proof that the amounts appearing
thereon were deposited to respondent Rommel Marketing Corporation's account
with the bank,

4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to
cover up her fraudulent acts against respondent Rommel Marketing Corporation,
and not as records of deposits she made with the bank. 4
The petition has no merit.

Simply put, the main issue posited before us is: What is the proximate cause of the loss, to the
tune of P304,979.74, suffered by the private respondent RMC — petitioner bank's negligence or
that of private respondent's?

Petitioners submit that the proximate cause of the loss is the negligence of respondent RMC and
Romeo Lipana in entrusting cash to a dishonest employee in the person of Ms. Irene
Yabut. According to them, it was impossible for the bank to know that the money deposited by
5

Ms. Irene Yabut belong to RMC; neither was the bank forewarned by RMC that Yabut will be
depositing cash to its account. Thus, it was impossible for the bank to know the fraudulent design
of Yabut considering that her husband, Bienvenido Cotas, also maintained an account with the
bank. For the bank to inquire into the ownership of the cash deposited by Ms. Irene Yabut would
be irregular. Otherwise stated, it was RMC's negligence in entrusting cash to a dishonest
employee which provided Ms. Irene Yabut the opportunity to defraud RMC. 6

Private respondent, on the other hand, maintains that the proximate cause of the loss was the
negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating the deposit slips,
both original and duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding the fact
that one of the deposit slips was not completely accomplished.

We sustain the private respondent.

Our law on quasi-delicts states:

Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.

There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault or
negligence of the defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and the
damages incurred by the plaintiff. 7

In the case at bench, there is no dispute as to the damage suffered by the private respondent
(plaintiff in the trial court) RMC in the amount of P304,979.74. It is in ascribing fault or negligence
which caused the damage where the parties point to each other as the culprit.

Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet
still relevant, case of Picart v. Smith, provides the test by which to determine the existence of
8

negligence in a particular case which may be stated as follows: Did the defendant in doing the
alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. The law here in
effect adopts the standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.

Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was negligent in
validating, officially stamping and signing all the deposit slips prepared and presented by Ms.
Yabut, despite the glaring fact that the duplicate copy was not completely accomplished contrary
to the self-imposed procedure of the bank with respect to the proper validation of deposit slips,
original or duplicate, as testified to by Ms. Mabayad herself, thus:

Q: Now, as teller of PCIB, Pasig Branch, will you please tell us

Mrs. Mabayad your important duties and functions?

A: I accept current and savings deposits from depositors and

encashments.

Q: Now in the handling of current account deposits of bank

clients, could you tell us the procedure you follow?

A: The client or depositor or the authorized representative

prepares a deposit slip by filling up the deposit slip with the name,
the account number, the date, the cash breakdown, if it is
deposited for cash, and the check number, the amount and then
he signs the deposit slip.

Q: Now, how many deposit slips do you normally require in

accomplishing current account deposit, Mrs. Mabayad?

A: The bank requires only one copy of the deposit although some
of our clients prepare the deposit slip in duplicate.

Q: Now in accomplishing current account deposits from your

clients, what do you issue to the depositor to evidence the deposit
made?

A: We issue or we give to the clients the depositor's stub as a

receipt of the deposit.

Q: And who prepares the deposit slip?

A: The depositor or the authorized representative sir?

Q: Where does the depositor's stub comes (sic) from Mrs.

Mabayad, is it with the deposit slip?

A: The depositor's stub is connected with the deposit slip or the

bank's copy. In a deposit slip, the upper portion is the depositor's
stub and the lower portion is the bank's copy, and you can detach
the bank's copy from the depositor's stub by tearing it sir.

Q: Now what do you do upon presentment of the deposit slip by

the depositor or the depositor's authorized representative?

A: We see to it that the deposit slip is properly accomplished and

9

then we count the money and then we tally it with the deposit slip
sir.

Q: Now is the depositor's stub which you issued to your clients

validated?

A: Yes, sir. [Emphasis ours]

10
 Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that the
duplicate slip was not compulsorily required by the bank in accepting deposits should not
relieve the petitioner bank of responsibility. The odd circumstance alone that such
duplicate copy lacked one vital information — that of the name of the account holder —
should have already put Ms. Mabayad on guard. Rather than readily validating the
incomplete duplicate copy, she should have proceeded more cautiously by being more
probing as to the true reason why the name of the account holder in the duplicate slip
was left blank while that in the original was filled up. She should not have been so naive
in accepting hook, line and sinker the too shallow excuse of Ms. Irene Yabut to the effect
that since the duplicate copy was only for her personal record, she would simply fill up
the blank space later on. A "reasonable man of ordinary prudence" would not have
11 12

given credence to such explanation and would have insisted that the space left blank be
filled up as a condition for validation. Unfortunately, this was not how bank teller Mabayad
proceeded thus resulting in huge losses to the private respondent.

Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in
its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the testimony
of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now its
Vice-President, to the effect that, while he ordered the investigation of the incident, he never
came to know that blank deposit slips were validated in total disregard of the bank's validation
procedures, viz:

Q: Did he ever tell you that one of your cashiers affixed the stamp
mark of the bank on the deposit slips and they validated the same
with the machine, the fact that those deposit slips were unfilled
up, is there any report similar to that?

A: No, it was not the cashier but the teller.

Q: The teller validated the blank deposit slip?

A: No it was not reported.

Q: You did not know that any one in the bank tellers or cashiers
validated the blank deposit slip?

A: I am not aware of that.

Q: It is only now that you are aware of that?

A: Yes, sir. 13

Prescinding from the above, public respondent Court of Appeals aptly observed:

xxx xxx xxx

It was in fact only when he testified in this case in February, 1983, or after the
lapse of more than seven (7) years counted from the period when the funds in
question were deposited in plaintiff's accounts (May, 1975 to July, 1976) that bank
manager Bonifacio admittedly became aware of the practice of his teller Mabayad
of validating blank deposit slips. Undoubtedly, this is gross, wanton, and
inexcusable negligence in the appellant bank's supervision of its employees. 14

It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner bank
in the selection and supervision of its bank teller, which was the proximate cause of the loss
suffered by the private respondent, and not the latter's act of entrusting cash to a dishonest
employee, as insisted by the petitioners.

Proximate cause is determined on the facts of each case upon mixed considerations of logic,
common sense, policy and precedent. Vda. de Bataclan v. Medina, reiterated in the case
15 16

of Bank of the Phil. Islands v. Court of Appeals, defines proximate cause as "that cause, which,
17

in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred. . . ." In this case, absent the act of
Ms. Mabayad in negligently validating the incomplete duplicate copy of the deposit slip, Ms. Irene
Yabut would not have the facility with which to perpetrate her fraudulent scheme with impunity.
Apropos, once again, is the pronouncement made by the respondent appellate court, to wit:

. . . . Even if Yabut had the fraudulent intention to misappropriate the funds

entrusted to her by plaintiff, she would not have been able to deposit those funds
in her husband's current account, and then make plaintiff believe that it was in the
latter's accounts wherein she had deposited them, had it not been for bank teller
Mabayad's aforesaid gross and reckless negligence. The latter's negligence was
thus the proximate, immediate and efficient cause that brought about the loss
claimed by plaintiff in this case, and the failure of plaintiff to discover the same
soon enough by failing to scrutinize the monthly statements of account being sent
to it by appellant bank could not have prevented the fraud and misappropriation
which Irene Yabut had already completed when she deposited plaintiff's money to
the account of her husband instead of to the latter's accounts. 18

Furthermore, under the doctrine of "last clear chance" (also referred to, at times as "supervening
negligence" or as "discovered peril"), petitioner bank was indeed the culpable party. This
doctrine, in essence, states that where both parties are negligent, but the negligent act of one is
appreciably later in time than that of the other, or when it is impossible to determine whose fault
or negligence should be attributed to the incident, the one who had the last clear opportunity to
avoid the impending harm and failed to do so is chargeable with the consequences
thereof. Stated differently, the rule would also mean that an antecedent negligence of a person
19

does not preclude the recovery of damages for the supervening negligence of, or bar a defense
against liability sought by another, if the latter, who had the last fair chance, could have avoided
the impending harm by the exercise of due diligence. Here, assuming that private respondent
20

RMC was negligent in entrusting cash to a dishonest employee, thus providing the latter with the
opportunity to defraud the company, as advanced by the petitioner, yet it cannot be denied that
the petitioner bank, thru its teller, had the last clear opportunity to avert the injury incurred by its
client, simply by faithfully observing their self-imposed validation procedure.

At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in
dealing with their clients.

The New Civil Code provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons, of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall
apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(1104a)
In the case of banks, however, the degree of diligence required is more than that of a good father
of a family. Considering the fiduciary nature of their relationship with their depositors, banks are
duty bound to treat the accounts of their clients with the highest degree of care. 21

As elucidated in Simex International (Manila), Inc. v. Court of Appeals, in every case, the
22

depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be
done if the account is to reflect at any given time the amount of money the depositor can dispose
as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on
the part of the bank, such as the failure to duly credit him his deposits as soon as they are made,
can cause the depositor not a little embarrassment if not financial loss and perhaps even civil
and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. In the case before us, it is
apparent that the petitioner bank was remiss in that duty and violated that relationship.

Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's
statements of account with its own records during the entire period of more than one (1) year is
the proximate cause of the commission of subsequent frauds and misappropriation committed by
Ms. Irene Yabut.

We do not agree.

While it is true that had private respondent checked the monthly statements of account sent by
the petitioner bank to RMC, the latter would have discovered the loss early on, such cannot be
used by the petitioners to escape liability. This omission on the part of the private respondent
does not change the fact that were it not for the wanton and reckless negligence of the
petitioners' employee in validating the incomplete duplicate deposit slips presented by Ms. Irene
Yabut, the loss would not have occurred. Considering, however, that the fraud was committed in
a span of more than one (1) year covering various deposits, common human experience dictates
that the same would not have been possible without any form of collusion between Ms. Yabut
and bank teller Mabayad. Ms. Mabayad was negligent in the performance of her duties as bank
teller nonetheless. Thus, the petitioners are entitled to claim reimbursement from her for
whatever they shall be ordered to pay in this case.

The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise
negligent in not checking its monthly statements of account. Had it done so, the company would
have been alerted to the series of frauds being committed against RMC by its secretary. The
damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo
Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC
amounts to contributory negligence which shall mitigate the damages that may be awarded to the
private respondent under Article 2179 of the New Civil Code, to wit:
23

. . . When the plaintiff's own negligence was the immediate and proximate cause
of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.

In view of this, we believe that the demands of substantial justice are satisfied by
allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the
respondent appellate court, except the award of P25,000.00 attorney's fees, shall be
 borne by private respondent RMC; only the balance of 60% needs to be paid by the
petitioners. The award of attorney's fees shall be borne exclusively by the petitioners.

WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the
amount of actual damages private respondent is entitled to by 40%. Petitioners may recover from
Ms. Azucena Mabayad the amount they would pay the private respondent. Private respondent
shall have recourse against Ms. Irene Yabut. In all other respects, the appellate court's decision
is AFFIRMED.

Proportionate costs.

SO ORDERED.

Bellosillo, Vitug and Kapunan, JJ., concur.

Separate Opinions

PADILLA, J., dissenting:

I regret that I cannot join the majority in ruling that the proximate cause of the damage suffered
by Rommel's Marketing Corporation (RMC) is mainly "the wanton and reckless negligence of the
petitioner's employee in validating the incomplete duplicate deposit slips presented by Ms. Irene
Yabut" (Decision, p. 15). Moreover, I find it difficult to agree with the ruling that "petitioners are
entitled to claim reimbursement from her (the bank teller) for whatever they shall be ordered to
pay in this case."

It seems that an innocent bank teller is being unduly burdened with what should fall on Ms. Irene
Yabut, RMC's own employee, who should have been charged with estafa or estafa through
falsification of private document. Interestingly, the records are silent on whether RMC had ever
filed any criminal case against Ms. Irene Yabut, aside from the fact that she does not appear to
have been impleaded even as a party defendant in any civil case for damages. Why is RMC
insulating Ms. Irene Yabut from liability when in fact she orchestrated the entire fraud on RMC,
her employer?

To set the record straight, it is not completely accurate to state that from 5 May 1975 to 16 July
1976, Miss Irene Yabut had transacted with PCIB (then PBC) through only one teller in the
person of Azucena Mabayad. In fact, when RMC filed a complaint for estafa before the Office of
the Provincial Fiscal of Rizal, it indicted all the tellers of PCIB in the branch who were accused of
conspiracy to defraud RMC of its current account deposits. (See Annex B, Rollo p. 22 and 47).

Even private respondent RMC, in its Comment, maintains that "when the petitioner's tellers"
allowed Irene Yabut to carry out her modus operandi undetected over a period of one year,
"their negligence cannot but be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This rules out
the possibility that there may have been some form of collusion between Yabut and bank teller
Mabayad. Mabayad was just unfortunate that private respondent's documentary evidence
showed that she was the attending teller in the bulk of Yabut's transactions with the bank.

Going back to Yabut's modus operandi, it is not disputed that each time Yabut would transact
business with PBC's tellers, she would accomplish two (2) copies of the current account deposit
slip. PBC's deposit slip, as issued in 1975, had two parts. The upper part was called the
depositor's stub and the lower part was called the bank copy. Both parts were detachable from
each other. The deposit slip was prepared and signed by the depositor or his representative, who
indicated therein the current account number to which the deposit was to be credited, the name
of the depositor or current account holder, the date of the deposit, and the amount of the deposit
either in cash or in checks. (Rollo, p. 137)

Since Yabut deposited money in cash, the usual bank procedure then was for the teller to count
whether the cash deposit tallied with the amount written down by the depositor in the deposit slip.
If it did, then the teller proceeded to verify whether the current account number matched with the
current account name as written in the deposit slip.

In the earlier days before the age of full computerization, a bank normally maintained a ledger
which served as a repository of accounts to which debits and credits resulting from transactions
with the bank were posted from books of original entry. Thus, it was only after the transaction
was posted in the ledger that the teller proceeded to machine validate the deposit slip and then
affix his signature or initial to serve as proof of the completed transaction.

It should be noted that the teller validated the depositor's stub in the upper portion and the bank
copy on the lower portion on both the original and duplicate copies of the deposit slips presented
by Yabut. The teller, however, detached the validated depositor's stub on the original deposit slip
and allowed Yabut to retain the whole validated duplicate deposit slip that bore the same account
number as the original deposit slip, but with the account name purposely left blank by Yabut, on
the assumption that it would serve no other purpose but for a personal record to complement the
original validated depositor's stub.

Thus, when Yabut wrote the name of RMC on the blank account name on the validated duplicate
copy of the deposit slip, tampered with its account number, and superimposed RMC's account
number, said act only served to cover-up the loss already caused by her to RMC, or after the
deposit slip was validated by the teller in favor of Yabut's husband. Stated otherwise, when there
is a clear evidence of tampering with any of the material entries in a deposit slip, the
genuineness and due execution of the document become an issue in resolving whether or not
the transaction had been fair and regular and whether the ordinary course of business had been
followed by the bank.

It is logical, therefore, to conclude that the legal or proximate cause of RMC's loss was when
Yabut, its employee, deposited the money of RMC in her husband's name and account number
instead of that of RMC, the rightful owner of such deposited funds. Precisely, it was the criminal
act of Yabut that directly caused damage to RMC, her employer, not the validation of the deposit
slip by the teller as the deposit slip was made out by Yabut in her husband's name and to his
account.

Even if the bank teller had required Yabut to completely fill up the duplicate deposit slip, the
original deposit slip would nonetheless still be validated under the account of Yabut's husband. In
fine, the damage had already been done to RMC when Yabut deposited its funds in the name
and account number of her husband with petitioner bank. It is then entirely left to speculation
what Yabut would have done afterwards — like tampering both the account number and the
account name on the stub of the original deposit slip and on the duplicate copy — in order to
cover up her crime.

Under the circumstances in this case, there was no way for PBC's bank tellers to reasonably
foresee that Yabut might or would use the duplicate deposit slip to cover up her crime. In the first
place, the bank tellers were absolutely unaware that a crime had already been consummated by
Yabut when her transaction by her sole doing was posted in the ledger and validated by the teller
in favor of her husband's account even if the funds deposited belonged to RMC.

The teller(s) in this case were not in any way proven to be parties to the crime either as
accessories or accomplices. Nor could it be said that the act of posting and validation was in
itself a negligent act because the teller(s) simply had no choice but to accept and validate the
deposit as written in the original deposit slip under the account number and name of Yabut's
husband. Hence, the act of validating the duplicate copy was not the proximate cause of RMC's
injury but merely a remote cause which an independent cause or agency merely took advantage
of to accomplish something which was not the probable or natural effect thereof. That explains
why Yabut still had to tamper with the account number of the duplicate deposit slip after filling in
the name of RMC in the blank space.

Coming now to the doctrine of "last clear chance," it is my considered view that the doctrine
assumes that the negligence of the defendant was subsequent to the negligence of the plaintiff
and the same must be the proximate cause of the injury. In short, there must be a last and
a clear chance, not a last possible chance, to avoid the accident or injury. It must have been a
chance as would have enabled a reasonably prudent man in like position to have acted
effectively to avoid the injury and the resulting damage to himself.

In the case at bar, the bank was not remiss in its duty of sending monthly bank statements to
private respondent RMC so that any error or discrepancy in the entries therein could be brought
to the bank's attention at the earliest opportunity. Private respondent failed to examine these
bank statements not because it was prevented by some cause in not doing so, but because it
was purposely negligent as it admitted that it does not normally check bank statements given by
banks.

It was private respondent who had the last and clear chance to prevent any further
misappropriation by Yabut had it only reviewed the status of its current accounts on the bank
statements sent to it monthly or regularly. Since a sizable amount of cash was entrusted to
Yabut, private respondent should, at least, have taken ordinary care of its concerns, as what the
law presumes. Its negligence, therefore, is not contributory but the immediate and proximate
cause of its injury.

I vote to grant the petition.

Separate Opinions

PADILLA, J., dissenting:

I regret that I cannot join the majority in ruling that the proximate cause of the damage suffered
by Rommel's Marketing Corporation (RMC) is mainly "the wanton and reckless negligence of the
petitioner's employee in validating the incomplete duplicate deposit slips presented by Ms. Irene
Yabut" (Decision, p. 15). Moreover, I find it difficult to agree with the ruling that "petitioners are
entitled to claim reimbursement from her (the bank teller) for whatever they shall be ordered to
pay in this case."

It seems that an innocent bank teller is being unduly burdened with what should fall on Ms. Irene
Yabut, RMC's own employee, who should have been charged with estafa or estafa through
falsification of private document. Interestingly, the records are silent on whether RMC had ever
filed any criminal case against Ms. Irene Yabut, aside from the fact that she does not appear to
have been impleaded even as a party defendant in any civil case for damages. Why is RMC
insulating Ms. Irene Yabut from liability when in fact she orchestrated the entire fraud on RMC,
her employer?

To set the record straight, it is not completely accurate to state that from 5 May 1975 to 16 July
1976, Miss Irene Yabut had transacted with PCIB (then PBC) through only one teller in the
person of Azucena Mabayad. In fact, when RMC filed a complaint for estafa before the Office of
the Provincial Fiscal of Rizal, it indicted all the tellers of PCIB in the branch who were accused of
conspiracy to defraud RMC of its current account deposits. (See Annex B, Rollo p. 22 and 47).

Even private respondent RMC, in its Comment, maintains that "when the petitioner's tellers"
allowed Irene Yabut to carry out her modus operandi undetected over a period of one year,
"their negligence cannot but be gross." (Rollo, p. 55; see also Rollo pp. 58 to 59). This rules out
the possibility that there may have been some form of collusion between Yabut and bank teller
Mabayad. Mabayad was just unfortunate that private respondent's documentary evidence
showed that she was the attending teller in the bulk of Yabut's transactions with the bank.

Going back to Yabut's modus operandi, it is not disputed that each time Yabut would transact
business with PBC's tellers, she would accomplish two (2) copies of the current account deposit
slip. PBC's deposit slip, as issued in 1975, had two parts. The upper part was called the
depositor's stub and the lower part was called the bank copy. Both parts were detachable from
each other. The deposit slip was prepared and signed by the depositor or his representative, who
indicated therein the current account number to which the deposit was to be credited, the name
of the depositor or current account holder, the date of the deposit, and the amount of the deposit
either in cash or in checks. (Rollo, p. 137)

Since Yabut deposited money in cash, the usual bank procedure then was for the teller to count
whether the cash deposit tallied with the amount written down by the depositor in the deposit slip.
If it did, then the teller proceeded to verify whether the current account number matched with the
current account name as written in the deposit slip.

In the earlier days before the age of full computerization, a bank normally maintained a ledger
which served as a repository of accounts to which debits and credits resulting from transactions
with the bank were posted from books of original entry. Thus, it was only after the transaction
was posted in the ledger that the teller proceeded to machine validate the deposit slip and then
affix his signature or initial to serve as proof of the completed transaction.

It should be noted that the teller validated the depositor's stub in the upper portion and the bank
copy on the lower portion on both the original and duplicate copies of the deposit slips presented
by Yabut. The teller, however, detached the validated depositor's stub on the original deposit slip
and allowed Yabut to retain the whole validated duplicate deposit slip that bore the same account
number as the original deposit slip, but with the account name purposely left blank by Yabut, on
the assumption that it would serve no other purpose but for a personal record to complement the
original validated depositor's stub.

Thus, when Yabut wrote the name of RMC on the blank account name on the validated duplicate
copy of the deposit slip, tampered with its account number, and superimposed RMC's account
number, said act only served to cover-up the loss already caused by her to RMC, or after the
deposit slip was validated by the teller in favor of Yabut's husband. Stated otherwise, when there
is a clear evidence of tampering with any of the material entries in a deposit slip, the
genuineness and due execution of the document become an issue in resolving whether or not
the transaction had been fair and regular and whether the ordinary course of business had been
followed by the bank.

It is logical, therefore, to conclude that the legal or proximate cause of RMC's loss was when
Yabut, its employee, deposited the money of RMC in her husband's name and account number
instead of that of RMC, the rightful owner of such deposited funds. Precisely, it was the criminal
act of Yabut that directly caused damage to RMC, her employer, not the validation of the deposit
slip by the teller as the deposit slip was made out by Yabut in her husband's name and to his
account.

Even if the bank teller had required Yabut to completely fill up the duplicate deposit slip, the
original deposit slip would nonetheless still be validated under the account of Yabut's husband. In
fine, the damage had already been done to RMC when Yabut deposited its funds in the name
and account number of her husband with petitioner bank. It is then entirely left to speculation
what Yabut would have done afterwards — like tampering both the account number and the
account name on the stub of the original deposit slip and on the duplicate copy — in order to
cover up her crime.

Under the circumstances in this case, there was no way for PBC's bank tellers to reasonably
foresee that Yabut might or would use the duplicate deposit slip to cover up her crime. In the first
place, the bank tellers were absolutely unaware that a crime had already been consummated by
Yabut when her transaction by her sole doing was posted in the ledger and validated by the teller
in favor of her husband's account even if the funds deposited belonged to RMC.

The teller(s) in this case were not in any way proven to be parties to the crime either as
accessories or accomplices. Nor could it be said that the act of posting and validation was in
itself a negligent act because the teller(s) simply had no choice but to accept and validate the
deposit as written in the original deposit slip under the account number and name of Yabut's
husband. Hence, the act of validating the duplicate copy was not the proximate cause of RMC's
injury but merely a remote cause which an independent cause or agency merely took advantage
of to accomplish something which was not the probable or natural effect thereof. That explains
why Yabut still had to tamper with the account number of the duplicate deposit slip after filling in
the name of RMC in the blank space.

Coming now to the doctrine of "last clear chance," it is my considered view that the doctrine
assumes that the negligence of the defendant was subsequent to the negligence of the plaintiff
and the same must be the proximate cause of the injury. In short, there must be a last and
a clear chance, not a last possible chance, to avoid the accident or injury. It must have been a
chance as would have enabled a reasonably prudent man in like position to have acted
effectively to avoid the injury and the resulting damage to himself.

In the case at bar, the bank was not remiss in its duty of sending monthly bank statements to
private respondent RMC so that any error or discrepancy in the entries therein could be brought
to the bank's attention at the earliest opportunity. Private respondent failed to examine these
bank statements not because it was prevented by some cause in not doing so, but because it
was purposely negligent as it admitted that it does not normally check bank statements given by
banks.

It was private respondent who had the last and clear chance to prevent any further
misappropriation by Yabut had it only reviewed the status of its current accounts on the bank
statements sent to it monthly or regularly. Since a sizable amount of cash was entrusted to
Yabut, private respondent should, at least, have taken ordinary care of its concerns, as what the
law presumes. Its negligence, therefore, is not contributory but the immediate and proximate
cause of its injury.

I vote to grant the petition.

Footnotes

1 Rollo, pp. 37-46.

2 Rollo, pp. 40-41.

3 Decision. pp. 9-10; Rollo, pp. 45-46.

4 Petition, pp. 13-14; Rollo, pp. 20-21.

 5 Petition, p. 14; Rollo, p. 21.

6 Reply, p. 13; Rollo, p. 82.

7 Andamo v. Intermediate Appellate Court, 191 SCRA 195, 201

[1990], citing Taylor v. Manila Electric Company, 16 Phil. 8 [1910]; Vergara v.
Court of Appeals, 154 SCRA 564 [1987].

8 37 Phil. 809, 813 [1918], reiterated in Bank of the Phil. Islands v. Court of
Appeals, 216 SCRA 51, 72-73 [1992]; Layugan v. Intermediate Appellate Court,
167 SCRA 363, 373 [1988]; Gan v. Court of Appeals, 165 SCRA 378, 382
[1988]; see also Leano v. Domingo, 198 SCRA 800, 804 [1991].

9 Original or duplicate.

10 Rollo, pp. 104-105. citing TSN, 14 August 1981, pp. 6-12.

11 Rollo, p. 56, citing TSN, 14 August 1981, pp. 42-47.

12 Sangco, Torts and Damages, Vol. I, 1993 ed., p. 8, citing Prosser, Law on
Torts, 3rd Edition, 1964, pp. 153-154.

13 Rollo, p. 43, citing TSN, 9 February 1983, pp. 10-12.

14 Decision, p. 8; Rollo, p. 44.

15 Supra., note 12 at 90.

16 102 Phil. 181, 186 [1957].

17 216 SCRA 51, 75 [1992].

18 Decision, pp. 6-7; Rollo, pp. 42-43.

19 LBC Air Cargo, Inc. v. Court of Appeals, 241 SCRA 619, 624
[1995], citing Picart v. Smith, supra.

20 Ibid., citing Pantranco North Express, Inc. v. Baesa, 179 SCRA 384; Glan
People's Lumber and Hardware v. Intermediate Appellate Court, 173 SCRA 464.

21 Metropolitan Bank and Trust Company v. Court of Appeals, 237 SCRA 761,
767 [1994]; Bank of the Phil. Islands v. Court of Appeals, supra., note 16 at 71.

22 183 SCRA 360, 367 [1990], cited in Bank of the Phil. Islands v. Intermediate
Appellate Court, 206 SCRA 408, 412-413 [1992]; City Trust Banking Corp. v.
Intermediate Appellate Court, 232 SCRA 559, 564 [1994]; Metropolitan Bank and
Trust Company v. CA, supra.

23 Phoenix Construction, Inc. v. Intermediate Appellate Court, 148 SCRA 353,

368 [1987]; Del Prado v. Manila Electric Co., 52 Phil. 900, 906 [1929]; Rakes v.
Atlantic, Gulf and Pacific Co., 7 Phil. 359, 375 [1907].

The Lawphil Project - Arellano Law Foundation

 THIRD DIVISION

[G.R. No. 143008. June 10, 2002]

SMITH BELL DODWELL SHIPPING AGENCY

CORPORATION, petitioner, vs. CATALINO BORJA and
INTERNATIONAL TO WAGE AND TRANSPORT
CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

The owner or the person in possession and control of a vessel is liable for all natural and
proximate damages caused to persons and property by reason of negligence in its
management or navigation. The liability for the loss of the earning capacity of the deceased is
fixed by taking into account the net income of the victim at the time of death -- of the
incident in this case -- and that persons probable life expectancy.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
challenging the March 6, 2000 Decision[1] and the April 25, 2000 Resolution[2] of the Court of
Appeals[3] (CA) in CA-GR CV No. 57470. The assailed Decision disposed as follows:

WHEREFORE, premises considered, the instant appeal is hereby DENIED. The

questioned decision of the lower court is hereby AFFIRMED in toto. No
pronouncement as to costs.[4]

Reconsideration was denied in the assailed Resolution.

The Facts

The facts of the case are set forth by the CA as follows:

It appears that on September 23, 1987, Smith Bell [herein petitioner] filed a written
request with the Bureau of Customs for the attendance of the latters inspection
team on vessel M/T King Family which was due to arrive at the port of Manila on
September 24, 1987.
Said vessel contained 750 metric tons of alkyl benzene and methyl methacrylate
monomer.

On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan instructed
[Respondent Catalino Borja] to board said vessel and perform his duties as
inspector upon the vessels arrival until its departure. At that time, [Borja] was a
customs inspector of the Bureau of Customs receiving a salary of P31,188.25 per
annum.

"At about 11 oclock in the morning on September 24, 1987, while M/T King
Family was unloading chemicals unto two (2) barges [--] ITTC 101 and CLC-1002
[--] owned by [Respondent] ITTC, a sudden explosion occurred setting the vessels
afire. Upon hearing the explosion, [Borja], who was at that time inside the cabin
preparing reports, ran outside to check what happened. Again, another explosion
was heard.

Seeing the fire and fearing for his life, [Borja] hurriedly jumped over board to save
himself. However, the [water] [was] likewise on fire due mainly to the spilled
chemicals. Despite the tremendous heat, [Borja] swam his way for one (1) hour
until he was rescued by the people living in the squatters area and sent to San Juan
De Dios Hospital.

After weeks of intensive care at the hospital, his attending physician diagnosed
[Borja] to be permanently disabled due to the incident. [Borja] made demands
against Smith Bell and ITTC for the damages caused by the explosion. However,
both denied liabilities and attributed to each other negligence. [5]

The trial court[6] (RTC) ruled in favor of Respondent Borja and held petitioner liable for
damages and loss of income. The RTC disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering

[Petitioner] Smith Bell Dodwell [S]hipping Agency Corporation to pay [Borja]:

1. The amount of P495,360.00 as actual damages for loss of earning capacity:

2. The amount of P100,000.00 for moral damages; and

3. The amount of P50,000.00 for and as reasonable attorneys fees.

The cross-claim of [Petitioner] Smith Bell Dodwell Shipping Agency Corporation

against co-defendant International Towage and Transport Corporation and the
latters counterclaim against [Borja] and cross-claim with compulsory counterclaim
against Smith Bell are hereby ordered dismissed. [7]

Ruling of the Court of Appeals

 Affirming the trial court, the CA rejected the plea of petitioner that it be exonerated from
liability for Respondent Borjas injuries. Contrary to the claim of petitioner that no physical
evidence was shown to prove that the explosion had originated from its vessel, the CA held
that the fire had originated from M/T King Family. This conclusion was amply supported by
the testimonies of Borja and Eulogio Laurente (the eyewitness of International Towage and
Transport Corporation or ITTC) as well as by the investigation conducted by the Special
Board of Marine Inquiry and affirmed by the secretary of the Department of National
Defense. On the other hand, the RTC, which the CA sustained, had not given probative value
to the evidence of petitioner, whose sole eyewitness had not shown up for cross-examination.
Hence, this Petition.[8]

The Issues

In its Memorandum,[9] petitioner raises the following issues:

1. Whether petitioner should be held liable for the injuries of Respondent Catalino
Borja.

2. Whether Respondent ITTC should be held liable for the injuries of Respondent
Catalino Borja.

3. Assuming without admitting that Respondent Catalino Borja is entitled to

damages, whether Respondent Borja is entitled to the amount of damages awarded
to him by the trial court.[10]

Simply put, these issues can be summed up in these two questions: (1) Who, if any, is
liable for Borjas injuries? (2) What is the proper amount of liability?

This Courts Ruling

The Petition is partly meritorious.

First Issue:
Responsibility for Injuries

Petitioner avers that both lower courts labored under a misapprehension of the facts. It
claims that the documents adduced in the RTC conclusively revealed that the explosion that
caused the fire on M/T King Family had originated from the barge ITTC-101, a conclusion
based on three grounds. First, the Survey Report (Exh. 10) dated October 21, 1987 submitted
by the Admiral Surveyors and Adjusters, Inc., showed that no part of M/T King
Family sustained any sharp or violent damage that would otherwise be observed if indeed an
explosion had occurred on it. On the other hand, the fact that the vessel sustained cracks on
its shell plating was noted in two Survey Reports from Greutzman Divers Underwater
Specialist, dated October 6, 1987 (Exh. 11), and during the underwater inspection on the
sunken barge ITTC-101.
Second, external fire damage on the hull of M/T King Family indicated that the fire had
started from outside the vessel and from ITTC-101. The port side of the vessel to which the
ITTC barge was tied was completely gutted by fire, while the starboard side to which the
barge CLC-1002 was tied sustained only slight fire damage.
Third, testimonial evidence proved that the explosion came from the barge of the ITTC
and not from its vessel. Security Guard Vivencio Estrella testified that he had seen the sudden
explosion of monomer on the barge with fire that went up to about 60 meters. Third Mate
Choi Seong Hwan and Second Mate Nam Bang Choun of M/T King Family narrated that
while they were discharging the chemicals, they saw and heard an explosion from the
barge ITTC-101. Chief Security Guard Reynaldo Patron, in turn, testified that he was 7 to 10
meters away from the barge when he heard the explosion from the port side of M/T King
Family and saw the barge already on fire.
We are not persuaded. Both the RTC and the CA ruled that the fire and the explosion had
originated from petitioners vessel. Said the trial court:

The attempts of [Petitioner] Smith Bell to shift the blame on x x x ITTC were all
for naught. First, the testimony of its alleged eyewitness was stricken off the record
for his failure to appear for cross-examination (p. 361, Record). Second, the
documents offered to prove that the fire originated from barge ITTC-101 were all
denied admission by the [c]ourt for being, in effect, hearsay (pp. 335 and 362). x x
x Thus, there is nothing in the record to support [petitioners] contention that the
fire and explosion originated from barge ITTC-101. [11]

We find no cogent reason to overturn these factual findings. Nothing is more settled in
jurisprudence than that this Court is bound by the factual findings of the Court of Appeals
when these are supported by substantial evidence and are not under any of the exceptions
in Fuentes v. Court of Appeals;[12] more so, when such findings affirm those of the trial court.
[13]
Verily, this Court reviews only issues of law.
Negligence is conduct that creates undue risk of harm to another. It is the failure to
observe that degree of care, precaution and vigilance that the circumstances justly demand,
whereby that other person suffers injury.[14] Petitioners vessel was carrying chemical cargo --
alkyl benzene and methyl methacrylate monomer.[15] While knowing that their vessel was
carrying dangerous inflammable chemicals, its officers and crew failed to take all the
necessary precautions to prevent an accident. Petitioner was, therefore, negligent.
The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or
negligence of the defendant, and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damages inflicted on the plaintiff. [16] All these elements
were established in this case. Knowing fully well that it was carrying dangerous chemicals,
petitioner was negligent in not taking all the necessary precautions in transporting the cargo.
As a result of the fire and the explosion during the unloading of the chemicals from
petitioners vessel, Respondent Borja suffered the following damage: and injuries: (1)
chemical burns of the face and arms; (2) inhalation of fumes from burning chemicals; (3)
exposure to the elements [while] floating in sea water for about three (3) hours; (4)
homonymous hemianopsia or blurring of the right eye [which was of] possible toxic origin;
and (5) [c]erebral infract with neo-vascularization, left occipital region with right sided
headache and the blurring of vision of right eye.[17]
Hence, the owner or the person in possession and control of a vessel and the vessel are
liable for all natural and proximate damage caused to persons and property by reason of
negligent management or navigation.[18]

Second Issue:
Amount of Liability

Petitioner insists that Borja is not entitled to the full amount of damages awarded by the
lower courts. It disputes the use of his gross earning as basis for the computation of the award
for loss of earning capacity. Both courts, in computing the value of such loss, used the
remaining years of the victim as a government employee and the amount he had been
receiving per annum at the time of the incident.
Counsel for Respondent Borja, on the other hand, claims that petitioner had no cause to
complain, because the miscomputation had ironically been in its favor. The multiplier used in
the computation was erroneously based on the remaining years in government service,
instead of the life expectancy, of the victim. Borjas counsel also points out that the award was
based on the formers meager salary in 1987, or about 23 years ago when the foreign
exchange was still P14 to $1. Hence, the questioned award is consistent with the primary
purpose of giving what is just, moral and legally due the victim as the aggrieved party.
Both parties have a point. In determining the reasonableness of the damages awarded
under Article 1764 in conjunction with Article 2206 of the Civil Code, the factors to be
considered are: (1) life expectancy (considering the health of the victim and the mortality
table which is deemed conclusive) and loss of earning capacity; (b) pecuniary loss, loss of
support and service; and (c) moral and mental sufferings.[19] The loss of earning capacity is
based mainly on the number of years remaining in the persons expected life span. In turn, this
number is the basis of the damages that shall be computed and the rate at which the loss
sustained by the heirs shall be fixed.[20]
The formula for the computation of loss of earning capacity is as follows:[21]

Net earning capacity = Life expectancy x [Gross Annual Income - Living

Expenses (50% of gross annual income)], where life expectancy = 2/3
(80 - the age of the deceased).[22]

Petitioner is correct in arguing that it is net income (or gross income less living expenses)
which is to be used in the computation of the award for loss of income. Villa Rey Transit v.
Court of Appeals[23] explained that the amount recoverable is not the loss of the entire earning,
but rather the loss of that portion of the earnings which the beneficiary would have received.
Hence, in fixing the amount of the said damages, the necessary expenses of the deceased
should be deducted from his earnings.
In other words, only net earnings, not gross earnings, are to be considered; that is, the
total of the earnings less expenses necessary in the creation of such earnings or income, less
living and other incidental expenses. When there is no showing that the living expenses
constituted a smaller percentage of the gross income, we fix the living expenses at half of the
gross income. To hold that one would have used only a small part of the income, with the
larger part going to the support of ones children, would be conjectural and unreasonable.[24]
Counsel for Respondent Borja is also correct in saying that life expectancy should not be
based on the retirement age of government employees, which is pegged at 65. In Negros
Navigation Co, Inc. v. CA,[25] the Court resolved that in calculating the life expectancy of an
individual for the purpose of determining loss of earning capacity under Article 2206(1) of
the Civil Code, it is assumed that the deceased would have earned income even after
retirement from a particular job.
Respondent Borja should not be situated differently just because he was a government
employee. Private employees, given the retirement packages provided by their companies,
usually retire earlier than government employees; yet, the life expectancy of the former is not
pegged at 65 years.
Petitioner avers that Respondent Borja died nine years after the incident and, hence, his
life expectancy of 80 years should yield to the reality that he was only 59 when he actually
died.
We disagree. The Court uses the American Experience/Expectancy Table of Mortality or
the Actuarial or Combined Experience Table of Mortality, which consistently pegs the life
span of the average Filipino at 80 years, from which it extrapolates the estimated income to
be earned by the deceased had he or she not been killed.[26]
Respondent Borjas demise earlier than the estimated life span is of no moment. For
purposes of determining loss of earning capacity, life expectancy remains at 80. Otherwise,
the computation of loss of earning capacity will never become final, being always subject to
the eventuality of the victims death. The computation should not change even if Borja lived
beyond 80 years. Fair is fair.
Based on the foregoing discussion, the award for loss of earning capacity should be
computed as follows:

Loss of earning = [2 (80-50)] x [(P2,752x12)-16,512]

capacity 3

= P330,240

Having been duly proven, the moral damages and attorneys fees awarded are justified
under the Civil Codes Article 2219, paragraph 2; and Article 2208, paragraph 11,
respectively.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision
is AFFIRMED with the following MODIFICATIONS: petitioner is ordered to pay the heirs of
the victim damages in the amount of P320,240 as loss of earning capacity, moral damages in
the amount of P100,000, plus another P50,000 as attorneys fees. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, and Carpio, JJ., concur.
Puno, J., (Chairman), abroad on official leave.
[1]
Rollo, pp. 39-45.
[2]
Ibid., p. 57.
[3]
Written by Justice Bernardo P. Abesamis with the concurrence of Justices Eugenio S. Labitoria (Division
chairman) and Elvi John S. Asuncion (member).
[4]
Assailed Decision, p. 7; rollo, p. 45.
[5]
Ibid., pp. 1-4; ibid., pp. 39-42.
[6]
Regional Trial Court (RTC) of Quezon City (Branch 81), docketed as Civil Case No. Q-88-800.
[7]
Rollo, p. 40.
[8]
The case was deemed submitted for decision on May 9, 2001, when this Court received Respondent Borjas
Memorandum signed by Attys. Amador Z. Tolentino Jr. and Ronald Rex S. Recidoro of Manalo Puno Jocson &
Placido Law Offices. Instead of filing a memorandum, Respondent ITTC merely adopted the arguments of
Respondent Borja insofar as the same affirms the correctness of the assailed Decision and Resolution per its
Manifestation and Motion dated April 26, 2001, signed by Attys. Manuel Joseph R. Bretaa III and Simonette E.
Sibal of Castillo and Poblador.
[9]
Signed by Atty. Charles Jay D. de la Cruz of Del Rosario and Del Rosario.
[10]
Page 8; rollo, p. 107.
[11]
CA Decision, pp. 5-6; rollo, pp. 43-44.
[12]
268 SCRA 703, 708-709, February 26, 1997; Baricuatro Jr. v. CA, supra, 325 SCRA 137, 145, February 9,
2000.
[13]
Borromeo v. Sun, 317 SCRA 176, 182, October 22, 1999; Compania Maritima, Inc. v. Court of Appeals, 318
SCRA 169, 177, November 16, 1999.
[14]
Valenzuela v. Court of Appeals, 253 SCRA 303, 320, February 7, 1996; Bulilan v. Commission on Audit, 300
SCRA 445, 452, December 22, 1998; Jarco Marketing Corp. v. Court of Appeals, 321 SCRA 375, 386,
December 21, 1999.
[15]
Rollo, p. 27.
[16]
Philippine Bank of Commerce v. Court of Appeals, 269 SCRA 695, 702-703, March 14, 1997; FGU
Insurance Corporation v. Court of Appeals, 287 SCRA 718, 720-721, March 23, 1998.
[17]
Rollo, p. 129.
[18]
Far Eastern Shipping Company v. Court of Appeals, 297 SCRA 30, 87, October 1, 1998.
[19]
Baliwag Transit, Inc. v. Court of Appeals, 262 SCRA 230, 235, September 20, 1996.
[20]
Ibid., People v. Arellano, 334 SCRA 775, 792-793, June 30, 2000; Pestao v. Sumayang, 346 SCRA 870, 880,
December 4, 2000.
[21]
People v. Matignas, GR No. 126146, March 12, 2002, citing People v. Verde, 302 SCRA 690, 707, February
10, 1999.
[22]
Ibid., citing People v. Sanchez, GR Nos. 121039-45, October 18, 2001.
[23]
31 SCRA 511, 517, February 18, 1970; People v. Marollano, 276 SCRA 84, 115, July 24, 1997.
[24]
Negros Navigation Co., Inc. v. Court of Appeals, 281 SCRA 534, 548, November 7, 1997.
[25]
Ibid., pp. 546-547.
[26]
People v. Villanueva, 302 SCRA 380, 401, January 29, 1999.

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. L-12219 March 15, 1918

AMADO PICART, plaintiff-appellant,

vs.
FRANK SMITH, JR., defendant-appellee.

Alejo Mabanag for appellant.

G. E. Campbell for appellee.

STREET, J.:

In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the
sum of P31,000, as damages alleged to have been caused by an automobile driven by the
defendant. From a judgment of the Court of First Instance of the Province of La Union absolving
the defendant from liability the plaintiff has appealed.

The occurrence which gave rise to the institution of this action took place on December 12, 1912,
on the Carlatan Bridge, at San Fernando, La Union. It appears that upon the occasion in
question the plaintiff was riding on his pony over said bridge. Before he had gotten half way
across, the defendant approached from the opposite direction in an automobile, going at the rate
of about ten or twelve miles per hour. As the defendant neared the bridge he saw a horseman on
it and blew his horn to give warning of his approach. He continued his course and after he had
taken the bridge he gave two more successive blasts, as it appeared to him that the man on
horseback before him was not observing the rule of the road.

The plaintiff, it appears, saw the automobile coming and heard the warning signals. However,
being perturbed by the novelty of the apparition or the rapidity of the approach, he pulled the
pony closely up against the railing on the right side of the bridge instead of going to the left. He
says that the reason he did this was that he thought he did not have sufficient time to get over to
the other side. The bridge is shown to have a length of about 75 meters and a width of 4.80
meters. As the automobile approached, the defendant guided it toward his left, that being the
proper side of the road for the machine. In so doing the defendant assumed that the horseman
would move to the other side. The pony had not as yet exhibited fright, and the rider had made
no sign for the automobile to stop. Seeing that the pony was apparently quiet, the defendant,
instead of veering to the right while yet some distance away or slowing down, continued to
approach directly toward the horse without diminution of speed. When he had gotten quite near,
there being then no possibility of the horse getting across to the other side, the defendant quickly
turned his car sufficiently to the right to escape hitting the horse alongside of the railing where it
as then standing; but in so doing the automobile passed in such close proximity to the animal
that it became frightened and turned its body across the bridge with its head toward the railing. In
so doing, it as struck on the hock of the left hind leg by the flange of the car and the limb was
broken. The horse fell and its rider was thrown off with some violence. From the evidence
adduced in the case we believe that when the accident occurred the free space where the pony
stood between the automobile and the railing of the bridge was probably less than one and one
half meters. As a result of its injuries the horse died. The plaintiff received contusions which
caused temporary unconsciousness and required medical attention for several days.

The question presented for decision is whether or not the defendant in maneuvering his car in
the manner above described was guilty of negligence such as gives rise to a civil obligation to
repair the damage done; and we are of the opinion that he is so liable. As the defendant started
across the bridge, he had the right to assume that the horse and the rider would pass over to the
proper side; but as he moved toward the center of the bridge it was demonstrated to his eyes
that this would not be done; and he must in a moment have perceived that it was too late for the
horse to cross with safety in front of the moving vehicle. In the nature of things this change of
situation occurred while the automobile was yet some distance away; and from this moment it
was not longer within the power of the plaintiff to escape being run down by going to a place of
greater safety. The control of the situation had then passed entirely to the defendant; and it was
his duty either to bring his car to an immediate stop or, seeing that there were no other persons
on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the
danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon
the horse. He was, we think, deceived into doing this by the fact that the horse had not yet
exhibited fright. But in view of the known nature of horses, there was an appreciable risk that, if
the animal in question was unacquainted with automobiles, he might get exited and jump under
the conditions which here confronted him. When the defendant exposed the horse and rider to
this danger he was, in our opinion, negligent in the eye of the law.

The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that person would have used in
the same situation? If not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the
Roman law. The existence of negligence in a given case is not determined by reference to the
personal judgment of the actor in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must
of course be always determined in the light of human experience and in view of the facts involved
in the particular case. Abstract speculations cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before
them or known to them. They are not, and are not supposed to be, omniscient of the future.
Hence they can be expected to take care only when there is something before them to suggest
or warn of danger. Could a prudent man, in the case under consideration, foresee harm as a
result of the course actually pursued? If so, it was the duty of the actor to take precautions to
guard against that harm. Reasonable foresight of harm, followed by ignoring of the suggestion
born of this prevision, is always necessary before negligence can be held to exist. Stated in
these terms, the proper criterion for determining the existence of negligence in a given case is
this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would
have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing
conduct or guarding against its consequences.

Applying this test to the conduct of the defendant in the present case we think that negligence is
clearly established. A prudent man, placed in the position of the defendant, would in our opinion,
have recognized that the course which he was pursuing was fraught with risk, and would
therefore have foreseen harm to the horse and the rider as reasonable consequence of that
course. Under these circumstances the law imposed on the defendant the duty to guard against
the threatened harm.

It goes without saying that the plaintiff himself was not free from fault, for he was guilty of
antecedent negligence in planting himself on the wrong side of the road. But as we have already
stated, the defendant was also negligent; and in such case the problem always is to discover
which agent is immediately and directly responsible. It will be noted that the negligent acts of the
two parties were not contemporaneous, since the negligence of the defendant succeeded the
negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that
the person who has the last fair chance to avoid the impending harm and fails to do so is
chargeable with the consequences, without reference to the prior negligence of the other party.

The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7 Phil. Rep., 359) should
perhaps be mentioned in this connection. This Court there held that while contributory negligence
on the part of the person injured did not constitute a bar to recovery, it could be received in
evidence to reduce the damages which would otherwise have been assessed wholly against the
other party. The defendant company had there employed the plaintiff, as a laborer, to assist in
transporting iron rails from a barge in Manila harbor to the company's yards located not far away.
The rails were conveyed upon cars which were hauled along a narrow track. At certain spot near
the water's edge the track gave way by reason of the combined effect of the weight of the car
and the insecurity of the road bed. The car was in consequence upset; the rails slid off; and the
plaintiff's leg was caught and broken. It appeared in evidence that the accident was due to the
effects of the typhoon which had dislodged one of the supports of the track. The court found that
the defendant company was negligent in having failed to repair the bed of the track and also that
the plaintiff was, at the moment of the accident, guilty of contributory negligence in walking at the
side of the car instead of being in front or behind. It was held that while the defendant was liable
to the plaintiff by reason of its negligence in having failed to keep the track in proper repair
nevertheless the amount of the damages should be reduced on account of the contributory
negligence in the plaintiff. As will be seen the defendant's negligence in that case consisted in an
omission only. The liability of the company arose from its responsibility for the dangerous
condition of its track. In a case like the one now before us, where the defendant was actually
present and operating the automobile which caused the damage, we do not feel constrained to
attempt to weigh the negligence of the respective parties in order to apportion the damage
according to the degree of their relative fault. It is enough to say that the negligence of the
defendant was in this case the immediate and determining cause of the accident and that the
antecedent negligence of the plaintiff was a more remote factor in the case.

A point of minor importance in the case is indicated in the special defense pleaded in the
defendant's answer, to the effect that the subject matter of the action had been previously
adjudicated in the court of a justice of the peace. In this connection it appears that soon after the
accident in question occurred, the plaintiff caused criminal proceedings to be instituted before a
justice of the peace charging the defendant with the infliction of serious injuries (lesiones graves).
At the preliminary investigation the defendant was discharged by the magistrate and the
proceedings were dismissed. Conceding that the acquittal of the defendant at the trial upon the
merits in a criminal prosecution for the offense mentioned would be res adjudicata upon the
question of his civil liability arising from negligence -- a point upon which it is unnecessary to
express an opinion -- the action of the justice of the peace in dismissing the criminal proceeding
upon the preliminary hearing can have no effect. (See U. S. vs. Banzuela and Banzuela, 31 Phil.
Rep., 564.)

From what has been said it results that the judgment of the lower court must be reversed, and
judgment is her rendered that the plaintiff recover of the defendant the sum of two hundred pesos
(P200), with costs of other instances. The sum here awarded is estimated to include the value of
the horse, medical expenses of the plaintiff, the loss or damage occasioned to articles of his
apparel, and lawful interest on the whole to the date of this recovery. The other damages claimed
by the plaintiff are remote or otherwise of such character as not to be recoverable. So ordered.

Arellano, C.J., Torres, Carson, Araullo, Avanceña, and Fisher, JJ., concur.
Johnson, J., reserves his vote.

Separate Opinions

MALCOLM, J., concurring:

After mature deliberation, I have finally decided to concur with the judgment in this case. I do so
because of my understanding of the "last clear chance" rule of the law of negligence as
particularly applied to automobile accidents. This rule cannot be invoked where the negligence of
the plaintiff is concurrent with that of the defendant. Again, if a traveler when he reaches the point
of collision is in a situation to extricate himself and avoid injury, his negligence at that point will
prevent a recovery. But Justice Street finds as a fact that the negligent act of the interval of time,
and that at the moment the plaintiff had no opportunity to avoid the accident. Consequently, the
"last clear chance" rule is applicable. In other words, when a traveler has reached a point where
he cannot extricate himself and vigilance on his part will not avert the injury, his negligence in
reaching that position becomes the condition and not the proximate cause of the injury and will
not preclude a recovery. (Note especially Aiken vs. Metcalf [1917], 102 Atl., 330.)

Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

EQUITABLE BANKING G.R. No. 175350

CORPORATION,
Petitioner, Present:

LEONARDO-DE CASTRO,*
Acting Chairperson,
- versus - BERSAMIN,
DEL CASTILLO,
VILLARAMA, JR., and
PERLAS-BERNABE,** JJ.
SPECIAL STEEL PRODUCTS,
INC. and AUGUSTO L. PARDO, Promulgated:
Respondents. June 13, 2012
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

A crossed check with the notation account payee only can only be deposited in the
named payees account. It is gross negligence for a bank to ignore this rule solely on
the basis of a third partys oral representations of having a good title thereto.

Before the Court is a Petition for Review on Certiorari of the October 13, 2006
Decision of the Court of Appeals (CA) in CA-G.R. CV No. 62425. The dispositive
portion of the assailed Decision reads:
 WHEREFORE, premises considered, the May 4, 1998 Decision of
the Regional Trial Court of Pasig City, Branch 168, in Civil Case No. 63561, is
hereby AFFIRMED.

SO ORDERED.[1]

Factual Antecedents

Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation

selling steel products. Its co-respondent Augusto L. Pardo (Pardo) is SSPIs President
and majority stockholder.[2]

International Copra Export Corporation (Interco) is its regular customer.[3]

Jose Isidoro[4] Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the
purchasing department, and the son-in-law of its majority stockholder.[5]

Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic

corporation engaged in banking[6] and is the depository bank of Interco and of Uy.

In 1991, SSPI sold welding electrodes to Interco, as evidenced by the following sales
invoices:

Sales Invoice No. 65042 dated February 14, 1991 for P325,976.34[7]
Sales Invoice No. 65842 dated April 11, 1991 for P345,412.80[8]
Sales Invoice No. 65843 dated April 11, 1991 for P313,845.84[9]

The due dates for these invoices were March 16, 1991 (for the first sales invoice) and
May 11, 1991 (for the others). The invoices provided that Interco would pay interest
at the rate of 36% per annum in case of delay.

In payment for the above welding electrodes, Interco issued three checks payable to
the order of SSPI on July 10, 1991,[10] July 16, 1991,[11] and July 29, 1991.[12] Each
check was crossed with the notation account payee only and was drawn against
Equitable. The records do not identify the signatory for these three checks, or explain
how Uy, Intercos purchasing officer, came into possession of these checks.

The records only disclose that Uy presented each crossed check to Equitable on the
day of its issuance and claimed that he had good title thereto. [13] He demanded the
deposit of the checks in his personal accounts in Equitable, Account No. 18841-2 and
Account No. 03474-0.[14]

Equitable acceded to Uys demands on the assumption that Uy, as the son-in-law of
Intercos majority stockholder,[15] was acting pursuant to Intercos orders. The bank also
relied on Uys status as a valued client. [16] Thus, Equitable accepted the checks for
deposit in Uys personal accounts[17] and stamped ALL PRIOR ENDORSEMENT
AND/OR LACK OF ENDORSEMENT GUARANTEED on their dorsal portion.
[18]
Uy promptly withdrew the proceeds of the checks.

In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting
to P985,234.98.[19] It reiterated its demand on January 14, 1992.[20] SSPI explained its
immediate need for payment as it was experiencing some financial crisis of its
own. Interco replied that it had already issued three checks payable to SSPI and drawn
against Equitable. SSPI denied receipt of these checks.
On August 6, 1992, SSPI requested information from Equitable regarding the three
checks. The bank refused to give any information invoking the confidentiality of
deposits.[21]

The records do not disclose the circumstances surrounding Intercos and SSPIs
eventual discovery of Uys scheme. Nevertheless, it was determined that Uy, not SSPI,
received the proceeds of the three checks that were payable to SSPI. Thus, on June 30,
1993 (twenty-three months after the issuance of the three checks), Interco finally paid
the value of the three checks to SSPI, plus a portion of the accrued interests. Interco
refused to pay the entire accrued interest of P767,345.64 on the ground that it was not
responsible for the delay. Thus, SSPI was unable to collect P437,040.35 (at the
contracted rate of 36% per annum) in interest income.[22]

SSPI and its president, Pardo, filed a complaint for damages with application for a
writ of preliminary attachment against Uy and Equitable Bank. The complaint alleged
that the three crossed checks, all payable to the order of SSPI and with the notation
account payee only, could be deposited and encashed by SSPI only. However, due to
Uys fraudulent representations, and Equitables indispensable connivance or gross
negligence, the restrictive nature of the checks was ignored and the checks were
deposited in Uys account. Had the defendants not diverted the three checks in July
1991, the plaintiffs could have used them in their business and earned money from
them. Thus, the plaintiffs prayed for an award of actual damages consisting of the
unrealized interest income from the proceeds of the checks for the two-year period
that the defendants withheld the proceeds from them (from July 1991 up to June
1993).[23]

In his personal capacity, Pardo claimed an award of P3 million as moral damages

from the defendants. He allegedly suffered hypertension, anxiety, and sleepless nights
for fear that the government would charge him for tax evasion or money
laundering. He maintained that defendants actions amounted to money laundering and
that it unfairly implicated his company in the scheme. As for his fear of tax evasion,
Pardo explained that the Bureau of Internal Revenue might notice a discrepancy
between the financial reports of Interco (which might have reported the checks as
SSPIs income in 1991) and those of SSPI (which reported the income only in
1993). Since Uy and Equitable were responsible for Pardos worries, they should
compensate him jointly and severally therefor.[24]

SSPI and Pardo also prayed for exemplary damages and attorneys fees.[25]
In support of their application for preliminary attachment, the plaintiffs alleged that
the defendants are guilty of fraud in incurring the obligation upon which the action
was brought and that there is no sufficient security for the claim sought to be enforced
in this action.[26]

The trial court granted plaintiffs application. [27] It issued the writ of preliminary
attachment on September 20, 1993,[28] upon the filing of plaintiffs bond
for P500,000.00. The sheriff served and implemented the writ against the personal
properties of both defendants.[29]

Upon Equitables motion and filing of a counter-bond, however, the trial court
eventually discharged the attachment[30] against it.[31]

Equitable then argued for the dismissal of the complaint for lack of cause of action. It
maintained that interest income is due only when it is expressly stipulated in
writing. Since Equitable and SSPI did not enter into any contract, Equitable is not
liable for damages, in the form of unobtained interest income, to SSPI. [32] Moreover,
SSPIs acceptance of Intercos payment on the sales invoices is a waiver or
extinction of SSPIs cause of action based on the three checks.[33]

Equitable further argued that it is not liable to SSPI because it accepted the three
crossed checks in good faith.[34] Equitable averred that, due to Uys close relations with
the drawer of the checks, the bank had basis to assume that the drawer authorized Uy
to countermand the original order stated in the check (that it can only be deposited in
the named payees account). Since only Uy is responsible for the fraudulent
conversion of the checks, he should reimburse Equitable for any amounts that it may
be made liable to plaintiffs.[35]

The bank counter-claimed that SSPI is liable to it in damages for the wrongful and
malicious attachment of Equitables personal properties. The bank maintained that
SSPI knew that the allegation of fraud against the bank is a falsehood. Further, the
bank is financially capable to meet the plaintiffs claim should the latter receive a
favorable judgment. SSPI was aware that the preliminary attachment against the bank
was unnecessary, and intended only to humiliate or destroy the banks reputation.[36]

Meanwhile, Uy answered that the checks were negotiated to him; that he is a holder
for value of the checks and that he has a good title thereto. [37] He did not, however,
explain how he obtained the checks, from whom he obtained his title, and the value
for which he received them. During trial, Uy did not present any evidence but adopted
Equitables evidence as his own.

Ruling of the Regional Trial Court [38]

The RTC clarified that SSPIs cause of action against Uy and Equitable is for quasi-
delict. SSPI is not seeking to enforce payment on the undelivered checks from the
defendants, but to recover the damage that it sustained from the wrongful non-
delivery of the checks.[39]

The crossed checks belonged solely to the payee named therein, SSPI. Since SSPI did
not authorize anyone to receive payment in its behalf, Uy clearly had no title to the
checks and Equitable had no right to accept the said checks from Uy. Equitable was
negligent in permitting Uy to deposit the checks in his account without verifying Uys
right to endorse the crossed checks. The court reiterated that banks have the duty to
scrutinize the checks deposited with it, for a determination of their genuineness and
regularity. The law holds banks to a high standard because banks hold themselves out
to the public as experts in the field. Thus, the trial court found Equitables explanation
regarding Uys close relations with the drawer unacceptable.[40]

Uys conversion of the checks and Equitables negligence make them liable to
compensate SSPI for the actual damage it sustained. This damage consists of the
income that SSPI failed to realize during the delay.[41] The trial court then equated this
unrealized income with the interest income that SSPI failed to collect from
Interco. Thus, it ordered Uy and Equitable to pay, jointly and severally, the amount
of P437,040.35 to SSPI as actual damages.[42]

It also ordered the defendants to pay exemplary damages of P500,000.00, attorneys

fees amounting to P200,000.00, as well as costs of suit.[43]
The trial court likewise found merit in Pardos claim for moral damages. It found that
Pardo suffered anxiety, sleepless nights, and hypertension in fear that he would face
criminal prosecution.The trial court awarded Pardo the amount of P3 million in moral
damages.[44]

The dispositive portion of the trial courts Decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special Steel

Products, Inc., and Augusto L. Pardo and against defendants Equitable Banking
Corporation [and] Jose Isidoro Uy, alias Jolly Uy, ordering defendants to jointly and
severally pay plaintiffs the following:

1. P437,040.35 as actual damages;

2. P3,000,000.00 as moral damages to Augusto L. Pardo;
3. P500,000.00 as exemplary damages;
4. P200,000.00 as attorneys fees; and
5. Costs of suit.

Defendant EBCs counterclaim is hereby DISMISSED for lack of factual and legal
basis.

Likewise, the crossclaim filed by defendant EBC against defendant Jose Isidoro Uy
and the crossclaim filed by defendant Jose Isidoro Uy against defendant EBC are
hereby DISMISSED for lack of factual and legal basis.

SO ORDERED.

Pasig City, May 4, 1998.[45]

The trial court denied Equitables motion for reconsideration in its Order dated
November 19, 1998.[46]

Only Equitable appealed to the CA,[47] reiterating its defenses below.

Appealed Ruling of the Court of Appeals[48]

The appellate court found no merit in Equitables appeal.
It affirmed the trial courts ruling that SSPI had a cause of action for quasi-delict
against Equitable.[49] The CA noted that the three checks presented by Uy to Equitable
were crossed checks, and strictly made payable to SSPI only. This means that the
checks could only be deposited in the account of the named payee. [50] Thus, the CA
found that Equitable had the responsibility of ensuring that the crossed checks are
deposited in SSPIs account only. Equitable violated this duty when it allowed the
deposit of the crossed checks in Uys account.[51]
The CA found factual and legal basis to affirm the trial courts award of moral
damages in favor of Pardo.[52]

It likewise affirmed the award of exemplary damages and attorneys fees in favor of
SSPI.[53]

Issues

1. Whether SSPI has a cause of action against Equitable for quasi-delict;

2. Whether SSPI can recover, as actual damages, the stipulated 36% per annum
interest from Equitable;

3. Whether speculative fears and imagined scenarios, which cause sleepless nights,
may be the basis for the award of moral damages; and

4. Whether the attachment of Equitables personal properties was wrongful.

Our Ruling

SSPIs cause of action

This case involves a complaint for damages based on quasi-delict. SSPI asserts that it
did not receive prompt payment from Interco in July 1991 because of Uys wilful and
illegal conversion of the checks payable to SSPI, and of Equitables gross negligence,
which facilitated Uys actions. The combined actions of the defendants deprived SSPI
of interest income on the said moneys from July 1991 until June 1993. Thus, SSPI
claims damages in the form of interest income for the said period from the parties who
wilfully or negligently withheld its money from it.

Equitable argues that SSPI cannot assert a right against the bank based on the
undelivered checks.[54] It cites provisions from the Negotiable Instruments Law and
the case of Development Bank of Rizal v. Sima Wei[55] to argue that a payee, who did
not receive the check, cannot require the drawee bank to pay it the sum stated on the
checks.

Equitables argument is misplaced and beside the point. SSPIs cause of action is not
based on the three checks. SSPI does not ask Equitable or Uy to deliver to it the
proceeds of the checks as the rightful payee. SSPI does not assert a right based on the
undelivered checks or for breach of contract. Instead, it asserts a cause of action based
on quasi-delict. A quasi-delict is an act or omission, there being fault or negligence,
which causes damage to another. Quasi-delicts exist even without a contractual
relation between the parties. The courts below correctly ruled that SSPI has a cause of
action for quasi-delict against Equitable.

The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPIs order, and contained the notation account payee only. This creates a reasonable
expectation that the payee alone would receive the proceeds of the checks and that
diversion of the checks would be averted. This expectation arises from the accepted
banking practice that crossed checks are intended for deposit in the named payees
account only and no other.[56] At the very least, the nature of crossed checks should
place a bank on notice that it should exercise more caution or expend more than a
cursory inquiry, to ascertain whether the payee on the check has authorized the holder
to deposit the same in a different account. It is well to remember that [t]he banking
system has become an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized society. Whether as mere passive entities
for the safe-keeping and saving of money or as active instruments of business and
commerce, banks have attained an [sic] ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, above all, trust and
confidence. In this connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly emphasized, since the
banking business is impressed with public interest, the trust and confidence of the
public in it is of paramount importance. Consequently, the highest degree of diligence
is expected, and high standards of integrity and performance are required of it.[57]

Equitable did not observe the required degree of diligence expected of a banking
institution under the existing factual circumstances.

The fact that a person, other than the named payee of the crossed check, was
presenting it for deposit should have put the bank on guard. It should have verified if
the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or
indorsed it to him. Considering however, that the named payee does not have an
account with Equitable (hence, the latter has no specimen signature of SSPI by which
to judge the genuineness of its indorsement to Uy), the bank knowingly assumed the
risk of relying solely on Uys word that he had a good title to the three checks.Such
misplaced reliance on empty words is tantamount to gross negligence, which is the
absence of or failure to exercise even slight care or diligence, or the entire absence of
care, evincing a thoughtless disregard of consequences without exerting any effort to
avoid them.[58]

Equitable contends that its knowledge that Uy is the son-in-law of the majority
stockholder of the drawer, Interco, made it safe to assume that the drawer authorized
Uy to countermand the order appearing on the check. In other words, Equitable
theorizes that Interco reconsidered its original order and decided to give the proceeds
of the checks to Uy.[59] That the bank arrived at this conclusion without anything on
the face of the checks to support it is demonstrative of its lack of caution. It is
troubling that Equitable proceeded with the transaction based only on its knowledge
that Uy had close relations with Interco. The bank did not even make inquiries with
the drawer, Interco (whom the bank considered a valued client), to verify Uys
representation. The banking system is placed in peril when bankers act out of blind
faith and empty promises, without requiring proof of the assertions and without
making the appropriate inquiries. Had it only exercised due diligence, Equitable could
have saved both Interco and the named payee, SSPI, from the trouble that the banks
mislaid trust wrought for them.

Equitables pretension that there is nothing under the circumstances that rendered Uys
title to the checks questionable is outrageous. These are crossed checks, whose
manner of discharge, in banking practice, is restrictive and specific. Uys name does
not appear anywhere on the crossed checks. Equitable, not knowing the named payee
on the check, had no way of verifying for itself the alleged genuineness of the
indorsement to Uy. The checks bear nothing on their face that supports the belief that
the drawer gave the checks to Uy. Uys relationship to Intercos majority stockholder
will not justify disregarding what is clearly ordered on the checks.

Actual damages
 For its role in the conversion of the checks, which deprived SSPI of the use
thereof, Equitable is solidarily liable with Uy to compensate SSPI for the damages it
suffered.

Among the compensable damages are actual damages, which encompass the value of
the loss sustained by the plaintiff, and the profits that the plaintiff failed to obtain.
[60]
Interest payments, which SSPI claims, fall under the second category of actual
damages.

SSPI computed its claim for interest payments based on the interest rate stipulated in
its contract with Interco. It explained that the stipulated interest rate is the actual
interest income it had failed to obtain from Interco due to the defendants tortious
conduct.
The Court finds the application of the stipulated interest rate erroneous.

SSPI did not recover interest payments at the stipulated rate from Interco because it
agreed that the delay was not Intercos fault, but that of the defendants. If that is the
case, then Interco is not in delay (at least not after issuance of the checks) and the
stipulated interest payments in their contract did not become operational. If Interco is
not liable to pay for the 36% per annum interest rate, then SSPI did not lose that
income. SSPI cannot lose something that it was not entitled to in the first place. Thus,
SSPIs claim that it was entitled to interest income at the rate stipulated in its contract
with Interco, as a measure of its actual damage, is fallacious.

More importantly, the provisions of a contract generally take effect only among the
parties, their assigns and heirs.[61] SSPI cannot invoke the contractual stipulation on
interest payments against Equitable because it is neither a party to the contract, nor an
assignee or an heir to the contracting parties.

Nevertheless, it is clear that defendants actions deprived SSPI of the present use of its
money for a period of two years. SSPI is therefore entitled to obtain from the
tortfeasors the profits that it failed to obtain from July 1991 to June 1993. SSPI should
recover interest at the legal rate of 6% per annum,[62] this being an award for damages
based on quasi-delict and not for a loan or forbearance of money.

Moral damages
Both the trial and appellate courts awarded Pardo P3 million in moral damages. Pardo
claimed that he was frightened, anguished, and seriously anxious that the government
would prosecute him for money laundering and tax evasion because of defendants
actions.[63] In other words, he was worried about the repercussions that defendants
actions would have on him.

Equitable argues that Pardos fears are all imagined and should not be
compensated. The bank points out that none of Pardos fears panned out.[64]
Moral damages are recoverable only when they are the proximate result of the
defendants wrongful act or omission.[65] Both the trial and appellate courts found that
Pardo indeed suffered as a result of the diversion of the three checks. It does not
matter that the things he was worried and anxious about did not eventually
materialize. It is rare for a person, who is beset with mounting problems, to sift
through his emotions and distinguish which fears or anxieties he should or should not
bother with. So long as the injured partys moral sufferings are the result of the
defendants actions, he may recover moral damages.

The Court, however, finds the award of P3 million excessive. Moral damages are
given not to punish the defendant but only to give the plaintiff the means to assuage
his sufferings with diversions and recreation. [66] We find that the award
of P50,000.00[67] as moral damages is reasonable under the circumstances.

Equitable to recover amounts from Uy

Equitable then insists on the allowance of their cross-claim against Uy. The bank
argues that it was Uy who was enriched by the entire scheme and should reimburse
Equitable for whatever amounts the Court might order it to pay in damages to SSPI.[68]

Equitable is correct. There is unjust enrichment when (1) a person is unjustly

benefited, and (2) such benefit is derived at the expense of or with damages to another.
[69]
In the instant case, the fraudulent scheme concocted by Uy allowed him to
improperly receive the proceeds of the three crossed checks and enjoy the profits from
these proceeds during the entire time that it was withheld from SSPI. Equitable,
through its gross negligence and mislaid trust on Uy, became an unwitting instrument
in Uys scheme. Equitables fault renders it solidarily liable with Uy, insofar as
respondents are concerned. Nevertheless, as between Equitable and Uy, Equitable
should be allowed to recover from Uy whatever amounts Equitable may be made to
pay under the judgment.It is clear that Equitable did not profit in Uys
scheme. Disallowing Equitables cross-claim against Uy is tantamount to allowing Uy
to unjustly enrich himself at the expense of Equitable. For this reason, the Court
allows Equitables cross-claim against Uy.

Preliminary attachment

Equitable next assails as error the trial courts dismissal of its counter-claim for
wrongful preliminary attachment. It maintains that, contrary to SSPIs allegation in its
application for the writ, there is no showing whatsoever that Equitable was guilty of
fraud in allowing Uy to deposit the checks. Thus, the trial court should not have
issued the writ of preliminary attachment in favor of SSPI. The wrongful attachment
compelled Equitable to incur expenses for a counter-bond, amounting to P30,204.26,
and caused it to sustain damage, amounting to P5 million, to its goodwill and business
credit.[70]

SSPI submitted the following affidavit in support of its application for a writ of
preliminary attachment:

I, Augusto L. Pardo, of legal age, under oath hereby depose and declare:

1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is

our family corporation, Special Steel Products, Inc., of which I am the president and
majority stockholder; I caused the preparation of the foregoing Complaint, the
allegations of which I have read, and which I hereby affirm to be true and correct out
of my own personal knowledge;

2. The corporation and I have a sufficient cause of action against defendants

Isidoro Uy alias Jolly Uy and Equitable Banking Corporation, who are guilty of fraud
in incurring the obligation upon which this action is brought, as particularly alleged
in the Complaint, which allegations I hereby adopt and reproduce herein;

3. There is no sufficient security for our claim in this action and that the
amount due us is as much as the sum for which the order is granted above all legal
counterclaims;

4. We are ready and able to put up a bond executed to the defendants in an

amount to be fixed by the Court[,] conditioned on the payment of all costs[,] which
may be adjudged to defendants[,] and all damages[,] which they may sustain by
reason of the attachment of the court, should [the court] finally adjudge that we are
not entitled thereto.[71]

The complaint (to which the supporting affidavit refers) cites the following factual
circumstances to justify SSPIs application:
 6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an
account with EQUITABLE BANK as already alleged, thru its connivance with
defendant UY in his fraudulent scheme to defraud SPECIAL STEEL, or at least
thru its gross negligence EQUITABLE BANK consented to or allowed the opening
of Account No. 18841-2 at its head office and Account No. 03474-0 at its Ermita
Branch in the name of SPECIAL STEEL without the latters knowledge, let alone
authority or consent, but obviously on the bases of spurious or falsified
documents submitted by UY or under his authority, which documents EQUITABLE
BANK did not bother to verify or check their authenticity with SPECIAL STEEL.[72]

xxxx

9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK

about the fraudulent transactions involving the aforesaid checks, which could not
have been perpetrated without its indispensable participation and cooperation, or
gross negligence, and therein solicited its cooperation in securing information as to
the anomalous and irregular opening of the false accounts maintained in SPECIAL
STEELs name, but EQUITABLE BANK malevolently shirking from its
responsibility to prevent the further perpetration of fraud, conveniently, albeit
unjustifiably, invoked the confidentiality of the deposits and refused to give any
information, and accordingly denied SPECIAL STEELs valid request, thereby
knowingly shielding the identity of the ma[le]factors involved [in] the unlawful and
fraudulent transactions.[73]

The above affidavit and the allegations of the complaint are bereft of specific and
definite allegations of fraud against Equitable that would justify the attachment of its
properties. In fact, SSPI admits its uncertainty whether Equitables participation in the
transactions involved fraud or was a result of its negligence. Despite such uncertainty
with respect to Equitables participation, SSPI applied for and obtained a preliminary
attachment of Equitables properties on the ground of fraud. We believe that such
preliminary attachment was wrongful. [A] writ of preliminary attachment is too harsh
a provisional remedy to be issued based on mere abstractions of fraud. Rather, the
rules require that for the writ to issue, there must be a recitation of clear and concrete
factual circumstances manifesting that the debtor practiced fraud upon the creditor at
the time of the execution of their agreement in that said debtor had a preconceived
plan or intention not to pay the creditor.[74] No proof was adduced tending to show that
Equitable had a preconceived plan not to pay SSPI or had knowingly participated in
Uys scheme.

That the plaintiffs eventually obtained a judgment in their favor does not
detract from the wrongfulness of the preliminary attachment. While the evidence
warrants [a] judgment in favor of [the] applicant, the proofs may nevertheless also
establish that said applicants proffered ground for attachment was inexistent or
specious, and hence, the writ should not have issued at all x x x.[75]

For such wrongful preliminary attachment, plaintiffs may be held liable for
damages. However, Equitable is entitled only to such damages as its evidence would
allow,[76] for the wrongfulness of an attachment does not automatically warrant the
award of damages. The debtor still has the burden of proving the nature and extent of
the injury that it suffered by reason of the wrongful attachment.[77]

The Court has gone over the records and found that Equitable has duly proved its
claim for, and is entitled to recover, actual damages. In order to lift the wrongful
attachment of Equitables properties, the bank was compelled to pay the total amount
of P30,204.26 in premiums for a counter-bond.[78] However, Equitable failed to prove
that it sustained damage to its goodwill and business credit in consequence of the
alleged wrongful attachment. There was no proof of Equitables contention that
respondents actions caused it public embarrassment and a bank run.

WHEREFORE, premises considered, the Petition is PARTIALLY

GRANTED. The assailed October 13, 2006 Decision of the Court of Appeals in CA-
G.R. CV No. 62425 is MODIFIED by:

1. REDUCING the award of actual damages to respondents to the rate of 6%

per annum of the value of the three checks from July 1991 to June 1993 or a period
of twenty-three months;

2. REDUCING the award of moral damages in favor of Augusto L. Pardo

from P3,000,000.00 to P 50,000.00; and

3. REVERSING the dismissal of Equitable Banking Corporations cross-claim

against Jose Isidoro Uy, alias Jolly Uy. Jolly Uy is
hereby ORDERED to REIMBURSE Equitable Banking Corporation the amounts
that the latter will pay to respondents.

Additionally, the Court hereby REVERSES the dismissal of Equitable Banking

Corporations counterclaim for damages against Special Steel Products, Inc. This
Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking
Corporation actual damages in the total amount of P30,204.36, for the wrongful
preliminary attachment of its properties.
 The rest of the assailed Decision is AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson

LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson
 CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)

*
Per Special Order No. 1226 dated May 30, 2012.
**
Per Special Order No. 1227 dated May 30, 2012.
[1]
Rollo, p. 47.
[2]
Records, p. 247.
[3]
Id. at 248.
[4]
Also referred to in the records as Isidro.
[5]
RTC Decision, p. 2; rollo, p. 50.
[6]
Records, p. 247.
[7]
Id. at 301.
[8]
Id. at 306.
[9]
Id. at 307.
[10]
Check No. 032909 for P422,788.98; id. at 298.
[11]
Check No. 032974 for P313,845.84; id. at 299.
[12]
Check No. 033060 for P441,505.30; id. at 300.
[13]
The dorsal portions of the check contained a stamp, which read Special Steel Product By: ___ and the blank
portion had the initials TM. For clarity, Equitable does not claim that it accepted the checks on the bases of
these indorsements hence its authenticity was not in issue. Equitable maintains that it proceeded on the
assumption that Uy was acting on behalf of the drawer, Interco.
[14]
Records, pp. 91, 428-429.
[15]
Id. at 44 and 478.
[16]
Id.
[17]
Id. at 479.
[18]
Id. at 298-300.
[19]
Id. at 308-309, 311.
[20]
Id. at 312.
[21]
Id. at 117-118, 250.
[22]
Id. at 251.
[23]
Id. at 120.
[24]
Id. at 251-252.
[25]
Id. at 252.
[26]
Id. at 15.
[27]
Id. at 16.
[28]
Id. at 32.
[29]
Id. at 30.
[30]
Id. at 40-42.
[31]
Id. at 57-70.
[32]
Id. at 46-47.
[33]
Id. at 47.
[34]
Id. at 45.
[35]
Id. at 51.
[36]
Id. at 48-51.
[37]
Id. at 91-92.
[38]
Rollo, pp. 49-58; penned by Judge Benjamin V. Pelayo.
[39]
RTC Decision, pp. 6-7; rollo, pp. 54-55.
[40]
Id. at 7-8; id. at 55-56.
[41]
Id. at 9; id. at 57.
[42]
Id. at 10; id. at 58.
[43]
Id. at 10; id. at 58.
[44]
Id. at 9-10; id. at 57-58.
[45]
Id. at 10; id. at 58.
[46]
Rollo, pp. 59-60.
[47]
CA rollo, pp. 12-33.
[48]
Rollo, pp. 35-48; penned by Associate Justice Vicente Q. Roxas and concurred in by Associate Justices
Josefina Guevara-Salonga and Apolinario D. Bruselas, Jr.
[49]
CA Decision, pp. 8-9; rollo, pp. 42-43.
[50]
Id. at 9-10; id. at 43-44.
[51]
Id. at 10; id. at 44.
[52]
Id. at 12-13; id. at 46-47.
[53]
Id. at 13; id. at 47.
[54]
Petitioners Memorandum, pp. 17-18, 10-12; rollo, pp. 121-122, 114-116.
[55]
G.R. No. 85419, March 9, 1993, 219 SCRA 736.
[56]
Associated Bank v. Court of Appeals, G.R. No. 89802, May 7, 1992, 208 SCRA 465, 468-469.
[57]
Security Bank and Trust Company v. Rizal Commercial Banking Corporation, G.R. Nos. 170984 & 170987,
January 30, 2009, 577 SCRA 407, 416-417.
[58]
Metropolitan Bank and Trust Company v. BA Finance Corporation, G.R. No. 179952, December 4, 2009,
607 SCRA 620, 635.
[59]
Petitioners Memorandum, p. 21; rollo, p. 125.
[60]
CIVL CODE, Art. 2200; Cantemprate v. CRS Realty Development Corporation, G.R. No. 171399, May 8,
2009, 587 SCRA 492, 514-515.
[61]
CIVIL CODE, Art. 1311.
[62]
Security Bank and Trust Company v. Rizal Commercial Banking Corporation, supra note 57.
[63]
Records, p. 251.
[64]
Petitioners Memorandum, p. 14; rollo, p. 118.
[65]
CIVIL CODE, Art. 2217.
[66]
Lorzano v. Tabayag, G.R. No. 189647, February 6, 2012.
[67]
Go v. Metropolitan Bank and Trust Company, G.R. No. 168842, August 11, 2010, 628 SCRA 107, 112 and
118.
[68]
Petitioners Memorandum, p. 128.
[69]
Allied Banking Corporation v. Lim Sio Wan, G.R. No. 133179, March 27, 2008, 549 SCRA 504, 524,
citing Tamio v. Ticson, 485 Phil. 434, 443 (2004).
[70]
Petitioners Memorandum, pp. 22-23; rollo, pp. 126-127.
[71]
Records, p. 15.
[72]
Id. at 2-3.
[73]
Id. at 4.
[74]
Tanchan v. Allied Banking Corporation, G. R. No. 164510, November 25, 2008, 571 SCRA 512, 532.
(Emphasis supplied)
[75]
Carlos v. Sandoval, 508 Phil. 260, 286 (2005), citing Philippine Charter Insurance Corporation v. Court of
Appeals, 259 Phil. 74, 80 (1989).
[76]
Yu v. Ngo Yet Te, G.R. No. 155868, February 6, 2007, 514 SCRA 423, 435.
[77]
Id..
[78]
Records, pp. 432-433.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 193577 September 7, 2011

ANTONIO FRANCISCO, substituted by his heirs: NELIA E.S. FRANCISCO, EMILIA F.

BERTIZ, REBECCA E.S. FRANCISCO, ANTONIO E.S. FRANCISCO, JR., SOCORRO F.
FONTANILLA, and JOVITO E.S. FRANCISCO,Petitioners,
vs.
CHEMICAL BULK CARRIERS, INCORPORATED, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 31 May 2010 Decision2 and 31 August 2010 Resolution3 of the
Court of Appeals in CA G.R. CV No. 63591. In its 31 May 2010 Decision, the Court of Appeals
set aside the 21 August 1998 Decision4 of the Regional Trial of Pasig City, Branch 71 (trial court),
and ordered petitioner Antonio Francisco (Francisco) to pay respondent Chemical Bulk Carriers,
Incorporated (CBCI) ₱1,119,905 as actual damages. In its 31 August 2010 Resolution, the Court
of Appeals denied Francisco’s motion for reconsideration.

The Facts

Since 1965, Francisco was the owner and manager of a Caltex station in Teresa, Rizal.
Sometime in March 1993, four persons, including Gregorio Bacsa (Bacsa), came to Francisco’s
Caltex station and introduced themselves as employees of CBCI. Bacsa offered to sell to
Francisco a certain quantity of CBCI’s diesel fuel.

After checking Bacsa’s identification card, Francisco agreed to purchase CBCI’s diesel fuel.
Francisco imposed the following conditions for the purchase: (1) that Petron Corporation (Petron)
should deliver the diesel fuel to Francisco at his business address which should be properly
indicated in Petron’s invoice; (2) that the delivery tank is sealed; and (3) that Bacsa should issue
a separate receipt to Francisco.

The deliveries started on 5 April 1993 and lasted for ten months, or up to 25 January
1994.5 There were 17 deliveries to Francisco and all his conditions were complied with.

In February 1996, CBCI sent a demand letter to Francisco regarding the diesel fuel delivered to
him but which had been paid for by CBCI.6 CBCI demanded that Francisco pay CBCI ₱1,053,527
for the diesel fuel or CBCI would file a complaint against him in court. Francisco rejected CBCI’s
demand.

On 16 April 1996, CBCI filed a complaint for sum of money and damages against Francisco and
other unnamed defendants.7 According to CBCI, Petron, on various dates, sold diesel fuel to
CBCI but these were delivered to and received by Francisco. Francisco then sold the diesel fuel
to third persons from whom he received payment. CBCI alleged that Francisco acquired
possession of the diesel fuel without authority from CBCI and deprived CBCI of the use of the
diesel fuel it had paid for. CBCI demanded payment from Francisco but he refused to pay. CBCI
argued that Francisco should have known that since only Petron, Shell and Caltex are authorized
to sell and distribute petroleum products in the Philippines, the diesel fuel came from illegitimate,
if not illegal or criminal, acts. CBCI asserted that Francisco violated Articles 19, 8 20,9 21,10 and
2211 of the Civil Code and that he should be held liable. In the alternative, CBCI claimed that
Francisco, in receiving CBCI’s diesel fuel, entered into an innominate contract of do ut des (I give
and you give) with CBCI for which Francisco is obligated to pay CBCI ₱1,119,905, the value of
the diesel fuel. CBCI also prayed for exemplary damages, attorney’s fees and other expenses of
litigation.

On 20 May 1996, Francisco filed a Motion to Dismiss on the ground of forum shopping. 12 CBCI
filed its Opposition.13 In an Order dated 15 November 1996, the trial court denied Francisco’s
motion.14

Thereafter, Francisco filed his Answer.15 Francisco explained that he operates the Caltex station
with the help of his family because, in February 1978, he completely lost his eyesight due to
sickness. Francisco claimed that he asked Jovito, his son, to look into and verify the identity of
Bacsa, who introduced himself as a radio operator and confidential secretary of a certain Mr.
Inawat (Inawat), CBCI’s manager for operations. Francisco said he was satisfied with the proof
presented by Bacsa. When asked to explain why CBCI was selling its fuel, Bacsa allegedly
replied that CBCI was in immediate need of cash for the salary of its daily paid workers and for
petty cash. Francisco maintained that Bacsa assured him that the diesel fuel was not stolen
property and that CBCI enjoyed a big credit line with Petron. Francisco agreed to purchase the
diesel fuel offered by Bacsa on the following conditions:

1) Defendant [Francisco] will not accept any delivery if it is not company (Petron)
delivered, with his name and address as shipping point properly printed and indicated in
the invoice of Petron, and that the product on the delivery tank is sealed; [and]

2) Although the original invoice is sufficient evidence of delivery and payment, under
ordinary course of business, defendant still required Mr. Bacsa to issue a separate
receipt duly signed by him acknowledging receipt of the amount stated in the invoice, for
and in behalf of CBCI.16

During the first delivery on 5 April 1993, Francisco asked one of his sons to verify whether the
delivery truck’s tank was properly sealed and whether Petron issued the invoice. Francisco said
all his conditions were complied with. There were 17 deliveries made from 5 April 1993 to 25
January 1994 and each delivery was for 10,000 liters of diesel fuel at ₱65,865. 17 Francisco
maintained that he acquired the diesel fuel in good faith and for value. Francisco also filed a
counterclaim for exemplary damages, moral damages and attorney’s fees.

In its 21 August 1998 Decision, the trial court ruled in Francisco’s favor and dismissed CBCI’s
complaint. The dispositive portion of the trial court’s 21 August 1998 Decision reads:

WHEREFORE, Judgment is hereby rendered:

1. Dismissing the complaint dated March 13, 1996 with costs.

2. Ordering plaintiff (CBCI), on the counterclaim, to pay defendant the amount of

₱100,000.00 as moral damages and ₱50,000.00 as and by way of attorney’s fees.

SO ORDERED.18

CBCI appealed to the Court of Appeals.19 CBCI argued that Francisco acquired the diesel fuel
from Petron without legal ground because Bacsa was not authorized to deliver and sell CBCI’s
diesel fuel. CBCI added that Francisco acted in bad faith because he should have inquired
further whether Bacsa’s sale of CBCI’s diesel fuel was legitimate.

In its 31 May 2010 Decision, the Court of Appeals set aside the trial court’s 21 August 1998
Decision and ruled in CBCI’s favor. The dispositive portion of the Court of Appeals’ 31 May 2010
Decision reads:
IN VIEW OF THE FOREGOING, the assailed decision is hereby REVERSED and SET ASIDE.
Antonio Francisco is ordered to pay Chemical Bulk Carriers, Incorporated the amount of
₱1,119,905.00 as actual damages.

SO ORDERED.20

On 15 January 2001, Francisco died.21 Francisco’s heirs, namely: Nelia E.S. Francisco, Emilia F.
Bertiz, Rebecca E.S. Francisco, Antonio E.S. Francisco, Jr., Socorro F. Fontanilla, and Jovito
E.S. Francisco (heirs of Francisco) filed a motion for substitution.22 The heirs of Francisco also
filed a motion for reconsideration.23 In its 31 August 2010 Resolution, the Court of Appeals
granted the motion for substitution but denied the motion for reconsideration.

Hence, this petition.

The Ruling of the Trial Court

The trial court ruled that Francisco was not liable for damages in favor of CBCI because the 17
deliveries were covered by original and genuine invoices. The trial court declared that Bacsa, as
confidential secretary of Inawat, was CBCI’s authorized representative who received Francisco’s
full payment for the diesel fuel. The trial court stated that if Bacsa was not authorized, CBCI
should have sued Bacsa and not Francisco. The trial court also considered Francisco a buyer in
good faith who paid in full for the merchandise without notice that some other person had a right
to or interest in such diesel fuel. The trial court pointed out that good faith affords protection to a
purchaser for value. Finally, since CBCI was bound by the acts of Bacsa, the trial court ruled that
CBCI is liable to pay damages to Francisco.

The Ruling of the Court of Appeals

The Court of Appeals set aside the trial court’s 21 August 1998 Decision and ruled that Bacsa’s
act of selling the diesel fuel to Francisco was his personal act and, even if Bacsa connived with
Inawat, the sale does not bind CBCI.

The Court of Appeals declared that since Francisco had been in the business of selling
petroleum products for a considerable number of years, his blindness was not a hindrance for
him to transact business with other people. With his condition and experience, Francisco should
have verified whether CBCI was indeed selling diesel fuel and if it had given Bacsa authority to
do so. Moreover, the Court of Appeals stated that Francisco cannot feign good faith since he had
doubts as to the authority of Bacsa yet he did not seek confirmation from CBCI and contented
himself with an improvised receipt. Francisco’s failure to verify Bacsa’s authority showed that he
had an ulterior motive. The receipts issued by Bacsa also showed his lack of authority because it
was on a plain sheet of bond paper with no letterhead or any indication that it came from CBCI.
The Court of Appeals ruled that Francisco cannot invoke estoppel because he was at fault for
choosing to ignore the tell-tale signs of petroleum diversion and for not exercising prudence.

The Court of Appeals also ruled that CBCI was unlawfully deprived of the diesel fuel which, as
indicated in the invoices, CBCI had already paid for. Therefore, CBCI had the right to recover the
diesel fuel or its value from Francisco. Since the diesel fuel can no longer be returned, the Court
of Appeals ordered Francisco to give back the actual amount paid by CBCI for the diesel fuel.

The Issues

The heirs of Francisco raise the following issues:

 I. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT DEFENDANT
ANTONIO FRANCISCO EXERCISED THE REQUIRED DILIGENCE OF A BLIND
PERSON IN THE CONDUCT OF HIS BUSINESS; and

II. WHETHER ON THE BASIS OF THE FACTUAL FINDINGS OF THE COURT OF

APPEALS AND THE TRIAL COURT AND ADMITTED FACTS, IT CAN BE CONCLUDED
THAT THE PLAINTIFF APPROVED EXPRESSLY OR TACITLY THE TRANSACTIONS.24

The Ruling of the Court

The petition has no merit.

Required Diligence of a Blind Person

The heirs of Francisco argue that the Court of Appeals erred when it ruled that Francisco was
liable to CBCI because he failed to exercise the diligence of a good father of a family when he
bought the diesel fuel. They argue that since Francisco was blind, the standard of conduct that
was required of him was that of a reasonable person under like disability. Moreover, they insist
that Francisco exercised due care in purchasing the diesel fuel by doing the following: (1)
Francisco asked his son to check the identity of Bacsa; (2) Francisco required direct delivery
from Petron; (3) Francisco required that he be named as the consignee in the invoice; and (4)
Francisco required separate receipts from Bacsa to evidence actual payment.

Standard of conduct is the level of expected conduct that is required by the nature of the
obligation and corresponding to the circumstances of the person, time and place. 25 The most
common standard of conduct is that of a good father of a family or that of a reasonably prudent
person.26 To determine the diligence which must be required of all persons, we use as basis the
abstract average standard corresponding to a normal orderly person. 27

However, one who is physically disabled is required to use the same degree of care that a
reasonably careful person who has the same physical disability would use. 28 Physical handicaps
and infirmities, such as blindness or deafness, are treated as part of the circumstances under
which a reasonable person must act. Thus, the standard of conduct for a blind person becomes
that of a reasonable person who is blind.

We note that Francisco, despite being blind, had been managing and operating the Caltex station
for 15 years and this was not a hindrance for him to transact business until this time. In this
instance, however, we rule that Francisco failed to exercise the standard of conduct expected of
a reasonable person who is blind. First, Francisco merely relied on the identification card of
Bacsa to determine if he was authorized by CBCI. Francisco did not do any other background
check on the identity and authority of Bacsa. Second, Francisco already expressed his
misgivings about the diesel fuel, fearing that they might be stolen property, 29 yet he did not verify
with CBCI the authority of Bacsa to sell the diesel fuel. Third, Francisco relied on the receipts
issued by Bacsa which were typewritten on a half sheet of plain bond paper. 30 If Francisco
exercised reasonable diligence, he should have asked for an official receipt issued by CBCI.
Fourth, the delivery to Francisco, as indicated in Petron’s invoice, does not show that CBCI
authorized Bacsa to sell the diesel fuel to Francisco. Clearly, Francisco failed to exercise the
standard of conduct expected of a reasonable person who is blind.

Express or Tacit Approval of the Transaction

The heirs of Francisco argue that CBCI approved expressly or tacitly the transactions. According
to them, there was apparent authority for Bacsa to enter into the transactions. They argue that
even if the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the later to act as though he had full powers.31 They insist CBCI was not
unlawfully deprived of its property because Inawat gave Bacsa the authority to sell the diesel fuel
and that CBCI is bound by such action. Lastly, they argue that CBCI should be considered in
estoppel for failure to act during the ten month period that deliveries were being made to
Francisco.

The general principle is that a seller without title cannot transfer a better title than he has. 32 Only
the owner of the goods or one authorized by the owner to sell can transfer title to the
buyer.33 Therefore, a person can sell only what he owns or is authorized to sell and the buyer
can, as a consequence, acquire no more than what the seller can legally transfer. 34

Moreover, the owner of the goods who has been unlawfully deprived of it may recover it even
from a purchaser in good faith.35 Thus, the purchaser of property which has been stolen from the
owner has been held to acquire no title to it even though he purchased for value and in good
faith.

The exception from the general principle is the doctrine of estoppel where the owner of the goods
is precluded from denying the seller’s authority to sell. 36 But in order that there may be estoppel,
the owner must, by word or conduct, have caused or allowed it to appear that title or authority to
sell is with the seller and the buyer must have been misled to his damage. 37 1avvphi1

In this case, it is clear that Bacsa was not the owner of the diesel fuel. Francisco was aware of
1âwphi1

this but he claimed that Bacsa was authorized by CBCI to sell the diesel fuel. However,
Francisco’s claim that Bacsa was authorized is not supported by any evidence except his self-
serving testimony. First, Francisco did not even confirm with CBCI if it was indeed selling its
diesel fuel since it is not one of the oil companies known in the market to be selling petroleum
products. This fact alone should have put Francisco on guard. Second, it does not appear that
CBCI, by some direct and equivocal act, has clothed Bacsa with the indicia of ownership or
apparent authority to sell CBCI’s diesel fuel. Francisco did not state if the identification card
presented by Bacsa indicated that he was CBCI’s agent or a mere employee. Third, the receipt
issued by Bacsa was typewritten on a half sheet of plain bond paper. There was no letterhead or
any indication that it came from CBCI. We agree with the Court of Appeals that this was a
personal receipt issued by Bacsa and not an official receipt issued by CBCI. Consequently, CBCI
is not precluded by its conduct from denying Bacsa’s authority to sell. CBCI did not hold out
Bacsa or allow Bacsa to appear as the owner or one with apparent authority to dispose of the
diesel fuel.

Clearly, Bacsa cannot transfer title to Francisco as Bacsa was not the owner of the diesel fuel nor
was he authorized by CBCI to sell its diesel fuel. CBCI did not commit any act to clothe Bacsa
with apparent authority to sell the diesel fuel that would have misled Francisco. Francisco,
therefore, did not acquire any title over the diesel fuel. Since CBCI was unlawfully deprived of its
property, it may recover from Francisco, even if Francisco pleads good faith.

WHEREFORE, we DENY the petition. We AFFIRM the 31 May 2010 Decision and 31 August
2010 Resolution of the Court of Appeals.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA* JOSE PORTUGAL PEREZ

 Associate Justice Associate Justice

JOSE C. MENDOZA**
Associate Justice

ATTE S TATI O N

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

* Designated Acting Member per Special Order No. 1074 dated 6 September 2011.

** Designated Acting Member per Special Order No. 1066 dated 23 August 2011.

1
Under Rule 45 of the Rules of Court.

2
Rollo, pp. 7-27. Penned by Presiding Judge Andres B. Reyes, Jr., with Associate
Justices Isaias P. Dicidican and Stephen C. Cruz, concurring.

3
Id. at 28-30.

4
Id. at 150-157. Penned by Judge Celso D. Laviña.

5
Annexes "1" to "17," Records, pp. 11-27.

6
Id. at 196.

7
Rollo, pp. 77-85.

8
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.

9
ART. 20. Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
10
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.

ART. 22. Every person who through an act of performance by another, or any other
11

means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.

12
Rollo, pp. 86-93.

13
Id. at 94-98.

14
Id. at 99.

15
Records, pp. 97-113.

16
Id. at 99-100.

17
The first delivery on 5 April 1993 was for 10,000 liters at ₱66,065; Annex "1," id. at 11.

18
Rollo, p. 157.

19
CA rollo, pp. 12-43.

20
Rollo, p. 27.

21
CA rollo, p. 150.

22
Id. at 120-124.

23
Id. at 126-136.

24
Rollo, p. 39.

25
Civil Code, Art. 1173.

26
Civil Code, Art. 1173.

27
Arturo M. Tolentino, Civil Code of the Philippines, Vol. 4 125 (1991).

28
Timoteo B. Aquino, Torts and Damages 92 (2001).

29
Records, pp. 98-99.

30
Exhibits "7" to "7-N," id. at 61-77.

31
Civil Code, Art. 1911.

32
Civil Code, Art. 1505.

33
Id.
 34
Nool v. Court of Appeals, 342 Phil. 106 (1997); Segura v. Segura, 247-A Phil. 449
(1988).

35
Civil Code, Art. 559.

36
Civil Code, Art. 1505.

37
Id.

The Lawphil Project - Arellano Law Foundation

SECOND DIVISION

MINDANAO TERMINAL AND G.R. No. 162467

BROKERAGE SERVICE, INC.
Petitioner, Present:

- versus - CARPIO MORALES ,* JJ.,

Acting Chairperson,
TINGA,
PHOENIX ASSURANCE VELASCO, JR.,
COMPANY OF NEW YORK/ LEONARDO DE CASTRO,** and
MCGEE & CO., INC., BRION, JJ.
Respondent.
Promulgated:
May 8, 2009
x------------------------------------------------------------------------------------x

DECISION
TINGA, J.:
Before us is a petition for review on certiorari [1] under Rule 45 of the 1997
Rules of Civil Procedure of the 29 October 2003[2] Decision of the Court of
Appeals and the 26 February 2004 Resolution[3] of the same court denying
petitioners motion for reconsideration.

The facts of the case are not disputed.

 Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao
Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green
Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo
hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea in
favor of consignee Taegu Industries, Inc. Del Monte Produce insured the
shipment under an open cargo policy with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance company, and
private respondent McGee & Co. Inc. (McGee), the underwriting manager/agent
of Phoenix.[4]

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The
vessel set sail from the port of Davao City and arrived at
the port of Inchon, Korea. It was then discovered upon discharge that some of
the cargo was in bad condition. The Marine Cargo Damage Surveyor of Incok
Loss and Average Adjuster of Korea, through its representative Byeong Yong
Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey
report, it was stated that 16,069 cartons of the banana shipment and 2,185
cartons of the pineapple shipment were so damaged that they no longer had
commercial value.[5]

Del Monte Produce filed a claim under the open cargo policy for the damages to
its shipment. McGees Marine Claims Insurance Adjuster evaluated the claim
and recommended that payment in the amount of $210,266.43 be made. A check
for the recommended amount was sent to Del Monte Produce; the latter then
issued a subrogation receipt[6] toPhoenix and McGee.

Phoenix and McGee instituted an action for damages[7] against Mindanao

Terminal in the Regional Trial Court (RTC) of Davao City, Branch 12. After
trial, the RTC,[8] in a decision dated 20 October 1999, held that the only
participation of Mindanao Terminal was to load the cargoes on board the M/V
Mistrau under the direction and supervision of the ships officers, who would not
have accepted the cargoes on board the vessel and signed the foremans report
unless they were properly arranged and tightly secured to withstand voyage
across the open seas. Accordingly, Mindanao Terminal cannot be held liable for
whatever happened to the cargoes after it had loaded and stowed them.
Moreover, citing the survey report, it was found by the RTC that the cargoes
were damaged on account of a typhoon which M/V Mistrau had encountered
during the voyage. It was further held that Phoenix and McGee had no cause of
action against Mindanao Terminal because the latter, whose services were
contracted by Del Monte, a distinct corporation from Del Monte Produce, had
no contract with the assured Del Monte Produce. The RTC dismissed the
complaint and awarded the counterclaim of Mindanao Terminal in the amount
of P83,945.80 as actual damages and P100,000.00 as attorneys fees.[9] The
actual damages were awarded as reimbursement for the expenses incurred by
Mindanao Terminals lawyer in attending the hearings in the case wherein he had
to travel all the way from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate

court reversed and set aside[10] the decision of the RTC in its 29 October
2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and
McGee the total amount of $210,265.45 plus legal interest from the filing of the
complaint until fully paid and attorneys fees of 20% of the claim. [11] It
sustained Phoenixs and McGees argument that the damage in the cargoes was
the result of improper stowage by Mindanao Terminal. It imposed on Mindanao
Terminal, as the stevedore of the cargo, the duty to exercise extraordinary
diligence in loading and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao Terminal and Del
Monte Produce, the cause of action of Phoenix and McGee could be based on
quasi-delict under Article 2176 of the Civil Code.[12]

Mindanao Terminal filed a motion for reconsideration, [13] which the Court
of Appeals denied in its 26 February 2004[14] resolution. Hence, the present
petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether
it was careless and negligent in the loading and stowage of the cargoes
onboard M/V Mistraumaking it liable for damages; and, whether Phoenix and
McGee has a cause of action against Mindanao Terminal under Article 2176 of
the Civil Code on quasi-delict. To resolve the petition, three questions have to
be answered: first, whether Phoenix and McGee have a cause of action against
Mindanao Terminal; second, whether Mindanao Terminal, as a stevedoring
company, is under obligation to observe the same extraordinary degree of
diligence in the conduct of its business as required by law for common
carriers[15] and warehousemen;[16] and third, whether Mindanao Terminal
observed the degree of diligence required by law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed

by Phoenix and McGee against Mindanao Terminal, from which the present
case has arisen, states a cause of action. The present action is based on quasi-
delict, arising from the negligent and careless loading and stowing of the
cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and
McGee have only been subrogated in the rights of Del Monte Produce, who is
not a party to the contract of service between Mindanao Terminal and Del
Monte, still the insurance carriers may have a cause of action in light of the
Courts consistent ruling that the act that breaks the contract may be also a tort.
[17]
In fine, a liability for tort may arise even under a contract, where tort is that
which breaches the contract[18]. In the present case, Phoenix and McGee are not
suing for damages for injuries arising from the breach of the contract of service
but from the alleged negligent manner by which Mindanao Terminal handled
the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation
of negligence on the part of the defendant should be sufficient to establish a
cause of action arising from quasi-delict.[19]

The resolution of the two remaining issues is determinative of the

ultimate result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract
does not state the degree of diligence which is to be observed in the
performance of an obligation then that which is expected of a good father of a
family or ordinary diligence shall be required. Mindanao Terminal, a
stevedoring company which was charged with the loading and stowing the
cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor
provider in the case at bar. There is no specific provision of law that imposes a
higher degree of diligence than ordinary diligence for a stevedoring company or
one who is charged only with the loading and stowing of cargoes. It was neither
alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound
by contractual stipulation to observe a higher degree of diligence than that
required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V
Mistrau.

The Court of Appeals erred when it cited the case of Summa Insurance
Corporation v. CA and Port Service Inc.[20] in imposing a higher degree of
diligence,[21] on Mindanao Terminal in loading and stowing the cargoes. The
case of Summa Insurance Corporation v. CA, which involved the issue of
whether an arrastre operator is legally liable for the loss of a shipment in its
custody and the extent of its liability, is inapplicable to the factual
circumstances of the case at bar. Therein, a vessel owned by the National
Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila,
carrying a shipment consigned to the order of Caterpillar Far East Ltd. with
Semirara Coal Corporation (Semirara) as "notify party." The shipment,
including a bundle of PC 8 U blades, was discharged from the vessel to the
custody of the private respondent, the exclusive arrastre operator at
the South Harbor. Accordingly, three good-order cargo receipts were issued by
NGSC, duly signed by the ship's checker and a representative of private
respondent. When Semirara inspected the shipment at house, it discovered that
the bundle of PC8U blades was missing. From those facts, the Court observed:

x x x The relationship therefore between the consignee and the arrastre

operator must be examined. This relationship is much akin to that existing
between the consignee or owner of shipped goods and the common carrier,
or that between a depositor and a warehouseman[[22]]. In the performance of
its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and
Section 3(b) of the Warehouse Receipts Law, respectively. Being the
custodian of the goods discharged from a vessel, an arrastre operator's
duty is to take good care of the goods and to turn them over to the
party entitled to their possession. (Emphasis supplied)[23]

There is a distinction between an arrastre and a stevedore. [24] Arrastre, a Spanish

word which refers to hauling of cargo, comprehends the handling of cargo on
the wharf or between the establishment of the consignee or shipper and the
ship's tackle. The responsibility of the arrastre operator lasts until the delivery of
the cargo to the consignee. The service is usually performed by longshoremen.
On the other hand, stevedoring refers to the handling of the cargo in the holds of
the vessel or between the ship's tackle and the holds of the vessel. The
responsibility of the stevedore ends upon the loading and stowing of the cargo
in the vessel.

It is not disputed that Mindanao Terminal was performing purely

stevedoring function while the private respondent in the Summa case was
performing arrastre function. In the present case, Mindanao Terminal, as a
stevedore, was only charged with the loading and stowing of the cargoes from
the pier to the ships cargo hold; it was never the custodian of the shipment of
Del Monte Produce. A stevedore is not a common carrier for it does not
transport goods or passengers; it is not akin to a warehouseman for it does not
store goods for profit. The loading and stowing of cargoes would not have a far
reaching public ramification as that of a common carrier and a warehouseman;
the public is adequately protected by our laws on contract and on quasi-delict.
The public policy considerations in legally imposing upon a common carrier or
a warehouseman a higher degree of diligence is not present in a stevedoring
outfit which mainly provides labor in loading and stowing of cargoes for its
clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of

evidence[25] that Mindanao Terminal had acted negligently. Where the evidence
on an issue of fact is in equipoise or there is any doubt on which side the
evidence preponderates the party having the burden of proof fails upon that
issue. That is to say, if the evidence touching a disputed fact is equally balanced,
or if it does not produce a just, rational belief of its existence, or if it leaves the
mind in a state of perplexity, the party holding the affirmative as to such fact
must fail.[26]
We adopt the findings[27] of the RTC,[28] which are not disputed
by Phoenix and McGee. The Court of Appeals did not make any new findings of
fact when it reversed the decision of the trial court. The only participation of
Mindanao Terminal was to load the cargoes on board M/V Mistrau.[29] It was not
disputed by Phoenix and McGee that the materials, such as ropes, pallets, and
cardboards, used in lashing and rigging the cargoes were all provided by M/V
Mistrau and these materials meets industry standard.[30]
It was further established that Mindanao Terminal loaded and stowed the
cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the
stowage plan, a guide for the area assignments of the goods in the vessels hold,
prepared by Del Monte Produce and the officers of M/V Mistrau.[31] The loading
and stowing was done under the direction and supervision of the ship officers.
The vessels officer would order the closing of the hatches only if the loading
was done correctly after a final inspection.[32] The said ship officers would not
have accepted the cargoes on board the vessel if they were not properly
arranged and tightly secured to withstand the voyage in open seas. They would
order the stevedore to rectify any error in its loading and stowing. A foremans
report, as proof of work done on board the vessel, was prepared by the checkers
of Mindanao Terminal and concurred in by the Chief Officer of M/V
Mistrau after they were satisfied that the cargoes were properly loaded.[33]

Phoenix and McGee relied heavily on the deposition of Byeong Yong

Ahn[34] and on the survey report[35] of the damage to the cargoes. Byeong, whose
testimony was refreshed by the survey report, [36] found that the cause of the
damage was improper stowage[37] due to the manner the cargoes were arranged
such that there were no spaces between cartons, the use of cardboards as support
system, and the use of small rope to tie the cartons together but not by the
negligent conduct of Mindanao Terminal in loading and stowing the cargoes. As
admitted by Phoenix and McGee in their Comment[38] before us, the latter is
merely a stevedoring company which was tasked by Del Monte to load and
stow the shipments of fresh banana and pineapple of Del Monte Produce aboard
the M/V Mistrau. How and where it should load and stow a shipment in a vessel
is wholly dependent on the shipper and the officers of the vessel. In other
words, the work of the stevedore was under the supervision of the shipper and
officers of the vessel. Even the materials used for stowage, such as ropes,
pallets, and cardboards, are provided for by the vessel. Even the survey report
found that it was because of the boisterous stormy weather due to the typhoon
Seth, as encountered by M/V Mistrau during its voyage, which caused the
shipments in the cargo hold to collapse, shift and bruise in extensive extent.
[39]
Even the deposition of Byeong was not supported by the conclusion in the
survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that
damage occurred aboard the carrying vessel during sea transit, being
caused by ships heavy rolling and pitching under boisterous weather while
proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
1994 as described in the sea protest.[40]
 As it is clear that Mindanao Terminal had duly exercised the required
degree of diligence in loading and stowing the cargoes, which is the ordinary
diligence of a good father of a family, the grant of the petition is in order.

However, the Court finds no basis for the award of attorneys fees in favor
of petitioner. None of the circumstances enumerated in Article 2208 of the Civil
Code exists. The present case is clearly not an unfounded civil action against the
plaintiff as there is no showing that it was instituted for the mere purpose of
vexation or injury. It is not sound public policy to set a premium to the right to
litigate where such right is exercised in good faith, even if erroneously.
[41]
Likewise, the RTC erred in awarding P83,945.80 actual damages to
Mindanao Terminal. Although actual expenses were incurred by Mindanao
Terminal in relation to the trial of this case in Davao City, the lawyer of
Mindanao Terminal incurred expenses for plane fare, hotel accommodations and
food, as well as other miscellaneous expenses, as he attended the trials coming
all the way from Manila. But there is no showing that Phoenix and McGee
made a false claim against Mindanao Terminal resulting in the protracted trial of
the case necessitating the incurrence of expenditures.[42]

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the decision of
the Regional Trial Courtof Davao City, Branch 12 in Civil Case No. 25,311.97
is hereby REINSTATED MINUS the awards of P100,000.00 as attorneys fees
and P83,945.80 as actual damages.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
 Acting Chairperson

PRESBITERO J. VELASCO, JR. TERESITA LEONARDO DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Acting Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

[1]
Rollo, pp. 3-25.

*Acting Chairperson as replacement of Associate Justice Leonardo Quisumbing who is on official

leave per Special Order No. 618.

**Additional member of the Special Second Division per Special Order No. 619.
[2]
Id. at 29-34. Penned by Associate Justice Danilo B. Pine and concurred by Associate Justices Cancio
C. Garcia and Renato C. Dacudao. The dispositive portion reads as follows:

WHEREFORE, premises considered, the judgment appealed from is

hereby REVERSED and SET ASIDE. Mindanao Terminal Brokerage Services, Inc. is
ordered to pay the plaintiff-appellants the total amount of $210,265.45 plus legal interest
from the filing of the complaint until fully paid and attorneys fees of 20% of the claim.

Costs against defendant-appellee.

SO ORDERED.
[3]
Id. at 36.
[4]
Records, pp. 234-310.

[5]
Rollo, p. 30.
[6]
Records, p. 350.
[7]
Id. at 1-6.
[8]
Rollo, pp. 38-44. Penned by Judge Paul T. Arcangel.

[9]
Id. at 44.
[10]
Id. at 33-34.
[11]
Id. at 36.
[12]
Id. at 31-33.

[13]
CA rollo, pp. 94-104.
[14]
Rollo, p. 36.
 [15]
CIVIL CODE, Art. 1733.
[16]
Sec. 3(b), Act 2137, Warehouse Receipt Law.

[17]
Air France v. Carrascoso, 18 SCRA 155, 168 (1966). Singson v. Bank of the Philippine Islands, 132
Phil. 597, 600 (1968); Mr. & Mrs. Fabre, Jr . v. Court of Appeals, 328 Phil. 775, 785 (1996).
[18]
PSBA v. Court of Appeals, G.R. No. 84698, 4 February 1992, 205 SCRA 729, 734.
[19]
CIVIL CODE. Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (Emphasis supplied)
[20]
323 Phil. 214 (1996).
[21]
Rollo, p. 32.
[22]
Malayan Insurance Co. Inc. v. Manila Port Service, 138 Phil. 69 (1969).
[23]
Supra note at 222-223.
[24]
See Compaňia Maritima v. Allied Free Workers Union, 167 Phil. 381, 385 (1977).
[25]
See Republic of the Philippines v. Orfinada Sr., G.R. No. 141145, November 12, 2004, 442 SCRA
342, 352 citing Go v. Court of Appeals, G.R. No. 112550, February 5, 2001 citing Reyes v. Court of Appeals,
258 SCRA 651 (1996).
[26]
Francisco, Ricardo, Evidence, 3rd (1996), p. 555. Citing Howes v. Brown, 75 Ala. 385; Evans v.
Winston, 74 Ala. 349; Marlowe v. Benagh, 52 Ala. 112; Brandon v. Cabiness, 10 Ala. 155; Delaware Coach v.
Savage, 81 Supp. 293.
[27]
This Court is not a trier of facts. Furthermore, well settled is the doctrine that the findings of fact by
the trial court are accorded great respect by appellate courts and should not be disturbed on appeal unless the
trial court has overlooked, ignored, or disregarded some fact or circumstances of sufficient weight or
significance which, if considered, would alter the situation. The facts of the case, as stated by the trial court,
were adopted by the Court of Appeals. And a conscientious sifting of the records fails to bring to light any fact
or circumstance militative against the correctness of the said findings of the trial court and the Court of Appeals.
See Home Development Mutual Fund v. CA, 351 Phil. 858, 859-860 (1998).
[28]
Rollo, pp. 38-44.
[29]
Id. at 42.
[30]
Id. at 16.
[31]
TSN, 6 July 1999, p. 5.
[32]
Id. at 9-10.
[33]
Id. at 5-6.

[34]
Records, pp. 89-96.
[35]
Id. at 99-113.
[36]
Id. at 93.
 [37]
Id. at 96.
[38]
Rollo, pp. 47-49.
[39]
Records, pp. 105.

[40]
Id. at 112.
[41]
See Ramos v. Ramos, 158 Phil. 935, 960 (1974); Barreto v. Arevalo, 99 Phil. 771, 779
(1956); Mirasol v. Judge De la Cruz, 173 Phil. 518 (1978).
[42]
See Uy v. Court of Appeals, 420 Phil. 408 (2001).

FIRST DIVISION

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner,

vs. COURT OF APPEALS and L.C. DIAZ and COMPANY,
CPAs, respondents.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review of the Decision of the Court of Appeals dated
[1]

27 October 1998 and its Resolution dated 11 May 1999. The assailed decision
reversed the Decision of the Regional Trial Court of Manila, Branch 8, absolving
[2]

petitioner Consolidated Bank and Trust Corporation, now known as Solidbank

Corporation (Solidbank), of any liability. The questioned resolution of the appellate
court denied the motion for reconsideration of Solidbank but modified the decision by
deleting the award of exemplary damages, attorneys fees, expenses of litigation and
cost of suit.

The Facts

Solidbank is a domestic banking corporation organized and existing under

Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a
professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.
 On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael
Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave
Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips
and the passbook. The teller acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the
deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK
HEAD OFFICE. Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went
[3]

back to L.C. Diaz and reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to
Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE
and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that
someone got the passbook but she could not remember to whom she gave the
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No.
6 answered that someone shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This
PBC check of L.C. Diaz was a check that it had long closed. PBC subsequently
[4]

dishonored the check because of insufficient funds and because the signature in the
check differed from PBCs specimen signature.Failing to get back the passbook,
Macaraya went back to her office and reported the matter to the Personnel Manager
of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer,
Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account. On the same day, Diaz formally
[5]

wrote Solidbank to make the same request. It was also on the same day that L.C.
Diaz learned of the unauthorized withdrawal the day before, 14 August 1991,
of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the
signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L.
Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel
Tamayo received the P300,000.
In an Information dated 5 September 1991, L.C. Diaz charged its messenger,
[6]

Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification
of Commercial Document. The Regional Trial Court of Manila dismissed the criminal
case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the
return of its money. Solidbank refused.
 On 25 August 1992, L.C. Diaz filed a Complaint for Recovery of a Sum of
[7]

Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After
trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank
and dismissing the complaint.
L.C. Diaz then appealed to the Court of Appeals. On 27 October 1998, the
[8]

Court of Appeals issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion
for reconsideration of Solidbank. The appellate court, however, modified its decision
by deleting the award of exemplary damages and attorneys fees.

The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall raise the
presumption of ownership and any payment or payments made by the bank upon the
production of the said book and entry therein of the withdrawal shall have the same
effect as if made to the depositor personally.
[9]

At the time of the withdrawal, a certain Noel Tamayo was not only in possession
of the passbook, he also presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen signatures of these persons were
in the signature cards. The teller stamped the withdrawal slip with the words Saving
Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel
(Manuel) for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared the signatures
on the withdrawal slip with the specimen on the signature cards. The trial court
concluded that Solidbank acted with care and observed the rules on savings account
when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to
prove that the signatures on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip
for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must
keep the passbook under lock and key. When another person presents the
[10]

passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the
passbook, that person is considered as the owner of the passbook. The trial court
ruled that the passbook presented during the questioned transaction was now out of
the lock and key and presumptively ready for a business transaction. [11]

Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the withdrawal
of P300,000 was not the direct and proximate cause of the loss. The trial court held
that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts
establish L.C. Diazs negligence: (1) the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal
receipt by an unauthorized person; and (3) the possession by an unauthorized
person of a PBC check long closed by L.C. Diaz, which check was deposited on the
day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew
significant amounts from its account. L.C. Diaz claimed that a letter must accompany
withdrawals of more than P20,000. The letter must request Solidbank to allow the
withdrawal and convert the amount to a managers check. The bearer must also have
a letter authorizing him to withdraw the same amount. Another person driving a car
must accompany the bearer so that he would not walk from Solidbank to the office in
making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554
without any separate letter of authorization or any communication with Solidbank that
the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the
case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of
the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the

complaint.

The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.

With costs against plaintiff.

SO ORDERED. [12]

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the proximate cause
of the unauthorized withdrawal of P300,000 from the savings account of L.C.
Diaz. The appellate court reached this conclusion after applying the provision of the
Civil Code on quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this chapter.

The appellate court held that the three elements of a quasi-delict are present in this
case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the
defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and
the damage incurred by the plaintiff.
 The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the necessary
inquiry. The appellate court stated that the teller, who was not presented by
Solidbank during trial, should have called up the depositor because the money to be
withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank
would have known that the withdrawal was unauthorized. The teller did not even
verify the identity of the impostor who made the withdrawal. Thus, the appellate court
found Solidbank liable for its negligence in the selection and supervision of its
employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its
deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called
up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is
more than that of a good father of a family. The business and functions of banks are
affected with public interest. Banks are obligated to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its
duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby

REVERSED and a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation

to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos
(P300,000.00), with interest thereon at the rate of 12% per annum
from the date of filing of the complaint until paid, the sum
of P20,000.00 as exemplary damages, and P20,000.00 as attorneys
fees and expenses of litigation as well as the cost of suit; and

2. Ordering the dismissal of defendant-appellees counterclaim in the

amount of P30,000.00 as attorneys fees.

SO ORDERED. [13]

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its
decision but modified the award of damages. The appellate court deleted the award
of exemplary damages and attorneys fees. Invoking Article 2231 of the Civil Code,
[14]

the appellate court ruled that exemplary damages could be granted if the defendant
acted with gross negligence. Since Solidbank was guilty of simple negligence only,
the award of exemplary damages was not justified. Consequently, the award of
attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code.The
expenses of litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is
affirmed with modification by deleting the award of exemplary damages and
attorneys fees, expenses of litigation and cost of suit.

SO ORDERED. [15]

Hence, this petition.

The Issues

Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE
ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE
RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE
WITHDRAWAL OF P300,000.00 TO RESPONDENTS
MESSENGER EMERANO ILAGAN, SINCE THERE IS NO
AGREEMENT BETWEEN THE PARTIES IN THE OPERATION
OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING
LAW, WHICH MANDATES THAT A BANK TELLER SHOULD
FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE

OF LAST CLEAR CHANCE AND IN HOLDING THAT
PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY
TO WITHHOLD THE WITHDRAWAL WHEN IT IS
UNDISPUTED THAT THE TWO SIGNATURES OF
RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE
AND PRIVATE RESPONDENTS PASSBOOK WAS DULY
PRESENTED, AND CONTRARIWISE RESPONDENT WAS
NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE
SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL
DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE

INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING
IN ITS EFFORTS TO RECOVER THE SAME FROM ITS
EMPLOYEE EMERANO ILAGAN.
 IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE
DAMAGES AWARDED AGAINST PETITIONER UNDER
ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS
FINDING THAT PETITIONER BANKS NEGLIGENCE WAS
ONLY CONTRIBUTORY. [16]

The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the application
of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of
the rules on savings account, a recognition of the contractual relationship between
Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other
hand, the Court of Appeals applied the law on quasi-delict to determine who between
the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is
generally applicable when there is no pre-existing contractual relationship between
the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that
[17]

x x x savings x x x deposits of money in banks and similar institutions shall be

governed by the provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees to
pay the depositor on demand. The savings deposit agreement between the bank and
the depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on 13
[18]

June 2000, declares that the State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance. This new provision in the
[19]

general banking law, introduced in 2000, is a statutory affirmation of Supreme Court

decisions, starting with the 1990 case of Simex International v. Court of Appeals,
holding that the bank is under obligation to treat the accounts of its depositors
[20]

with meticulous care, always having in mind the fiduciary nature of their relationship.
[21]

This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory
[22]

diligence required from banks that banks must observe high standards of integrity
and performance in servicing their depositors. Although RA 8791 took effect almost
nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs
savings account, jurisprudence at the time of the withdrawal already imposed on
[23]

banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert
the contract between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. The law simply imposes on
[24]

the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to earn
money for themselves. The law allows banks to offer the lowest possible interest rate
to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of
banks, then the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from negligence
in the performance of every kind of obligation is demandable. For breach of the
savings deposit agreement due to negligence, or culpa contractual, the bank is liable
to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and
he had to go to Allied Bank for another transaction. The passbook was still in the
hands of the employees of Solidbank for the processing of the deposit when Calapre
left Solidbank. Solidbanks rules on savings account require that the deposit book
should be carefully guarded by the depositor and kept under lock and key, if
possible. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring
that they return the passbook only to the depositor or his authorized representative.
The tellers know, or should know, that the rules on savings account provide that any
person in possession of the passbook is presumptively its owner. If the tellers give
the passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that person. For
failing to return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party
authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was negligent. In
the present case, L.C. Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized representative of L.C.
Diaz. There is thus a presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre. The burden was on Solidbank to
prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial
court Teller No. 6, the teller with whom Calapre left the passbook and who was
supposed to return the passbook to him. The record does not indicate that Teller No.
6 verified the identity of the person who retrieved the passbook. Solidbank also failed
to adduce in evidence its standard procedure in verifying the identity of the person
retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising the
required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]

The bank must not only exercise high standards of integrity and performance, it
must also insure that its employees do likewise because this is the only way to
insure that the bank will comply with its fiduciary duty. Solidbank failed to present the
teller who had the duty to return to Calapre the passbook, and thus failed to prove
that this teller exercised the high standards of integrity and performance required of
Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed that L.C.
Diazs negligence in not securing its passbook under lock and key was the proximate
cause that allowed the impostor to withdraw the P300,000. For the appellate court,
the proximate cause was the tellers negligence in processing the withdrawal without
first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and without which
the result would not have occurred. Proximate cause is determined by the facts of
[26]

each case upon mixed considerations of logic, common sense, policy and precedent.
[27]

L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the
deposit. After completion of the transaction, Solidbank had the contractual obligation
to return the passbook only to Calapre, the authorized representative of L.C.
Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook
to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of the
passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the loss
of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the passbook to
Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of
the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the
withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the
withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures
that the parties must observe whenever withdrawals of large amounts are made
does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual practice of Solidbank to call up
its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to
verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited
with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor
apparently deposited a large amount of money to deflect suspicion from the
withdrawal of a much bigger amount of money. The appellate court thus erred when
it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when
no law requires this from banks and when the teller had no reason to be suspicious
of the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz,
he was familiar with its teller so that there was no more need for the teller to verify
the withdrawal. Solidbank relies on the following statements in the Booking and
Information Sheet of Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large sum of money, accused Ilagan
gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in
the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his
loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt. (Emphasis supplied.)
[28]
 L.C. Diaz refutes Solidbanks contention by pointing out that the person who
withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate
courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo
withdrew the P300,000. The Court is not a trier of facts. We find no justifiable reason
to reverse the factual finding of the trial court and the Court of Appeals. The tellers
who processed the deposit of the P90,000 check and the withdrawal of the P300,000
were not presented during trial to substantiate Solidbanks claim that Ilagan
deposited the check and made the questioned withdrawal. Moreover, the entry
quoted by Solidbank does not categorically state that Ilagan presented the
withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but
the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who had
the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss. Stated differently, the antecedent negligence of the plaintiff does not preclude
[29]

him from recovering damages caused by the supervening negligence of the

defendant, who had the last fair chance to prevent the impending harm by the
exercise of due diligence. [30]

We do not apply the doctrine of last clear chance to the present case. Solidbank
is liable for breach of contract due to negligence in the performance of its contractual
obligation to L.C. Diaz. This is a case of culpa contractual, where neither the
contributory negligence of the plaintiff nor his last clear chance to avoid the loss,
would exonerate the defendant from liability. Such contributory negligence or last
[31]

clear chance by the plaintiff merely serves to reduce the recovery of damages by the
plaintiff but does not exculpate the defendant from his breach of contract. [32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant exercised
the proper diligence in the selection and supervision of its employee, or if the plaintiff
was guilty of contributory negligence, then the courts may reduce the award of
damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a
withdrawal slip signed by its authorized signatories to fall into the hands of an
impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals, where the Court held
[33]

the depositor guilty of contributory negligence, we allocated the damages between

the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case,
we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the
appellate court. Solidbank must pay the other 60% of the actual damages.
 WHEREFORE, the decision of the Court of Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay
private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages
awarded by the Court of Appeals. The remaining 40% of the actual damages shall be
borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
Azcuna, J., on official leave.

[1]
Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Jesus M. Elbinias, Marina
L. Buzon, Godardo A. Jacinto and Candido V. Rivera, concurring, Fourth Division (Special
Division of Five Justices).
[2]
Penned by Judge Felixberto T. Olalia, Jr.
[3]
Rollo, p. 119.
[4]
Ibid., p. 229. The account must have been long dormant.
[5]
Records, p. 9.
[6]
Ibid., p. 34.
[7]
Docketed as Civil Case No. 92-62384.
[8]
Docketed as CA-G.R. CV No. 49243.
[9]
Rollo, p. 231.
[10]
Ibid., p. 233.
[11]
Ibid., p. 60.
[12]
Ibid., p. 66.
[13]
Rollo, pp. 49-50.
[14]
Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence.
[15]
Rollo, p. 43.
[16]
Ibid., pp. 33-34.
[17]
Article 1953 of the Civil Code provides: A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal
amount of the same kind and quality.
[18]
The General Banking Law of 2000.
[19]
In the United States, the prevailing rule, as enunciated by the U.S. Supreme Court in Bank of Marin
v. England, 385 U.S. 99 (1966), is that the bank-depositor relationship is governed by
contract, and the bankruptcy of the depositor does not alter the relationship unless the bank
receives notice of the bankruptcy. However, the Supreme Court of some states, like Arizona,
have held that banks have more than a contractual duty to depositors, and that a special
relationship may create a fiduciary obligation on banks outside of their contract with
depositors. See Stewart v. Phoenix National Bank, 49 Ariz. 34, 64 P. 2d 101 (1937); Klein v.
First Edina National Bank, 293 Minn. 418, 196 N.W. 2d 619 (1972).
[20]
G.R. No. 88013, 19 March 1990, 183 SCRA 360.
[21]
The ruling in Simex International was followed in the following cases: Bank of the Philippine
Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206 SCRA 408;
Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, 27 May 1994,
232 SCRA 559; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA
310; Metropolitan Bank & Trust Co. v. Court of Appeals, G.R. No. 112576, 26 October 1994,
237 SCRA 761; Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667
(1997); Firestone v. Court of Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601.
[22]
The second paragraph of Article 1172 of the Civil Code provides: If the law or contract does not
state the diligence which is to be observed in the performance, that which is expected of a
good father of a family shall be required.
[23]
See notes 20 and 21.
[24]
Serrano v. Central Bank, G.R. L-30511, 14 February 1980, 96 SCRA 96.
[25]
Cangco v. Manila Railroad Co., 38 Phil. 769 (1918); De Guia v. Meralco, 40 Phil. 706 (1920).
[26]
Philippine Bank of Commerce v. Court of Appeals, supra note 21, citing Vda. de Bataclan v. Medina,
102 Phil. 181 (1957).
[27]
Ibid.
[28]
Rollo, p. 35.
[29]
Philippine Bank of Commerce v. Court of Appeals, supra note 21.
[30]
Ibid.
[31]
See note 23.
[32]
Del Prado v. Manila Electric Co., 52 Phil. 900 (1928-1929).
[33]
See note 21.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 82318 May 18, 1989

GILBERTO M. DUAVIT, petitioner,

vs.
THE HON. COURT OF APPEALS, Acting through the Third Division, as Public Respondent,
and ANTONIO SARMIENTO, SR. & VIRGILIO CATUAR respondents.

Rodolfo d. Dela Cruz for petitioner.

Bito, Lozada, Ortega & Castillo for respondents.

GUTIERREZ, JR., J.:

This petition raises the sole issue of whether or not the owner of a private vehicle which figured
in an accident can be held liable under Article 2180 of the Civil Code when the said vehicle was
neither driven by an employee of the owner nor taken with the consent of the latter.

The facts are summarized in the contested decision, as follows:

From the evidence adduced by the plaintiffs, consisting of the testimonies of
witnesses Virgilio Catuar, Antonio Sarmiento, Jr., Ruperto Catuar, Jr. and
Norberto Bernarte it appears that on July 28, 1971 plaintiffs Antonio Sarmiento,
Sr. and Virgilio Catuar were aboard a jeep with plate number 77-99-F-I Manila,
1971, owned by plaintiff, Ruperto Catuar was driving the said jeep on Ortigas
Avenue, San Juan, Rizal; that plaintiff's jeep, at the time, was running moderately
at 20 to 35 kilometers per hour and while approaching Roosevelt Avenue, Virgilio
Catuar slowed down; that suddenly, another jeep with plate number 99-97-F-J
Manila 1971 driven by defendant Oscar Sabiniano hit and bumped plaintiff's jeep
on the portion near the left rear wheel, and as a result of the impact plaintiff's jeep
fell on its right and skidded by about 30 yards; that as a result plaintiffs jeep was
damaged, particularly the windshield, the differential, the part near the left rear
wheel and the top cover of the jeep; that plaintiff Virgilio Catuar was thrown to the
middle of the road; his wrist was broken and he sustained contusions on the
head; that likewise plaintiff Antonio Sarmiento, Sr. was trapped inside the fallen
jeep, and one of his legs was fractured.

Evidence also shows that the plaintiff Virgilio Catuar spent a total of P2,464.00 for
repairs of the jeep, as shown by the receipts of payment of labor and spare parts
(Exhs. H to H-7 Plaintiffs likewise tried to prove that plaintiff Virgilio Catuar,
immediately after the accident was taken to Immaculate Concepcion Hospital,
and then was transferred to the National Orthopedic Hospital; that while plaintiff
Catuar was not confined in the hospital, his wrist was in a plaster cast for a period
of one month, and the contusions on his head were under treatment for about two
(2) weeks; that for hospitalization, medicine and allied expenses, plaintiff Catuar
spent P5,000.00.

Evidence also shows that as a result of the incident, plaintiff Antonio Sarmiento,
Sr. sustained injuries on his leg; that at first, he was taken to the National
Orthopedic Hospital (Exh. K but later he was confined at the Makati Medical
Center from July 29, to August 29, 1971 and then from September 15 to 25,
1971; that his leg was in a plaster cast for a period of eight (8) months; and that
for hospitalization and medical attendance, plaintiff Antonio Sarmiento, Sr. spent
no less than P13,785.25 as evidenced by receipts in his possession. (Exhs. N to
N-1).

Proofs were adduced also to show that plaintiff Antonio sarmiento Sr. is employed
as Assistant Accountant of the Canlubang Sugar Estate with a salary of
P1,200.00 a month; that as sideline he also works as accountant of United
Haulers Inc. with a salary of P500.00 a month; and that as a result of this
incident, plaintiff Sarmiento was unable to perform his normal work for a period of
at least 8 months. On the other hand, evidence shows that the other plaintiff
Virgilio Catuar is a Chief Clerk in Canlubang Sugar Estate with a salary of
P500.00 a month, and as a result of the incident, he was incapacitated to work for
a period of one (1) month.

The plaintiffs have filed this case both against Oscar Sabiniano as driver, and
against Gualberto Duavit as owner of the jeep.

Defendant Gualberto Duavit, while admitting ownership of the other jeep (Plate
No. 99-07-F-J Manila, 1971), denied that the other defendant (Oscar Sabiniano)
was his employee. Duavit claimed that he has not been an employer of defendant
Oscar Sabiniano at any time up to the present.
 On the other hand documentary and testimonial evidence show that defendant
Oscar Sabiniano was an employee of the Board of Liquidators from November
14, 1966 up to January 4, 1973 (Annex A of Answer).

Defendant Sabiniano, in his testimony, categorically admitted that he took the

jeep from the garage of defendant Duavit without the consent or authority of the
latter (TSN, September 7, 1978, p. 8). He testified further, that Duavit even filed
charges against him for theft of the jeep, but which Duavit did not push through
as his (Sabiniano's) parents apologized to Duavit on his behalf.

Defendant Oscar Sabiniano, on the other hand in an attempt to exculpate himself

from liability, makes it appear that he was taking all necessary precaution while
driving and the accident occurred due to the negligence of Virgilio Catuar.
Sabiniano claims that it was plaintiffs vehicle which hit and bumped their jeep.
(Reno, pp. 21-23)

The trial court found Oscar Sabiniano negligent in driving the vehicle but found no employer-
employee relationship between him and the petitioner because the latter was then a government
employee and he took the vehicle without the authority and consent of the owner. The petitioner
was, thus, absolved from liability under Article 2180 of the Civil Code.

The private respondents appealed the case.

On January 7, 1988, the Court of Appeals rendered the questioned decision holding the
petitioner jointly and severally liable with Sabiniano. The appellate court in part ruled:

We cannot go along with appellee's argument. It will be seen that in Vargas v.

Langcay, supra, it was held that it is immaterial whether or not the driver was
actually employed by the operator of record or registered owner, and it is even
not necessary to prove who the actual owner of the vehicle and who the
employer of the driver is. When the Supreme Court ruled, thus: 'We must hold
and consider such owner-operator of record (registered owner) as the employer
in contemplation of law, of the driver,' it cannot be construed other than that the
registered owner is the employer of the driver in contemplation of law. It is a
conclusive presumption of fact and law, and is not subject to rebuttal of proof to
the contrary. Otherwise, as stated in the decision, we quote:

The purpose of the principles evolved by the decisions in these matters will be
defeated and thwarted if we entertain the argument of petitioner that she is not
liable because the actual owner and employer was established by the evidence. .
..

Along the same vein, the defendant-appellee Gualberto Duavit cannot be allowed to prove that
the driver Sabiniano was not his employee at the time of the vehicular accident.

The ruling laid down in Amar V. Soberano (1966), 63 O.G. 6850, by this Court to
the effect that the burden of proving the non-existence of an employer-employee
relationship is upon the defendant and this he must do by a satisfactory
preponderance of evidence, has to defer to the doctrines evolved by the
Supreme Court in cases of damages arising from vehicular mishaps involving
registered motor vehicle. (See Tugade v. Court of Appeals, 85 SCRA 226, 230).
(Rollo, pp. 26-27)

The appellate court also denied the petitioner's motion for reconsideration. Hence, this petition.
The petitioner contends that the respondent appellate court committed grave abuse of discretion
in holding him jointly and severally liable with Sabiniano in spite of the absence of an employer-
employee relationship between them and despite the fact that the petitioner's jeep was taken out
of his garage and was driven by Sabiniano without his consent.

As early as in 1939, we have ruled that an owner of a vehicle cannot be held liable for an
accident involving the said vehicle if the same was driven without his consent or knowledge and
by a person not employed by him. Thus, in Duquillo v. Bayot (67 Phil. 131-133-134) [1939] we
said:

Under the facts established, the defendant cannot be held liable for anything. At
the time of the accident, James McGurk was driving the truck, and he was not an
employee of the defendant, nor did he have anything to do with the latter's
business; neither the defendant nor Father Ayson, who was in charge of her
business, consented to have any of her trucks driven on the day of the accident,
as it was a holy day, and much less by a chauffeur who was not in charge of
driving it; the use of the defendant's truck in the circumstances indicated was
done without her consent or knowledge; it may, therefore, be said, that there was
not the remotest contractual relation between the deceased Pio Duquillo and the
defendant. It necessarily follows from all this that articles 1101 and following of
the Civil Code, cited by the appellant, have no application in this case, and,
therefore, the errors attributed to the inferior court are without basis.

The Court upholds the above ruling as still relevant and better applicable to present day
circumstances.

The respondent court's misplaced reliance on the cases of Erezo v. Jepte (102 Phil. 103 [1957]
and Vargas v. Langcay (6 SCRA 174 [1962]) cannot be sustained. In the Erezo case, Jepte, the
registered owner of the truck which collided with a taxicab, and which resulted in the killing of
Erezo, claimed that at the time of the accident, the truck belonged to the Port Brokerage in an
arrangement with the corporation but the same was not known to the Motor Vehicles Office. This
Court sustained the trial court's ruling that since Jepte represented himself to be the owner of the
truck and the Motor Vehicles Office, relying on his representation, registered the vehicle in his
name, the Government and all persons affected by the representation had the right to rely on his
declaration of ownership and registration. Thus, even if Jepte were not the owner of the truck at
the time of the accident, he was still held liable for the death of Erezo significantly, the driver of
the truck was fully authorized to drive it.

Likewise, in the Vargas case, just before the accident occurred Vargas had sold her jeepney to a
third person, so that at the time of the accident she was no longer the owner of the jeepney. This
court, nevertheless, affirmed Vargas' liability since she failed to surrender to the Motor Vehicles
Office the corresponding AC plates in violation of the Revised Motor Vehicle Law and
Commonwealth Act No. 146. We further ruled that the operator of record continues to be the
operator of the vehicle in contemplation of law, as regards the public and third persons, and as
such is responsible for the consequences incident to its operator. The vehicle involved was a
public utility jeepney for hire. In such cases, the law does not only require the surrender of the AC
plates but orders the vendor operator to stop the operation of the jeepney as a form of public
transportation until the matter is reported to the authorities.

As can be seen, the circumstances of the above cases are entirely different from those in the
present case. Herein petitioner does not deny ownership of the vehicle involved in tire mishap
but completely denies having employed the driver Sabiniano or even having authorized the latter
to drive his jeep. The jeep was virtually stolen from the petitioner's garage. To hold, therefore, the
petitioner liable for the accident caused by the negligence of Sabiniano who was neither his
driver nor employee would be absurd as it would be like holding liable the owner of a stolen
vehicle for an accident caused by the person who stole such vehicle. In this regard, we cannot
ignore the many cases of vehicles forcibly taken from their owners at gunpoint or stolen from
garages and parking areas and the instances of service station attendants or mechanics of auto
repair shops using, without the owner's consent, vehicles entrusted to them for servicing or
repair.

We cannot blindly apply absolute rules based on precedents whose facts do not jibe four square
with pending cases. Every case must be determined on its own peculiar factual circumstances.
Where, as in this case, the records of the petition fail to indicate the slightest indicia of an
employer-employee relationship between the owner and the erring driver or any consent given by
the owner for the vehicle's use, we cannot hold the owner liable.

We, therefore, find that the respondent appellate court committed reversible error in holding the
petitioner jointly and severally liable with Sabiniano to the private respondent.

WHEREFORE, the petition is GRANTED and the decision and resolution appealed from are
hereby ANNULLED and SET ASIDE. The decision of the then Court of First Instance (now
Regional Trial Court) of Laguna, 8th Judicial District, Branch 6, dated July 30, 1981 is
REINSTATED.

SO ORDERED.

Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes JJ., concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. Nos. L-55963 & 61045 February 27, 1991

SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, petitioners,

vs.
HONORABLE INOCENCIO D. MALIAMAN and NATIONAL IRRIGATION
ADMINISTRATION, respondents.

NATIONAL IRRIGATION ADMINISTRATION, appellant,

vs.
SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, appellees.

RESOLUTION

PARAS, J.:
In its Motion for Reconsideration of the Court's Second Division decision in G.R. No. 55963 and
1

G.R. No. 61045, the National Irrigation Administration (NIA, for brevity), through the Solicitor
General, maintains that, on the strength of Presidential Decree No. 552 (which amended certain
provisions of Republic Act 3601, the law creating the NIA) and the case of Angat River Irrigation
System, et al. vs. Angat River Workers' Union, et al., 102 Phil. 790 "the NIA does not perform
solely and primarily proprietary functions but is an agency of the government tasked with
governmental functions, and is therefore not liable for the tortious act of its driver Hugo Garcia,
who was not its special agent."

Although the majority opinion in the cited case of Angat System declares that the Angat
System (like the NIA) exercised a governmental function because the nature of the
powers and functions of said agency does not show that it was intended to "bring to the
Government any special corporate benefit or pecuniary profit," there is a strong
dissenting opinion penned by then Associate Justice and later Chief Justice Roberto
Concepcion and concurred in by then Associate Justice J.B.L. Reyes which held the
contrary view that the Angat River System is a government entity exercising proprietary
functions. To buttress said stand, the former Chief Justice cited some authorities which
will be useful in the proper resolution of this case.

Quoting from said dissenting opinion which cited McQuillin's The Law of Municipal Corporations,
3rd ed., Vol. 18, pp. 423424:

In undertaking to supply water at price, municipality is not performing governmental

function but is engaged in trade, and is liable first as private company would be for any
negligence in laying out of its pipes, in keeping them in repair, or in furnishing potable
water through them. Harvard Furniture Co., Inc. vs. City of Cambridge, 320 Mass. 227,
68 N.E. (2d) 684.

Municipality in contracting to provide water supply acts under its proprietary power and
not under its legislative, public or governmental powers. Farmers' State Bank vs. Conrad,
100 Mont. 415,47 P. (2d) 853.

In this connection, the opinion is that irrigation districts in the United States are basically identical
to our irrigation systems under Act No. 2152. Because of such similarity, it is found appropriate to
consider certain doctrines from American jurisprudence, which are as follows, to wit:

An irrigation district is a public quasi corporation, organized, however, to conduct a

business for the private benefit of the owners of land within its limits. They are members
of the corporation, control its affairs, and alone are benefited by its operations. It is, in the
administration of its business, the owner of its system in a proprietary rather than a public
capacity, and must assume and bear the burdens of proprietary ownership. (Nampa vs.
Nampa & M. Irrig. Dist. 19 Idaho, 779,115 Pac. 979)

. . . the plaintiff sought damages for injuries to crops on his land during 1923, 1924, 1925,
and 1926, caused by water seeping, percolating, and escaping from the defendant's
canal. The defendant contended that irrigation districts were agencies of the state, and
were, therefore, not liable for the negligent construction or operation of their canals or
ditches. The court, after a careful review of the authorities defining an irrigation district,
conceded that such a quasi public corporation possessed some governmental powers
and exercised some governmental functions, but held that the construction and operation
of its irrigation canals and ditches was a proprietary rather than a governmental function,
and hence the district was responsible in damages for the negligent construction or
operation of its canal system. (69 A.L.R., p. 1233)

It may not be amiss to state at this point that the functions of government have been classified
into governmental or constituent and proprietary or ministrant. The former involves the exercise
of sovereignty and considered as compulsory; the latter connotes merely the exercise of
proprietary functions and thus considered as optional. The Solicitor General argues that the
reasons presented by P.D. 552 for the existence of the NIA (the WHEREAS clauses of said
decree) indubitably reveal that the responsibility vested in said agency concerns public welfare
and public benefit, and is therefore an exercise of sovereignty. On the contrary, We agree with
the former Chief Justice Concepcion in saying that the same purpose such as public benefit and
public welfare may be found in the operation of certain enterprises (those engaged in the supply
of electric power, or in supplying telegraphic, telephonic, and radio communication, or in the
production and distribution of prime necessities, etc.) yet it is certain that the functions performed
by such enterprises are basically proprietary in nature. Thus, as held in Holderbaum vs. Hidalgo
County Water Improvement District (297 S.W. 865, aff'd in 11 S.W. [2d] 506) — cited in the
dissenting opinion by Justice Concepcion:

. . . Primarily, a water improvement district is in no better position than a city is when

exercising its purely local powers and duties. Its general purposes are not essentially
public in their nature, but are only incidentally so; those purposes may be likened to
those of a city which is operating a waterworks system, or an irrigation system. . . . A
water improvement district can do nothing, it has and furnishes no facilities, for the
administration of the sovereign government. Its officers have no power or authority to
exercise any of the functions of the general government, or to enforce any of the laws of
the state or any of its other subdivisions, or collect taxes other than those assessed by
the district. They have no more power or authority than that of the officers of a private
corporation organized for like purposes. As a practical matter, the primary objects and
purposes of such district are of a purely local nature, for the district is created and
operated for the sole benefit of its own members, and an analysis of those objects and
purposes discloses that they directly benefit only the landowners who reside within and
whose lands form a part of the district, to the exclusion of all other residents therein. It is
true, of course, that the state and the general public are greatly benefited by the proper
operation of the district, and to that extent its objects and accomplishments are public in
their nature, but this characteristic is only incidental to the primary and chief object of the
corporation, which is the irrigation of lands forming a part of the district. It is obvious,
then, that the purposes and duties of such districts do not come within the definition of
public rights, purposes, and duties which would entitle the district to the exemption raised
by the common law as a protection to corporations having a purely public purpose and
performing essentially public duties.

Of equal importance is the case of National Waterworks and Sewerage Authority (NAWASA) vs.
NWSA Consolidated Unions, 11 SCRA 766, which propounds the thesis that "the NAWASA is not
an agency performing governmental functions; rather it performs proprietary functions . . . ." The
functions of providing water supply and sewerage service are regarded as mere optional
functions of government even though the service rendered caters to the community as a whole
and the goal is for the general interest of society. The business of furnishing water supply and
sewerage service, as held in the case of Metropolitan Water District vs. Court of Industrial
Relations, et al., 91 Phil. 840, "may for all practical purposes be likened to an industry engaged
in by coal companies, gas companies, power plants, ice plants, and the like." Withal, it has been
enunciated that "although the State may regulate the service and rates of water plants owned
and operated by municipalities, such property is not employed for governmental purposes and in
the ownership and operation thereof the municipality acts in its proprietary capacity, free from
legislative interference." (1 McQuillin, p. 683)

Like the NAWASA, the National Irrigation Administration was not created for purposes of local
government. While it may be true that the NIA was essentially a service agency of the
government aimed at promoting public interest and public welfare, such fact does not make the
NIA essentially and purely a "government-function" corporation. NIA was created for the purpose
of "constructing, improving, rehabilitating, and administering all national irrigation systems in the
Philippines, including all communal and pump irrigation projects." Certainly, the state and the
community as a whole are largely benefited by the services the agency renders, but these
functions are only incidental to the principal aim of the agency, which is the irrigation of lands.

We must not lose sight of the fact that the NIA is a government agency invested with a corporate
personality separate and distinct from the government, thus is governed by the Corporation Law.
Section 1 of Republic Act No. 3601 provides:

Sec. 1. Name and Domicile — A body corporate is hereby created which shall be known
as the National Irrigation Administration. . . . which shall be organized immediately after
the approval of this Act. It shall have its principal seat of business in the City of Manila
and shall have representatives in all provinces, for the proper conduct of its business.
(Emphasis for emphasis).

Besides, Section 2, subsection b of P.D. 552 provides that:

(b) To charge and collect from the beneficiaries of the water from all irrigation systems
constructed by or under its administration, such fees or administration charges as may be
necessary to cover the cost of operation, maintenance and insurance, and to recover the
cost of construction within a reasonable period of time to the extent consistent with
government policy; to recover funds or portions thereof expended for the construction
and/or rehabilitation of communal irrigation systems which funds shall accrue to a special
fund for irrigation development under section 2 hereof;

Unpaid irrigation fees or administration charges shall be preferred liens first, upon the
land benefited, and then on the crops raised thereon, which liens shall have preference
over all other liens except for taxes on the land, and such preferred liens shall not be
removed until all fees or administration charges are paid or the property is levied upon
and sold by the National Irrigation Administration for the satisfaction thereof. . . .

The same section also provides that NIA may sue and be sued in court. Thus,

b) . . . Judicial actions for the collection of unpaid irrigation fees or charges, drainage fees
or other charges which the National Irrigation Administration is authorized to impose and
collect, shall henceforth be governed by the provisions of the Rules of Court of the
Philippines for similar actions, the provisions of other laws to the contrary
notwithstanding.

xxx xxx xxx

(e) . . . .

xxx xxx xxx

All actions for the recovery of compensation and damages against the National Irrigation
Administration under paragraphs (1), (2), and (3) hereof, shall be filed with a competent
court within five (5) years from the date of entry of the land or destruction of the
improvements or crops, after which period, the right of possession and/or ownership of
the National Irrigation Administration shall be considered vested and absolute. All other
actions for the recovery of compensation and damages to private property and
improvements occasioned by the construction, operation and maintenance of irrigation
facilities and other hydraulic structures under the administration of the National Irrigation
Administration, which have accrued ten (10) or more years prior to the approval of this
decree are deemed to have prescribed and are barred forever.
It has its own assets and liabilities. It also has corporate powers to be exercised by a Board of
Directors. To quote Section 2, subsection (f):

(f) . . . and to transact such business, as are directly or indirectly necessary, incidental or
conducive to the attainment of the above powers and objectives, including the power to
establish and maintain subsidiaries, and in general, to exercise all the powers of a
corporation under the Corporation Law, insofar as they are not inconsistent with the
provisions of this Act. (Emphasis supplied).

On the basis of the foregoing considerations, We conclude that the National Irrigation
Administration is a government agency with a juridical personality separate and distinct from the
government. It is not a mere agency of the government but a corporate body performing
proprietary functions. Therefore, it may be held liable for the damages caused by the negligent
act of its driver who was not its special agent.

ACCORDINGLY, the Motion for Reconsideration dated January 26, 1990 is DENIED WITH
FINALITY. The decision of this Court in G.R. No. 55963 and G.R. No. 61045 dated December 1,
1989 is hereby AFFIRMED.

Gancayco, Bidin, Sarmiento, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Gutierrez, Jr., Fernan, C.J. and Melencio-Herrera, JJ., concur in the result.

, J., concur in the result and in Mr. Justice Feliciano's concurrence.

Separate Opinions

FELICIANO, J., concurring:

I agree with the result reached by my distinguished brother in the Court, Mr. Justice Edgardo L.
Paras, both in the Decision of the Court's Second Division dated 1 December 1989 (179 SCRA
685 [1989]) and in the present Resolution on the motion for reconsideration, which has been
referred to the Court En Banc.

I agree, in other words, that the National Irrigation Administration (NIA) is liable for the acts of its
employee Hugo Garcia which resulted in injury to the spouses Jose Fontanilla and Virginia
Fontanilla. However, I reach this result through a slightly different route which is traced below.

In the original decision of the Court's Second Division, it is stated that:

Certain functions and activities, which can be performed only by the Government, are
more or less generally agreed to be "governmental" in character, and so the State is
immune from tort liability. On the other hand, a service which night as well be provided by
a private corporation, and particularly when it collects revenues from it, the function is
considered a "proprietary" one, as to which there may be liability for the torts of agents
within the scope of their employment.
The original Decision and the Resolution on the motion for reconsideration hold that the NIA is
"an agency of the government exercising proprietary functions."

I would respectfully submit that the liability of an agency or instrumentality of the Government for
torts of its employees under Article 2180, 6th paragraph, of the Civil Code is not contingent upon
the technical characterization of the functions or activities carried out by that agency or
instrumentality as "governmental," on the one hand, or "proprietary," upon the other.

In the first place, it is merely commonplace to note that governments in our day and age do not
restrict themselves to the original basic and primitive functions of repelling invasion by a foreign
enemy, maintaining peace and order in society and protecting the physical integrity or the food
supplies of its citizens or inhabitants, but instead assumed and carry out all kinds of activities
which they may determine to redound to the general interest and benefit of the population. Thus,
the classical laissez-faire concept of a state, which prevailed during the 19th century, has today
been replaced by the concept of the welfare state. Moreover, activities which in other states more
economically advanced than our own have been undertaken by private enterprise, are here still
being carried out by the Government or, more generally, the public sector in view of the
inadequacy of private capital and private entrepreneurial spirit.

Secondly, under Section 2(l) of Article IX of the Constitution, whether or not a government owned
or controlled corporation or entity forms part of the Government and is embraced within the civil
service depends, not upon the "governmental," as distinguished from "proprietary," nature of the
activities performed by such entity or corporation, but rather upon whether or not the corporation
or entity is possessed of an "original charter." Thus, it appears to me that the framers of the 1987
Constitution had given up the notion of trying to distinguish between "governmental" and
"proprietary" functions for purposes of determining whether employees of a particular agency or
instrumentality should be governed by the Civil Service Law and Regulations or, alternatively, by
the Labor Code and its Implementing Regulations administered by the National Labor Relations
Commission and the Department of Labor and Employment.

Article 2180 of the Civil Code provides in part as follows:

xxx xxx xxx

Employers shall be liable for the damage caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or entity.

The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official to whom the task done properly
pertains, in which case what is provided in Article 2176 shall be applicable.

xxx xxx xxx

(Emphasis supplied)

My basic submission that the term "State" as used above properly refers to the "Government of
the Republic of the Philippines." This latter term is defined in Section 2 of the Revised
Administrative Code of 1987 in the following manner:

The Government of the Republic of the Philippines refers to the corporate governmental
entity through which the functions of government are exercised throughout the
Philippines, including save as the contrary appears from the context, the various arms
through which political authority is made effective in the Philippines, whether pertaining to
 the autonomous regions, the provincial, city, municipal or barangay subdivisions or other
forms of local government. (Emphasis supplied)

In other words, the term "State" as used in Article 2180 of the Civil Code refers to that juridical
person that is constituted b the Government of the Republic of the Philippines and logically does
not include agencies, instrumentalities or other entities which their enabling laws have invested
with juridical personality separate and distinct from that of the Republic of the Philippines.

It should be noted in this connection, that in Merritt v. Government of the Philippine Islands (34
Phil. 311 [1960]), the Court said:

It is therefore evident that the State (the Government of the Philippine Islands) is only
liable, according to the above quoted decisions of the Supreme Court of Spain, for acts of
its agents, officers and employees when they act as special agents within the meaning of
paragraph 5 of Article 1903 [of the Civil Code of Spain of 1889] and that the chauffeur of
the ambulance of the General Hospital was not such an agent. (Emphasis supplied;
parentheses in the original; 34 Phil. at 323)

Clearly, Mr. Justice Trent considered "the State" and "the Government of the Philippine Islands"
as equivalent terms. The decision of the Supreme Court of Spain dated 7 January 1898 which
the Court in Merritt cited, read in part as follows:

That the obligation to indemnify for damages, which a third person causes to another by
his fault or negligence is based, as is evidenced by the same Law 3, title 15, Partida 7,
on that the person obligated, by his own fault or negligence, takes part in the act or
omission of the third party who caused the damage. It follows therefrom that the State, by
virtue of such provisions of law, is not responsible for the damages suffered by private
individual in consequence of acts performed by its employees in the discharge of the
functions pertaining to their office, because neither fault nor even negligence can be
presumed on the part of the State in the organization of branches of the public service
and in the appointment of its agents; on the contrary, we must presuppose all foresight
humanly possible on its part in order that each branch of service serves the general weal
and that of private persons interested in its operation. Between these latter and the State,
therefore, no relations of a Private nature governed by the civil law can arise except in a
case where the state acts as a [juridical] person capable of acquiring rights and
contracting obligation (Emphases and brackets supplied)

The term "juridical" person was translated (by Mr. Justice Trent?) as "judicial" person. This
appears plain error for the judgment of 7 January 1898 in fact read:

. . . entre los cuales y el Estado, por tanto, no pueden surgir relaciones de orden privado
regidas por el derecho civil, salvo el caso de que el mismo Estado obre como persona
juridica capaz de adquirir derechos y contraer obligaciones:

xxx xxx xxx

(Emphasis supplied; 83 Jurisprudencia Civil 36 [1898])

Thus, the decision of the Supreme Court of Spain itself recognized that between private persons
and the State, relations of a private nature governed by the Civil Code can arise where the State
acts as or through the medium of a separate juridical person that is capable of acquiring lights
and entering into obligations.

In the present case, there is no question that the NIA has juridical personality separate and
distinct from that of the Government of the Republic of the Philippines which owns all NIA's
capital and assets. In other words, the NIA is not part of the "State" or of the "Government of the
Republic of the Philippines"; it follows, I respectfully submit, that the NIA should not be regarded
as part of the State for purposes of application of Article 2180 of the Civil Code.

What I have outlined above is in fact very close to the position taken by Mr. Justice Paras in the
Resolution on the motion for reconsideration. For he has rightly stressed that the NIA has clearly
been invested with a distinct legal personality and thus with capacity to sue and be sued. Judicial
actions may be brought by the NIA for the collection of unpaid irrigation fees, drainage fees or
other charges which the NIA is authorized to impose and collect, under the provisions of the
Rules of Court. Correlatively, actions against the NIA for the recovery of compensation and
damages are expressly allowed and prescribe in either five (5) or ten (10) years depending upon
the subject matter thereof. The State itself has determined, in other words, that the NIA
shall not be covered by the general immunity from suit without its consent pertaining to the State.

Finally, the Resolution underscores the fact that under Section 2(f) of the NIA charter, the NIA is
generally authorized "to exercise all the powers of a corporation under the Corporation Law,
insofar as they are not inconsistent with the provisions of [the NIA charter]." Since the NIA has
been vested with an the powers of a corporate person, it seems only reasonable to believe that it
is at the same time subjected to all the ordinary liabilities of a corporate person: one of those
liabilities is the vicarious liability of an employer under Article 2180 of the Civil Code, 6th
paragraph, for injurious acts done by its employees within the scope of their assigned tasks.

I suggest then that the investing of an agency or instrumentality of the Government with separate
juridical personality is not a matter of "form" as suggested by my equally distinguished brother in
the Court, Mr. Justice Padilla, in his dissenting opinion. The effect of the foregoing provisions of
its charter may be seen to be clearly a matter of "substance": to render the NIA both suable and
liable on the same causes of action which may be asserted against any corporate entity that is a
separate juridical person.

It seems also relevant to point out that the Philippine General Hospital (PGH), the agency or
instrumentality involved in the Merritt case, did not (in contrast with the NIA) have legal
personality separate and distinct from that of the Philippine Government at the time
that Merritt was decided. The PGH was established under Act No. 1688 of the Philippine
Commission as a division of the Bureau of Health, a non-incorporated entity. Later, it was
removed from the administrative jurisdiction of the Bureau of Health and made into an
independent bureau under the supervision of the Department of the Interior. Still later, the PGH
was placed under the Department of Instruction and subsequently, under the Office of the
President. In 1947, by virtue of Executive Order No. 94, the PGH was made a part of the
University of the Philippines, itself a separate corporate entity. Clearly, therefore, at the
time Merritt was decided, the PGH was part and parcel of the Government of the Republic of the
Philippines as defined by the Revised Administrative Code of 1917.

For all the foregoing, I vote to DENY the motion for reconsideration and to AFFIRM the Decision
dated 1 December 1989 in G.R. Nos. 55963 and 61045.

Narvasa and Cruz, JJ., concur.

PADILLA, J., dissenting:

On 1 December 1989, this Court, through its Second Division, rendered a decision declaring
petitioner National Irrigation Administration (NIA, for brevity) a government agency performing
proprietary functions. Like an ordinary employer, NIA was held liable for the injuries, resulting in
death, of Francisco Fontanilla, caused by the fault and/or negligence of NIA's driver employee
Hugo Garcia; and NIA was ordered to pay petitioner spouses Fontanilla, the victim's parents, the
amounts of P12,000.00 for the death of the victim; P3,389.00 for hospitalization and burial
expenses; P30,000.00 as moral damages; P8,000.00 as exemplary damages, and attorney's
fees of 20% of the total award.

Assailing the said decision of this Court, NIA filed the present Motion for Reconsideration,
alleging that NIA does not perform solely or primarily proprietary functions but is an agency of the
government tasked with governmental functions; thus, it may not be held liable for damages for
injuries caused by its employee to a third person. CitingPD 552, NIA argues that its functions and
responsibilities directly concern public benefit and public welfare.

To start with, NIA is an agency of the government with an original charter. Section 1 of Republic
1

Act 3601 provides:

Sec. 1. Name and domicile. –– A body corporate is hereby created which shall be known
as the National Irrigation Administration, hereinafter called the NIA for short, which shall
be organized immediately after the approval of this Act. It shall have its principal seat of
business in the City of Manila and shall have representatives in all provinces for the
proper conduct of its business.

NIA's said charter confers upon it a separate juridical personality to exercise all the powers of a
corporation under the Corporation Law, insofar as they are not inconsistent with said charter. 2

Under PD 552 amending NIA's original charter, it is made clear that said agency was created
primarily for the purpose of undertaking integrated irrigation projects, by the construction of
multiple-purpose water resource projects to increase agricultural production for the financial
upliftment of the people. In relation to its purpose, NIA has the power and authority to undertake
concomitant projects, such as, flood control, drainage, land reclamation, hydraulic power
development, domestic water supply, road or highway construction, reforestation and projects to
maintain ecological balance, in coordination with other agencies concerned. Thus —

WHEREAS, the enunciation policy is for a comprehensive development, utilization and

conservation of water resources of the Philippines, and in pursuit of its policy, one of the
primary objectives of the National Irrigation Administration is to effectuate an economic
means of achieving the optimal and diversified utilization and control of water by
undertaking integrated litigation projects.

WHEREAS, the National Irrigation Administration assumes as its primary responsibility,

the implementation of the irrigation integrated program of the government and the
attainment of the "Irrigation Age", as envisioned under Republic Act No. 3601;

WHEREAS, an effective means of implementing multiple-purpose projects in line with

program-oriented and comprehensive water resources development necessitates
broader powers and authority of the NIA to undertake concomitant projects such as flood
control, drainage, land reclamation, hydraulic power development, domestic water
supply, road or highway construction, reforestation, and projects to maintain ecological
balance, in coordination with the agencies concerned;

WHEREAS, the construction of multiple-purpose water resources projects involves

substantial investment of government funds to increase agricultural production for the
financial upliftment of the People for them to be able to assume and comply with their
obligations and responsibilities to the government.

NIA is thus maintained and operated by the government in the performance of its governmental
function of providing the Filipino people, particularly, the farmers nationwide, improved irrigation
systems to increase the country's agricultural production. Only the government has the capacity
and facilities to successfully undertake a project or venture of such magnitude. That the NIA is
empowered to charge minimal fees from all the beneficiaries of the irrigation systems that it
establishes and operates, does not change the nature of the function or purpose for which it was
created. The fees that are collected by NIA are used to cover the cost of operation, maintenance,
insurance, cost of construction, and the rehabilitation of irrigation systems. Such monetary
3

charges do not constitute monetary gain or profit to NIA, but are merely reimbursements of the
operational cost of the agency's projects.

It cannot be denied that public service is the thrust in the creation of NIA in contrast to a business
venture or proprietary enterprise for monetary gain. That the NIA is also empowered to enter into
transactions in order to acquire real and personal properties, appurtenant rights, easements,
privileges in the development of its projects and enter into other business transactions, does not
4

mean that it performs proprietary functions, for it is expressly provided in its charter that the
business transactions it may enter into are only those which are directly or indirectly necessary,
incidental or conducive to the attain-judgment of its purposes and objectives. 5

Furthermore, the fact that its charter treats the NIA as incorporated under the Corporation Law,
and confers upon it a separate juridical personality, is not the test in determining whether it is
performing a governmental or proprietary function. The spirit, intent or purpose behind its
creation determines its true character. It has been held that were the nature of the duties
imposed on an agency and performed by it does not reveal that it was intended to bring any
special corporate benefit or pecuniary profit to the government, said agency is deemed to be
exercising a governmental function. 6

After having established that the NIA is a government agency, with an original charter, possessed
of juridical personality under the Corporation Law, and performing governmental functions, it is
equally important to determine whether (1) the sovereign immunity of the state from suit is
enjoyed, or has been waived by NIA and (2) the NIA is liable for damages arising from tort
committed by its employees.

For incorporated agencies of the government, the test of its suability is found in its charter. The
simple rule is that it is suable if its charter says so, and this is true regardless of the functions it is
performing. The charter of the NIA provides that it may sue and be sued, thus, consent of the
7

state for NIA to be sued has been given, so that the rule, on immunity from suit normally
8

extended to government agencies performing governmental functions is no longer available to

NIA. By waiving that immunity from suit in its charter, it would appear that NIA has opened itself
to suits based on causes of action arising from law, contracts, quasi-contracts, delicts, and even
quasi-delicts.

But to say that NIA has opened itself to suit is one thing; to say that it is liable for damages
arising from tort committed by its employees, is still another thing.

As discussed in the now assailed decision, pursuant to the provisions of substantive law
on quasi-delict, whoever by his act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage caused. The obligation imposed by the foregoing
9

rule is demandable not only for one's own acts or omissions, but also for those of persons for
whom one is responsible, such that an employer is held liable for damages caused by its
employees who were acting within the scope of their assigned tasks. 10

But the state or a government agency performing governmental functions may be held liable for
tort committed by its employees only when it acts through a special agent. 11

This is not the first time this Court is confronted with a situation akin to the one at bar. In Merritt
vs. Government of the Phil. Islands, the plaintiff was hit by an ambulance of the Philippine
12

General Hospital, while operated by its regular driver. Since the Philippine government was
immune from suit, Act No. 2457 was approved by the Philippine legislature which authorized
Merritt to sue the Philippine government in the CFI in order to fix the responsibility for the
collision and to determine the amount or extent of the damages.
In due course, it was determined that the ambulance operated by the General Hospital's regular
driver was responsible for the mishap. The damages sustained by Merritt as a result of the
accident was likewise quantified by the trial court and ultimately increased by the Supreme Court.

But then the crucial question remained thus —

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit
or did it also concede its liability to the plaintiff? If only the former, then it cannot be held
that no Act created any new cause of action in favor of the plaintiff or extended the
defendant's liability to any case not previously recognized.

The Court answered its own query thus —

In the United States the rule that the state is not liable for the torts committed by its
officers or agents whom it employs, except when expressly made so by legislative
enactment, is well settled. "The Government," says Justice Story, "does not undertake to
guarantee to any person the fidelity of the officers or agents whom it employs, since that
would involve it in all its operations in endless embarrassments, difficulties and losses,
which would be subversive of the public interest. (Claussen vs. City of Luverne 103 Minn
491 citing U.S. vs. Kirkpatrick 9 Wheat, 720; 6 L.Ed., 199; and Beers vs. State, 20 How.,
527; 15 L.Ed., 991.)

xxx xxx xxx

. . . we will now examine the substantive law touching the defendant's liability for the
negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of the
Civil Code reads:

The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the
act performed, in which case the provisions of the preceding article shall be applicable.

The Supreme Court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by
his fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7,
on that the person obligated, by his own fault or negligence, takes part in the act or
omission of the third party who caused the damage. It follows therefrom that the state, by
virtue of such provisions of law, is not responsible for the damages suffered by private
individuals in consequence of acts performed by its employees in the discharge of the
functions pertaining to their office, because neither fault nor even negligence can be
presumed on the part of the state organization of branches of the public service and in
the appointment of its agents; on the contrary, we must presuppose all foresight humanly
possible on its part in order that each branch of service serves the general weal and that
of private persons interested in its operation. Between these latter and the state,
therefore, no relations of a private nature governed by the civil law can arise except in a
case where the state acts as a judicial person capable of acquiring rights and contracting
obligations. (Supreme Court of Spain, January 7, 1988; 83 Jur. Civ. 24.)

The dispositive part of the Merritt decision states:

For the foregoing reasons, the judgment appealed from must be reversed, without costs
in this instance. Whether the Government intends to make itself legally liable for the
amount of damages above set forth, which the plaintiff has sustained by reason of the
negligent acts of one of its employees, by legislative enactment and by appropriating
 sufficient funds therefor, we are not called upon to determine. This matter rests solely
with the Legislature and not with the courts.

This Court in the now assailed decision found that NIA was negligent in the supervision of its
driver Hugo Garcia who bumped petitioner-spouses' son, causing the death of the latter —

It should be emphasized that the accident happened along the Marikina National Road
within the city limits of San Jose City, an urban area. Considering the fact that the victim
was thrown 50 meters away from the point of impact, there is a strong indication that
driver Garcia was driving at a high speed. This is confirmed by the fact that the pick-up
suffered substantial and heavy damage as above-described and the fact that the NIA
group was then "in a hurry to reach the campsite as early as possible", as shown by their
not stopping to find out what they bumped as would have been their normal and initial
reaction.

Evidently, there was negligence in the supervision of the driver for the reason that they
were traveling at a high speed within the city limits and yet the supervisor of the group,
Ely Salonga, failed to caution and make the driver observe the proper and allowed speed
limit within the City. Under the situation, such negligence is further aggravated by their
desire to reach their destination without even checking whether or not the vehicle
suffered damage from the object it bumped, thus showing imprudence and recklessness
on the part of both the driver and the supervisor in the
group. 13

There is thus no doubt that NIA should be held responsible for the negligent acts of its regular
driver, resulting in the death of petitioner-spouses' son, except that under Article 2180, par. 6 in
relation to Article 2176 of the Civil Code, the state is not liable for tort save when it acts through a
special agent, and Hugo Garcia was not a special agent but NIA's regular driver.

Under the circumstances, and in order not to perpetuate a cruel injustice, I believe that this
Court, while granting the Solicitor General's motion for reconsideration, should recommend to
Congress the enactment of the appropriate legislation to compensate the petitioner-spouses,
parents of the victim Francisco Fontanilla, and to appropriate the necessary funds therefor, which
could be equal to the amount of damages already determined by this Court.

During the deliberations of this case, it was suggested that the term "State" as used in Article
2180, par. 6 of the Civil Code could be limited to the State proper and not construed to include
14

incorporated entities even if performing governmental functions, such as the NIA. The intended
effect of this suggestion would be to render only the State, meaning, the government of the
Republic of the Philippines and its unincorporated agencies, such as government bureaus,
exempt from liability for tort committed by their officials and employees, except their special
agents, but incorporated governmental entities, even if performing governmental (as
distinguished from business functions) will be liable for the tort committed by their officials and
employees.

I am of the considered opinion that the aforestated suggestion is untenable because it would lay
stress on formrather than substance. To me, the test should still be whether the governmental
entity performs governmental and, therefore, sovereign functions, regardless of whether it is
incorporated or not. If the government agency performs governmental and, therefore, sovereign
functions, such as the NIA, it is within the context of the term "State" as used in Art. 2180, par. 6
of the Civil Code and may not, as a consequence, be held liable for tort committed by its officials
and employees, except when they are "special agents."

From the ruling of this Court in Manila Hotel Employees Asso. vs. Manila Hotel, which states
15

that by "engaging in a particular business thru the instrumentality of a corporation, the

government divests itself pro hoc vice of its sovereign character, so as to render the corporation
subject to the rules governing private corporations," it can be reasonably inferred that it is
the business character of the corporation and not its corporate form which divests it of the
immunity (and, similarly, exemption from liability for tort committed by its employees) which its
owner-sovereign enjoys. In the case of Prisco vs.
CIR, the suability and liability under labor laws of the Price Stabilization Corporation was based
16

not really on its corporate form but on its abdication of sovereign prerogatives by its descent to
the level of an ordinary business operation. 17

In an advisory opinion of the Supreme Court of the State of Michigan with respect to the creation
of the state housing authority, it was held that a state agency intended to take measures to
promote construction of housing, performs a proper governmental function, and that the grant of
corporate powers to such an agency makes it a quasi-corporation only but it remains an
instrumentality of the state. Such quasi-corporations are described as bodies of citizens who
have no personal nor private interests to be subserved, but are simply required by the state to do
some public work. The state merely clothes one of its agencies or instrumentalities with such
corporate powers. It is neither a private corporation but a class of artificial entity. The NIA
18

qualifies as a quasi-corporation, retaining at all times the attributes and prerogatives of the
sovereign State which entirely owns and operates it.

FOR THE FOREGOING REASONS, I vote to GRANT the Motion for Reconsideration and to SET
ASIDE the decision of this Court dated 1 December 1989, subject to the recommendation to
Congress as earlier stated.

Separate Opinions

FELICIANO, J., concurring:

I agree with the result reached by my distinguished brother in the Court, Mr. Justice Edgardo L.
Paras, both in the Decision of the Court's Second Division dated 1 December 1989 (179 SCRA
685 [1989]) and in the present Resolution on the motion for reconsideration, which has been
referred to the Court En Banc.

I agree, in other words, that the National Irrigation Administration (NIA) is liable for the acts of its
employee Hugo Garcia which resulted in injury to the spouses Jose Fontanilla and Virginia
Fontanilla. However, I reach this result through a slightly different route which is traced below.

In the original decision of the Court's Second Division, it is stated that:

Certain functions and activities, which can be performed only by the Government, are
more or less generally agreed to be "governmental" in character, and so the State is
immune from tort liability. On the other hand, a service which night as well be provided by
a private corporation, and particularly when it collects revenues from it, the function is
considered a "proprietary" one, as to which there may be liability for the torts of agents
within the scope of their employment.

The original Decision and the Resolution on the motion for reconsideration hold that the NIA is
"an agency of the government exercising proprietary functions."

I would respectfully submit that the liability of an agency or instrumentality of the Government for
torts of its employees under Article 2180, 6th paragraph, of the Civil Code is not contingent upon
the technical characterization of the functions or activities carried out by that agency or
instrumentality as "governmental," on the one hand, or "proprietary," upon the other.

In the first place, it is merely commonplace to note that governments in our day and age do not
restrict themselves to the original basic and primitive functions of repelling invasion by a foreign
enemy, maintaining peace and order in society and protecting the physical integrity or the food
supplies of its citizens or inhabitants, but instead assumed and carry out all kinds of activities
which they may determine to redound to the general interest and benefit of the population. Thus,
the classical laissez-faire concept of a state, which prevailed during the 19th century, has today
been replaced by the concept of the welfare state. Moreover, activities which in other states more
economically advanced than our own have been undertaken by private enterprise, are here still
being carried out by the Government or, more generally, the public sector in view of the
inadequacy of private capital and private entrepreneurial spirit.

Secondly, under Section 2(l) of Article IX of the Constitution, whether or not a government owned
or controlled corporation or entity forms part of the Government and is embraced within the civil
service depends, not upon the "governmental," as distinguished from "proprietary," nature of the
activities performed by such entity or corporation, but rather upon whether or not the corporation
or entity is possessed of an "original charter." Thus, it appears to me that the framers of the 1987
Constitution had given up the notion of trying to distinguish between "governmental" and
"proprietary" functions for purposes of determining whether employees of a particular agency or
instrumentality should be governed by the Civil Service Law and Regulations or, alternatively, by
the Labor Code and its Implementing Regulations administered by the National Labor Relations
Commission and the Department of Labor and Employment.

Article 2180 of the Civil Code provides in part as follows:

xxx xxx xxx

Employers shall be liable for the damage caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or entity.

The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official to whom the task done properly
pertains, in which case what is provided in Article 2176 shall be applicable.

xxx xxx xxx

(Emphasis supplied)

My basic submission that the term "State" as used above properly refers to the "Government of
the Republic of the Philippines." This latter term is defined in Section 2 of the Revised
Administrative Code of 1987 in the following manner:

The Government of the Republic of the Philippines refers to the corporate governmental
entity through which the functions of government are exercised throughout the
Philippines, including save as the contrary appears from the context, the various arms
through which political authority is made effective in the Philippines, whether pertaining to
the autonomous regions, the provincial, city, municipal or barangay subdivisions or other
forms of local government. (Emphasis supplied)

In other words, the term "State" as used in Article 2180 of the Civil Code refers to that juridical
person that is constituted b the Government of the Republic of the Philippines and logically does
not include agencies, instrumentalities or other entities which their enabling laws have invested
with juridical personality separate and distinct from that of the Republic of the Philippines.

It should be noted in this connection, that in Merritt v. Government of the Philippine Islands (34
Phil. 311 [1960]), the Court said:

It is therefore evident that the State (the Government of the Philippine Islands) is only
liable, according to the above quoted decisions of the Supreme Court of Spain, for acts of
its agents, officers and employees when they act as special agents within the meaning of
paragraph 5 of Article 1903 [of the Civil Code of Spain of 1889] and that the chauffeur of
the ambulance of the General Hospital was not such an agent. (Emphasis supplied;
parentheses in the original; 34 Phil. at 323)

Clearly, Mr. Justice Trent considered "the State" and "the Government of the Philippine Islands"
as equivalent terms. The decision of the Supreme Court of Spain dated 7 January 1898 which
the Court in Merritt cited, read in part as follows:

That the obligation to indemnify for damages, which a third person causes to another by
his fault or negligence is based, as is evidenced by the same Law 3, title 15, Partida 7,
on that the person obligated, by his own fault or negligence, takes part in the act or
omission of the third party who caused the damage. It follows therefrom that the State, by
virtue of such provisions of law, is not responsible for the damages suffered by private
individual in consequence of acts performed by its employees in the discharge of the
functions pertaining to their office, because neither fault nor even negligence can be
presumed on the part of the State in the organization of branches of the public service
and in the appointment of its agents; on the contrary, we must presuppose all foresight
humanly possible on its part in order that each branch of service serves the general weal
and that of private persons interested in its operation. Between these latter and the State,
therefore, no relations of a Private nature governed by the civil law can arise except in a
case where the state acts as a [juridical] person capable of acquiring rights and
contracting obligation (Emphases and brackets supplied)

The term "juridical" person was translated (by Mr. Justice Trent?) as "judicial" person. This
appears plain error for the judgment of 7 January 1898 in fact read:

. . . entre los cuales y el Estado, por tanto, no pueden surgir relaciones de orden privado
regidas por el derecho civil, salvo el caso de que el mismo Estado obre como persona
juridica capaz de adquirir derechos y contraer obligaciones:

xxx xxx xxx

(Emphasis supplied; 83 Jurisprudencia Civil 36 [1898])

Thus, the decision of the Supreme Court of Spain itself recognized that between private persons
and the State, relations of a private nature governed by the Civil Code can arise where the State
acts as or through the medium of a separate juridical person that is capable of acquiring lights
and entering into obligations.

In the present case, there is no question that the NIA has juridical personality separate and
distinct from that of the Government of the Republic of the Philippines which owns all NIA's
capital and assets. In other words, the NIA is not part of the "State" or of the "Government of the
Republic of the Philippines"; it follows, I respectfully submit, that the NIA should not be regarded
as part of the State for purposes of application of Article 2180 of the Civil Code.
What I have outlined above is in fact very close to the position taken by Mr. Justice Paras in the
Resolution on the motion for reconsideration. For he has rightly stressed that the NIA has clearly
been invested with a distinct legal personality and thus with capacity to sue and be sued. Judicial
actions may be brought by the NIA for the collection of unpaid irrigation fees, drainage fees or
other charges which the NIA is authorized to impose and collect, under the provisions of the
Rules of Court. Correlatively, actions against the NIA for the recovery of compensation and
damages are expressly allowed and prescribe in either five (5) or ten (10) years depending upon
the subject matter thereof. The State itself has determined, in other words, that the NIA
shall not be covered by the general immunity from suit without its consent pertaining to the State.

Finally, the Resolution underscores the fact that under Section 2(f) of the NIA charter, the NIA is
generally authorized "to exercise all the powers of a corporation under the Corporation Law,
insofar as they are not inconsistent with the provisions of [the NIA charter]." Since the NIA has
been vested with an the powers of a corporate person, it seems only reasonable to believe that it
is at the same time subjected to all the ordinary liabilities of a corporate person: one of those
liabilities is the vicarious liability of an employer under Article 2180 of the Civil Code, 6th
paragraph, for injurious acts done by its employees within the scope of their assigned tasks.

I suggest then that the investing of an agency or instrumentality of the Government with separate
juridical personality is not a matter of "form" as suggested by my equally distinguished brother in
the Court, Mr. Justice Padilla, in his dissenting opinion. The effect of the foregoing provisions of
its charter may be seen to be clearly a matter of "substance": to render the NIA both suable and
liable on the same causes of action which may be asserted against any corporate entity that is a
separate juridical person.

It seems also relevant to point out that the Philippine General Hospital (PGH), the agency or
instrumentality involved in the Merritt case, did not (in contrast with the NIA) have legal
personality separate and distinct from that of the Philippine Government at the time
that Merritt was decided. The PGH was established under Act No. 1688 of the Philippine
Commission as a division of the Bureau of Health, a non-incorporated entity. Later, it was
removed from the administrative jurisdiction of the Bureau of Health and made into an
independent bureau under the supervision of the Department of the Interior. Still later, the PGH
was placed under the Department of Instruction and subsequently, under the Office of the
President. In 1947, by virtue of Executive Order No. 94, the PGH was made a part of the
University of the Philippines, itself a separate corporate entity. Clearly, therefore, at the
time Merritt was decided, the PGH was part and parcel of the Government of the Republic of the
Philippines as defined by the Revised Administrative Code of 1917.

For all the foregoing, I vote to DENY the motion for reconsideration and to AFFIRM the Decision
dated 1 December 1989 in G.R. Nos. 55963 and 61045.

Narvasa and Cruz, JJ., concur.

PADILLA, J., dissenting:

On 1 December 1989, this Court, through its Second Division, rendered a decision declaring
petitioner National Irrigation Administration (NIA, for brevity) a government agency performing
proprietary functions. Like an ordinary employer, NIA was held liable for the injuries, resulting in
death, of Francisco Fontanilla, caused by the fault and/or negligence of NIA's driver employee
Hugo Garcia; and NIA was ordered to pay petitioner spouses Fontanilla, the victim's parents, the
amounts of P12,000.00 for the death of the victim; P3,389.00 for hospitalization and burial
expenses; P30,000.00 as moral damages; P8,000.00 as exemplary damages, and attorney's
fees of 20% of the total award.
Assailing the said decision of this Court, NIA filed the present Motion for Reconsideration,
alleging that NIA does not perform solely or primarily proprietary functions but is an agency of the
government tasked with governmental functions; thus, it may not be held liable for damages for
injuries caused by its employee to a third person. CitingPD 552, NIA argues that its functions and
responsibilities directly concern public benefit and public welfare.

To start with, NIA is an agency of the government with an original charter. Section 1 of Republic
1

Act 3601 provides:

Sec. 1. Name and domicile. –– A body corporate is hereby created which shall be known
as the National Irrigation Administration, hereinafter called the NIA for short, which shall
be organized immediately after the approval of this Act. It shall have its principal seat of
business in the City of Manila and shall have representatives in all provinces for the
proper conduct of its business.

NIA's said charter confers upon it a separate juridical personality to exercise all the powers of a
corporation under the Corporation Law, insofar as they are not inconsistent with said charter. 2

Under PD 552 amending NIA's original charter, it is made clear that said agency was created
primarily for the purpose of undertaking integrated irrigation projects, by the construction of
multiple-purpose water resource projects to increase agricultural production for the financial
upliftment of the people. In relation to its purpose, NIA has the power and authority to undertake
concomitant projects, such as, flood control, drainage, land reclamation, hydraulic power
development, domestic water supply, road or highway construction, reforestation and projects to
maintain ecological balance, in coordination with other agencies concerned. Thus —

WHEREAS, the enunciation policy is for a comprehensive development, utilization and

conservation of water resources of the Philippines, and in pursuit of its policy, one of the
primary objectives of the National Irrigation Administration is to effectuate an economic
means of achieving the optimal and diversified utilization and control of water by
undertaking integrated litigation projects.

WHEREAS, the National Irrigation Administration assumes as its primary responsibility,

the implementation of the irrigation integrated program of the government and the
attainment of the "Irrigation Age", as envisioned under Republic Act No. 3601;

WHEREAS, an effective means of implementing multiple-purpose projects in line with

program-oriented and comprehensive water resources development necessitates
broader powers and authority of the NIA to undertake concomitant projects such as flood
control, drainage, land reclamation, hydraulic power development, domestic water
supply, road or highway construction, reforestation, and projects to maintain ecological
balance, in coordination with the agencies concerned;

WHEREAS, the construction of multiple-purpose water resources projects involves

substantial investment of government funds to increase agricultural production for the
financial upliftment of the People for them to be able to assume and comply with their
obligations and responsibilities to the government.

NIA is thus maintained and operated by the government in the performance of its governmental
function of providing the Filipino people, particularly, the farmers nationwide, improved irrigation
systems to increase the country's agricultural production. Only the government has the capacity
and facilities to successfully undertake a project or venture of such magnitude. That the NIA is
empowered to charge minimal fees from all the beneficiaries of the irrigation systems that it
establishes and operates, does not change the nature of the function or purpose for which it was
created. The fees that are collected by NIA are used to cover the cost of operation, maintenance,
insurance, cost of construction, and the rehabilitation of irrigation systems. 3
Such monetary charges do not constitute monetary gain or profit to NIA, but are merely
reimbursements of the operational cost of the agency's projects.

It cannot be denied that public service is the thrust in the creation of NIA in contrast to a business
venture or proprietary enterprise for monetary gain. That the NIA is also empowered to enter into
transactions in order to acquire real and personal properties, appurtenant rights, easements,
privileges in the development of its projects and enter into other business transactions, does not
4

mean that it performs proprietary functions, for it is expressly provided in its charter that the
business transactions it may enter into are only those which are directly or indirectly necessary,
incidental or conducive to the attain-judgment of its purposes and objectives. 5

Furthermore, the fact that its charter treats the NIA as incorporated under the Corporation Law,
and confers upon it a separate juridical personality, is not the test in determining whether it is
performing a governmental or proprietary function. The spirit, intent or purpose behind its
creation determines its true character. It has been held that were the nature of the duties
imposed on an agency and performed by it does not reveal that it was intended to bring any
special corporate benefit or pecuniary profit to the government, said agency is deemed to be
exercising a governmental function. 6

After having established that the NIA is a government agency, with an original charter, possessed
of juridical personality under the Corporation Law, and performing governmental functions, it is
equally important to determine whether (1) the sovereign immunity of the state from suit is
enjoyed, or has been waived by NIA and (2) the NIA is liable for damages arising from tort
committed by its employees.

For incorporated agencies of the government, the test of its suability is found in its charter. The
simple rule is that it is suable if its charter says so, and this is true regardless of the functions it is
performing. The charter of the NIA provides that it may sue and be sued, thus, consent of the
7

state for NIA to be sued has been given, so that the rule, on immunity from suit normally
8

extended to government agencies performing governmental functions is no longer available to

NIA. By waiving that immunity from suit in its charter, it would appear that NIA has opened itself
to suits based on causes of action arising from law, contracts, quasi-contracts, delicts, and even
quasi-delicts.

But to say that NIA has opened itself to suit is one thing; to say that it is liable for damages
arising from tort committed by its employees, is still another thing.

As discussed in the now assailed decision, pursuant to the provisions of substantive law
on quasi-delict, whoever by his act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage caused. The obligation imposed by the foregoing
9

rule is demandable not only for one's own acts or omissions, but also for those of persons for
whom one is responsible, such that an employer is held liable for damages caused by its
employees who were acting within the scope of their assigned tasks. 10

But the state or a government agency performing governmental functions may be held liable for
tort committed by its employees only when it acts through a special agent. 11

This is not the first time this Court is confronted with a situation akin to the one at bar. In Merritt
vs. Government of the Phil. Islands, the plaintiff was hit by an ambulance of the Philippine
12

General Hospital, while operated by its regular driver. Since the Philippine government was
immune from suit, Act No. 2457 was approved by the Philippine legislature which authorized
Merritt to sue the Philippine government in the CFI in order to fix the responsibility for the
collision and to determine the amount or extent of the damages.
In due course, it was determined that the ambulance operated by the General Hospital's regular
driver was responsible for the mishap. The damages sustained by Merritt as a result of the
accident was likewise quantified by the trial court and ultimately increased by the Supreme Court.

But then the crucial question remained thus —

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit
or did it also concede its liability to the plaintiff? If only the former, then it cannot be held
that no Act created any new cause of action in favor of the plaintiff or extended the
defendant's liability to any case not previously recognized.

The Court answered its own query thus —

In the United States the rule that the state is not liable for the torts committed by its
officers or agents whom it employs, except when expressly made so by legislative
enactment, is well settled. "The Government," says Justice Story, "does not undertake to
guarantee to any person the fidelity of the officers or agents whom it employs, since that
would involve it in all its operations in endless embarrassments, difficulties and losses,
which would be subversive of the public interest. (Claussen vs. City of Luverne 103 Minn
491 citing U.S. vs. Kirkpatrick 9 Wheat, 720; 6 L.Ed., 199; and Beers vs. State, 20 How.,
527; 15 L.Ed., 991.)

xxx xxx xxx

. . . we will now examine the substantive law touching the defendant's liability for the
negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of the
Civil Code reads:

The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the
act performed, in which case the provisions of the preceding article shall be applicable.

The Supreme Court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by
his fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7,
on that the person obligated, by his own fault or negligence, takes part in the act or
omission of the third party who caused the damage. It follows therefrom that the state, by
virtue of such provisions of law, is not responsible for the damages suffered by private
individuals in consequence of acts performed by its employees in the discharge of the
functions pertaining to their office, because neither fault nor even negligence can be
presumed on the part of the state organization of branches of the public service and in
the appointment of its agents; on the contrary, we must presuppose all foresight humanly
possible on its part in order that each branch of service serves the general weal and that
of private persons interested in its operation. Between these latter and the state,
therefore, no relations of a private nature governed by the civil law can arise except in a
case where the state acts as a judicial person capable of acquiring rights and contracting
obligations. (Supreme Court of Spain, January 7, 1988; 83 Jur. Civ. 24.)

The dispositive part of the Merritt decision states:

For the foregoing reasons, the judgment appealed from must be reversed, without costs
in this instance. Whether the Government intends to make itself legally liable for the
amount of damages above set forth, which the plaintiff has sustained by reason of the
negligent acts of one of its employees, by legislative enactment and by appropriating
 sufficient funds therefor, we are not called upon to determine. This matter rests solely
with the Legislature and not with the courts.

This Court in the now assailed decision found that NIA was negligent in the supervision of its
driver Hugo Garcia who bumped petitioner-spouses' son, causing the death of the latter —

It should be emphasized that the accident happened along the Marikina National Road
within the city limits of San Jose City, an urban area. Considering the fact that the victim
was thrown 50 meters away from the point of impact, there is a strong indication that
driver Garcia was driving at a high speed. This is confirmed by the fact that the pick-up
suffered substantial and heavy damage as above-described and the fact that the NIA
group was then "in a hurry to reach the campsite as early as possible", as shown by their
not stopping to find out what they bumped as would have been their normal and initial
reaction.

Evidently, there was negligence in the supervision of the driver for the reason that they
were traveling at a high speed within the city limits and yet the supervisor of the group,
Ely Salonga, failed to caution and make the driver observe the proper and allowed speed
limit within the City. Under the situation, such negligence is further aggravated by their
desire to reach their destination without even checking whether or not the vehicle
suffered damage from the object it bumped, thus showing imprudence and recklessness
on the part of both the driver and the supervisor in the group. 13

There is thus no doubt that NIA should be held responsible for the negligent acts of its regular
driver, resulting in the death of petitioner-spouses' son, except that under Article 2180, par. 6 in
relation to Article 2176 of the Civil Code, the state is not liable for tort save when it acts through a
special agent, and Hugo Garcia was not a special agent but NIA's regular driver.

Under the circumstances, and in order not to perpetuate a cruel injustice, I believe that this
Court, while granting the Solicitor General's motion for reconsideration, should recommend to
Congress the enactment of the appropriate legislation to compensate the petitioner-spouses,
parents of the victim Francisco Fontanilla, and to appropriate the necessary funds therefor, which
could be equal to the amount of damages already determined by this Court.

During the deliberations of this case, it was suggested that the term "State" as used in Article
2180, par. 6 of the Civil Code could be limited to the State proper and not construed to include
14

incorporated entities even if performing governmental functions, such as the NIA. The intended
effect of this suggestion would be to render only the State, meaning, the government of the
Republic of the Philippines and its unincorporated agencies, such as government bureaus,
exempt from liability for tort committed by their officials and employees, except their special
agents, but incorporated governmental entities, even if performing governmental (as
distinguished from business functions) will be liable for the tort committed by their officials and
employees.

I am of the considered opinion that the aforestated suggestion is untenable because it would lay
stress on formrather than substance. To me, the test should still be whether the governmental
entity performs governmental and, therefore, sovereign functions, regardless of whether it is
incorporated or not. If the government agency performs governmental and, therefore, sovereign
functions, such as the NIA, it is within the context of the term "State" as used in Art. 2180, par. 6
of the Civil Code and may not, as a consequence, be held liable for tort committed by its officials
and employees, except when they are "special agents."

From the ruling of this Court in Manila Hotel Employees Asso. vs. Manila Hotel, which states
15

that by "engaging in a particular business thru the instrumentality of a corporation, the

government divests itself pro hoc vice of its sovereign character, so as to render the corporation
subject to the rules governing private corporations," it can be reasonably inferred that it is
the business character of the corporation and not its corporate form which divests it of the
immunity (and, similarly, exemption from liability for tort committed by its employees) which its
owner-sovereign enjoys. In the case of Prisco vs. CIR, the suability and liability under labor laws
16

of the Price Stabilization Corporation was based not really on its corporate form but on its
abdication of sovereign prerogatives by its descent to the level of an ordinary business
operation. 17

In an advisory opinion of the Supreme Court of the State of Michigan with respect to the creation
of the state housing authority, it was held that a state agency intended to take measures to
promote construction of housing, performs a proper governmental function, and that the grant of
corporate powers to such an agency makes it a quasi-corporation only but it remains an
instrumentality of the state. Such quasi-corporations are described as bodies of citizens who
have no personal nor private interests to be subserved, but are simply required by the state to do
some public work. The state merely clothes one of its agencies or instrumentalities with such
corporate powers. It is neither a private corporation but a class of artificial entity. The NIA
18

qualifies as a quasi-corporation, retaining at all times the attributes and prerogatives of the
sovereign State which entirely owns and operates it.

FOR THE FOREGOING REASONS, I vote to GRANT the Motion for Reconsideration and to SET
ASIDE the decision of this Court dated 1 December 1989, subject to the recommendation to
Congress as earlier stated.

Footnotes

1
This motion was referred to the court en banc per resolution dated May 9, 1990.

PADILLA, J. dissenting opinion:

1
Republic Act No. 3601, entitled "An Act creating the National Irrigation Administration",
as amended by PD 552.

2
Section 2(f) of PD 552.

3
Section 2(b) of PD 552.

4
Section 2(e) of PD 552.

5
Section 2(f) of PD 552.

6
Angat River Irrigation System v. Angat River Worker Union, 102 Phil. 790.

7
Comment of Justice Isagani Cruz, Philippine Political Law, Vol. I, p. 39, 1989 Edition.

8
Olizon v. Central Bank, G.R. No. L-16524, 30 June 1954, 11 SCRA 357.

9
Civil Code, Article 2176.

10
Ibid., Article 2180.

11
Ibid., par. (6).

12
34 Phil. 311 (21 March 1916).
 13
Decision dated 1 December 1989, pp. 10-11.

Art. 2180. par. 6, Civil Code states: The obligation imposed by article 2176 is
14

demandable not only for one's own acts or omissions, but also for those of persons for
whom one is responsible.

xxx xxx xxx

The State is responsible in like manner when it acts through a special agent; but
not when the damage has been caused by the official to whom the task done
properly pertains, in which case what is provided in article 2176 shall be
applicable."

15
73 Phil. 374.

16
102 Phil. 515.

17
Phil. Constitutional Law by J. Bernas, p. 783, Vol. 1, 1984 Edition.

In re: Advisory Opinion on the Constitutionality of Act No. 346 of Public Acts of
18

1966,158 N.W. 2d 416.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-23052 January 29, 1968

CITY OF MANILA, petitioner,

vs.
GENARO N. TEOTICO and COURT OF APPEALS, respondents.

City Fiscal Manuel T. Reyes for petitioner.

Sevilla, Daza and Associates for respondents.

CONCEPCION, C.J.:

Appeal by certiorari from a decision of the Court of Appeals.

On January 27, 1958, at about 8:00 p.m., Genaro N. Teotico was at the corner of the Old Luneta
and P. Burgos Avenue, Manila, within a "loading and unloading" zone, waiting for a jeepney to
take him down town. After waiting for about five minutes, he managed to hail a jeepney that
came along to a stop. As he stepped down from the curb to board the jeepney, and took a few
steps, he fell inside an uncovered and unlighted catch basin or manhole on P. Burgos Avenue.
Due to the fall, his head hit the rim of the manhole breaking his eyeglasses and causing broken
pieces thereof to pierce his left eyelid. As blood flowed therefrom, impairing his vision, several
persons came to his assistance and pulled him out of the manhole. One of them brought Teotico
to the Philippine General Hospital, where his injuries were treated, after which he was taken
home. In addition to the lacerated wound in his left upper eyelid, Teotico suffered contusions on
the left thigh, the left upper arm, the right leg and the upper lip apart from an abrasion on the
right infra-patella region. These injuries and the allergic eruption caused by anti-tetanus
injections administered to him in the hospital, required further medical treatment by a private
practitioner who charged therefor P1,400.00.
As a consequence of the foregoing occurrence, Teotico filed, with the Court of First Instance of
Manila, a complaint — which was, subsequently, amended — for damages against the City of
Manila, its mayor, city engineer, city health officer, city treasurer and chief of police. As stated in
the decision of the trial court, and quoted with approval by the Court of Appeals,

At the time of the incident, plaintiff was a practicing public accountant, a businessman
and a professor at the University of the East. He held responsible positions in various
business firms like the Philippine Merchandising Co., the A.U. Valencia and Co., the
Silver Swan Manufacturing Company and the Sincere Packing Corporation. He was also
associated with several civic organizations such as the Wack Wack Golf Club, the
Chamber of Commerce of the Philippines, Y's Men Club of Manila and the Knights of
Rizal. As a result of the incident, plaintiff was prevented from engaging in his customary
occupation for twenty days. Plaintiff has lost a daily income of about P50.00 during his
incapacity to work. Because of the incident, he was subjected to humiliation and ridicule
by his business associates and friends. During the period of his treatment, plaintiff was
under constant fear and anxiety for the welfare of his minor children since he was their
only support. Due to the filing of this case, plaintiff has obligated himself to pay his
counsel the sum of P2,000.00.

On the other hand, the defense presented evidence, oral and documentary, to prove that
the Storm Drain Section, Office of the City Engineer of Manila, received a report of the
uncovered condition of a catchbasin at the corner of P. Burgos and Old Luneta Streets,
Manila, on January 24, 1958, but the same was covered on the same day (Exhibit 4); that
again the iron cover of the same catch basin was reported missing on January 30, 1958,
but the said cover was replaced the next day (Exhibit 5); that the Office of the City
Engineer never received any report to the effect that the catchbasin in question was not
covered between January 25 and 29, 1968; that it has always been a policy of the said
office, which is charged with the duty of installation, repair and care of storm drains in the
City of Manila, that whenever a report is received from whatever source of the loss of a
catchbasin cover, the matter is immediately attended to, either by immediately replacing
the missing cover or covering the catchbasin with steel matting that because of the
lucrative scrap iron business then prevailing, stealing of iron catchbasin covers was
rampant; that the Office of the City Engineer has filed complaints in court resulting from
theft of said iron covers; that in order to prevent such thefts, the city government has
changed the position and layout of catchbasins in the City by constructing them under the
sidewalks with concrete cement covers and openings on the side of the gutter; and that
these changes had been undertaken by the city from time to time whenever funds were
available.

After appropriate proceedings the Court of First Instance of Manila rendered the aforementioned
decision sustaining the theory of the defendants and dismissing the amended complaint, without
costs.

On appeal taken by plaintiff, this decision was affirmed by the Court of Appeals, except insofar as
the City of Manila is concerned, which was sentenced to pay damages in the aggregate sum of
P6,750.00. 1 Hence, this appeal by the City of Manila.

The first issue raised by the latter is whether the present case is governed by Section 4 of
Republic Act No. 409 (Charter of the City of Manila) reading:

The city shall not be liable or held for damages or injuries to persons or property arising
from the failure of the Mayor, the Municipal Board, or any other city officer, to enforce the
provisions of this chapter, or any other law or ordinance, or from negligence of said
Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said
provisions.
or by Article 2189 of the Civil Code of the Philippines which provides:

Provinces, cities and municipalities shall be liable for damages for the death of, or injuries
suffered by, any person by reason of defective conditions of road, streets, bridges, public
buildings, and other public works under their control or supervision.

Manila maintains that the former provision should prevail over the latter, because Republic Act
409, is a special law, intended exclusively for the City of Manila, whereas the Civil Code is a
general law, applicable to the entire Philippines.

The Court of Appeals, however, applied the Civil Code, and, we think, correctly. It is true that,
insofar as its territorial application is concerned, Republic Act No. 409 is a special law and the
Civil Code a general legislation; but, as regards the subject-matter of the provisions above
quoted, Section 4 of Republic Act 409 establishes a general rule regulating the liability of the City
of Manila for: "damages or injury to persons or property arising from the failure of" city officers "to
enforce the provisions of" said Act "or any other law or ordinance, or from negligence" of the city
"Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said
provisions." Upon the other hand, Article 2189 of the Civil Code constitutes a particular
prescription making "provinces, cities and municipalities . . . liable for damages for the death of,
or injury suffered by any person by reason" — specifically — "of the defective condition of roads,
streets, bridges, public buildings, and other-public works under their control or supervision." In
other words, said section 4 refers to liability arising from negligence, in general, regardless of the
object thereof, whereas Article 2189 governs liability due to "defective streets," in particular.
Since the present action is based upon the alleged defective condition of a road, said Article
2189 is decisive thereon.

It is urged that the City of Manila cannot be held liable to Teotico for damages: 1) because the
accident involving him took place in a national highway; and 2) because the City of Manila has
not been negligent in connection therewith.

As regards the first issue, we note that it is based upon an allegation of fact not made in the
answer of the City. Moreover, Teotico alleged in his complaint, as well as in his amended
complaint, that his injuries were due to the defective condition of a street which is "under the
supervision and control" of the City. In its answer to the amended complaint, the City, in turn,
alleged that "the streets aforementioned were and have been constantly kept in good condition
and regularly inspected and the storm drains and manholes thereof covered by the defendant
City and the officers concerned" who "have been ever vigilant and zealous in the performance of
their respective functions and duties as imposed upon them by law." Thus, the City had, in effect,
admitted that P. Burgos Avenue was and is under its control and supervision.

Moreover, the assertion to the effect that said Avenue is a national highway was made, for
the first time, in its motion for reconsideration of the decision of the Court of Appeals. Such
assertion raised, therefore, a question of fact, which had not been put in issue in the trial court,
and cannot be set up, for the first time, on appeal, much less after the rendition of the decision of
the appellate court, in a motion for the reconsideration thereof.

At any rate, under Article 2189 of the Civil Code, it is not necessary for the liability therein
established to attach that the defective roads or streets belong to the province, city or
municipality from which responsibility is exacted. What said article requires is that the province,
city or municipality have either "control or supervision" over said street or road. Even if P. Burgos
Avenue were, therefore, a national highway, this circumstance would not necessarily detract from
its "control or supervision" by the City of Manila, under Republic Act 409. In fact Section 18(x)
thereof provides:

Sec. 18. Legislative powers. — The Municipal Board shall have the following legislative
powers:
 xxx xxx xxx

(x) Subject to the provisions of existing law to provide for the laying out,
construction and improvement, and to regulate the use of streets, avenues, alleys,
sidewalks, wharves, piers, parks, cemeteries, and other public places; to provide for
lighting, cleaning, and sprinkling of streets and public places; . . . to provide for the
inspection of, fix the license fees for and regulate the openings in the same for the laying
of gas, water, sewer and other pipes, the building and repair of tunnels, sewers,
and drains, and all structures in and under the same and the erecting of poles and the
stringing of wires therein; to provide for and regulate cross-works, curbs, and gutters
therein, . . . to regulate traffic and sales upon the streets and other public places; to
provide for the abatement of nuisances in the same and punish the authors or owners
thereof; to provide for the construction and maintenance, and regulate the use, of
bridges, viaducts and culverts; to prohibit and regulate ball playing, kite-flying, hoop
rolling, and other amusements which may annoy persons using the streets and public
places, or frighten horses or other animals; to regulate the speed of horses and other
animals, motor and other vehicles, cars, and locomotives within the limits of the city;
to regulate the lights used on all vehicles, cars, and locomotives; . . . to provide for and
change the location, grade, and crossing of railroads, and compel any such railroad to
raise or lower its tracks to conform to such provisions or changes; and to require railroad
companies to fence their property, or any part thereof, to provide suitable protection
against injury to persons or property, and to construct and repair ditches, drains, sewers,
and culverts along and under their tracks, so that the natural drainage of the streets and
adjacent property shall not be obstructed.

This authority has been neither withdrawn nor restricted by Republic Act No. 917 and Executive
Order No. 113, dated May 2, 1955, upon which the City relies. Said Act governs the disposition or
appropriation of the highway funds and the giving of aid to provinces, chartered cities and
municipalities in the construction of roads and streets within their respective boundaries, and
Executive Order No. 113 merely implements the provisions of said Republic Act No. 917,
concerning the disposition and appropriation of the highway funds. Moreover, it provides that "the
construction, maintenance and improvement of national primary, national secondary and national
aid provincial and city roads shall be accomplished by the Highway District Engineers and
Highway City Engineers under the supervision of the Commissioner of Public Highways and shall
be financed from such appropriations as may be authorized by the Republic of the Philippines in
annual or special appropriation Acts."

Then, again, the determination of whether or not P. Burgos Avenue is under the control or
supervision of the City of Manila and whether the latter is guilty of negligence, in connection with
the maintenance of said road, which were decided by the Court of Appeals in the affirmative, is
one of fact, and the findings of said Court thereon are not subject to our review.

WHEREFORE, the decision appealed from should be as it is hereby affirmed, with costs against
the City of Manila. It is so ordered.
1äwphï1.ñët

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.

Footnotes

Medical fees — P1,400.00; Lost income — P350.00; Moral damages — P3,000.00; and
1

Attorney's fees — P2,000.00.

The Lawphil Project - Arellano Law Foundation

 FIRST DIVISION

G.R. No. 132344 February 17, 2000

UNIVERSITY OF THE EAST, petitioner,

vs.
ROMEO A. JADER, respondent.

YNARES-SANTIAGO, J.:

May an educational institution be held liable for damages for misleading a student into believing
that the latter had satisfied all the requirements for graduation when such is not the case? This is
the issue in the instant petition for review premised on the following undisputed facts as
summarized by the trial court and adopted by the Court of Appeals (CA), 1 to wit:

Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In the first
semester of his last year (School year 1987-1988), he failed to take the regular final
examination in Practice Court I for which he was given an incomplete grade (Exhibits "2",
also Exhibit "H"). He enrolled for the second semester as fourth year law student (Exhibit
"A") and on February 1, 1988 he filed an application for the removal of the incomplete
grade given him by Professor Carlos Ortega (Exhibits "H-2", also Exhibit "2") which was
approved by Dean Celedonio Tiongson after payment of the required fee. He took the
examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega submitted
his grade. It was a grade of five (5). (Exhibits "H-4", also Exhibits "2-L", "2-N").
1âwphi1.nêt

In the meantime, the Dean and the Faculty Members of the College of Law met to
deliberate on who among the fourth year students should be allowed to graduate. The
plaintiff's name appeared in the Tentative List of Candidates for graduation for the Degree
of Bachelor of Laws (LL.B) as of Second Semester (1987-1988) with the following
annotation:

JADER ROMEO A.

Def. Conflict of Laws — x-1-87-88, Practice Court I Inc., 1-87-88 C-1 to submit transcript
with S.O. (Exhibits "3", "3-C-1", "3-C-2").

The 35th Investitures & Commencement Ceremonies for the candidates of Bachelor of
Laws was scheduled on the 16th of April 1988 at 3:00 o'clock in the afternoon, and in the
invitation for that occasion the name of the plaintiff appeared as one of the candidates.
(Exhibits "B", "B-6", "B-6-A"). At the foot of the list of the names of the candidates there
appeared however the following annotation:

This is a tentative list Degrees will be conferred upon these candidates who
satisfactorily complete requirements as stated in the University Bulletin and as
approved of the Department of Education, Culture and Sports (Exhibit "B-7-A").
 The plaintiff attended the investiture ceremonies at F. dela Cruz Quadrangle, U.E., Recto
Campus, during the program of which he went up the stage when his name was called,
escorted by her (sic) mother and his eldest brother who assisted in placing the Hood, and
his Tassel was turned from left to right, and he was thereafter handed by Dean Celedonio
a rolled white sheet of paper symbolical of the Law Diploma. His relatives took pictures of
the occasion (Exhibits "C" to "C-6", "D-3" to "D-11").

He tendered a blow-out that evening which was attended by neighbors, friends and
relatives who wished him good luck in the forthcoming bar examination. There were
pictures taken too during the blow-out (Exhibits "D" to "D-1").

He thereafter prepared himself for the bar examination. He took a leave of absence
without pay from his job from April 20, 1988 to September 30, 1988 (Exhibit "G") and
enrolled at the pre-bar review class in Far Eastern University. (Exhibits "F" to "F-2").
Having learned of the deficiency he dropped his review class and was not able to take
the bar examination.2

Consequently, respondent sued petitioner for damages alleging that he suffered moral shock,
mental anguish, serious anxiety, besmirched reputation, wounded feelings and sleepless nights
when he was not able to take the 1988 bar examinations arising from the latter's negligence. He
prayed for an award of moral and exemplary damages, unrealized income, attorney's fees, and
costs of suit.

In its answer with counterclaim, petitioner denied liability arguing mainly that it never led
respondent to believe that he completed the requirements for a Bachelor of Laws degree when
his name was included in the tentative list of graduating students. After trial, the lower court
rendered judgment as follows:

WHEREFORE, in view of the foregoing judgment is hereby rendered in favor of the

plaintiff and against the defendant ordering the latter to pay plaintiff the sum of THIRTY
FIVE THOUSAND FOUR HUNDRED SEVENTY PESOS (P35,470.00) with legal rate of
interest from the filing of the complaint until fully paid, the amount of FIVE THOUSAND
PESOS (P5,000.00) as attorney's fees and the cost of suit.

Defendant's counterclaim is, for lack of merit, hereby dismissed.

SO ORDERED.3

which on appeal by both parties was affirmed by the Court of Appeals (CA) with modification. The
dispositive portion of the CA decision reads:

WHEREFORE, in the light of the foregoing, the lower Court's Decision is hereby
AFFIRMED with the MODIFICATION that defendant-appellee, in addition to the sum
adjudged by the lower court in favor of plaintiff-appellant, is also ORDERED to pay
plaintiff-appellant the amount of FIFTY THOUSAND (P50,000.00) PESOS for moral
damages. Costs against defendant-appellee.

SO ORDERED.4

Upon the denial of its motion for reconsideration, petitioner UE elevated the case to this Court on
a petition for review under Rule 45 of the Rules of Court, arguing that it has no liability to
respondent Romeo A. Jader, considering that the proximate and immediate cause of the alleged
damages incurred by the latter arose out of his own negligence in not verifying from the professor
concerned the result of his removal exam.
The petition lacks merit.

When a student is enrolled in any educational or learning institution, a contract of education is

entered into between said institution and the student. The professors, teachers or instructors
hired by the school are considered merely as agents and administrators tasked to perform the
school's commitment under the contract. Since the contracting parties are the school and the
student, the latter is not duty-bound to deal with the former's agents, such as the professors with
respect to the status or result of his grades, although nothing prevents either professors or
students from sharing with each other such information. The Court takes judicial notice of the
traditional practice in educational institutions wherein the professor directly furnishes his/her
students their grades. It is the contractual obligation of the school to timely inform and furnish
sufficient notice and information to each and every student as to whether he or she had already
complied with all the requirements for the conferment of a degree or whether they would be
included among those who will graduate. Although commencement exercises are but a formal
ceremony, it nonetheless is not an ordinary occasion, since such ceremony is the educational
institution's way of announcing to the whole world that the students included in the list of those
who will be conferred a degree during the baccalaureate ceremony have satisfied all the
requirements for such degree. Prior or subsequent to the ceremony, the school has the obligation
to promptly inform the student of any problem involving the latter's grades and performance and
also most importantly, of the procedures for remedying the same.

Petitioner, in belatedly informing respondent of the result of the removal examination, particularly
at a time when he had already commenced preparing for the bar exams, cannot be said to have
acted in good faith. Absence of good faith must be sufficiently established for a successful
prosecution by the aggrieved party in a suit for abuse of right under Article 19 of the Civil Code.
Good faith connotes an honest intention to abstain from taking undue advantage of another,
even though the forms and technicalities of the law, together with the absence of all information
or belief of facts, would render the transaction unconscientious.5 It is the school that has access
to those information and it is only the school that can compel its professors to act and comply
with its rules, regulations and policies with respect to the computation and the prompt submission
of grades. Students do not exercise control, much less influence, over the way an educational
institution should run its affairs, particularly in disciplining its professors and teachers and
ensuring their compliance with the school's rules and orders. Being the party that hired them, it is
the school that exercises general supervision and exclusive control over the professors with
respect to the submission of reports involving the students' standing. Exclusive control means
that no other person or entity had any control over the instrumentality which caused the damage
or injury.6

The college dean is the senior officer responsible for the operation of an academic program,
enforcement of rules and regulations, and the supervision of faculty and student services. 7 He
must see to it that his own professors and teachers, regardless of their status or position outside
of the university, must comply with the rules set by the latter. The negligent act of a professor
who fails to observe the rules of the school, for instance by not promptly submitting a student's
grade, is not only imputable to the professor but is an act of the school, being his employer.

Considering further, that the institution of learning involved herein is a university which is
engaged in legal education, it should have practiced what it inculcates in its students, more
specifically the principle of good dealings enshrined in Articles 19 and 20 of the Civil Code which
states:

Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same.
Art. 19 was intended to expand the concept of torts by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human foresight to provide specifically in
statutory law.8 In civilized society, men must be able to assume that others will do them no
intended injury — that others will commit no internal aggressions upon them; that their
fellowmen, when they act affirmatively will do so with due care which the ordinary understanding
and moral sense of the community exacts and that those with whom they deal in the general
course of society will act in good faith. The ultimate thing in the theory of liability is justifiable
reliance under conditions of civilized society.9 Schools and professors cannot just take students
for granted and be indifferent to them, for without the latter, the former are useless.

Educational institutions are duty-bound to inform the students of their academic status and not
wait for the latter to inquire from the former. The conscious indifference of a person to the rights
or welfare of the person/persons who may be affected by his act or omission can support a claim
for damages.10 Want of care to the conscious disregard of civil obligations coupled with a
conscious knowledge of the cause naturally calculated to produce them would make the erring
party liable.11 Petitioner ought to have known that time was of the essence in the performance of
its obligation to inform respondent of his grade. It cannot feign ignorance that respondent will not
prepare himself for the bar exams since that is precisely the immediate concern after graduation
of an LL.B. graduate. It failed to act seasonably. Petitioner cannot just give out its student's
grades at any time because a student has to comply with certain deadlines set by the Supreme
Court on the submission of requirements for taking the bar. Petitioner's liability arose from its
failure to promptly inform respondent of the result of an examination and in misleading the latter
into believing that he had satisfied all requirements for the course. Worth quoting is the following
disquisition of the respondent court:

It is apparent from the testimony of Dean Tiongson that defendant-appellee University

had been informed during the deliberation that the professor in Practice Court I gave
plaintiff-appellant a failing grade. Yet, defendant-appellee still did not inform plaintiff-
appellant of his failure to complete the requirements for the degree nor did they remove
his name from the tentative list of candidates for graduation. Worse, defendant-appellee
university, despite the knowledge that plaintiff-appellant failed in Practice Court
I, again included plaintiff-appellant's name in the "tentative list of candidates for
graduation which was prepared after the deliberation and which became the basis for the
commencement rites program. Dean Tiongson reasons out that plaintiff-appellant's name
was allowed to remain in the tentative list of candidates for graduation in the hope that
the latter would still be able to remedy the situation in the remaining few days before
graduation day. Dean Tiongson, however, did not explain how plaintiff appellant Jader
could have done something to complete his deficiency if defendant-appellee university
did not exert any effort to inform plaintiff-appellant of his failing grade in Practice Court I. 12

Petitioner cannot pass on its blame to the professors to justify its own negligence that led to the
delayed relay of information to respondent. When one of two innocent parties must suffer, he
through whose agency the loss occurred must bear it.13 The modern tendency is to grant
indemnity for damages in cases where there is abuse of right, even when the act is not illicit. 14 If
mere fault or negligence in one's acts can make him liable for damages for injury caused thereby,
with more reason should abuse or bad faith make him liable. A person should be protected only
when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in
good faith, but not when he acts with negligence or abuse.15

However, while petitioner was guilty of negligence and thus liable to respondent for the latter's
actual damages, we hold that respondent should not have been awarded moral damages. We do
not agree with the Court of Appeals' findings that respondent suffered shock, trauma and pain
when he was informed that he could not graduate and will not be allowed to take the bar
examinations. At the very least, it behooved on respondent to verify for himself whether he has
completed all necessary requirements to be eligible for the bar examinations. As a senior law
student, respondent should have been responsible enough to ensure that all his affairs,
specifically those pertaining to his academic achievement, are in order. Given these
considerations, we fail to see how respondent could have suffered untold embarrassment in
attending the graduation rites, enrolling in the bar review classes and not being able to take the
bar exams. If respondent was indeed humiliated by his failure to take the bar, he brought this
upon himself by not verifying if he has satisfied all the requirements including his school records,
before preparing himself for the bar examination. Certainly, taking the bar examinations does not
only entail a mental preparation on the subjects thereof; there are also prerequisites of
documentation and submission of requirements which the prospective examinee must meet.

WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with MODIFICATION.
Petitioner is ORDERED to PAY respondent the sum of Thirty-five Thousand Four Hundred
Seventy Pesos (P35,470.00), with legal interest of 6% per annum computed from the date of
filing of the complaint until fully paid; the amount of Five Thousand Pesos (P5,000.00) as
attorney's fees; and the costs of the suit. The award of moral damages is DELEIED. 1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Kapunan and Pardo, JJ., concur.

Puno, J., took no part.

Footnotes

1
Court of Appeals (CA) Decision promulgated October 10, 1997 penned by Justice
Barcelona, with Justices Mabutas, Jr. and Aquino, concurring, pp. 5-6; Rollo, pp. 12-13.

2
A check with the Attorney's List in the Court shows that private respondent is not a
member of the Philippine Bar. (http.//www.supremecourt.gov.ph).

3
Decision of Regional Trial Court (RTC-Manila Branch IX) dated September 4, 1990
penned by Judge Edilberto Sandoval, pp. 8-9; RTC Records, pp. 192-193; Rollo, pp. 8-9.

4
CA Decision, p. 24; Rollo, p. 31.

5
Tolentino, New Civil Code of the Philippines, Vol. I, (1960 ed.) citing Wood v. Conrad, 2,
S.B. 83, 50 N.W. 95.

6
Mahowald v. Minnesota Gas Co. (Minn) 344 NW2d 856. See also Jackson v. H.H.
Robertson Co., 118 Ariz 29, 574 P2d 82; Cummins v. West Linn, 21 Or. App 643, 536
P2d 455.

7
Hawes and Hawes, "The Concise Dictionary of Education," p. 62, 1982 ed. cited in
Sarmiento, Manual, p. 164.

8
PNB v. CA, 83 SCRA 237 (1978) cited in Sea Commercial Company v. CA, G.R. No.
122823, November 25, 1999.

9
Dean Roscoe Pound, Introduction to the Philosophy of Law.

10
Texas Pacific & Oil Co. v. Robertson, 125 Tex 4, 79 SW2d 830, 98 ALR 262.

11
See Helms v. Universal Atlas Cement Co., (CA5 Tex) 202 F2d 421 cert de 346 US 858,
98 L ed 372, 74 S Ct 74; Otto Kuehne Preserving Co. v. Allen (CA8 Mo) 148 F 166; See
also Alabama G.S.R. Co. v. Hill, 93 Ala 514, 9 So 722; Richmond & P.R. Co. v. Vance, 93
Ala 144, 9 So 574.
 12
CA Decision, pp. 222-23; Rollo, pp. 29-30.

13
Ohio Farmers, Ins. Co. v. Norman, (App) 122 Ariz 330, 594 P2d 1026.

14
Sea Commercial Company v. CA, G.R. No. 122823, November 25, 1999.

15
Tolentino, Civil Code, 1990 ed., Vol, I, p. 61.

THIRD DIVISION

[G.R. No. 122823. November 25, 1999]

SEA COMMERCIAL COMPANY, INC., petitioner, vs. THE

HONORABLE COURT OF APPEALS, JAMANDRE INDUSTRIES,
INC. and TIRSO JAMANDRE, respondents.

DECISION
GONZAGA-REYES, J.:

In this petition for review by certiorari, SEA Commercial Company, Inc. (SEACOM)
assails the decision of the Court of Appeals in CA-G.R. CV NO. 31263 affirming in toto the
decision of the Regional Trial Court of Manila, Branch 5, in Civil Case No. 122391, in favor
of Jamandre Industries, Inc. (JII) et al., the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against

the plaintiff, ordering the plaintiff:

1) To pay defendant the sum of P66,156.15 (minus 18,843.85) with legal interest
thereon, from the date of the filing of the counterclaim until fully paid;

2) To pay defendant P2,000.00 as moral and exemplary damages;

3) To pay attorneys fees in the sum of P10,000.00; and

4) To pay the costs of this suit.

SO ORDERED.

SEACOM is a corporation engaged in the business of selling and distributing agricultural

machinery, products and equipment. On September 20, 1966, SEACOM and JII entered into
a dealership agreement whereby SEACOM appointed JII as its exclusive dealer in the City
and Province of Iloilo[1] Tirso Jamandre executed a suretyship agreement binding himself
jointly and severally with JII to pay for all obligations of JII to SEACOM[2]. The agreement
was subsequently amended to include Capiz in the territorial coverage and to make the
dealership agreement on a non-exclusive basis [3]. In the course of the business relationship
arising from the dealership agreement, JII allegedly incurred a balance of P18,843.85 for
unpaid deliveries, and SEACOM brought action to recover said amount plus interest and
attorneys fees.
JII filed an Answer denying the obligation and interposing a counterclaim for damages
representing unrealized profits when JII sold to the Farm System Development Corporation
(FSDC) twenty one (21) units of Mitsubishi power tillers. In the counterclaim, JII alleged that
as a dealer in Capiz, JII contracted to sell in 1977 twenty-four (24) units of Mitsubishi power
tillers to a group of farmers to be financed by said corporation, which fact JII allegedly made
known to petitioner, but the latter taking advantage of said information and in bad faith, went
directly to FSDC and dealt with it and sold twenty one (21) units of said tractors, thereby
depriving JII of unrealized profit of eighty-five thousand four hundred fifteen and 61/100
pesos (P85,415.61).
The trial court rendered its decision on January 24, 1990 ordering JII to pay SEACOM
the amount of Eighteen Thousand Eight Hundred Forty Three and 85/100 (P18,843.85)
representing its outstanding obligation.The trial court likewise granted JIIs counterclaim for
unrealized profits, and for moral and exemplary damages and attorney fees as above quoted.
SEACOM appealed the decision on the counterclaim.
The Court of Appeals held that while there exists no agency relationship between
SEACOM and JII, SEACOM is liable for damages and unrealized profits to JII.

This Court, however, is convinced that with or without the existence of an agency
relationship between appellant SEACOM and appellee JII and notwithstanding the
error committed by the lower court in finding that an agency relationship existed
between appellant and defendant corporation the former is liable for the unrealized
profits which the latter could have gained had not appellant unjustly stepped in and
in bad faith unethically intervened.

It should be emphasized that the very purpose of the dealership agreement is for
SEACOM to have JII as its dealer to sell its products in the provinces of Capiz and
Iloilo. In view of this agreement, the second assigned error that the lower court
erred in holding that appellant learned of the FSDC transaction from defendant JII
is clearly immaterial and devoid of merit. The fact that the dealership is on a non-
exclusive basis does not entitle appellant SEACOM to join the fray as against its
dealer. To do so, is to violate the norms of conduct enjoined by Art. 19 of the Civil
Code. By virtue of such agreement, the competition in the market as regards the
sale of farm equipment shall be between JII, as the dealer of SEACOM and other
companies, not as against SEACOM itself. However, SEACOM, not satisfied with
the presence of its dealer JII in the market, joined the competition even as the
against the latter and, therefore, changed the scenario of the competition thereby
rendering inutile the dealership agreement which they entered into the manifest
prejudice of JII. Hence, the trial court was correct when it applied Art. 19 of the
Civil Code in the case at bar in that appellant SEACOM acted in bad faith when it
competed with its own dealer as regards the sale of farm machineries, thereby
depriving appellee JII of the opportunity to gain a clear profit of P85,000.00.
and affirmed the judgment appealed from in toto.
Hence this petition for review on certiorari, which submits the following reasons for the
allowance thereof:

THE RESPONDENT COURT OF APPEALS DECIDED QUESTIONS OF

SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND
JURISPRUDENCE, CONSIDERING THAT:
A

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PETITIONER IS LIABLE TO PAY DAMAGES AND UNREALIZED
PROFITS TO THE PRIVATE RESPONDENTS DESPITE THE FACT THAT NO
AGENCY RELATIONSHIP EXISTS BETWEEN THEM.
B

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PETITIONER ACTED IN BAD FAITH AGAINST THE PRIVATE
RESPONDENT CORPORATION DESPITE THE FACT THAT SAID RULING IS
CONTRARY TO THE EVIDENCE ON RECORD.
C

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE NON-EXCLUSIVITY CLAUSE IN THE DEALERSHIP
AGREEMENT EXECUTED BETWEEN THE PETITIONER AND PRIVATE
RESPONDENT CORPORATION PRECLUDES THE PETITIONER FROM
COMPETING WITH THE PRIVATE RESPONDENT CORPORATION.
D

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PRIVATE RESPONDENT IS ENTITLED TO UNREALIZED PROFITS,
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[4]

Petitioner SEACOM disputes the conclusion of the Court of Appeals that despite the fact
that no agency relationship existed between the parties, the SEACOM is still liable in
damages and unrealized profits for the reason that it acted in bad faith. Petitioner SEACOM
invokes the non-exclusivity clause in the dealership agreement and claims that the transaction
with FSDC was concluded pursuant to a public bidding and not on the basis of alleged
information it received from private respondent Tirso Jamandre. Moreover, petitioner
SEACOM claims that it did not underprice its products during the public bidding wherein
both SEACOM and JII participated. Petitioner also disputes the award of moral damages to
JII which is a corporation, in the absence of any evidence that the said corporation had a good
reputation which was debased.
 Private respondents in their comment, contends that the four assigned errors raise mixed
questions of fact and law and are therefore beyond the jurisdiction of the Supreme Court
which may take cognizance of only questions of law. The assigned errors were also refuted to
secure affirmance of the appealed decision. JII maintains that the bidding set by FSDC on
March 24, 1997 was scheduled after the demonstration conducted by JII, and after JII
informed SEACOM about the preference of the farmers to buy Mitsubishi tillers. JII further
rebuts the SEACOMs contention that the transaction with FSDC was pursuant to a public
bidding with full disclosure to the public and private respondent JII considering that JII had
nothing to do with the list of 37 bidders and cannot be bound by the listing made by
SEACOMs employee; moreover, JII did not participate in the bidding not having been
informed about it. Furthermore, the price at which SEACOM sold to FSDC was lower than
the price it gave to JII. Also, even if the dealership agreement was not exclusive, it was
breached when petitioner in bad faith sold directly to FSDC with whom JII had previously
offered the subject farm equipment. With respect to the awards of moral and exemplary
damages, JII seeks an affirmation of the ruling of the Court of Appeals justifying the awards.
SEACOM filed Reply defending the jurisdiction of this Court over the instant petition
since the decision of the Court of Appeals was based on a misapprehension of
facts. SEACOM insists that FSDCs purchase was made pursuant to a public bidding, and
even if SEACOM did not participate thereon, JII would not necessarily have closed the deal
since thirty seven (37) bidders participated. SEACOM contends that no evidence was
presented to prove that the bidding was a fraudulent scheme of SEACOM and
FSDC. SEACOM further controverts JIIs contention that JII did not take part in the bidding
as Tirso Jamandre was one of the bidders and that SEACOM underpriced its products to
entice FSDC to buy directly from it. In fine, JII is not entitled to the award of unrealized
profits and damages.
In its Rejoinder, private respondents insist that there is an agency relationship, citing the
evidence showing that credit memos and not cash vouchers were issued to JII by SEACOM
for every delivery from November 26, 1976 to December 24, 1978. Private respondents
maintain that SEACOM torpedoed the emerging deal between JII and FSDC after being
informed about it by JII by dealing directly with FSDC at a lower price and after betraying
JII, SEACOM would cover up the deceit by conniving with FSDC to post up a sham public
bidding.
SEACOMs sur-rejoinder contains basically a reiteration of its contention in previous
pleadings. Additionally, it is contended that private respondents are barred from questioning
in their Rejoinder, the finding of the Court of Appeals that there is no agency relationship
between the parties since this matter was not raised as error in their comment.
The core issue is whether SEACOM acted in bad faith when it competed with its own
dealer as regards the sale of farm machineries to FSDC.
Both the trial court and the Court of Appeals held affirmatively; the trial court found that
JII was an agent of SEACOM and the act of SEACOM in dealing directly with FSDC was
unfair and unjust to its agent, and that there was fraud in the transaction between FSDC and
SEACOM to the prejudice of JII. On the other hand, the Court of Appeals ruled that there
was no agency relationship between the parties but SEACOM is nevertheless liable in
damages for having acted in bad faith when it competed with its own dealer in the sale of the
farm machineries to FSDC. Both courts invoke as basis for the award Article 19 of the Civil
Code which reads as follows:
"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.

The principle of abuse of rights stated in the above article, departs from the classical
theory that he who uses a right injures no one. The modern tendency is to depart from the
classical and traditional theory, and to grant indemnity for damages in cases where there is an
abuse of rights, even when the act is not illicit.[5]
Article 19 was intended to expand the concept of torts by granting adequate legal remedy
for the untold number of moral wrongs which is impossible for human foresight to provide
specifically in statutory law.[6] If mere fault or negligence in ones acts can make him liable for
damages for injury caused thereby, with more reason should abuse or bad faith make him
liable. The absence of good faith is essential to abuse of right. Good faith is an honest
intention to abstain from taking any unconscientious advantage of another, even through the
forms or technicalities of the law, together with an absence of all information or belief of fact
which would render the transaction unconscientious. In business relations, it means good
faith as understood by men of affairs.[7]
While Article 19 may have been intended as a mere declaration of principle [8], the
cardinal law on human conduct expressed in said article has given rise to certain rules, e.g.
that where a person exercises his rights but does so arbitrarily or unjustly or performs his
duties in a manner that is not in keeping with honesty and good faith, he opens himself to
liability.[9] The elements of an abuse of rights under Article 19 are: (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.[10]
The issue whether JII is entitled to recovery on its counterclaim for unrealized profit in
the twenty one (21) units of Mitsubishi power tillers sold by SEACOM to FSDC was
resolved by the trial court in favor of JII on the basis of documentary evidence [11] showing that
(1) JII has informed SEACOM as early as February 1977 of the promotions undertaken by JII
for the sale of 24 contracted units to FSDC and in connection therewith, requested a 50%
discount to make the price competitive, and to increase the warranty period for eight months
to one year. In said letter Jamandre clarified that they were not amenable to SEACOMs
offering directly to FSDC and to be only given the usual overriding commission as we have
considerable investments on this transaction. (2) In response, the general sales manager of
SEACOM declined to give the requested 50% discount and offered a less 30% less 10% up to
end March xxx on cash before delivery basis, granted the requested extension of the warranty
period and stated that we are glad to note that you have quite a number of units pending with
the FSDC.
The trial court ruled that with said information, SEACOM dealt directly with FSDC and
offered its units at a lower price, leaving FSDC no choice but to accept the said offer of
(SEACOM).
In affirming the judgment of the of the trial court, the Court of Appeals held that by
virtue of the dealership agreement the competition in the market as regards the sale of farm
equipment shall be between JII, as the dealer of SEACOM, and other companies, not as
against SEACOM itself, the Court stated:

However, SEACOM not satisfied with the presence of its dealer JII in the market,
joined the competition even as against the latter, and thereby changed the scenario
of the competition thereby rendering inutile the dealership agreement which they
entered into to the manifest prejudice of JII. Hence the trial court trial court was
correct when it applied Art. 19 of the Civil Code in the case at bar in that appellant
SEACOM acted in bad faith when it competed with its own dealer as regards the
sale of farm machineries, thereby depriving appellee JII of the opportunity to gain
a clear profit of P85,000.00.

We find no cogent reason to overturn the factual finding of the two courts that SEACOM
joined the bidding for the sale of the farm equipment after it was informed that JII was
already promoting the sales of said equipment to the FSDC. Moreover, the conclusion of the
trial court that the SEACOM offered FSDC a lower price than the price offered by JII to
FSDC is supported by the evidence: the price offered by JII to FSDC is P27,167 per
unit[12] but the prices at which SEACOM sold to FSDC were at P22,867.00 for Model CT 83-
2, P21,093.50 for model CT 83-E, and P18,979.25 for model CT 534. The fact that SEACOM
may have offered to JII, in lieu of a requested 50% discount, a discount effectively translating
to 37% of the list price and actually sold to FSDC at 35% less than the list price [13] does not
detract from the fact that by participating in the bidding of FSDC, it actually competed with
its own dealer who had earlier conducted demonstrations and promoted its own products for
the sale of the very same equipment, Exh. N for the plaintiff confirms that both SEACOM
and Jamandre participated in the bidding. [14] However, the SEACOM was awarded the
contract directly from Manila.[15] The testimony of Tirso Jamandre that JII was the sole
representative of SEACOM in the local demonstrations to convince the farmers and
cooperative officers to accept the Mitsubishi brand of equipment in preference to other
brands, was unrebutted by SEACOM.
Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its
agricultural equipment, SEACOM recognized the role and undertaking of JII to promote and
sell said equipment. Under the dealership agreement, JII was to act as a middleman to sell
SEACOMs products, in its area of operations, i.e. Iloilo and Capiz provinces, to the exclusion
of other places,[16] to send its men to Manila for training on repair, servicing and installation of
the items to be handled by it, and to comply with other personnel and vehicle requirements
intended for the benefit of the dealership. [17] After being informed of the demonstrations JII
had conducted to promote the sales of SEACOM equipment, including the operations at JIIs
expense conducted for five months, and the approval of its facilities (service and parts) by
FSDC,[18] SEACOM participated in the bidding for the said equipment at a lower price,
placing itself in direct competition with its own dealer. The actuations of SEACOM are
tainted by bad faith.
Even if the dealership agreement was amended to make it on a non-exclusive basis,
SEACOM may not exercise its right unjustly or in a manner that is not in keeping with
[19]

honesty or good faith; otherwise it opens itself to liability under the abuse of right rule
embodied in Article 19 of the Civil Code above-quoted. This provision, together with the
succeeding article on human relation, was intended to embody certain basic principles that
are to be observed for the rightful relationship between human beings and for the stability of
the social order.[20] What is sought to be written into the law is the pervading principle of
equity and justice above strict legalism.[21]
We accordingly resolve to affirm the award for unrealized profits. The Court of Appeals
noted that the trial court failed to specify to which the two appellees the award for moral and
exemplary damages is granted.However, in view of the fact that moral damages are not as a
general rule granted to a corporation, and that Tirso Jamandre was the one who testified on
his feeling very aggrieved and on his mental anguish and sleepless nights thinking of how
SEACOM dealt with us behind (our) backs,[22] the award should go to defendant Jamandre,
President of JII.
WHEREFORE, the judgment appealed from is AFFIRMED with the modification that
the award of P2,000.00 in moral and exemplary damages shall be paid to defendant Tirso
Jamandre.
Costs against appellant.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

[1]
Exh. A.
[2]
Exh. B.
[3]
Exh. D.
[4]
Rollo, pp. 22-23.
[5]
I, Tolentino, Civil Code of the Philippines, p. 60 et seq.
[6]
PNB vs. CA, 83 SCRA 237.
[7]
Tolentino, supra, at pp. 61-62.
[8]
Velayo vs. Shell Co., 100 Phil. 186.
[9]
Vitug, Compendium on Civil Law and Jurisprudence, Rev. ed., at p. 17 citing Sanchez vs. Rigos, 45 SCRA
368; Philippine National Bank vs. Court of Appeals, 83 SCRA 237; Llorente vs. Sandiganbayan, 202 SCRA
309.
[10]
II Sangco, Torts and Damages at pp. 753 et seq.
[11]
Exh. 6 & 7.
[12]
Exh. 8; Tsn., July 30, 1981, pp. 65-66.
[13]
Tsn., July 27, 1982, pp. 19-21.
[14]
Tsn., November 25, 1982, pp. 15-17.
[15]
Tsn, April 5, 1983, pp. 16-21.
[16]
Exh. D.
[17]
Exhibit A.
[18]
Exhibit 6.
[19]
Exhibit D.
[20]
Report, Code Commission, p. 39.
[21]
Sangco, Torts and Damages, at p. 301.
[22]
Tsn., July 30, 1981, p. 70.

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. L-18630 December 17, 1966

APOLONIO TANJANCO, petitioner,

vs.
HON. COURT OF APPEALS and ARACELI SANTOS, respondents.

P. Carreon and G. O. Veneracion, Jr. for petitioner.

Antonio V. Bonoan for respondents.

REYES, J.B.L., J.:

Appeal from a decision of the Court of Appeals (in its Case No. 27210-R) revoking an order of
the Court of First Instance of Rizal (in Civil Case No. Q-4797) dismissing appellant's action for
support and damages.

The essential allegations of the complaint are to the effect that, from December, 1957, the
defendant (appellee herein), Apolonio Tanjanco, courted the plaintiff, Araceli Santos, both being
of adult age; that "defendant expressed and professed his undying love and affection for plaintiff
who also in due time reciprocated the tender feelings"; that in consideration of defendant's
promise of marriage plaintiff consented and acceded to defendant's pleas for carnal knowledge;
that regularly until December 1959, through his protestations of love and promises of marriage,
defendant succeeded in having carnal access to plaintiff, as a result of which the latter conceived
a child; that due to her pregnant condition, to avoid embarrassment and social humiliation,
plaintiff had to resign her job as secretary in IBM Philippines, Inc., where she was receiving
P230.00 a month; that thereby plaintiff became unable to support herself and her baby; that due
to defendant's refusal to marry plaintiff, as promised, the latter suffered mental anguish,
besmirched reputation, wounded feelings, moral shock, and social humiliation. The prayer was
for a decree compelling the defendant to recognize the unborn child that plaintiff was bearing; to
pay her not less than P430.00 a month for her support and that of her baby, plus P100,000.00 in
moral and exemplary damages, plus P10,000.00 attorney's fees.

Upon defendant's motion to dismiss, the court of first instance dismissed the complaint for failure
to state a cause of action.

Plaintiff Santos duly appealed to the Court of Appeals, and the latter ultimately decided the case,
holding with the lower court that no cause of action was shown to compel recognition of a child
as yet unborn, nor for its support, but decreed that the complaint did state a cause of action for
damages, premised on Article 21 of the Civil Code of the Philippines, prescribing as follows:

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

The Court of Appeals, therefore, entered judgment setting aside the dismissal and directing the
court of origin to proceed with the case.

Defendant, in turn, appealed to this Court, pleading that actions for breach of a promise to marry
are not permissible in this jurisdiction, and invoking the rulings of this Court in Estopa vs.
Piansay, L-14733, September 30, 1960; Hermosisima vs. Court of Appeals, L-14628, January
29, 1962; and De Jesus vs. SyQuia, 58 Phil. 886.

We find this appeal meritorious.

In holding that the complaint stated a cause of action for damages, under Article 21 above
mentioned, the Court of Appeals relied upon and quoted from the memorandum submitted by the
Code Commission to the Legislature in 1949 to support the original draft of the Civil Code.
Referring to Article 23 of the draft (now Article 21 of the Code), the Commission stated:

But the Code Commission has gone farther than the sphere of wrongs defined or
determined by positive law. Fully sensible that there are countless gaps in the statutes,
which leave so many victims of moral wrongs helpless, even though they have actually
suffered material and moral injury, the Commission has deemed it necessary, in the
interest of justice, to incorporate in the proposed Civil Code the following rule:

"ART. 23. Any person who wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage."

An example will illustrate the purview of the foregoing norm: "A" seduces the nineteen-
year old daughter of "X". A promise of marriage either has not been made, or can not be
proved. The girl becomes pregnant. Under the present laws, there is no crime, as the girl
is above eighteen years of age. Neither can any civil action for breach of promise of
marriage be filed. Therefore, though the grievous moral wrong has been committed, and
though the girl and her family have suffered incalculable moral damage, she and her
parents cannot bring any action for damages. But under the proposed article, she and
her parents would have such a right of action.

The Court of Appeals seems to have overlooked that the example set forth in the Code
Commission's memorandum refers to a tort upon a minor who has been seduced. The essential
feature is seduction, that in law is more than mere sexual intercourse, or a breach of a promise of
marriage; it connotes essentially the idea of deceit, enticement, superior power or abuse of
confidence on the part of the seducer to which the woman has yielded (U.S. vs. Buenaventura,
27 Phil. 121; U.S. vs. Arlante, 9 Phil. 595).

It has been ruled in the Buenaventura case (supra) that —

To constitute seduction there must in all cases be some sufficient promise or

inducement and the woman must yield because of the promise or other inducement. If
she consents merely from carnal lust and the intercourse is from mutual desire, there is
no seduction (43 Cent. Dig. tit. Seduction, par. 56). She must be induced to depart from
the path of virtue by the use of some species of arts, persuasions and wiles, which are
calculated to have and do have that effect, and which result in her ultimately submitting
her person to the sexual embraces of her seducer (27 Phil. 123).

And in American Jurisprudence we find:

On the other hand, in an action by the woman, the enticement, persuasion or deception
is the essence of the injury; and a mere proof of intercourse is insufficient to warrant a
recover.

Accordingly it is not seduction where the willingness arises out of sexual desire or
curiosity of the female, and the defendant merely affords her the needed opportunity for
the commission of the act. It has been emphasized that to allow a recovery in all such
cases would tend to the demoralization of the female sex, and would be a reward for
unchastity by which a class of adventuresses would be swift to profit." (47 Am. Jur. 662)

Bearing these principles in mind, let us examine the complaint. The material allegations there are
as follows:
 I. That the plaintiff is of legal age, single, and residing at 56 South E. Diliman, Quezon
City, while defendant is also of legal age, single and residing at 525 Padre Faura, Manila,
where he may be served with summons;

II. That the plaintiff and the defendant became acquainted with each other sometime in
December, 1957 and soon thereafter, the defendant started visiting and courting the
plaintiff;

III. That the defendant's visits were regular and frequent and in due time the defendant
expressed and professed his undying love and affection for the plaintiff who also in due
time reciprocated the tender feelings;

IV. That in the course of their engagement, the plaintiff and the defendant as are wont of
young people in love had frequent outings and dates, became very close and intimate to
each other and sometime in July, 1958, in consideration of the defendant's promises of
marriage, the plaintiff consented and acceded to the former's earnest and repeated pleas
to have carnal knowledge with him;

V. That subsequent thereto and regularly until about July, 1959 except for a short period
in December, 1958 when the defendant was out of the country, the defendant through his
protestations of love and promises of marriage succeeded in having carnal knowledge
with the plaintiff;

VI. That as a result of their intimate relationship, the plaintiff started conceiving which was
confirmed by a doctor sometime in July, 1959;

VII. That upon being certain of her pregnant condition, the plaintiff informed the
defendant and pleaded with him to make good his promises of marriage, but instead of
honoring his promises and righting his wrong, the defendant stopped and refrained from
seeing the plaintiff since about July, 1959 has not visited the plaintiff and to all intents and
purposes has broken their engagement and his promises.

Over and above the partisan allegations, the facts stand out that for one whole year, from 1958 to
1959, the plaintiff-appellee, a woman of adult age, maintained intimate sexual relations with
appellant, with repeated acts of intercourse. Such conduct is incompatible with the idea of
seduction. Plainly there is here voluntariness and mutual passion; for had the appellant been
deceived, had she surrendered exclusively because of the deceit, artful persuasions and wiles of
the defendant, she would not have again yielded to his embraces, much less for one year,
without exacting early fulfillment of the alleged promises of marriage, and would have cut chart
all sexual relations upon finding that defendant did not intend to fulfill his promises. Hence, we
conclude that no case is made under Article 21 of the Civil Code, and no other cause of action
being alleged, no error was committed by the Court of First Instance in dismissing the complaint.

Of course, the dismissal must be understood as without prejudice to whatever actions may
correspond to the child of the plaintiff against the defendant-appellant, if any. On that point, this
Court makes no pronouncement, since the child's own rights are not here involved.

FOR THE FOREGOING REASONS, the decision of the Court of Appeals is reversed, and that of
the Court of First Instance is affirmed. No costs.

Concepcion, C.J., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and
Castro, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 97336 February 19, 1993

GASHEM SHOOKAT BAKSH, petitioner,

vs.
HON. COURT OF APPEALS and MARILOU T. GONZALES, respondents.

Public Attorney's Office for petitioner.

Corleto R. Castro for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari under Rule 45 of the Rules of Court seeking to review and set
aside the Decision of the respondent Court of Appeals in CA-G.R. CV No. 24256 which
1

affirmed in toto the 16 October 1939 Decision of Branch 38 (Lingayen) of the Regional Trial Court
(RTC) of Pangasinan in Civil Case No. 16503. Presented is the issue of whether or not damages
may be recovered for a breach of promise to marry on the basis of Article 21 of the Civil Code of
the Philippines.

The antecedents of this case are not complicated:

On 27 October 1987, private respondent, without the assistance of counsel, filed with the
aforesaid trial court a complaint for damages against the petitioner for the alleged violation of
2

their agreement to get married. She alleges in said complaint that: she is twenty-two (22) years
old, single, Filipino and a pretty lass of good moral character and reputation duly respected in her
community; petitioner, on the other hand, is an Iranian citizen residing at the Lozano Apartments,
Guilig, Dagupan City, and is an exchange student taking a medical course at the Lyceum
Northwestern Colleges in Dagupan City; before 20 August 1987, the latter courted and proposed
to marry her; she accepted his love on the condition that they would get married; they therefore
agreed to get married after the end of the school semester, which was in October of that year;
petitioner then visited the private respondent's parents in Bañaga, Bugallon, Pangasinan to
secure their approval to the marriage; sometime in 20 August 1987, the petitioner forced her to
live with him in the Lozano Apartments; she was a virgin before she began living with him; a
week before the filing of the complaint, petitioner's attitude towards her started to change; he
maltreated and threatened to kill her; as a result of such maltreatment, she sustained injuries;
during a confrontation with a representative of the barangay captain of Guilig a day before the
filing of the complaint, petitioner repudiated their marriage agreement and asked her not to live
with him anymore and; the petitioner is already married to someone living in Bacolod City. Private
respondent then prayed for judgment ordering the petitioner to pay her damages in the amount
of not less than P45,000.00, reimbursement for actual expenses amounting to P600.00,
attorney's fees and costs, and granting her such other relief and remedies as may be just and
equitable. The complaint was docketed as Civil Case No. 16503.

In his Answer with Counterclaim, petitioner admitted only the personal circumstances of the
3

parties as averred in the complaint and denied the rest of the allegations either for lack of
knowledge or information sufficient to form a belief as to the truth thereof or because the true
facts are those alleged as his Special and Affirmative Defenses. He thus claimed that he never
proposed marriage to or agreed to be married with the private respondent; he neither sought the
consent and approval of her parents nor forced her to live in his apartment; he did not maltreat
her, but only told her to stop coming to his place because he discovered that she had deceived
him by stealing his money and passport; and finally, no confrontation took place with a
representative of the barangay captain. Insisting, in his Counterclaim, that the complaint is
baseless and unfounded and that as a result thereof, he was unnecessarily dragged into court
and compelled to incur expenses, and has suffered mental anxiety and a besmirched reputation,
he prayed for an award of P5,000.00 for miscellaneous expenses and P25,000.00 as moral
damages.

After conducting a pre-trial on 25 January 1988, the trial court issued a Pre-Trial
Order embodying the stipulated facts which the parties had agreed upon, to wit:
4

1. That the plaintiff is single and resident (sic) of Bañaga, Bugallon, Pangasinan,
while the defendant is single, Iranian citizen and resident (sic) of Lozano
Apartment, Guilig, Dagupan City since September 1, 1987 up to the present;

2. That the defendant is presently studying at Lyceum Northwestern, Dagupan

City, College of Medicine, second year medicine proper;

3. That the plaintiff is (sic) an employee at Mabuhay Luncheonette , Fernandez

Avenue, Dagupan City since July, 1986 up to the present and a (sic) high school
graduate;

4. That the parties happened to know each other when the manager of the
Mabuhay Luncheonette, Johhny Rabino introduced the defendant to the plaintiff
on August 3, 1986.

After trial on the merits, the lower court, applying Article 21 of the Civil Code, rendered on 16
October 1989 a decision favoring the private respondent. The petitioner was thus ordered to pay
5

the latter damages and attorney's fees; the dispositive portion of the decision reads:

IN THE LIGHT of the foregoing consideration, judgment is hereby rendered in

favor of the plaintiff and against the defendant.

1. Condemning (sic) the defendant to pay the plaintiff the sum of twenty thousand
(P20,000.00) pesos as moral damages.

2. Condemning further the defendant to play the plaintiff the sum of three
thousand (P3,000.00) pesos as atty's fees and two thousand (P2,000.00) pesos
at (sic) litigation expenses and to pay the costs.

3. All other claims are denied. 6

The decision is anchored on the trial court's findings and conclusions that (a) petitioner and
private respondent were lovers, (b) private respondent is not a woman of loose morals or
questionable virtue who readily submits to sexual advances, (c) petitioner, through machinations,
deceit and false pretenses, promised to marry private respondent, d) because of his persuasive
promise to marry her, she allowed herself to be deflowered by him, (e) by reason of that deceitful
promise, private respondent and her parents — in accordance with Filipino customs and
traditions — made some preparations for the wedding that was to be held at the end of October
1987 by looking for pigs and chickens, inviting friends and relatives and contracting sponsors, (f)
petitioner did not fulfill his promise to marry her and (g) such acts of the petitioner, who is a
foreigner and who has abused Philippine hospitality, have offended our sense of morality, good
customs, culture and traditions. The trial court gave full credit to the private respondent's
testimony because, inter alia, she would not have had the temerity and courage to come to court
and expose her honor and reputation to public scrutiny and ridicule if her claim was false. 7

The above findings and conclusions were culled from the detailed summary of the evidence for
the private respondent in the foregoing decision, digested by the respondent Court as follows:

According to plaintiff, who claimed that she was a virgin at the time and that she
never had a boyfriend before, defendant started courting her just a few days after
they first met. He later proposed marriage to her several times and she accepted
his love as well as his proposal of marriage on August 20, 1987, on which same
day he went with her to her hometown of Bañaga, Bugallon, Pangasinan, as he
wanted to meet her parents and inform them of their relationship and their
intention to get married. The photographs Exhs. "A" to "E" (and their
submarkings) of defendant with members of plaintiff's family or with plaintiff, were
taken that day. Also on that occasion, defendant told plaintiffs parents and
brothers and sisters that he intended to marry her during the semestral break in
October, 1987, and because plaintiff's parents thought he was good and trusted
him, they agreed to his proposal for him to marry their daughter, and they likewise
allowed him to stay in their house and sleep with plaintiff during the few days that
they were in Bugallon. When plaintiff and defendant later returned to Dagupan
City, they continued to live together in defendant's apartment. However, in the
early days of October, 1987, defendant would tie plaintiff's hands and feet while
he went to school, and he even gave her medicine at 4 o'clock in the morning that
made her sleep the whole day and night until the following day. As a result of this
live-in relationship, plaintiff became pregnant, but defendant gave her some
medicine to abort the fetus. Still plaintiff continued to live with defendant and kept
reminding him of his promise to marry her until he told her that he could not do so
because he was already married to a girl in Bacolod City. That was the time
plaintiff left defendant, went home to her parents, and thereafter consulted a
lawyer who accompanied her to the barangay captain in Dagupan City. Plaintiff,
her lawyer, her godmother, and a barangay tanod sent by the barangay captain
went to talk to defendant to still convince him to marry plaintiff, but defendant
insisted that he could not do so because he was already married to a girl in
Bacolod City, although the truth, as stipulated by the parties at the pre-trial, is that
defendant is still single.

Plaintiff's father, a tricycle driver, also claimed that after defendant had informed
them of his desire to marry Marilou, he already looked for sponsors for the
wedding, started preparing for the reception by looking for pigs and chickens, and
even already invited many relatives and friends to the forthcoming wedding. 8

Petitioner appealed the trial court's decision to the respondent Court of Appeals which docketed
the case as CA-G.R. CV No. 24256. In his Brief, he contended that the trial court erred (a) in not
9

dismissing the case for lack of factual and legal basis and (b) in ordering him to pay moral
damages, attorney's fees, litigation expenses and costs.

On 18 February 1991, respondent Court promulgated the challenged decision affirming in

10

toto the trial court's ruling of 16 October 1989. In sustaining the trial court's findings of fact,
respondent Court made the following analysis:

First of all, plaintiff, then only 21 years old when she met defendant who was
already 29 years old at the time, does not appear to be a girl of loose morals. It is
uncontradicted that she was a virgin prior to her unfortunate experience with
defendant and never had boyfriend. She is, as described by the lower court, a
barrio lass "not used and accustomed to trend of modern urban life", and
 certainly would (sic) not have allowed
"herself to be deflowered by the defendant if there was no persuasive promise
made by the defendant to marry her." In fact, we agree with the lower court that
plaintiff and defendant must have been sweethearts or so the plaintiff must have
thought because of the deception of defendant, for otherwise, she would not have
allowed herself to be photographed with defendant in public in so (sic) loving and
tender poses as those depicted in the pictures Exhs. "D" and "E". We cannot
believe, therefore, defendant's pretense that plaintiff was a nobody to him except
a waitress at the restaurant where he usually ate. Defendant in fact admitted that
he went to plaintiff's hometown of Bañaga, Bugallon, Pangasinan, at least thrice;
at (sic) the town fiesta on February 27, 1987 (p. 54, tsn May 18, 1988), at (sic) a
beach party together with the manager and employees of the Mabuhay
Luncheonette on March 3, 1987 (p. 50, tsn id.), and on April 1, 1987 when he
allegedly talked to plaintiff's mother who told him to marry her daughter (pp. 55-
56, tsn id.). Would defendant have left Dagupan City where he was involved in
the serious study of medicine to go to plaintiff's hometown in Bañaga, Bugallon,
unless there was (sic) some kind of special relationship between them? And this
special relationship must indeed have led to defendant's insincere proposal of
marriage to plaintiff, communicated not only to her but also to her parents, and
(sic) Marites Rabino, the owner of the restaurant where plaintiff was working and
where defendant first proposed marriage to her, also knew of this love affair and
defendant's proposal of marriage to plaintiff, which she declared was the reason
why plaintiff resigned from her job at the restaurant after she had accepted
defendant's proposal (pp. 6-7, tsn March 7, 1988).

Upon the other hand, appellant does not appear to be a man of good moral
character and must think so low and have so little respect and regard for Filipino
women that he openly admitted that when he studied in Bacolod City for several
years where he finished his B.S. Biology before he came to Dagupan City to
study medicine, he had a common-law wife in Bacolod City. In other words, he
also lived with another woman in Bacolod City but did not marry that woman, just
like what he did to plaintiff. It is not surprising, then, that he felt so little
compunction or remorse in pretending to love and promising to marry plaintiff, a
young, innocent, trustful country girl, in order to satisfy his lust on her.
11

and then concluded:

In sum, we are strongly convinced and so hold that it was defendant-appellant's

fraudulent and deceptive protestations of love for and promise to marry plaintiff
that made her surrender her virtue and womanhood to him and to live with him on
the honest and sincere belief that he would keep said promise, and it was
likewise these (sic) fraud and deception on appellant's part that made plaintiff's
parents agree to their daughter's living-in with him preparatory to their supposed
marriage. And as these acts of appellant are palpably and undoubtedly against
morals, good customs, and public policy, and are even gravely and deeply
derogatory and insulting to our women, coming as they do from a foreigner who
has been enjoying the hospitality of our people and taking advantage of the
opportunity to study in one of our institutions of learning, defendant-appellant
should indeed be made, under Art. 21 of the Civil Code of the Philippines, to
compensate for the moral damages and injury that he had caused plaintiff, as the
lower court ordered him to do in its decision in this case. 12

Unfazed by his second defeat, petitioner filed the instant petition on 26 March 1991; he raises
therein the single issue of whether or not Article 21 of the Civil Code applies to the case at bar. 13
It is petitioner's thesis that said Article 21 is not applicable because he had not committed any
moral wrong or injury or violated any good custom or public policy; he has not professed love or
proposed marriage to the private respondent; and he has never maltreated her. He criticizes the
trial court for liberally invoking Filipino customs, traditions and culture, and ignoring the fact that
since he is a foreigner, he is not conversant with such Filipino customs, traditions and culture. As
an Iranian Moslem, he is not familiar with Catholic and Christian ways. He stresses that even if
he had made a promise to marry, the subsequent failure to fulfill the same is excusable or
tolerable because of his Moslem upbringing; he then alludes to the Muslim Code which
purportedly allows a Muslim to take four (4) wives and concludes that on the basis thereof, the
trial court erred in ruling that he does not posses good moral character. Moreover, his
controversial "common law life" is now his legal wife as their marriage had been solemnized in
civil ceremonies in the Iranian Embassy. As to his unlawful cohabitation with the private
respondent, petitioner claims that even if responsibility could be pinned on him for the live-in
relationship, the private respondent should also be faulted for consenting to an illicit
arrangement. Finally, petitioner asseverates that even if it was to be assumed arguendo that he
had professed his love to the private respondent and had also promised to marry her, such acts
would not be actionable in view of the special circumstances of the case. The mere breach of
promise is not actionable. 14

On 26 August 1991, after the private respondent had filed her Comment to the petition and the
petitioner had filed his Reply thereto, this Court gave due course to the petition and required the
parties to submit their respective Memoranda, which they subsequently complied with.

As may be gleaned from the foregoing summation of the petitioner's arguments in support of his
thesis, it is clear that questions of fact, which boil down to the issue of the credibility of witnesses,
are also raised. It is the rule in this jurisdiction that appellate courts will not disturb the trial court's
findings as to the credibility of witnesses, the latter court having heard the witnesses and having
had the opportunity to observe closely their deportment and manner of testifying, unless the trial
court had plainly overlooked facts of substance or value which, if considered, might affect the
result of the case. 15

Petitioner has miserably failed to convince Us that both the appellate and trial courts had
overlooked any fact of substance or values which could alter the result of the case.

Equally settled is the rule that only questions of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. It is not the function of this Court to analyze or
weigh all over again the evidence introduced by the parties before the lower court. There are,
however, recognized exceptions to this rule. Thus, in Medina vs. Asistio, Jr., this Court took the
16

time, again, to enumerate these exceptions:

xxx xxx xxx

(1) When the conclusion is a finding grounded entirely on speculation, surmises

or conjectures (Joaquin v. Navarro, 93 Phil. 257 [1953]); (2) When the inference
made is manifestly mistaken, absurb or impossible (Luna v. Linatok, 74 Phil. 15
[1942]); (3) Where there is a grave abuse of discretion (Buyco v. People, 95 Phil.
453 [1955]); (4) When the judgment is based on a misapprehension of facts
(Cruz v. Sosing,
L-4875, Nov. 27, 1953); (5) When the findings of fact are conflicting (Casica v.
Villaseca, L-9590 Ap. 30, 1957; unrep.) (6) When the Court of Appeals, in making
its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellate and appellee (Evangelista v. Alto Surety and
Insurance Co., 103 Phil. 401 [1958]);
(7) The findings of the Court of Appeals are contrary to those of the trial court
(Garcia v. Court of Appeals, 33 SCRA 622 [1970]; Sacay v. Sandiganbayan, 142
SCRA 593 [1986]); (8) When the findings of fact are conclusions without citation
 of specific evidence on which they are based (Ibid.,); (9) When the facts set forth
in the petition as well as in the petitioners main and reply briefs are not disputed
by the respondents (Ibid.,); and (10) The finding of fact of the Court of Appeals is
premised on the supposed absence of evidence and is contradicted by the
evidence on record (Salazar v. Gutierrez, 33 SCRA 242 [1970]).

Petitioner has not endeavored to joint out to Us the existence of any of the above quoted
exceptions in this case. Consequently, the factual findings of the trial and appellate courts must
be respected.

And now to the legal issue.

The existing rule is that a breach of promise to marry per se is not an actionable
wrong. Congress deliberately eliminated from the draft of the New Civil Code the provisions
17

that would have made it so. The reason therefor is set forth in the report of the Senate
Committees on the Proposed Civil Code, from which We quote:

The elimination of this chapter is proposed. That breach of promise to marry is

not actionable has been definitely decided in the case of De Jesus vs.
Syquia. The history of breach of promise suits in the United States and in
18

England has shown that no other action lends itself more readily to abuse by
designing women and unscrupulous men. It is this experience which has led to
the abolition of rights of action in the so-called Heart Balm suits in many of the
American states. . . .19

This notwithstanding, the said Code contains a provision, Article 21, which is designed to expand
the concept of torts or quasi-delict in this jurisdiction by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human foresight to specifically enumerate
and punish in the statute books. 20

As the Code Commission itself stated in its Report:

But the Code Commission had gone farther than the sphere of wrongs defined or
determined by positive law. Fully sensible that there are countless gaps in the
statutes, which leave so many victims of moral wrongs helpless, even though
they have actually suffered material and moral injury, the Commission has
deemed it necessary, in the interest of justice, to incorporate in the proposed Civil
Code the following rule:

Art. 23. Any person who wilfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.

An example will illustrate the purview of the foregoing norm: "A" seduces the
nineteen-year old daughter of "X". A promise of marriage either has not been
made, or can not be proved. The girl becomes pregnant. Under the present laws,
there is no crime, as the girl is above nineteen years of age. Neither can any civil
action for breach of promise of marriage be filed. Therefore, though the grievous
moral wrong has been committed, and though the girl and family have suffered
incalculable moral damage, she and her parents cannot bring action for
damages. But under the proposed article, she and her parents would have such a
right of action.

Thus at one stroke, the legislator, if the forgoing rule is approved, would
vouchsafe adequate legal remedy for that untold number of moral wrongs which it
is impossible for human foresight to provide for specifically in the statutes.
21
Article 2176 of the Civil Code, which defines a quasi-delict thus:

Whoever by act or omission causes damage to another, there being fault or

negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this Chapter.

is limited to negligent acts or omissions and excludes the notion of willfulness or

intent. Quasi-delict, known in Spanish legal treatises as culpa aquiliana, is a civil law
concept while torts is an Anglo-American or common law concept. Torts is much broader
than culpa aquiliana because it includes not only negligence, but international criminal
acts as well such as assault and battery, false imprisonment and deceit. In the general
scheme of the Philippine legal system envisioned by the Commission responsible for
drafting the New Civil Code, intentional and malicious acts, with certain exceptions, are to
be governed by the Revised Penal Code while negligent acts or omissions are to be
covered by Article 2176 of the Civil Code. In between these opposite spectrums are
22

injurious acts which, in the absence of Article 21, would have been beyond redress.
Thus, Article 21 fills that vacuum. It is even postulated that together with Articles 19 and
20 of the Civil Code, Article 21 has greatly broadened the scope of the law on civil
wrongs; it has become much more supple and adaptable than the Anglo-American law on
torts.23

In the light of the above laudable purpose of Article 21, We are of the opinion, and so hold, that
where a man's promise to marry is in fact the proximate cause of the acceptance of his love by a
woman and his representation to fulfill that promise thereafter becomes the proximate cause of
the giving of herself unto him in a sexual congress, proof that he had, in reality, no intention of
marrying her and that the promise was only a subtle scheme or deceptive device to entice or
inveigle her to accept him and to obtain her consent to the sexual act, could justify the award of
damages pursuant to Article 21 not because of such promise to marry but because of the fraud
and deceit behind it and the willful injury to her honor and reputation which followed thereafter. It
is essential, however, that such injury should have been committed in a manner contrary to
morals, good customs or public policy.

In the instant case, respondent Court found that it was the petitioner's "fraudulent and deceptive
protestations of love for and promise to marry plaintiff that made her surrender her virtue and
womanhood to him and to live with him on the honest and sincere belief that he would keep said
promise, and it was likewise these fraud and deception on appellant's part that made plaintiff's
parents agree to their daughter's living-in with him preparatory to their supposed marriage." In 24

short, the private respondent surrendered her virginity, the cherished possession of every single
Filipina, not because of lust but because of moral seduction — the kind illustrated by the Code
Commission in its example earlier adverted to. The petitioner could not be held liable for criminal
seduction punished under either Article 337 or Article 338 of the Revised Penal Code because
the private respondent was above eighteen (18) years of age at the time of the seduction.

Prior decisions of this Court clearly suggest that Article 21 may be applied in a breach of promise
to marry where the woman is a victim of moral seduction. Thus, in Hermosisima vs. Court of
Appeals, this Court denied recovery of damages to the woman because:
25

. . . we find ourselves unable to say that petitioner is morally guilty of seduction,

not only because he is approximately ten (10) years younger than the
complainant — who was around thirty-six (36) years of age, and as highly
enlightened as a former high school teacher and a life insurance agent are
supposed to be — when she became intimate with petitioner, then a mere
apprentice pilot, but, also, because the court of first instance found that,
complainant "surrendered herself" to petitioner because, "overwhelmed by her
 love" for him, she "wanted to bind" him by having a fruit of their engagement
even before they had the benefit of clergy.

In Tanjanco vs. Court of Appeals, while this Court likewise hinted at possible recovery if there
26

had been moral seduction, recovery was eventually denied because We were not convinced that
such seduction existed. The following enlightening disquisition and conclusion were made in the
said case:

The Court of Appeals seem to have overlooked that the example set forth in the
Code Commission's memorandum refers to a tort upon a minor who had
been seduced. The essential feature is seduction, that in law is more than mere
sexual intercourse, or a breach of a promise of marriage; it connotes essentially
the idea of deceit, enticement, superior power or abuse of confidence on the part
of the seducer to which the woman has yielded (U.S. vs. Buenaventura, 27 Phil.
121; U.S. vs. Arlante, 9 Phil. 595).

It has been ruled in the Buenaventura case (supra) that —

To constitute seduction there must in all cases be some sufficient

promise or inducement and the woman must yield because of the
promise or other inducement. If she consents merely from carnal
lust and the intercourse is from mutual desire, there is no
seduction (43 Cent. Dig. tit. Seduction, par. 56) She must be
induced to depart from the path of virtue by the use of some
species of arts, persuasions and wiles, which are calculated to
have and do have that effect, and which result in her person to
ultimately submitting her person to the sexual embraces of her
seducer (27 Phil. 123).

And in American Jurisprudence we find:

On the other hand, in an action by the woman, the enticement,

persuasion or deception is the essence of the injury; and a mere
proof of intercourse is insufficient to warrant a recovery.

Accordingly it is not seduction where the willingness arises out of

sexual desire of curiosity of the female, and the defendant merely
affords her the needed opportunity for the commission of the act.
It has been emphasized that to allow a recovery in all such cases
would tend to the demoralization of the female sex, and would be
a reward for unchastity by which a class of adventuresses would
be swift to profit. (47 Am. Jur. 662)

xxx xxx xxx

Over and above the partisan allegations, the fact stand out that for one whole
year, from 1958 to 1959, the plaintiff-appellee, a woman of adult age, maintain
intimate sexual relations with appellant, with repeated acts of intercourse. Such
conduct is incompatible with the idea of seduction. Plainly there is here
voluntariness and mutual passion; for had the appellant been deceived, had she
surrendered exclusively because of the deceit, artful persuasions and wiles of the
defendant, she would not have again yielded to his embraces, much less for one
year, without exacting early fulfillment of the alleged promises of marriage, and
would have cut short all sexual relations upon finding that defendant did not
intend to fulfill his defendant did not intend to fulfill his promise. Hence, we
conclude that no case is made under article 21 of the Civil Code, and no other
 cause of action being alleged, no error was committed by the Court of First
Instance in dismissing the complaint. 27

In his annotations on the Civil Code, Associate Justice Edgardo L. Paras, who recently retired
28

from this Court, opined that in a breach of promise to marry where there had been carnal
knowledge, moral damages may be recovered:

. . . if there be criminal or moral seduction, but not if the intercourse was due to
mutual lust. (Hermosisima vs. Court of Appeals,
L-14628, Sept. 30, 1960; Estopa vs. Piansay, Jr., L-14733, Sept. 30, 1960;
Batarra vs. Marcos, 7 Phil. 56 (sic); Beatriz Galang vs. Court of Appeals, et al., L-
17248, Jan. 29, 1962). (In other words, if the CAUSE be the promise to marry,
and the EFFECT be the carnal knowledge, there is a chance that there
was criminal or moral seduction, hence recovery of moral damages will prosper. If
it be the other way around, there can be no recovery of moral damages, because
here mutual lust has intervened). . . .

together with "ACTUAL damages, should there be any, such as the expenses for the
wedding presentations (See Domalagon v. Bolifer, 33 Phil. 471).

Senator Arturo M. Tolentino is also of the same persuasion:

29

It is submitted that the rule in Batarra vs. Marcos, still subsists, notwithstanding
30

the incorporation of the present article in the Code. The example given by the
31

Code Commission is correct, if there was seduction, not necessarily in the legal
sense, but in the vulgar sense of deception. But when the sexual act is
accomplished without any deceit or qualifying circumstance of abuse of authority
or influence, but the woman, already of age, has knowingly given herself to a
man, it cannot be said that there is an injury which can be the basis for indemnity.

But so long as there is fraud, which is characterized by willfulness (sic), the action
lies. The court, however, must weigh the degree of fraud, if it is sufficient to
deceive the woman under the circumstances, because an act which would
deceive a girl sixteen years of age may not constitute deceit as to an experienced
woman thirty years of age. But so long as there is a wrongful act and a resulting
injury, there should be civil liability, even if the act is not punishable under the
criminal law and there should have been an acquittal or dismissal of the criminal
case for that reason.

We are unable to agree with the petitioner's alternative proposition to the effect that granting, for
argument's sake, that he did promise to marry the private respondent, the latter is nevertheless
also at fault. According to him, both parties are in pari delicto; hence, pursuant to Article 1412(1)
of the Civil Code and the doctrine laid down in Batarra vs. Marcos, the private respondent
32

cannot recover damages from the petitioner. The latter even goes as far as stating that if the
private respondent had "sustained any injury or damage in their relationship, it is primarily
because of her own doing, for:
33

. . . She is also interested in the petitioner as the latter will become a doctor
sooner or later. Take notice that she is a plain high school graduate and a mere
employee . . . (Annex "C") or a waitress (TSN, p. 51, January 25, 1988) in a
luncheonette and without doubt, is in need of a man who can give her economic
security. Her family is in dire need of financial assistance. (TSN, pp. 51-53, May
18, 1988). And this predicament prompted her to accept a proposition that may
have been offered by the petitioner. 34
These statements reveal the true character and motive of the petitioner. It is clear that he harbors
a condescending, if not sarcastic, regard for the private respondent on account of the latter's
ignoble birth, inferior educational background, poverty and, as perceived by him, dishonorable
employment. Obviously then, from the very beginning, he was not at all moved by good faith and
an honest motive. Marrying with a woman so circumstances could not have even remotely
occurred to him. Thus, his profession of love and promise to marry were empty words directly
intended to fool, dupe, entice, beguile and deceive the poor woman into believing that indeed, he
loved her and would want her to be his life's partner. His was nothing but pure lust which he
wanted satisfied by a Filipina who honestly believed that by accepting his proffer of love and
proposal of marriage, she would be able to enjoy a life of ease and security. Petitioner clearly
violated the Filipino's concept of morality and brazenly defied the traditional respect Filipinos
have for their women. It can even be said that the petitioner committed such deplorable acts in
blatant disregard of Article 19 of the Civil Code which directs every person to act with justice, give
everyone his due and observe honesty and good faith in the exercise of his rights and in the
performance of his obligations.

No foreigner must be allowed to make a mockery of our laws, customs and traditions.

The pari delicto rule does not apply in this case for while indeed, the private respondent may not
have been impelled by the purest of intentions, she eventually submitted to the petitioner in
sexual congress not out of lust, but because of moral seduction. In fact, it is apparent that she
had qualms of conscience about the entire episode for as soon as she found out that the
petitioner was not going to marry her after all, she left him. She is not, therefore, in pari
delicto with the petitioner. Pari delicto means "in equal fault; in a similar offense or crime; equal in
guilt or in legal fault." At most, it could be conceded that she is merely in delicto.
35

Equity often interferes for the relief of the less guilty of the parties, where his
transgression has been brought about by the imposition of undue influence of the
party on whom the burden of the original wrong principally rests, or where his
consent to the transaction was itself procured by
fraud. 36

In Mangayao vs. Lasud, We declared:

37

Appellants likewise stress that both parties being at fault, there should be no
action by one against the other (Art. 1412, New Civil Code). This rule, however,
has been interpreted as applicable only where the fault on both sides is, more or
less, equivalent. It does not apply where one party is literate or intelligent and the
other one is not. (c.f. Bough vs. Cantiveros, 40 Phil. 209).

We should stress, however, that while We find for the private respondent, let it not be said that
this Court condones the deplorable behavior of her parents in letting her and the petitioner stay
together in the same room in their house after giving approval to their marriage. It is the solemn
duty of parents to protect the honor of their daughters and infuse upon them the higher values of
morality and dignity.

WHEREFORE, finding no reversible error in the challenged decision, the instant petition is
hereby DENIED, with costs against the petitioner.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

Gutierrez, Jr., J., is on leave.

# Footnotes

1 Annex "G" of Petition; Rollo, 53-62. Per Associate Justice Alicia V. Sempio-Diy,
concurred in by Associate Justices Jose C. Campos, Jr. and Jaime M. Lantin.

2 Annex "A" of Petition; Rollo, 20-22.

3 Annex "B" of Petition; Rollo, 23-24.

4 Annex "C", Id.; Id., 25.

5 Annex "D" of Petition; Rollo, 26-33. Per Judge Antonio M. Belen.

6 Id., 33.

7 Rollo, 31-33.

8 Rollo, 54-55.

9 Exhibit "E" of Petition; Rollo, 34-50.

10 Annex "G", Id.; Id.; 53-62.

11 Rollo, 58-59.

12 Rollo, 61.

13 Id., 11.

14 In support thereof, he cites Despi vs. Aliosco, [CA] 64 O.G.; Wassmer vs.
Velez, 12 SCRA 648 [1964]; Hermosisima vs. Court of Appeals, 109 Phil. 629
[1960]; and Estopa vs. Piansay, 109 Phil. 640 [1960].

15 People vs. Garcia, 89 SCRA 440 [1979]; People vs. Bautista, 92 SCRA 465
[1979]; People vs. Abejuela, 92 SCRA 503 [1979]; People vs. Arciaga, 98 SCRA
1 [1980]; People vs. Marzan, 128 SCRA 203 [1984]; People vs. Alcid, 135 SCRA
280 [1985]; People vs. Sanchez, 199 SCRA 414 [1991]; and People vs. Atilano,
204 SCRA 278 [1991].

16 191 SCRA 218 [1990], footnote omitted; see also, Remalante vs. Tibe, 158
SCRA 138 [1988].

17 Hermosisima vs. Court of Appeals, 109 Phil. 629 [1960]; Estopa vs. Piansay,
109 Phil. 640 [1960].

18 58 Phil. 866 [1933].

19 Congressional Record, vol. IV, No. 79, Thursday, 14 May 1949, 2352.

20 Philippine National Bank vs. Court of Appeals, 83 SCRA 237 [1978].

 21 Report of the Code Commission, 39-40. This passage is quoted, except for
the last paragraph, in Tanjanco vs. Court of Appeals, 18 SCRA 994, 996-997
[1966]; the Article 23 referred to is now Article 21.

22 Report of the Code Commission, 161-162.

23 TOLENTINO, A.M., Commentaries and Jurisprudence on the Civil Code of the

Philippines, vol. 1, 1985 ed., 72.

24. Rollo, 61.

25. Supra.

26. Supra.

27 At pages 997-999.

28 Civil Code of the Philippines Annotated, vol. I, Eleventh ed., (1984), 91-92.

29 Commentaries and Jurisprudence on the Civil Code of the Philippines, vol. 1,

1985 ed., 76-77, omitting footnotes.

30 7 Phil. 156 [1906].

31 Article 21.

32 Supra.

33 Rollo, 16.

34 Id., 16-17.

35 Black's Law Dictionary, Fifth ed., 1004.

36 37 Am Jur 2d, 401, omitting citations.

37 11 SCRA 158 [1964]; see also, Liguez vs. Court of Appeals 102 Phil. 577
[1975].

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 88694 January 11, 1993

ALBENSON ENTERPRISES CORP., JESSE YAP, AND BENJAMIN MENDIONA, petitioners,

vs.
THE COURT OF APPEALS AND EUGENIO S. BALTAO, respondents.

Puruganan, Chato, Chato & Tan for petitioners.

Lino M. Patajo, Francisco Ma. Chanco, Ananiano Desierto and Segundo Mangohig for private
respondent.

BIDIN, J.:

This petition assails the decision of respondent Court of Appeals in

CA-GR CV No. 14948 entitled "Eugenio S. Baltao, plaintiff-appellee vs. Albenson Enterprises
Corporation, et al, defendants-appellants", which modified the judgment of the Regional Trial
Court of Quezon City, Branch XCVIII in Civil Case No. Q-40920 and ordered petitioner to pay
private respondent, among others, the sum of P500,000.00 as moral damages and attorney's
fees in the amount of P50,000.00.

The facts are not disputed.

In September, October, and November 1980, petitioner Albenson Enterprises Corporation

(Albenson for short) delivered to Guaranteed Industries, Inc. (Guaranteed for short) located at
3267 V. Mapa Street, Sta. Mesa, Manila, the mild steel plates which the latter ordered. As part
payment thereof, Albenson was given Pacific Banking Corporation Check No. 136361 in the
amount of P2,575.00 and drawn against the account of E.L. Woodworks (Rollo, p. 148).

When presented for payment, the check was dishonored for the reason "Account Closed."
Thereafter, petitioner Albenson, through counsel, traced the origin of the dishonored check. From
the records of the Securities and Exchange Commission (SEC), Albenson discovered that the
president of Guaranteed, the recipient of the unpaid mild steel plates, was one "Eugenio S.
Baltao." Upon further inquiry, Albenson was informed by the Ministry of Trade and Industry that
E.L. Woodworks, a single proprietorship business, was registered in the name of one "Eugenio
Baltao". In addition, upon verification with the drawee bank, Pacific Banking Corporation,
Albenson was advised that the signature appearing on the subject check belonged to one
"Eugenio Baltao."

After obtaining the foregoing information, Albenson, through counsel, made an extrajudicial
demand upon private respondent Eugenio S. Baltao, president of Guaranteed, to replace and/or
make good the dishonored check.

Respondent Baltao, through counsel, denied that he issued the check, or that the signature
appearing thereon is his. He further alleged that Guaranteed was a defunct entity and hence,
could not have transacted business with Albenson.

On February 14, 1983, Albenson filed with the Office of the Provincial Fiscal of Rizal a complaint
against Eugenio S. Baltao for violation of Batas Pambansa Bilang 22. Submitted to support said
charges was an affidavit of petitioner Benjamin Mendiona, an employee of Albenson. In said
affidavit, the above-mentioned circumstances were stated.

It appears, however, that private respondent has a namesake, his son Eugenio Baltao III, who
manages a business establishment, E.L. Woodworks, on the ground floor of the Baltao Building,
3267 V. Mapa Street, Sta. Mesa, Manila, the very same business address of Guaranteed.

On September 5, 1983, Assistant Fiscal Ricardo Sumaway filed an information against Eugenio
S. Baltao for Violation of Batas Pambansa Bilang 22. In filing said information, Fiscal Sumaway
claimed that he had given Eugenio S. Baltao opportunity to submit controverting evidence, but
the latter failed to do so and therefore, was deemed to have waived his right.

Respondent Baltao, claiming ignorance of the complaint against him, immediately filed with the
Provincial Fiscal of Rizal a motion for reinvestigation, alleging that it was not true that he had
been given an opportunity to be heard in the preliminary investigation conducted by Fiscal
Sumaway, and that he never had any dealings with Albenson or Benjamin Mendiona,
consequently, the check for which he has been accused of having issued without funds was not
issued by him and the signature in said check was not his.

On January 30, 1984, Provincial Fiscal Mauro M. Castro of Rizal reversed the finding of Fiscal
Sumaway and exonerated respondent Baltao. He also instructed the Trial Fiscal to move for
dismissal of the information filed against Eugenio S. Baltao. Fiscal Castro found that the
signature in PBC Check No. 136361 is not the signature of Eugenio S. Baltao. He also found that
there is no showing in the records of the preliminary investigation that Eugenio S. Baltao actually
received notice of the said investigation. Fiscal Castro then castigated Fiscal Sumaway for failing
to exercise care and prudence in the performance of his duties, thereby causing injustice to
respondent who was not properly notified of the complaint against him and of the requirement to
submit his counter evidence.

Because of the alleged unjust filing of a criminal case against him for allegedly issuing a check
which bounced in violation of Batas Pambansa Bilang 22 for a measly amount of P2,575.00,
respondent Baltao filed before the Regional Trial Court of Quezon City a complaint for damages
against herein petitioners Albenson Enterprises, Jesse Yap, its owner, and Benjamin Mendiona,
its employee.

In its decision, the lower court observed that "the check is drawn against the account of "E.L.
Woodworks," not of Guaranteed Industries of which plaintiff used to be President. Guaranteed
Industries had been inactive and had ceased to exist as a corporation since 1975. . . . . The
possibility is that it was with Gene Baltao or Eugenio Baltao III, a son of plaintiff who had a
business on the ground floor of Baltao Building located on V. Mapa Street, that the defendants
may have been dealing with . . . ." (Rollo, pp. 41-42).

The dispositive portion of the trial court 's decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendants ordering the latter to pay plaintiff jointly and severally:

1. actual or compensatory damages of P133,350.00;

2. moral damages of P1,000,000.00 (1 million pesos);

3. exemplary damages of P200,000.00;

4. attorney's fees of P100,000.00;

5 costs.

Defendants' counterclaim against plaintiff and claim for damages against

Mercantile Insurance Co. on the bond for the issuance of the writ of attachment at
the instance of plaintiff are hereby dismissed for lack of merit. (Rollo, pp. 38-39).

On appeal, respondent court modified the trial court's decision as follows:

WHEREFORE, the decision appealed from is MODIFIED by reducing the moral

damages awarded therein from P1,000,000.00 to P500,000.00 and the attorney's
fees from P100,000.00 to P50,000.00, said decision being hereby affirmed in all
its other aspects. With costs against appellants. (Rollo, pp. 50-51)
Dissatisfied with the above ruling, petitioners Albenson Enterprises Corp., Jesse Yap, and
Benjamin Mendiona filed the instant Petition, alleging that the appellate court erred in:

1. Concluding that private respondent's cause of action is not one based on

malicious prosecution but one for abuse of rights under Article 21 of the Civil
Code notwithstanding the fact that the basis of a civil action for malicious
prosecution is Article 2219 in relation to Article 21 or Article 2176 of the Civil Code
....

2. Concluding that "hitting at and in effect maligning (private respondent) with an

unjust criminal case was, without more, a plain case of abuse of rights by
misdirection" and "was therefore, actionable by itself," and which "became
inordinately blatant and grossly aggravated when . . . (private respondent) was
deprived of his basic right to notice and a fair hearing in the so-called preliminary
investigation . . . . "

3. Concluding that petitioner's "actuations in this case were coldly deliberate and
calculated", no evidence having been adduced to support such a sweeping
statement.

4. Holding the petitioner corporation, petitioner Yap and petitioner Mendiona

jointly and severally liable without sufficient basis in law and in fact.

5. Awarding respondents —

5.1. P133,350.00 as actual or compensatory damages, even in

the absence of sufficient evidence to show that such was actually
suffered.

5.2. P500,000.00 as moral damages considering that the

evidence in this connection merely involved private respondent's
alleged celebrated status as a businessman, there being no
showing that the act complained of adversely affected private
respondent's reputation or that it resulted to material loss.

5.3. P200,000.00 as exemplary damages despite the fact that

petitioners were duly advised by counsel of their legal recourse.

5.4. P50,000.00 as attorney's fees, no evidence having been

adduced to justify such an award (Rollo, pp. 4-6).

Petitioners contend that the civil case filed in the lower court was one for malicious prosecution.
Citing the case of Madera vs. Lopez (102 SCRA 700 [1981]), they assert that the absence of
malice on their part absolves them from any liability for malicious prosecution. Private
respondent, on the other hand, anchored his complaint for Damages on Articles 19, 20, and
21 ** of the Civil Code.

Article 19, known to contain what is commonly referred to as the principle of abuse of rights, sets
certain standards which may be observed not only in the exercise of one's rights but also in the
performance of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore, recognizes the
primordial limitation on all rights: that in their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself legal because recognized or granted by law
as such, may nevertheless become the source of some illegality. 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 held responsible.
Although the requirements of each provision is different, these three (3) articles are all related to
each other. As the eminent Civilist Senator Arturo Tolentino puts it: "With this article (Article 21),
combined with articles 19 and 20, the scope of our law on civil wrongs has been very greatly
broadened; it has become much more supple and adaptable than the Anglo-American law on
torts. It is now difficult to conceive of any malevolent exercise of a right which could not be
checked by the application of these articles" (Tolentino, 1 Civil Code of the Philippines 72).

There is however, no hard and fast rule which can be applied to determine whether or not the
principle of abuse of rights may be invoked. The question of whether or not the principle of abuse
of rights has been violated, resulting in damages under Articles 20 and 21 or other applicable
provision of law, depends on the circumstances of each case. (Globe Mackay Cable and Radio
Corporation vs. Court of Appeals, 176 SCRA 778 [1989]).

The elements of an abuse of right under Article 19 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.
Article 20 speaks of the general sanction for all other provisions of law which do not especially
provide for their own sanction (Tolentino, supra, p. 71). Thus, anyone who,
whether willfully or negligently, in the exercise of his legal right or duty, causes damage to
another, shall indemnify his victim for injuries suffered thereby. Article 21 deals with acts contra
bonus mores, and has the following elements: 1) There is an act which is legal; 2) but which is
contrary to morals, good custom, public order, or public policy; 3) and it is done with intent to
injure.

Thus, under any of these three (3) provisions of law, an act which causes injury to another may
be made the basis for an award of damages.

There is a common element under Articles 19 and 21, and that is, the act must be intentional.
However, Article 20 does not distinguish: the act may be done either "willfully", or "negligently".
The trial court as well as the respondent appellate court mistakenly lumped these three (3)
articles together, and cited the same as the bases for the award of damages in the civil complaint
filed against petitioners, thus:

With the foregoing legal provisions (Articles 19, 20, and 21) in focus, there is not
much difficulty in ascertaining the means by which appellants' first assigned error
should be resolved, given the admitted fact that when there was an attempt to
collect the amount of P2,575.00, the defendants were explicitly warned that
plaintiff Eugenio S. Baltao is not the Eugenio Baltao defendants had been dealing
with (supra, p. 5). When the defendants nevertheless insisted and persisted in
filing a case — a criminal case no less — against plaintiff, said defendants ran
afoul of the legal provisions (Articles 19, 20, and 21 of the Civil Code) cited by the
lower court and heretofore quoted (supra).

Defendants, not having been paid the amount of P2,575.00, certainly had the
right to complain. But that right is limited by certain constraints. Beyond that limit
is the area of excess, of abuse of rights. (Rollo, pp.
44-45).

Assuming, arguendo, that all the three (3) articles, together and not independently of each one,
could be validly made the bases for an award of damages based on the principle of "abuse of
right", under the circumstances, We see no cogent reason for such an award of damages to be
made in favor of private respondent.

Certainly, petitioners could not be said to have violated the aforestated principle of abuse of right.
What prompted petitioners to file the case for violation of Batas Pambansa Bilang 22 against
private respondent was their failure to collect the amount of P2,575.00 due on a bounced check
which they honestly believed was issued to them by private respondent. Petitioners had
conducted inquiries regarding the origin of the check, and yielded the following results: from the
records of the Securities and Exchange Commission, it was discovered that the President of
Guaranteed (the recipient of the unpaid mild steel plates), was one "Eugenio S. Baltao"; an
inquiry with the Ministry of Trade and Industry revealed that E.L. Woodworks, against whose
account the check was drawn, was registered in the name of one "Eugenio Baltao"; verification
with the drawee bank, the Pacific Banking Corporation, revealed that the signature appearing on
the check belonged to one "Eugenio Baltao".

In a letter dated December 16, 1983, counsel for petitioners wrote private respondent demanding
that he make good the amount of the check. Counsel for private respondent wrote back and
denied, among others, that private respondent ever transacted business with Albenson
Enterprises Corporation; that he ever issued the check in question. Private respondent's counsel
even went further: he made a warning to defendants to check the veracity of their claim. It is
pivotal to note at this juncture that in this same letter, if indeed private respondent wanted to clear
himself from the baseless accusation made against his person, he should have made mention of
the fact that there are three (3) persons with the same name, i.e.: Eugenio Baltao, Sr., Eugenio
S. Baltao, Jr. (private respondent), and Eugenio Baltao III (private respondent's son, who as it
turned out later, was the issuer of the check). He, however, failed to do this. The last two Baltaos
were doing business in the same building — Baltao Building — located at 3267 V. Mapa Street,
Sta. Mesa, Manila. The mild steel plates were ordered in the name of Guaranteed of which
respondent Eugenio S. Baltao is the president and delivered to Guaranteed at Baltao building.
Thus, petitioners had every reason to believe that the Eugenio Baltao who issued the bouncing
check is respondent Eugenio S. Baltao when their counsel wrote respondent to make good the
amount of the check and upon refusal, filed the complaint for violation of BP Blg. 22.

Private respondent, however, did nothing to clarify the case of mistaken identity at first hand.
Instead, private respondent waited in ambush and thereafter pounced on the hapless petitioners
at a time he thought was propitious by filing an action for damages. The Court will not
countenance this devious scheme.

The criminal complaint filed against private respondent after the latter refused to make good the
amount of the bouncing check despite demand was a sincere attempt on the part of petitioners to
find the best possible means by which they could collect the sum of money due them. A person
who has not been paid an obligation owed to him will naturally seek ways to compel the debtor to
pay him. It was normal for petitioners to find means to make the issuer of the check pay the
amount thereof. In the absence of a wrongful act or omission or of fraud or bad faith, moral
damages cannot be awarded and that the adverse result of an action does not per se make the
action wrongful and subject the actor to the payment of damages, for the law could not have
meant to impose a penalty on the right to litigate (Rubio vs. Court of Appeals, 141 SCRA 488
[1986]).

In the case at bar, private respondent does not deny that the mild steel plates were ordered by
and delivered to Guaranteed at Baltao building and as part payment thereof, the bouncing check
was issued by one Eugenio Baltao. Neither had private respondent conveyed to petitioner that
there are two Eugenio Baltaos conducting business in the same building — he and his son
Eugenio Baltao III. Considering that Guaranteed, which received the goods in payment of which
the bouncing check was issued is owned by respondent, petitioner acted in good faith and
probable cause in filing the complaint before the provincial fiscal.

To constitute malicious prosecution, there must be proof that the prosecution was prompted by a
sinister design to vex and humiliate a person, and that it was initiated deliberately by the
defendant knowing that his charges were false and groundless. Concededly, the mere act of
submitting a case to the authorities for prosecution does not make one liable for malicious
prosecution. (Manila Gas Corporation vs. Court of Appeals, 100 SCRA 602 [1980]). Still, private
respondent argues that liability under Articles 19, 20, and 21 of the Civil Code is so
encompassing that it likewise includes liability for damages for malicious prosecution under
Article 2219 (8). True, a civil action for damages for malicious prosecution is allowed under the
New Civil Code, more specifically Articles 19, 20, 26, 29, 32, 33, 35, and 2219 (8) thereof. In
order that such a case can prosper, however, the following three (3) elements must be present,
to wit: (1) The fact of the prosecution and the further fact that the defendant was himself the
prosecutor, and that the action was finally terminated with an acquittal; (2) That in bringing the
action, the prosecutor acted without probable cause; (3) The prosecutor was actuated or
impelled by legal malice (Lao vs. Court of Appeals, 199 SCRA 58, [1991]).

Thus, a party injured by the filing of a court case against him, even if he is later on absolved, may
file a case for damages grounded either on the principle of abuse of rights, or on malicious
prosecution. As earlier stated, a complaint for damages based on malicious prosecution will
prosper only if the three (3) elements aforecited are shown to exist. In the case at bar, the
second and third elements were not shown to exist. It is well-settled that one cannot be held
liable for maliciously instituting a prosecution where one has acted with probable cause.
"Probable cause is the existence of such facts and circumstances as would excite the belief, in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person
charged was guilty of the crime for which he was prosecuted. In other words, a suit will lie only in
cases where a legal prosecution has been carried on without probable cause. The reason for this
rule is that it would be a very great discouragement to public justice, if prosecutors, who had
tolerable ground of suspicion, were liable to be sued at law when their indictment miscarried"
(Que vs. Intermediate Appellate Court, 169 SCRA 137 [1989]).

The presence of probable cause signifies, as a legal consequence, the absence of malice. In the
instant case, it is evident that petitioners were not motivated by malicious intent or by sinister
design to unduly harass private respondent, but only by a well-founded anxiety to protect their
rights when they filed the criminal complaint against private respondent.

To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a sinister design to vex and humiliate a person, that it was initiated
deliberately by the defendant knowing that his charges were false and
groundless. Concededly, the mere act of submitting a case to the authorities for
prosecution does not make one liable for malicious prosecution. Proof and motive
that the institution of the action was prompted by a sinister design to vex and
humiliate a person must be clearly and preponderantly established to entitle the
victims to damages (Ibid.).

In the case at bar, there is no proof of a sinister design on the part of petitioners to vex or
humiliate private respondent by instituting the criminal case against him. While petitioners may
have been negligent to some extent in determining the liability of private respondent for the
dishonored check, the same is not so gross or reckless as to amount to bad faith warranting an
award of damages.

The root of the controversy in this case is founded on a case of mistaken identity. It is possible
that with a more assiduous investigation, petitioners would have eventually discovered that
private respondent Eugenio S. Baltao is not the "Eugenio Baltao" responsible for the dishonored
check. However, the record shows that petitioners did exert considerable effort in order to
determine the liability of private respondent. Their investigation pointed to private respondent as
the "Eugenio Baltao" who issued and signed the dishonored check as the president of the
debtor-corporation Guaranteed Enterprises. Their error in proceeding against the wrong
individual was obviously in the nature of an innocent mistake, and cannot be characterized as
having been committed in bad faith. This error could have been discovered if respondent had
submitted his counter-affidavit before investigating fiscal Sumaway and was immediately rectified
by Provincial Fiscal Mauro Castro upon discovery thereof, i.e., during the reinvestigation resulting
in the dismissal of the complaint.
Furthermore, the adverse result of an action does not per se make the act wrongful and subject
the actor to the payment of moral damages. The law could not have meant to impose a penalty
on the right to litigate, such right is so precious that moral damages may not be charged on those
who may even exercise it erroneously. And an adverse decision does not ipso facto justify the
award of attorney's fees to the winning party (Garcia vs. Gonzales, 183 SCRA 72 [1990]).

Thus, an award of damages and attorney's fees is unwarranted where the action was filed in
good faith. If damage results from a person's exercising his legal rights, it is damnum absque
injuria (Ilocos Norte Electric Company vs. Court of Appeals, 179 SCRA 5 [1989]).

Coming now to the claim of private respondent for actual or compensatory damages, the records
show that the same was based solely on his allegations without proof to substantiate the same.
He did not present proof of the cost of the medical treatment which he claimed to have
undergone as a result of the nervous breakdown he suffered, nor did he present proof of the
actual loss to his business caused by the unjust litigation against him. In determining actual
damages, the court cannot rely on speculation, conjectures or guesswork as to the amount.
Without the actual proof of loss, the award of actual damages becomes erroneous (Guilatco vs.
City of Dagupan, 171 SCRA 382 [1989]).

Actual and compensatory damages are those recoverable because of pecuniary loss — in
business, trade, property, profession, job or occupation — and the same must be proved,
otherwise, if the proof is flimsy and unsubstantiated, no damages will be given (Rubio vs. Court
of Appeals, 141 SCRA 488 [1986]). For these reasons, it was gravely erroneous for respondent
court to have affirmed the award of actual damages in favor of private respondent in the absence
of proof thereof.

Where there is no evidence of the other party having acted in wanton, fraudulent or reckless, or
oppressive manner, neither may exemplary damages be awarded (Dee Hua Liong Electrical
Equipment Corporation vs. Reyes, 145 SCRA 488 [1986]).

As to the award of attorney's fees, it is well-settled that the same is the exception rather than the
general rule. Needless to say, the award of attorney's fees must be disallowed where the award
of exemplary damages is eliminated (Article 2208, Civil Code; Agustin vs. Court of Appeals, 186
SCRA 375 [1990]). Moreover, in view of the fact that there was no malicious prosecution against
private respondent, attorney's fees cannot be awarded him on that ground.

In the final analysis, there is no proof or showing that petitioners acted maliciously or in bad faith
in the filing of the case against private respondent. Consequently, in the absence of proof of
fraud and bad faith committed by petitioners, they cannot be held liable for damages (Escritor, Jr.
vs. Intermediate Appellate Court, 155 SCRA 577 [1987]). No damages can be awarded in the
instant case, whether based on the principle of abuse of rights, or for malicious prosecution. The
questioned judgment in the instant case attests to the propensity of trial judges to award
damages without basis. Lower courts are hereby cautioned anew against awarding
unconscionable sums as damages without bases therefor.

WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals in C.A. G.R.
C.V. No. 14948 dated May 13, 1989, is hereby REVERSED and SET ASIDE. Costs against
respondent Baltao.

SO ORDERED.

Gutierrez, Jr., Davide, Jr., Romero and Melo, JJ., concur.

# Footnotes

** "Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.

"Art. 20. Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.

"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.

EN BANC

G.R. No. 135306 January 28, 2003

MVRS PUBLICATIONS, INC., MARS C. LACONSAY, MYLA C. AGUJA and AGUSTINO G.

BINEGAS, JR.,petitioners,
vs.
ISLAMIC DA'WAH COUNCIL OF THE PHILIPPINES, INC., ABDULRAHMAN R.T. LINZAG,
IBRAHIM F.P. ARCILLA, ABDUL RASHID DE GUZMAN, AL-FARED DA SILVA and IBRAHIM
B.A. JUNIO, respondents.

BELLOSILLO, J.:

I may utterly detest what you write, but I shall fight to the death to make it possible for
you to continue writing it. —

Voltaire

VOLTAIRE'S PONTIFICAL VERSE bestirs once again the basic liberties to free speech and free
press — liberties that belong as well, if not more, to those who question, who do not conform,
who differ. For the ultimate good which we all strive to achieve for ourselves and our posterity
can better be reached by a free exchange of ideas, where the best test of truth is the power of
the thought to get itself accepted in the competition of the free market — not just the ideas we
desire, but including those thoughts we despise.1

ISLAMIC DA'WAH COUNCIL OF THE PHILIPPINES, INC., a local federation of more than
seventy (70) Muslim religious organizations, and individual Muslims ABDULRAHMAN R.T.
LINZAG, IBRAHIM F.P. ARCILLA, ABDUL RASHID DE GUZMAN, AL-FARED DA SILVA and
IBRAHIM B.A. JUNIO, filed in the Regional Trial Court of Manila a complaint for damages in their
own behalf and as a class suit in behalf of the Muslim members nationwide against MVRS
PUBLICATIONS, INC., MARS C. LACONSAY, MYLA C. AGUJA and AGUSTINO G. BINEGAS,
JR., arising from an article published in the 1 August 1992 issue of Bulgar, a daily tabloid. The
article reads:

"ALAM BA NINYO?

Na ang mga baboy at kahit anong uri ng hayop sa Mindanao ay hindi kinakain ng mga
Muslim?

Para sa kanila ang mga ito ay isang sagradong bagay. Hindi nila ito kailangang kainin
kahit na sila pa ay magutom at mawalan ng ulam sa tuwing sila ay kakain. Ginagawa nila
itong Diyos at sinasamba pa nila ito sa tuwing araw ng kanilang pangingilin lalung-lalo na
sa araw na tinatawag nilang 'Ramadan'."

The complaint alleged that the libelous statement was insulting and damaging to the Muslims;
that these words alluding to the pig as the God of the Muslims was not only published out of
sheer ignorance but with intent to hurt the feelings, cast insult and disparage the Muslims and
Islam, as a religion in this country, in violation of law, public policy, good morals and human
relations; that on account of these libelous words Bulgar insulted not only the Muslims in the
Philippines but the entire Muslim world, especially every Muslim individual in non-Muslim
countries.

MVRS PUBLICATIONS, INC., and AGUSTINO G. BINEGAS, JR., in their defense, contended
that the article did not mention respondents as the object of the article and therefore were not
entitled to damages; and, that the article was merely an expression of belief or opinion and was
published without malice nor intention to cause damage, prejudice or injury to Muslims. 2

On 30 June 1995 the trial court dismissed the complaint holding that the plaintiffs failed to
establish their cause of action since the persons allegedly defamed by the article were not
specifically identified —

It must be noted that the persons allegedly defamed, the herein plaintiffs, were not
identified with specificity. The subject article was directed at the Muslims without
mentioning or identifying the herein plaintiffs x x x. It is thus apparent that the alleged
libelous article refers to the larger collectivity of Muslims for which the readers of the libel
could not readily identify the personalities of the persons defamed. Hence, it is difficult for
an individual Muslim member to prove that the defamatory remarks apply to him. The
evidence presented in this case failed to convince this court that, indeed, the defamatory
remarks really applied to the herein plaintiffs.3

On 27 August 1998 the Court of Appeals reversed the decision of the trial court. It opined that it
was "clear from the disputed article that the defamation was directed to all adherents of the
Islamic faith. It stated that pigs were sacred and idolized as god by members of the Muslim
religion. This libelous imputation undeniably applied to the plaintiff-appellants who are Muslims
sharing the same religious beliefs." It added that the suit for damages was a "class suit" and that
ISLAMIC DA'WAH COUNCIL OF THE PHILIPPINES, INC.'s religious status as a Muslim
umbrella organization gave it the requisite personality to sue and protect the interests of all
Muslims.4

Hence, the instant petition for review assailing the findings of the appellate court (a) on the
existence of the elements of libel, (b) the right of respondents to institute the class suit, and, (c)
the liability of petitioners for moral damages, exemplary damages, attorney's fees and costs of
suit.

Defamation, which includes libel and slander, means the offense of injuring a person's character,
fame or reputation through false and malicious statements.5 It is that which tends to injure
reputation or to diminish the esteem, respect, good will or confidence in the plaintiff or to excite
derogatory feelings or opinions about the plaintiff. 6 It is the publication of anything which is
injurious to the good name or reputation of another or tends to bring him into
disrepute.7 Defamation is an invasion of a relational interest since it involves the opinion which
others in the community may have, or tend to have, of the plaintiff. 8

It must be stressed that words which are merely insulting are not actionable as libel or slander
per se, and mere words of general abuse however opprobrious, ill-natured, or vexatious, whether
written or spoken, do not constitute a basis for an action for defamation in the absence of an
allegation for special damages.9 The fact that the language is offensive to the plaintiff does not
make it actionable by itself.10

Declarations made about a large class of people cannot be interpreted to advert to an identified
or identifiable individual. Absent circumstances specifically pointing or alluding to a particular
member of a class, no member of such class has a right of action 11 without at all impairing the
equally demanding right of free speech and expression, as well as of the press, under the Bill of
Rights.12 Thus, in Newsweek, Inc. v. Intermediate Appellate Court,13 we dismissed a complaint for
libel against Newsweek, Inc., on the ground that private respondents failed to state a cause of
action since they made no allegation in the complaint that anything contained in the article
complained of specifically referred to any of them. Private respondents, incorporated
associations of sugarcane planters in Negros Occidental claiming to have 8,500 members and
several individual members, filed a class action suit for damages in behalf of all sugarcane
planters in Negros Occidental. The complaint filed in the Court of First Instance of Bacolod City
alleged that Newsweek, Inc., committed libel against them by the publication of the article "Island
of Fear" in its weekly newsmagazine allegedly depicting Negros Province as a place dominated
by wealthy landowners and sugar planters who not only exploited the impoverished and
underpaid sugarcane workers but also brutalized and killed them with impunity. Private
respondents alleged that the article showed a deliberate and malicious use of falsehood, slanted
presentation and/or misrepresentation of facts intended to put the sugarcane planters in a bad
light, expose them to public ridicule, discredit and humiliation in the Philippines and abroad, and
make them the objects of hatred, contempt and hostility of their agricultural workers and of the
public in general. We ratiocinated —

x x x where the defamation is alleged to have been directed at a group or class, it is

essential that the statement must be so sweeping or all-embracing as to apply to every
individual in that group or class, or sufficiently specific so that each individual in the class
or group can prove that the defamatory statement specifically pointed to him, so that he
can bring the action separately, if need be x x x x The case at bar is not a class suit. It is
not a case where one or more may sue for the benefit of all, or where the representation
of class interest affected by the judgment or decree is indispensable to make each
member of the class an actual party. We have here a case where each of the plaintiffs
has a separate and distinct reputation in the community. They do not have a common or
general interest in the subject matter of the controversy.

In the present case, there was no fairly identifiable person who was allegedly injured by
the Bulgar article. Since the persons allegedly defamed could not be identifiable, private
respondents have no individual causes of action; hence, they cannot sue for a class allegedly
disparaged. Private respondents must have a cause of action in common with the class to which
they belong to in order for the case to prosper.

An individual Muslim has a reputation that is personal, separate and distinct in the community.
Each Muslim, as part of the larger Muslim community in the Philippines of over five (5) million
people, belongs to a different trade and profession; each has a varying interest and a divergent
political and religious view — some may be conservative, others liberal. A Muslim may find the
article dishonorable, even blasphemous; others may find it as an opportunity to strengthen their
faith and educate the non-believers and the "infidels." There is no injury to the reputation of the
individual Muslims who constitute this community that can give rise to an action for group libel.
Each reputation is personal in character to every person. Together, the Muslims do not have a
single common reputation that will give them a common or general interest in the subject matter
of the controversy.

In Arcand v. The Evening Call Publishing Company,14 the United States Court of Appeals held
that one guiding principle of group libel is that defamation of a large group does not give rise to a
cause of action on the part of an individual unless it can be shown that he is the target of the
defamatory matter.

The rule on libel has been restrictive. In an American case,15 a person had allegedly committed
libel against all persons of the Jewish religion. The Court held that there could be no libel against
an extensive community in common law. In an English case, where libel consisted of allegations
of immorality in a Catholic nunnery, the Court considered that if the libel were on the whole
Roman Catholic Church generally, then the defendant must be absolved. 16 With regard to the
largest sectors in society, including religious groups, it may be generally concluded that no
criminal action at the behest of the state, or civil action on behalf of the individual, will lie.

In another case, the plaintiffs claimed that all Muslims, numbering more than 600 million, were
defamed by the airing of a national television broadcast of a film depicting the public execution of
a Saudi Arabian princess accused of adultery, and alleging that such film was "insulting and
defamatory" to the Islamic religion.17 The United States District Court of the Northern District of
California concluded that the plaintiffs' prayer for $20 Billion in damages arising from "an
international conspiracy to insult, ridicule, discredit and abuse followers of Islam throughout the
world, Arabs and the Kingdom of Saudi Arabia" bordered on the "frivolous," ruling that the
plaintiffs had failed to demonstrate an actionable claim for defamation. The California Court
stressed that the aim of the law on defamation was to protect individuals; a group may be
sufficiently large that a statement concerning it could not defame individual group members. 18

Philip Wittenberg, in his book "Dangerous Words: A Guide to the Law of Libel,"19 discusses the
inappropriateness of any action for tortious libel involving large groups, and provides a succinct
illustration:

There are groupings which may be finite enough so that a description of the body is a
description of the members. Here the problem is merely one of evaluation. Is the
description of the member implicit in the description of the body, or is there a possibility
that a description of the body may consist of a variety of persons, those included within
the charge, and those excluded from it?

A general charge that the lawyers in the city are shysters would obviously not be a
charge that all of the lawyers were shysters. A charge that the lawyers in a local point in a
great city, such as Times Square in New York City, were shysters would obviously not
include all of the lawyers who practiced in that district; but a statement that all of the
lawyers who practiced in a particular building in that district were shysters would be a
specific charge, so that any lawyer having an office within that building could sue.

If the group is a very large one, then the alleged libelous statement is considered to have no
application to anyone in particular, since one might as well defame all mankind. Not only does
the group as such have no action; the plaintiff does not establish any personal reference to
himself.20 At present, modern societal groups are both numerous and complex. The same
principle follows with these groups: as the size of these groups increases, the chances for
members of such groups to recover damages on tortious libel become elusive. This principle is
said to embrace two (2) important public policies: first, where the group referred to is large, the
courts presume that no reasonable reader would take the statements as so literally applying to
each individual member; and second, the limitation on liability would satisfactorily safeguard
freedom of speech and expression, as well as of the press, effecting a sound compromise
between the conflicting fundamental interests involved in libel cases.21
In the instant case, the Muslim community is too vast as to readily ascertain who among the
Muslims were particularly defamed. The size of the group renders the reference as indeterminate
and generic as a similar attack on Catholics, Protestants, Buddhists or Mormons would do. The
word "Muslim" is descriptive of those who are believers of Islam, a religion divided into varying
sects, such as the Sunnites, the Shiites, the Kharijites, the Sufis and others based upon political
and theological distinctions. "Muslim" is a name which describes only a general segment of the
Philippine population, comprising a heterogeneous body whose construction is not so well
defined as to render it impossible for any representative identification.

The Christian religion in the Philippines is likewise divided into different sects: Catholic, Baptist,
Episcopalian, Presbyterian, Lutheran, and other groups the essence of which may lie in an
inspired charlatan, whose temple may be a corner house in the fringes of the countryside. As
with the Christian religion, so it is with other religions that represent the nation's culturally diverse
people and minister to each one's spiritual needs. The Muslim population may be divided into
smaller groups with varying agenda, from the prayerful conservative to the passionately radical.
These divisions in the Muslim population may still be too large and ambiguous to provide a
reasonable inference to any personality who can bring a case in an action for libel.

The foregoing are in essence the same view scholarly expressed by Mr. Justice Reynato S. Puno
in the course of the deliberations in this case. We extensively reproduce hereunder his
comprehensive and penetrating discussion on group libel —

Defamation is made up of the twin torts of libel and slander — the one being, in general,
written, while the other in general is oral. In either form, defamation is an invasion of the
interest in reputation and good name. This is a "relational interest" since it involves the
opinion others in the community may have, or tend to have of the plaintiff.

The law of defamation protects the interest in reputation — the interest in acquiring,
retaining and enjoying one's reputation as good as one's character and conduct warrant.
The mere fact that the plaintiff's feelings and sensibilities have been offended is not
enough to create a cause of action for defamation. Defamation requires that something
be communicated to a third person that may affect the opinion others may have of the
plaintiff. The unprivileged communication must be shown of a statement that would tend
to hurt plaintiff's reputation, to impair plaintiff's standing in the community.

Although the gist of an action for defamation is an injury to reputation, the focus of a
defamation action is upon the allegedly defamatory statement itself and its predictable
effect upon third persons. A statement is ordinarily considered defamatory if it "tend[s] to
expose one to public hatred, shame, obloquy, contumely, odium, contempt, ridicule,
aversion, ostracism, degradation or disgracex x x." The Restatement of Torts defines a
defamatory statement as one that "tends to so harm the reputation of another as to lower
him in the estimation of the community or to deter third persons from associating or
dealing with him."

Consequently as a prerequisite to recovery, it is necessary for the plaintiff to prove as

part of his prima faciecase that the defendant (1) published a statement that was (2)
defamatory (3) of and concerning the plaintiff.

The rule in libel is that the action must be brought by the person against whom the
defamatory charge has been made. In the American jurisdiction, no action lies by a third
person for damages suffered by reason of defamation of another person, even though
the plaintiff suffers some injury therefrom. For recovery in defamation cases, it is
necessary that the publication be "of and concerning the plaintiff." Even when a
publication may be clearly defamatory as to somebody, if the words have no personal
application to the plaintiff, they are not actionable by him. If no one is identified, there can
be no libel because no one's reputation has been injured x x x x
In fine, in order for one to maintain an action for an alleged defamatory statement, it must
appear that the plaintiff is the person with reference to whom the statement was made.
This principle is of vital importance in cases where a group or class is defamed since,
usually, the larger the collective, the more difficult it is for an individual member to show
that he was the person at whom the defamation was directed.

If the defamatory statements were directed at a small, restricted group of persons, they
applied to any member of the group, and an individual member could maintain an action
for defamation. When the defamatory language was used toward a small group or class,
including every member, it has been held that the defamatory language referred to each
member so that each could maintain an action. This small group or class may be a jury,
persons engaged in certain businesses, professions or employments, a restricted
subdivision of a particular class, a society, a football team, a family, small groups of union
officials, a board of public officers, or engineers of a particular company.

In contrast, if defamatory words are used broadly in respect to a large class or group of
persons, and there is nothing that points, or by proper colloquium or innuendo can be
made to apply, to a particular member of the class or group, no member has a right of
action for libel or slander. Where the defamatory matter had no special, personal
application and was so general that no individual damages could be presumed, and
where the class referred to was so numerous that great vexation and oppression might
grow out of the multiplicity of suits, no private action could be maintained. This rule has
been applied to defamatory publications concerning groups or classes of persons
engaged in a particular business, profession or employment, directed at associations or
groups of association officials, and to those directed at miscellaneous groups or classes
of persons.

Distinguishing a small group — which if defamed entitles all its members to sue from a
large group — which if defamed entitles no one to sue — is not always so simple. Some
authorities have noted that in cases permitting recovery, the group generally has twenty
five (25) or fewer members. However, there is usually no articulated limit on size. Suits
have been permitted by members of fairly large groups when some distinguishing
characteristic of the individual or group increases the likelihood that the statement could
be interpreted to apply individually. For example, a single player on the 60 to 70 man
Oklahoma University football team was permitted to sue when a writer accused the entire
team of taking amphetamines to "hop up" its performance; the individual was a
fullback, i.e., a significant position on the team and had played in all but two of the team's
games.

A prime consideration, therefore, is the public perception of the size of the group and
whether a statement will be interpreted to refer to every member. The more organized
and cohesive a group, the easier it is to tar all its members with the same brush and the
more likely a court will permit a suit from an individual even if the group includes more
than twenty five (25) members. At some point, however, increasing size may be seen to
dilute the harm to individuals and any resulting injury will fall beneath the threshold for a
viable lawsuit.

x x x x There are many other groupings of men than those that are contained within the
foregoing group classifications. There are all the religions of the world, there are all the
political and ideological beliefs; there are the many colors of the human race. Group
defamation has been a fertile and dangerous weapon of attack on various racial, religious
and political minorities. Some states, therefore, have passed statutes to prevent
concerted efforts to harass minority groups in the United States by making it a crime to
circulate insidious rumors against racial and religious groups. Thus far, any civil remedy
for such broadside defamation has been lacking.
 There have been numerous attempts by individual members to seek redress in the courts
for libel on these groups, but very few have succeeded because it felt that the groups are
too large and poorly defined to support a finding that the plaintiff was singled out for
personal attack x x x x (citations omitted).

Our conclusion therefore is that the statements published by petitioners in the instant case did
not specifically identify nor refer to any particular individuals who were purportedly the subject of
the alleged libelous publication. Respondents can scarcely claim to having been singled out for
social censure pointedly resulting in damages.

A contrary view is expressed that what is involved in the present case is an intentional tortious
act causing mental distress and not an action for libel. That opinion invokes Chaplinsky v. New
Hampshire22 where the U.S. Supreme Court held that words heaping extreme profanity, intended
merely to incite hostility, hatred or violence, have no social value and do not enjoy constitutional
protection; and Beauharnais v. Illinois23 where it was also ruled that hate speech which
denigrates a group of persons identified by their religion, race or ethnic origin defames that group
and the law may validly prohibit such speech on the same ground as defamation of an individual.

We do not agree to the contrary view articulated in the immediately preceding paragraph.
Primarily, an "emotional distress" tort action is personal in nature, i.e., it is a civil action filed by
an individual24 to assuage the injuries to his emotional tranquility due to personal attacks on his
character. It has no application in the instant case since no particular individual was identified in
the disputed article of Bulgar. Also, the purported damage caused by the article, assuming there
was any, falls under the principle of relational harm — which includes harm to social relationships
in the community in the form of defamation; as distinguished from the principle of reactive
harm — which includes injuries to individual emotional tranquility in the form of an infliction of
emotional distress. In their complaint, respondents clearly asserted an alleged harm to the
standing of Muslims in the community, especially to their activities in propagating their faith in
Metro Manila and in other non-Muslim communities in the country.25 It is thus beyond cavil that
the present case falls within the application of the relational harm principle of tort actions for
defamation, rather than the reactive harm principle on which the concept of emotional
distress properly belongs.

Moreover, under the Second Restatement of the Law, to recover for the intentional infliction of
emotional distress the plaintiff must show that: (a) The conduct of the defendant was intentional
or in reckless disregard of the plaintiff; (b) The conduct was extreme and outrageous; (c) There
was a causal connection between the defendant's conduct and the plaintiff's mental distress;
and, (d) The plaintiff's mental distress was extreme and severe.26

"Extreme and outrageous conduct" means conduct that is so outrageous in character, and so
extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as
atrocious, and utterly intolerable in civilized society. The defendant's actions must have been so
terrifying as naturally to humiliate, embarrass or frighten the plaintiff.27 Generally, conduct will be
found to be actionable where the recitation of the facts to an average member of the community
would arouse his resentment against the actor, and lead him or her to exclaim, "Outrageous!" as
his or her reaction.28

"Emotional distress" means any highly unpleasant mental reaction such as extreme grief, shame,
humiliation, embarrassment, anger, disappointment, worry, nausea, mental suffering and
anguish, shock, fright, horror, and chagrin.29 "Severe emotional distress," in some jurisdictions,
refers to any type of severe and disabling emotional or mental condition which may be generally
recognized and diagnosed by professionals trained to do so, including posttraumatic stress
disorder, neurosis, psychosis, chronic depression, or phobia.30 The plaintiff is required to show,
among other things, that he or she has suffered emotional distress so severe that no reasonable
person could be expected to endure it; severity of the distress is an element of the cause of
action, not simply a matter of damages.31
Any party seeking recovery for mental anguish must prove more than mere worry, anxiety,
vexation, embarrassment, or anger. Liability does not arise from mere insults, indignities, threats,
annoyances, petty expressions, or other trivialities. In determining whether the tort of outrage had
been committed, a plaintiff is necessarily expected and required to be hardened to a certain
amount of criticism, rough language, and to occasional acts and words that are definitely
inconsiderate and unkind; the mere fact that the actor knows that the other will regard the
conduct as insulting, or will have his feelings hurt, is not enough.32

Hustler Magazine v. Falwell33 illustrates the test case of a civil action for damages on intentional
infliction of emotional distress. A parody appeared in Hustler magazine featuring the American
fundamentalist preacher and evangelist Reverend Jerry Falwell depicting him in an inebriated
state having an incestuous, sexual liaison with his mother in an outhouse. Falwell sued Hustler
and its publisher Larry Flynt for damages. The United States District Court for the Western
District of Virginia ruled that the parody was not libelous, because no reasonable reader would
have understood it as a factual assertion that Falwell engaged in the act described. The jury,
however, awarded $200,000 in damages on a separate count of "intentional infliction of
emotional distress," a cause of action that did not require a false statement of fact to be made.
The United States Supreme Court in a unanimous decision overturned the jury verdict of the
Virginia Court and held that Reverend Falwell may not recover for intentional infliction of
emotional distress. It was argued that the material might be deemed outrageous and may have
been intended to cause severe emotional distress, but these circumstances were not sufficient to
overcome the free speech rights guaranteed under the First Amendment of the United States
Constitution. Simply stated, an intentional tort causing emotional distress must necessarily give
way to the fundamental right to free speech.

It must be observed that although Falwell was regarded by the U.S. High Court as a "public
figure," he was an individual particularly singled out or identified in the parody appearing on
Hustler magazine. Also, the emotional distress allegedly suffered by Reverend Falwell involved a
reactive interest — an emotional response to the parody which supposedly injured his
psychological well-being.

Verily, our position is clear that the conduct of petitioners was not extreme or outrageous. Neither
was the emotional distress allegedly suffered by respondents so severe that no reasonable
person could be expected to endure it. There is no evidence on record that points to that result.

Professor William Prosser, views tort actions on intentional infliction of emotional distress in this
manner34 —

There is virtually unanimous agreement that such ordinary defendants are not liable for
mere insult, indignity, annoyance, or even threats, where the case is lacking in other
circumstances of aggravation. The reasons are not far to seek. Our manners, and with
them our law, have not yet progressed to the point where we are able to afford a remedy
in the form of tort damages for all intended mental disturbance. Liability of course cannot
be extended to every trivial indignity x x x x The plaintiff must necessarily be expected
and required to be hardened to a certain amount of rough language, and to acts that are
definitely inconsiderate and unkind x x x The plaintiff cannot recover merely because of
hurt feelings.

Professor Calvert Magruder reinforces Prosser with this succinct observation, viz:35

There is no occasion for the law to intervene in every case where someone's feelings are
hurt. There must still be freedom to express an unflattering opinion, and some safety
valve must be left through which irascible tempers may blow off relatively harmless
steam.
Thus, it is evident that even American courts are reluctant to adopt a rule of recovery for
emotional harm that would "open up a wide vista of litigation in the field of bad manners," an area
in which a "toughening of the mental hide" was thought to be a more appropriate
remedy.36 Perhaps of greater concern were the questions of causation, proof, and the ability to
accurately assess damages for emotional harm, each of which continues to concern courts
today.37

In this connection, the doctrines in Chaplinsky and Beauharnais had largely been superseded by
subsequent First Amendment doctrines. Back in simpler times in the history of free expression
the Supreme Court appeared to espouse a theory, known as the Two-Class Theory, that treated
certain types of expression as taboo forms of speech, beneath the dignity of the First
Amendment. The most celebrated statement of this view was expressed in Chaplinsky:

There are certain well-defined and narrowly limited classes of speech, the prevention and
punishment of which have never been thought to raise any Constitutional problem. These
include the lewd and obscene, the profane, the libelous, and the insulting or "fighting"
words — those which by their very utterance inflict injury or tend to incite an immediate
breach of the peace. It has been well observed that such utterances are no essential part
of any exposition of ideas, and are of such slight social value as a step to truth that any
benefit that may be derived from them is clearly outweighed by the social interest in order
and morality.

Today, however, the theory is no longer viable; modern First Amendment principles have passed
it by. American courts no longer accept the view that speech may be proscribed merely because
it is "lewd," "profane," "insulting" or otherwise vulgar or offensive. 38 Cohen v. California39 is
illustrative: Paul Robert Cohen wore a jacket bearing the words "Fuck the Draft" in a Los Angeles
courthouse in April 1968, which caused his eventual arrest. Cohen was convicted for violating a
California statute prohibiting any person from "disturb[ing] the peace x x x by offensive conduct."
The U.S. Supreme Court conceded that Cohen's expletive contained in his jacket was "vulgar,"
but it concluded that his speech was nonetheless protected by the right to free speech. It was
neither considered an "incitement" to illegal action nor "obscenity." It did not constitute insulting
or "fighting" words for it had not been directed at a person who was likely to retaliate or at
someone who could not avoid the message. In other words, no one was present in the Los
Angeles courthouse who would have regarded Cohen's speech as a direct personal insult, nor
was there any danger of reactive violence against him.

No specific individual was targeted in the allegedly defamatory words printed on Cohen's jacket.
The conviction could only be justified by California's desire to exercise the broad power in
preserving the cleanliness of discourse in the public sphere, which the U.S. Supreme Court
refused to grant to the State, holding that no objective distinctions can be made between vulgar
and nonvulgar speech, and that the emotive elements of speech are just as essential in the
exercise of this right as the purely cognitive. As Mr. Justice Harlan so eloquently wrote: "[O]ne
man's vulgarity is another man's lyric x x x words are often chosen as much for their emotive as
their cognitive force."40 With Cohen, the U.S. Supreme Court finally laid the Constitutional
foundation for judicial protection of provocative and potentially offensive speech.

Similarly, libelous speech is no longer outside the First Amendment protection. Only one small
piece of the Two-Class Theory in Chaplinsky survives — U.S. courts continue to treat "obscene"
speech as not within the protection of the First Amendment at all. With respect to the "fighting
words" doctrine, while it remains alive it was modified by the current rigorous clear and present
danger test.41 Thus, in Cohen the U.S. Supreme Court in applying the test held that there was no
showing that Cohen's jacket bearing the words "Fuck the Draft" had threatened to provoke
imminent violence; and that protecting the sensibilities of onlookers was not sufficiently
compelling interest to restrain Cohen's speech.
Beauharnais, which closely followed the Chaplinsky doctrine, suffered the same fate
as Chaplinsky. Indeed, when Beauharnais was decided in 1952, the Two-Class Theory was still
flourishing. While concededly the U.S. High Tribunal did not formally abandon Beauharnais, the
seminal shifts in U.S. constitutional jurisprudence substantially undercut Beauharnais and
seriously undermined what is left of its vitality as a precedent. Among the cases that dealt a
crushing impact on Beauharnais and rendered it almost certainly a dead letter case law
are Brandenburg v. Ohio,42 and, again, Cohen v. California.43 These decisions recognize a much
narrower set of permissible grounds for restricting speech than did Beauharnais.44

In Brandenburg, appellant who was a leader of the Ku Klux Klan was convicted under the Ohio
Criminal Syndicalism Statute for advocating the necessity, duty and propriety of crime, sabotage,
violence, or unlawful methods of terrorism as a means of accomplishing industrial or political
reforms; and for voluntarily assembling with a group formed to teach or advocate the doctrines of
criminal syndicalism. Appellant challenged the statute and was sustained by the U.S. Supreme
Court, holding that the advocacy of illegal action becomes punishable only if such advocacy is
directed to inciting or producing imminent lawless action and is likely to incite or produce such
action.45 Except in unusual instances, Brandenburg protects the advocacy of lawlessness as long
as such speech is not translated into action.

The importance of the Brandenburg ruling cannot be overemphasized. Prof. Smolla affirmed that
"Brandenburgmust be understood as overruling Beauharnais and eliminating the possibility of
treating group libel under the same First Amendment standards as individual libel." 46 It may well
be considered as one of the lynchpins of the modern doctrine of free speech, which seeks to give
special protection to politically relevant speech.

In any case, respondents' lack of cause of action cannot be cured by the filing of a class suit. As
correctly pointed out by Mr. Justice Jose C. Vitug during the deliberations, "an element of a class
suit is the adequacy of representation. In determining the question of fair and adequate
representation of members of a class, the court must consider (a) whether the interest of the
named party is coextensive with the interest of the other members of the class; (b) the proportion
of those made parties as it so bears to the total membership of the class; and, (c) any other
factor bearing on the ability of the named party to speak for the rest of the class. 47

The rules require that courts must make sure that the persons intervening should be sufficiently
numerous to fully protect the interests of all concerned. In the present controversy, Islamic
Da'wah Council of the Philippines, Inc., seeks in effect to assert the interests not only of the
Muslims in the Philippines but of the whole Muslim world as well. Private respondents obviously
lack the sufficiency of numbers to represent such a global group; neither have they been able to
demonstrate the identity of their interests with those they seek to represent. Unless it can be
shown that there can be a safe guaranty that those absent will be adequately represented by
those present, a class suit, given its magnitude in this instance, would be unavailing." 48

Likewise on the matter of damages, we agree that "moral damages may be recovered only if the
plaintiff is able to satisfactorily prove the existence of the factual basis for the damages and its
causal connection with the acts complained of,49 and so it must be, as moral damages although
incapable of pecuniary estimation are designed not to impose a penalty but to compensate for
injury sustained and actual damages suffered.50 Exemplary damages, on the other hand, may
only be awarded if claimant is able to establish his right to moral, temperate, liquidated or
compensatory damages.51 Unfortunately, neither of the requirements to sustain an award for
either of these damages would appear to have been adequately established by respondents."

In a pluralistic society like the Philippines where misinformation about another individual's religion
is as commonplace as self-appointed critics of government, it would be more appropriate to
respect the fair criticism of religious principles, including those which may be outrageously
appalling, immensely erroneous, or those couched as fairly informative comments. The greater
danger in our society is the possibility that it may encourage the frequency of suits among
religious fundamentalists, whether Christian, Muslim, Hindu, Buddhist, Jewish, or others. This
would unnecessarily make the civil courts a battleground to assert their spiritual ideas, and
advance their respective religious agenda.

It need not be stressed that this Court has no power to determine which is proper religious
conduct or belief; neither does it have the authority to rule on the merits of one religion over
another, nor declare which belief to uphold or cast asunder, for the validity of religious beliefs or
values are outside the sphere of the judiciary. Such matters are better left for the religious
authorities to address what is rightfully within their doctrine and realm of influence. Courts must
be viewpoint-neutral when it comes to religious matters if only to affirm the neutrality principle of
free speech rights under modern jurisprudence where "[a]ll ideas are treated equal in the eyes of
the First Amendment — even those ideas that are universally condemned and run counter to
constitutional principles."52 Under the right to free speech, "there is no such thing as a false idea.
However pernicious an opinion may seem, we depend for its correction not on the conscience of
judges and juries but on the competition of other ideas."53 Denying certiorari and affirming the
appellate court decision would surely create a chilling effect on the constitutional guarantees of
freedom of speech, of expression, and of the press.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals dated
27 August 1998 is REVERSED and SET ASIDE, and the Decision of the RTC-Br. 4, Manila,
dismissing the complaint for lack of merit, is REINSTATED and AFFIRMED. No pronouncement
as to costs.

SO ORDERED.

Davide, Jr., C .J ., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Corona and

Callejo, Sr., JJ ., concur.
Mendoza, J ., in the result.
Vitug, J ., see concurring opinion.
Panganiban, J ., joins the dissenting opinion of Justice A.T. Carpio.
Carpio, J ., see dissenting opinion.
Austria-Martinez, J ., see dissenting opinion.
Carpio-Morales, J ., joins the dissenting opinion of Justice A.T. Carpio.
Azcuna, J ., joins the dissenting opinion of Justice Austria-Martinez.

Separate Opinions

VITUG, J ., concurring:

The innate right of a person to an unimpaired reputation and good name is no less a
constitutional imperative than that which protects his life, liberty or property. Thus, the law
imposes upon him who attacks another's reputation, by slanderous words or libelous publication,
a liability to make compensation for the injury done and the damages sustained. 1

Private respondent Islamic Da'wah Council of the Philippines, Inc., a federation of more than 70
Muslim religious organizations in the country, and the other named respondents all claim, with
understandable indignation, that they have been defamed by an item published by petitioners
in Bulgar, a tabloid, circulated in the Metro Manila area. The article reads:

"ALAM BA NINYO?
 "Na ang mga baboy at kahit anong uri ng hayop sa Mindanao ay hindi kinakain ng mga
Muslim?

"Para sa kanila ang mga ito ay isang sagradong bagay. Hindi nila ito kailangang kainin
kahit na sila pa ay magutom at mawalan ng ulam sa tuwing sila ay kakain. Ginagawa nila
itong Diyos at sinasamba pa nila ito sa tuwing araw ng kanilang pangingilin lalung-lalo na
sa araw na tinatawag nilang 'Ramadan'."

Private respondents, for themselves and in behalf of all Muslims, filed the complaint before the
trial court against petitioners, alleging that the published article was defamatory and an insult to
respondents. The trial court dismissed the complaint. On appeal, the Court of Appeals reversed
the decision of the lower court and ordered petitioners to pay damages to private respondents.

Aggrieved, petitioners are now before the Court to assail the findings of the Court of Appeals on
the existence of the elements of libel, the right of respondents to institute the class suit, and the
liability of petitioners for moral damages, exemplary damages, attorney's fees and costs of suit.

The present controversy stems from a civil action for damages and not from a criminal complaint.
The Civil Code recognizes the possibility of such a civil action either pursuant to Article 26,
paragraph (4), to the effect that although it may not constitute a criminal offense, "vexing or
humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical
defect, or other personal condition," can give rise to a cause of action for damages, or
consonantly with Article 33 which provides that in case of defamation, a civil complaint for
damages, entirely separate and distinct from the criminal case, may be brought by the injured
party. Both civil actions are based on tort liability under common law and require the plaintiff to
establish that he has suffered personal damage or injury as a direct consequence of the
defendant's wrongful conduct. In fine, it must be shown that the act complained of is vexatious or
defamatory of, and as it pertains to, the claimant, thereby humiliating or besmirching the latter's
dignity and honor.

Defined in simple terms, vexation is an act of annoyance or irritation that causes distress or
agitation.2 Early American cases have refused all remedy for mental injury, such as one caused
by vexation, because of the difficulty of proof or of measurement of damages. 3 In comparatively
recent times, however, the infliction of mental distress as a basis for an independent tort action
has been recognized. It is said that "one who by extreme and outrageous conduct intentionally or
recklessly causes severe emotional distress to another is subject to liability for such emotional
distress."4 Nevertheless, it has also been often held that petty insult or indignity lacks, from its
very nature, any convincing assurance that the asserted emotional or mental distress is genuine,
or that if genuine it is serious.5 Accordingly, it is generally declared that there can be no recovery
for insults,6 indignities or threats7which are considered to amount to nothing more than mere
annoyances or hurt feelings.8 At all events, it would be essential to prove that personal damage is
directly suffered by the plaintiff on account of the wrongful act of the defendant.

A kindred concept, albeit of greater degree of perversity, defamation, broadly defined, is an

attack on the reputation of another, the unprivileged publication of false statements which
naturally and proximately result in injury to another.9 It is that which tends to diminish the esteem,
respect, goodwill or confidence in which a person is held, or to excite adverse, derogatory or
unpleasant feelings or opinions against him.10 Defamation is an invasion of a "relational interest"
since it involves the opinion which others in the community may have, or tend to have, of the
plaintiff.11 The Revised Penal Code, although not the primary governing law in this instance,
provides an instructive definition of libel as being a form of defamation expressed in writing, print,
pictures, or signs,12 to wit: "A libel is a public and malicious imputation of a crime, or vice or
defect, real or imaginary, or any act, omission, condition, status, or circumstance tending to
cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the
memory of one who is dead."13
While arguably, the article subject of the complaint could be characterized as vexatious or
defamatory and as imparting an erroneous interpretation of a Muslim practice that tends to
ridicule the Islamic faith, it is, however, impersonal on its face, its language not being directed at
any particular person but to a large segment of society. In order that defamatory words can be
actionable in court, it is essential that they are personal to the party maligned, an ascertained or
ascertainable individual.14 It is only then that plaintiff's emotions and/or reputation can be said to
have been injured; thus, the plaintiff, to recover, must show that he or she is the person to whom
the statements are directed.15 Declarations made about a large class of people cannot be
interpreted to advert to an identified or identifiable individual. Absent circumstances specifically
pointing or alluding to a particular member of a class, no member of such class has a right of
action16 without at all impairing the equally demanding right of free speech and expression, as
well as of the press, under the bill of rights.17

If an article, for instance, states that "judges in the Philippines are corrupt," such a general
condemnation cannot reasonably be interpreted to be pointing to each judge or to a certain judge
in the Philippines. Thus, no particular magistrate can claim to have been disgraced or to have
sustained an impaired reputation because of that article. If, on the other hand, the article
proclaims that "judges in Metro Manila are corrupt," such statement of derogatory conduct now
refers to a relatively narrow group that might yet warrant its looking into in an appropriate suit.
And if the article accuses the "Justices of the Supreme Court" of corruption, then there is a
specific derogatory statement about a definite number of no more than fifteen persons.

Jurisprudence would appear to suggest that in cases permitting recovery, the group generally
has 25 or fewer members.18 When statements concern groups with larger composition, the
individual members of that group would be hardput to show that the statements are "of and
concerning them."19 Although no precise limits can be set as to the size of a group or class that
would be sufficiently small, increasing size, at some point, would be seen to dilute the harm to
individuals and any resulting injury would fall beneath the threshold for a viable lawsuit. 20 This
principle is said to embrace two important public policies: 1) where the group referred to is large,
the courts presume that no reasonable reader would take the statements as so literally applying
to each individual member; and 2) the limitation on liability would satisfactorily safeguard freedom
of speech and expression, as well as of press, effecting a sound compromise between the
conflicting fundamental interests involved in libel cases.21

Thus, no recovery was allowed where the remarks complained of had been made about
correspondence schools, one school suing;22 or where there was imputation of criminality to a
union, one member suing;23 or where an attack was made on Catholic clergymen, one clergyman
suing.24

In Newsweek, Inc., vs. Intermediate Appellate Court,25 this Court dismissed a class suit for
scurrilous remarks filed by four incorporated associations of sugar planters in Negros Occidental
in behalf of all sugar planters in that province, against Newsweek, Inc., on the ground, among
other things, that the plaintiffs were not sufficiently ascribed to in the article published by the
defendant. And so also it was in an older case,26 where the Court ratiocinated that an article
directed at a class or group of persons in broad language would not be actionable by individuals
composing the class or group unless the statements were sweeping but, even then, it would be
highly probable, said the Court, that no action could lie "where the body is composed of so large
a number of persons that common sense would tell those to whom the publication was made that
there was room for persons connected with the body to pursue an upright and law abiding course
and that it would be unreasonable and absurd to condemn all because of the actions of a part."

In the present case, the subject article relates to the entire Muslim population and not just to the
Islamic Da'wah Council of the Philippines or to any of the individual respondents. There is no
direct reference or allusion to the federation or any of its members, or to any of the individual
complainants. Respondents scarcely can claim having been singled out for social censure
pointedly resulting in damages. Islamic Da'wah Council of the Philippines, Inc., itself, much like
any other artificial being or juridical entity, having existence only in legal contemplation, would be
devoid of any such real feeling or emotion as ordinarily these terms are understood, 27 and it
cannot have that kind of reputation that an individual has that could allow it to sue for damages
based on impinged personal reputation.28

WHEREFORE, I vote to GRANT the petition and to SET ASIDE the assailed decision of the
Court of Appeals, REINSTATING thereby the order of dismissal rendered by the Regional Trial
Court.

Dissenting Opinion

CARPIO, J ., dissenting:

I dissent not because the newspaper article in question is libelous, but because it constitutes an
intentional tortious act causing mental distress to those whom private respondent Islamic Da'wah
Council of the Philippines; Inc. represents.

1. Nature of Action: Not a Libel but a Tort Case

Private respondents filed this class suit under Articles 19, 20, 21 and 26 of the Civil Code.
Accordingly, private respondents stated their case as follows:

"Statement of Case

The Civil Code of the Philippines provides:

'Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due and observe honesty and good faith.' [Art. 19]

'Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.' [Art. 20]

'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.' [Art.
21]

'Every person shall respect the dignity, personality, privacy and peace of mind of his
neighbor and other persons. The following and similar acts, though they may not
constitute a criminal offense, shall produce a cause of action for damages, prevention
and other relief:

(1) Prying into the privacy of another's residence;

(2) Meddling with or disturbing the private life or family relation of another;

(3) Intriguing to cause another to be alienated from his friends;

(4) Vexing or humiliating another on account of his religious belief, lowly station in
life, place of birth, physical defect, or other personal condition.' [Art. 26]
 It is on account of the foregoing provisions of our Civil Code that plaintiffs brought to the
court 'a quo' a civil case for damages on account of a published article at the editorial
section of the defendant newspaper x x x."1

Petitioners acknowledge that private respondents' principal cause of action is based on tortious
conduct when petitioners state in their Petition that "[p]laintiffs rely heavily on Article 26 of the
Civil Code particularly par. 4 thereof." Petitioners, however, assert that the newspaper article in
question has not caused mental anguish, wounded feelings, moral shock, social humiliation or
similar injury to private respondents.2

Clearly, the instant case is not about libel which requires the identification of the plaintiff in the
libelous statement. If this were a libel case under Article 303 of the Civil Code, which authorizes a
separate civil action to recover civil liability arising from a criminal offense, I would agree that the
instant case could not prosper for want of identification of the private respondents as the libeled
persons. But private respondents do not anchor their action on Article 30 of the Civil Code.

Private respondents insist that this case is principally about tortious conduct under Article 26 of
the Civil Code. Unlike the action in Article 30 of the Civil Code which must arise from a "criminal
offense," the action under Article 26 "may not constitute a criminal offense." Article 26, adopted
from American jurisprudence, covers several kinds of intentional torts. Paragraph 4 of Article 26,
which refers to acts humiliating another for his religious beliefs, is embraced in the tort known as
intentional infliction of mental or emotional distress. This case must be decided on the issue of
whether there was such tortious conduct, and not whether there was defamation that satisfied
the elements of the crime of libel.

II. The Tortious Act in Question

The newspaper article in question published by petitioners states as follows:

"ALAM BA NINYO?

Na ang mga baboy at kahit anong uri ng hayop sa Mindanao ay hindi kinakain ng mga
Muslim? Para sa kanila ang mga ito ay isang sagradong bagay. Hindi nila ito kailangang
kainin kahit na sila pa ay magutom at mawalan ng ulam sa tuwing sila kakain. Ginagawa
nila itong Diyos at sinasamba pa nila ito sa tuwing araw ng kanilang pangingilin lalung-
lalo na sa araw na tinatawag nilang 'Ramadan'."

Private respondents claim that the newspaper article, which asserts that Muslims worship the pig
as their god, was published with intent to humiliate and disparage Muslims and cast insult on
Islam as a religion in this country. The publication is not only grossly false, but is also the
complete opposite of what Muslims hold dear in their religion.

The trial court found that the newspaper article clearly imputes a disgraceful act on Muslims.
However, the trial court ruled that the article was not libelous because the article did not identify
or name the plaintiffs. Declared the trial court:

"There is no doubt that the subject article contains an imputation of a discreditable 4 act
when it portrayed the Muslims to be worshipping the pig as their god. Likewise, there is
no doubt that the subject article was published, the newspaper 'Bulgar' containing the
same having been circulated in Metro Manila and in other parts of the country.

The defendants did not dispute these facts x x x However, x x x identity of the person is
not present.
 It must be noted that the persons allegedly defamed, the herein plaintiffs were not
identified with specificity. The subject article was directed at the Muslims without
mentioning or identifying the herein plaintiffs. x x x x."

In their appeal to the Court of Appeals, private respondents assailed the trial court for "deciding
the case as a libel case rather than a case for damages for violation of Articles 19, 20, 21 and 26
of the Civil Code." The Court of Appeals reversed the decision of the trial court not on the basis
of Articles 19, 20, 21 and 26, but on the ground that the newspaper article was libelous. Thus, the
Court of Appeals held:

"It is clear from the disputed article that the defamation was directed at all adherents of
the Islamic faith. It stated that pigs were sacred and idolized as god by members of the
Muslim religion. This libelous imputation undeniably applied to the plaintiffs-appellants
who are Muslims sharing the same religious beliefs."

Thus, both the trial and appellate courts found the newspaper article in question insulting and
humiliating to Muslims, causing wounded feelings and mental anguish to believers of Islam. This
is a finding of fact that the Court is duty bound to respect.5 This finding of fact establishes that
petitioners have inflicted on private respondents an intentional wrongful act — humiliating
persons because of their religious beliefs. Like the trial and appellate courts, we find the
newspaper article in question dripping with extreme profanity, grossly offensive and manifestly
outrageous, and devoid of any social value. The article evidently incites religious hatred,
discrimination and hostility against Muslims.

Private respondents have certainly suffered humiliation and mental distress because of their
religious beliefs. The only question is whether the wrongful act committed by petitioners, which
does not constitute the crime of libel, is a case of damnum absque injuria or an actionable tort
under paragraph 4, Article 26 of the Civil Code.

III. Why Article 26 of the Civil Code was Enacted

The Code Commission explained the inclusion of Article 26 in the Civil Code in this wise:

"The present laws, criminal or civil, do not adequately cope with interferences and
vexations mentioned in Article 26.

The privacy of one's home is an inviolable right. Yet the laws in force do not squarely and
effectively protect this right.

The acts referred to in No. 2 are multifarious, and yet many of them are not within the
purview of the law in force. Alienation of the affection of another's wife or husband, unless
it constituted adultery or concubinage, is not condemned by the law, much as it may
shock society. There are numerous acts, short of criminal unfaithfulness, whereby the
husband or the wife breaks the marital vows, thus causing untold moral suffering to the
other spouse. Why should not these acts be the subject matter of a civil action for
damages? In American law, they are.

Again, there is meddling of so-called friends who poison the mind of one or more
members of the family against the other members. In this manner many a happy family is
broken up or estranged. Why should not the law try to stop this by creating a civil action
for damages?

Of the same nature is that class of acts specified in No. 3: intriguing to cause another to
be alienated from his friends.
 No less serious are the acts mentioned in No. 4: vexing, or humiliating another on
account of his religious beliefs, lowly station in life, place of birth, physical defect or other
personal condition. The penal laws against defamation and unjust vexation are glaringly
inadequate.

Religious freedom does not authorize anyone to heap obloquy and disrepute upon
another by reason of the latter's religion.

Not a few of the rich people treat the poor with contempt because of the latter's lowly
station in life. To a certain extent this is inevitable, from the nature of the social make-up,
but there ought to be a limit somewhere, even when the penal laws against defamation
and unjust vexation are not transgressed. In a democracy, such a limit must be
established. The courts will recognize it in each case. Social equality is not sought by the
legal provision under consideration, but due regard for decency and propriety.

Place of birth, of physical defect and other personal conditions are too often the pretext of
humiliation cast upon other persons. Such tampering with human personality, even
though the penal laws are not violated, should be the cause of civil action.

The article under study denounces "similar acts" which could readily be named, for they
occur with unpleasant frequency."6 (Emphasis supplied)

The intent of the Code Commission is quite clear: Article 26 specifically applies to intentional
acts which fall short of being criminal offenses. Article 24 itself expressly refers to tortious
conduct which "may not constitute criminal offenses." The purpose is precisely to fill a gap
or lacuna in the law where a person who suffers injury because of a wrongful act not constituting
a crime is left without any redress. Under Article 26, the person responsible for such act becomes
liable for "damages, prevention and other relief." In short, to preserve peace and harmony in the
family and in the community, Article 26 seeks to eliminate cases of damnum absque injuria in
human relations.

Consequently, the elements that qualify the same acts as criminal offenses do not apply in
determining responsibility for tortious conduct under Article 26. Where the tortious act humiliating
another because of his religious beliefs is published in a newspaper, the elements of the crime of
libel need not be satisfied before the aggrieved person can recover damages under Article 26. In
intentional tort under Article 26, the offensive statements may not even be published or
broadcasted but merely hurled privately at the offended party.

In intentional infliction of mental distress, the gravamen of the tort is not the injury to plaintiff's
reputation, but the harm to plaintiff's mental and emotional state. In libel, the gist of the action is
the injury to plaintiff's reputation. Reputation is the community's opinion of what a person is. 7 In
intentional infliction of mental distress, the opinion of the community is immaterial to the
existence of the action although the court can consider it in awarding damages. What is material
is the disturbance on the-mental or emotional state of the plaintiff who is entitled to peace of
mind. The offensive act or statement need not identify specifically the plaintiff as the object of the
humiliation. What is important is that the plaintiff actually suffers mental or emotional distress
because he saw the act or read the statement and it alludes to an identifiable group to which he
clearly belongs.

If one of the petitioners, without specifically naming private respondents, hurled the same
statement in private separately to each of the private respondents, the act would be actionable
under Article 26 because it would cause mental distress to each private respondent. The fact that
the statement was made publicly in fact makes matters worse because the mental or emotional
distress caused on private respondents would even be aggravated by the publicity. This merely
illustrates that the requirements of libel have no application in intentional torts under Article 26
where the impression of the public is immaterial while the impact on the mind or emotion of the
offended party is all-important. That is why in American jurisprudence the tort of intentional
infliction of mental or emotional distress is completely separate and distinct 8 from the twin torts of
libel and slander.9

The majority opinion, however, cites the U.S. Supreme Court decision in Hustler Magazine v.
Falwell10 as authority that a person "may not recover for intentional infliction of emotional distress
arising from a publication unless the publication contained a false statement of fact that was
made with actual malice, that is, with a knowledge of falsity or reckless disregard for the truth."
The majority opinion's reliance on Hustler is misplaced. The doctrine in Hustlerapplies only to
public figures, and the U.S. Supreme Court found that "respondent Falwell is a 'public figure' for
purposes of First Amendment law." The U.S. Supreme Court held in Hustler that —

"We conclude that public figures and public officials may not recover for the tort of
intentional infliction of emotional distress by reason of publication such as the one here at
issue without 'a showing in addition that the publication contains a false statement of fact
which was made with 'actual malice,' i.e., with knowledge that the statement was false or
with reckless disregard as to whether or not it was true. x x x." (Emphasis supplied)

Evidently, Hustler allows recovery for intentional infliction of emotional distress if the aggrieved
party is a private person and not a public figure even if there is no showing that the false
statement was made with actual malice. In the instant case, private respondents are not public
figures or public officials but ordinary private individuals represented by private respondent
Islamic Da'wah Council of the Philippines, Inc.

IV. Constitutional Guarantee of 'Full Respect for Human Rights'

The 1987 Constitution provides that "[t]he State values the dignity of every human person and
guarantees full respect for human rights."11 The Constitution created a Commission on Human
Rights with the function, among others, to "[M]onitor the Philippine Government's compliance
with international treaty obligations on human rights."12 The framers of the Constitution made it
clear that the term "human rights" as used in the Constitution referred to the civil and political
rights embodied in the International Covenant on Civil and Political Rights 13 to which the
Philippines is a signatory. This is clear from the following exchange in the deliberations of the
Constitutional Commission:

"MR. GARCIA: But it does not mean that we will refer to each and every specific article
therein, but only to those that pertain to the civil and politically related, as we understand
it in this Commission on Human Rights.

MR. GUINGONA: Madam President, I am not clear as to the distinction between social
and civil rights.

MR. GARCIA: There are two international covenants: the International Covenant (on)
Civil and Political Rights and the International Covenant on Economic, Social and
Cultural Rights. The second covenant contains all the different rights — the rights of labor
to organize, the right to education, housing, shelter, etcetera.

MR. GUINGONA: So we are just limiting at the moment the sense of the committee to
those the Gentleman has specified.

MR. GARCIA: Yes, to civil and political rights.

MR. GUINGONA: Thank you."14 (Emphasis supplied)

Article 20 (2) of the International Covenant on Civil and Political Rights provides that "[a]ny
advocacy of x x xreligious hatred that constitutes incitement to discrimination, hostility or violence
shall be prohibited by law." The Human Rights Committee created under the Covenant, in its
1983 Nineteenth Session, reported to member states that:

"1. x x x In view of the nature of article 20, States parties are obliged to adopt the
necessary legislative measures prohibiting the actions referred to therein. However, the
reports have shown that in some States such actions are neither prohibited by law nor
are appropriate efforts intended or made to prohibit them. Further, many reports failed to
give sufficient information concerning the relevant national legislation and practice.

2. x x x For article 20 to become fully effective there ought to be a law making it clear that
propaganda and advocacy as described therein are contrary to public policy and
providing for an appropriate sanction in case of violation. x x x ."15

The Covenant, being an international treaty to which the Philippines is a signatory, is part of the
country's municipal law.16 The Covenant carries great weight in the interpretation of the scope
and meaning of the term "human rights" as used in the Constitution. Unquestionably, the framers
of the Constitution intentionally referred to the civil and political rights embraced in the Covenant
in describing the term "human rights." The Constitution even mandates the independent
Commission on Human Rights to monitor the compliance of the Philippine Government, which
includes the judiciary, with its treaty obligations under the Covenant.

Paragraph 4, Article 26 of the Civil Code makes civilly liable any person who humiliates another
because of his religious beliefs. This is just a soft prohibition of advocacy of religious hatred that
incites discrimination, hostility or violence, the act the Covenant seeks to curb and which the
Philippine Government has undertaken to declare unlawful. Other countries that signed the
Covenant have criminalized the acts prohibited under the Covenant. Since our ratification of the
Covenant in 1986, the Philippines has not enacted any special legislation to enforce the
provisions of the Covenant, on the ground that existing laws are adequate to meet the
requirements of the Covenant. There is no other law, except paragraph 4, Article 26 of the Civil
Code, that can provide a sanction against intentional conduct, falling short of a criminal act,
advocating religious hatred that incites hostility between Muslims and Christians in this country.

If we are to comply in good faith with our treaty obligations under the Covenant, as the
Constitution expressly mandates the Philippine Government, we must give redress under Article
26 to the outrageous profanity suffered by private respondents. Our Constitution adopts the
generally accepted principles of international law as part of the law of the land. Pacta sunt
servanda — every treaty in force binds the parties who must comply with the treaty in good
faith17 — is one such principle. Thus, if we refuse to apply Article 26 to the instant case, then we
admit that we have no law to enforce the Covenant. In effect, we admit non-compliance with the
Covenant.

The Supreme Court of Canada, in interpreting Canada's obligation under the Covenant,
explained in R. v. Keegstra:18

"C.E.R.D. (Convention on the Elimination of All Forms of Racial Discrimination) and

I.C.C.P.R. (International Covenant on Civil and Political Rights) demonstrate that the
prohibition of hate promoting expression is considered to be not only compatible with a
signatory nation's guarantee of human rights, but is as well an obligatory aspect of this
guarantee. Decisions under the European Convention for the Protection of Human Rights
and Fundamental Freedoms are also of aid in illustrating the tenor of the international
community's approach to hate propaganda and free expression. This is not to deny that
finding the correct balance between prohibiting hate propaganda and ensuring freedom
of expression has been a source of debate internationally (see, e.g., Nathan Lerner, The
U.N. Convention on the Elimination of All Forms of Racial Discrimination (1980), at pp.
 43-54). But despite debate Canada, along with other members of the international
community, has indicated a commitment to prohibiting hate propaganda, and in my
opinion this court must have regard to that commitment in investigating the nature of the
government objective behind s. 319(2) of the Criminal Code. That the international
community has collectively acted to condemn hate propaganda, and to oblige State
Parties to C.E.R.D. and I.C.C.P.R. to prohibit such expression, thus emphasizes the
importance of the objective behind s. 319(2) and the principles of equality and the
inherent dignity of all persons that infuse both international human rights and the
Charter."

As a signatory to the Covenant, the Philippines is, like, Canada, obligated under international law
and the 1987 Constitution to protect the inherent dignity and human rights of all its citizens.

V. Freedom of Expression and Profane Utterances

The blatant profanity contained in the newspaper article in question is not the speech that is
protected by the constitutional guarantee of freedom of expression. Words that heap extreme
profanity, intended merely to incite hostility, hatred or violence, have no social value and do not
enjoy constitutional protection. As explained by the United States Supreme Court in the landmark
case of Chaplinsky v. New Hampshire:19

"Allowing the broadest scope to the language and purpose of the Fourteenth
Amendment, it is well understood that the right of free speech is not absolute at all times
and under all circumstances. There are certain well-defined and narrowly limited classes
of speech, the prevention and punishment of which has never been thought to raise any
Constitutional problem. These include the lewd and obscene, the profane, the libelous,
and the insulting or 'fighting' words — those which by their very utterance inflict injury or
tend to incite an immediate breach of the peace. It has been well observed that such
utterances are no essential part of any exposition of ideas, and are of such slight social
value as a step to truth that any benefit that may be derived from them is clearly
outweighed by the social interest in order and morality. Resort to epithets or personal
abuse is not in any proper sense communication of information or opinion safeguarded
by the Constitution, and its punishment as a criminal act would raise no question under
that instrument." (Emphasis supplied)

Chaplinsky expressly includes profane utterances as belonging to the narrowly limited classes of
speech that are not constitutionally protected. Profane utterances, like asserting that Muslims
worship the pig as their God, have no social value meriting constitutional protection. Black's Law
Dictionary (6th Ed.) defines the words "profane" and "profanity" as follows:

"Profane. Irreverence toward God or holy things. Writing, speaking, or acting, in manifest
or implied contempt of sacred things. Town of Torrington v. Taylor, 59 Wyo. 109, 137 P.2d
621, 624; Duncan v. U.S., C.C.A. Or., 48 F.2d 128, 133. That which has not been
consecrated."

"Profanity. Irreverence towards sacred things; particularly, an irreverent and

blasphemous use of the name of God. Vulgar, irreverent, or coarse language. It is a
federal offense to utter an obscene, indecent, or profane language on radio. 18 U.S.C.A.
§ 1464. See also Obscenity."

The majority opinion states that the doctrine in Chaplinsky "had largely been superseded by
subsequent First Amendment doctrines." The majority opinion then cites the 1971 case of Cohen
v. California 20 as an "illustrative" case that "American courts no longer accept the view that
speech may be proscribed merely because it is 'lewd,' 'profane,' 'insulting' or otherwise vulgar or
offensive." However, Hustler Magazine v. Falwell,21 a 1988 case which the majority opinion also
cites, clearly explains the state of American law on this matter, thus:
 "Admittedly, these oft-repeated First Amendment principles, like other principles, are
subject to limitations. We recognized in Pacifica Foundation that speech that is 'vulgar,
offensive, and shocking' is 'not entitled to absolute constitutional protection under all
circumstances.' In Chaplinsky v. New Hampshire, we held that that a State could lawfully
punish an individual for the use of insulting 'fighting words' — those which by their very
utterance inflict injury or tend to incite an immediate breach of the peace.' These
limitations are but recognition of the observation in Dun & Bradstreet, Inc. v. Greenmoss
Builders, Inc. 472 U.S. 749 (1985) that this Court has 'long recognized that not all speech
is of equal First Amendment importance.' x x x ." [other citations omitted] x x x."

Indeed, while democratic societies maintain a deep commitment to the principle that debate on
public issues should be uninhibited, robust and wide open, this free debate has never been
meant to include libelous, obscene or profane utterances against private individuals. 22 Clearly, the
newspaper article in question, dripping with extreme profanity, does not enjoy the protection of
the constitutional guarantee of freedom of speech.

VI. Court's Duty and Power to Enforce Constitutional Rights

The 1987 Constitution has conferred on the Court the power to "[p]romulgate rules concerning
the protection and enforcement of constitutional rights." This is an innovation in the 1987
Constitution to insure, in the words of former Chief Justice Roberto R. Concepcion, one of the
framers of the Constitution, that "the protection and enforcement of these constitutional rights is
something that the courts have to consider in the exercise of their judicial power. 23 This provision
stresses that constitutional rights, whether found in the Bill of Rights or in other provisions of the
Constitution like in the Declaration of Principles and State Policies, are "not merely declaratory
but are also enforceable."24

One such right, the enforcement and protection of which is expressly guaranteed by the State
under the Constitution, is the right to "full respect for human rights." The trial and appellate courts
have found that private respondents' religious beliefs and practices have been twisted, ridiculed
and vilified by petitioners. This is a clear violation of the human rights of private respondents
under the Constitution and the International Covenant on Civil and Political Rights. It now
becomes the duty of the Court, as the guardian of the fundamental rights of the people, to
exercise its power to protect and enforce the constitutional rights of private respondents.

The Court, pursuant to its rule making power, can require that in actions like the instant case, the
plaintiffs must bring a class suit. This will avoid multiplicity of suits considering the numerous
potential plaintiffs all over the country. A judgment in a class suit, whether favorable or
unfavorable to the class, is binding under the res judicataprinciple on all members of the class
whether or not they were before the court.25 This rule will address the fear that cases will swamp
the courts all over the country if profanities against religious groups are made actionable under
Article 26.

VII. The Special Circumstance of Muslim Secession in the South

Limitations on freedom of expression have always been rooted on special circumstances

confronting a society in its historical development. In the 1950s, faced with rising racial tension in
American society, the U.S Supreme Court ruled in Beauharnais v. Illinois26 that hate speech
which denigrates a group of persons defined by their religion, race or ethnic origin defames that
group and the law may validly prohibit such speech on the same ground as defamation of an
individual. This was the only time that the U.S. Supreme Court upheld group libel, and since
then, there has been a consistent retreat from this doctrine as blacks and other ethnic groups
became more assimilated into the mainstream of American society. Beauharnais expressly
acknowledged that race riots and massive immigration of unassimilated ethnic groups justified
the legislature in "punishing x x x libels directed at designated collectives and flagrantly
disseminated."
The majority opinion states also that Beauharnais has been superseded by Brandenburg v.
Ohio."27 The majority opinion explains that Brandenburg, a 1969 decision, ruled that "advocacy of
illegal action becomes punishable only if such advocacy is directed to inciting or producing
imminent lawless action and is likely to incite or produce such action." While Beauharnais has
been apparently weakened by subsequent decisions of the U.S. Supreme Court, it was not
overturned in Brandenburg which did not even cite or mention Beauharnais.
What Brandenburgoverturned was Whitney v. California,28 thus —

"Accordingly, we are here confronted with a statute which, by its own words and as
applied, purports to punish mere advocacy and to forbid, on pain of criminal punishment,
assembly with others merely to advocate the described type of action. Such a statute
falls within the condemnation of the First and Fourteenth Amendments. The contrary
teaching of Whitney v. California, supra, cannot be supported, and that decision is
therefore overruled." (Emphasis supplied)

In any event, Brandenburg involved the constitutionality of a criminal statute which sought to
punish the mere advocacy of violence as a means to accomplish industrial or political reform.
This is distinctly different from the instant case, which involves profane utterances that have long
been recognized as devoid of social value and outside the purview of constitutionally protected
speech.29

In 1990, the Canadian Supreme Court, in R. v. Keegstra,30 upheld a law criminalizing hate
speech toward any section of the public distinguished by color, race, religion or ethnic origin. The
Canadian Supreme Court rejected the clear and present danger test of the U.S. Supreme Court,
stating that it did not address the psychological trauma hate propaganda causes and the subtle
and incremental way hate propaganda works. The Canadian Supreme Court found the U.S.
Supreme Court's Beauharnais decision more reflective of Canadian values rather than later U.S.
decisions that weakened Beauharnais. The Canadian Supreme Court handed down Keegstra at
a time when Canada was becoming a multi-racial society following the influx of immigrants of
different color, ethnic origin and religion. The following passages in Keegstra are instructive:

"A myriad of sources — both judicial and academic — offer reviews of First Amendment
jurisprudence as it pertains to hate propaganda. Central to most discussions is the 1952
case of Beauharnais v. Illinois, where the Supreme Court of the United States upheld as
constitutional a criminal statute forbidding certain types of group defamation. Though
never overruled, Beauharnais appears to have been weakened by later pronouncements
of the Supreme Court (see, e.g., Garrison v. Louisiana, 379 U.S. 64 (1964); Ashton v.
Kentucky, 384 U.S. 195 (1966); New York Times Co. v. Sullivan, 376 U.S. 254
1964); Brandenburg v. Ohio, 395 U.S. 444 (1969); and Cohen v. California, 403 U.S. 15
(1971)). The trend reflected in many of these pronouncements is to protect offensive,
public invective as long as the speaker has not knowingly lied and there exists no clear
and present danger of violence or insurrection.

xxx xxx xxx

The question that concerns us in this appeal is not, of course, what the law is or should
be in the United States. But it is important to be explicit as to the reasons why or why not
American jurisprudence may be useful in the s. 1 analysis of s. 319(2) of the Criminal
Code. In the United States, a collection of fundamental rights has been constitutionally
protected for over 200 years. The resulting practical and theoretical experience is
immense, and should not be overlooked by Canadian courts. On the other hand, we must
examine American constitutional law with a critical eye, and in this respect La Forest J.
has noted in R. v. Rahey, (1987) 1 S.C.R. 588 at 639:

'While it is natural and even desirable for Canadian courts to refer to American
constitutional jurisprudence in seeking to elucidate the meaning of Charter
 guarantees that have counterparts in the United States Constitution, they should
be wary of drawing too ready a parallel between constitutions born to different
countries in different ages and in very different circumstances. . .'

Canada and the United States are not alike in every way, nor have the documents
entrenching human rights in our two countries arisen in the same context. It is only
common sense to recognize that, just as similarities will justify borrowing from the
American experience, differences may require that Canada's constitutional vision depart
from that endorsed in the United States." (Other citations omitted)

xxx xxx xxx

First, it is not entirely clear that Beauharnais must conflict with existing First Amendment
doctrine. Credible arguments have been made that later Supreme Court cases do not
necessarily erode its legitimacy (see, e.g., Kenneth Lasson, "Racial Defamation as Free
Speech: Abusing the First Amendment" (1985), 17 Colum. Human Rights L. Rev. 11).
Indeed, there exists a growing body of academic writing in the United States which
evinces a stronger focus upon the way in which hate propaganda can undermine the very
values which free speech is said to protect. This body of writing is receptive to the idea
that, were the issue addressed from this new perspective, First Amendment doctrine
might be able to accommodate statutes prohibiting hate propaganda (see, e.g., Richard
Delgado, "Words That Wound: A Tort Action for Racial Insults, Epithets, and Name-
Calling" (1982), 17 Harv. C.R.-C.L. Law Rev. 133; Irving Horowitz, "Skokie, the ACLU and
the Endurance of Democratic Theory" (1979), 43 Law & Contemp. Prob. 328; Lasson, op.
cit., at pp. 20–30; Mari Matsuda, "Public Response to Racist Speech: Considering the
Victim's Story," (1989), 87 Mich. L. Rev. 2320, at p. 2348; "Doe v. University of Michigan:
First Amendment — Racist and Sexist Expression on Campus — Court Strikes Down
University Limits on Hate Speech" (1990), 103 Harv. L. Rev. 1397)."

In deciding Keegstra, the Canadian Supreme Court also relied on Canada's treaty obligations
under the United Nations International Covenant on Civil and Political Rights which requires
signatory states to prohibit any "advocacy of x x x religious hatred that constitutes incitement to
discrimination, hostility or violence." During the negotiations of the Covenant, the United States
objected to this provision on free speech grounds. When it finally ratified the Covenant, the
United States made a reservation rejecting this provision insofar as it conflicts with U.S.
constitutional protections.31 The Covenant opened for ratification on December 19, 1966 and
entered into force on March 23, 1976. The Philippines ratified the Covenant in 1986 without any
reservation, just like Canada. The 1987 Constitution of the Philippines even created a
Commission on Human Rights to "[M]onitor the Philippine Government's compliance with
international treaty obligations on human rights." Obviously, Canada and the Philippines are alike
in their obligations under the Covenant, but the United States is differently situated. 32

In our country, there has been a long festering and bloody Muslim secessionist movement in the
South, fueled not only by poverty but also by the palpable feeling among Muslims that the
Christian majority is not treating Muslims fairly. Private respondents in the instant case, despite
the outrageous profanity hurled at them by petitioners, chose not to join their secessionist
brethren in the armed struggle but instead decided to petition our courts for legal redress of their
grievance. They could have easily retaliated by flinging their own blasphemous invectives against
the Christian religion. They did not, realizing perhaps that answering profanity with more profanity
would mean answering hatred with more hatred, further dividing rather than unifying the Filipino
nation.

Just last November of 2002, a Christian newspaper in Nigeria where the Miss World contest was
being held opined that the Prophet Mohammed would have approved of the beauty contest. The
newspaper stated: "What would Mohammed think? In all honesty, he would have probably
chosen a wife from one of them." These words provoked bloody rioting in Nigeria among Muslims
who felt insulted by the article. Hundreds died in the religious riots. Yet the offensive article in the
Nigerian newspaper pales in comparison to the utterly profane newspaper article in the instant
case.

Indeed, private respondent Islamic Da'wah Council of the Philippines, a federation of more than
70 Muslim religious organizations in the Philippines, deserves commendation for bringing this
case before our courts for a peaceful and legal resolution of the issue. Private respondents have
placed their trust and faith in our courts, knowing and insisting that they are entitled to a just
remedy under paragraph 4, Article 26 of the Civil Code. It is time to breathe life to this long
dormant provision of the Civil Code, to give even just a token redress to religious minorities who
suffer mental and emotional distress from mindless profanity committed by irresponsible persons
belonging to the religious majority. In the process we will contribute in avoiding a further cleavage
in the fabric of our nation, and demonstrate to our Muslim brothers that their grievances can be
redressed under the rule of law.

The instant case does not even call for a re-examination of the clear and present danger test
which we have adopted in this jurisdiction in determining the constitutionality of legislation that
impinges on civil liberties.33 Even under the clear and present danger test, profane utterances are
not constitutionally protected at least with respect to profanities directed against private
individuals. The special circumstance involving the Muslim secessionist movement in the South
should make us more sensitive to the grievances of our Muslim brothers who continue to have
faith in the rule of law in this country.

Since the peace of mind of private respondents has been violated by the publication of the
profane article in question, Article 26 of the Civil Code mandates that the tortious conduct "shall
produce a cause of action for damages, prevention and other relief." Article 2219 of the same
Code provides that "[M]oral damages may be recovered in x x x actions referred to in Articles 21,
26 x x x ." Private respondents are entitled to moral damages because, as duly established by
the testimonies of prominent Muslims,34 private respondents suffered emotional distress which
was evidently the proximate result of the petitioners' wrongful publication of the article in
question.35

VII. Conclusion

Almost thirty years ago, I had occasion to write about Article 26 in this wise:

"At the time Article 26 was lifted by the Code Commission from American jurisprudence,
many of the rights embodied therein were not yet widely accepted by American courts,
and in fact even now at least one, the right to privacy, is still struggling to gain recognition
in some states. While we have been quick to leapfrog American state decisions in
recognizing such rights, we have, however, been painfully slow in galvanizing the same
in actual cases. To date Article 26 stands almost as a mere decorative provision in our
statutes; but it may be harnessed fruitfully anytime." 36

Now is the time to apply this provision of law since the instant case falls clearly within paragraph
4 of Article 26. Applying Article 26 will not undermine freedom of speech since the profane
publication in question belongs to the class of speech that clearly does not enjoy constitutional
protection. Applying Article 26 demonstrates good faith compliance with our treaty obligations
under the International Covenant on Civil and Political Rights. Applying Article 26 implements the
constitutional policy that the "State values the dignity of every human person and guarantees full
respect for human rights." Applying Article 26 constitutes compliance by the Court of its
constitutional duty to protect and enforce constitutional rights. Applying Article 26 will help bind
the wounds that mindless profanities inflict on religious minorities in violation of their human
rights.
Accordingly, I vote to dismiss the petition and affirm the award by the Court of Appeals of
P50,000.00 moral damages, P10,000.00 exemplary damages, and P10,000.00 attorney's fees to
respondent Islamic Da'wah Council of the Philippines, Inc. based on paragraph 4, Article 26 of
the Civil Code.

Dissenting Opinion

AUSTRIA-MARTINEZ, J., dissenting:

I vote to affirm the assailed decision of the Court of Appeals with certain modifications.

For a proper perspective of the issues involved in the present petition, it must be emphasized
that the portion of the subject article which alludes to the Muslims as not eating pork because it is
dirty is not the bone of contention of respondents, because admittedly, the Muslims may eat pork
if driven by necessity, as expressed in the Quran, to wit:

"Allah has forbidden you only what dies of itself and blood and the flesh of swine and that
over which any other (name) than (that of) Allah has been invoked. Then, whoever is
driven by necessity, not desiring, nor exceeding the limit, no sin is upon him." 1

The focal point of private respondents' claim for damages is the insult heaped upon them
because of the malicious publication that the Muslims worship the pig as their God which is
absolutely contrary to their basic belief as Muslims that there is only one God they call Allah, and,
that the greatest sin in Islam is to worship things or persons other than Allah. 2

Petitioners are liable for damages both under Articles 33 and 26(4) of the Civil Code. The
instances that can be brought under Article 26 may also be subject to an action for defamation
under Article 33. In such a case, the action brought under Article 26 is an alternative remedy, and
the plaintiff can proceed upon either theory, or both, although he can have but one recovery for a
single instance of publicity.3

Article 33 of the Civil Code provides:

"Article 33. In cases of defamation, fraud and physical injuries, a civil action for damages,
entirely separate and distinct from the criminal action, may be brought by the injured
party. Such civil action shall proceed independently of the criminal prosecution, and shall
require only a preponderance of evidence." (Emphasis supplied)

Necessarily, Article 353 of the Revised Penal Code comes into play. In the present civil case, it is
necessary that respondents are able to establish by preponderance of evidence the following
elements of defamation:

"1. That there must be an imputation of a crime, or of a vice or defect, real or imaginary,
or any act, omission, condition, status, or circumstance.

"2. That the imputation must be made publicly.

"3. That it must be malicious.

"4. That the imputation must be directed at a natural or juridical person, or one who
is dead.
 "5. That the imputation must tend to cause the dishonor, discredit or contempt of the
person defamed."4

An allegation is considered defamatory if it ascribes to a person the commission of a crime, the

possession of a vice or defect, real or imaginary, or any act, omission, condition, status
or circumstance which tends to dishonor or discredit or put him in contempt, or which tends to
blacken the memory of one who is dead.5

As a general rule, words, written or printed, are libelous per se if they tend to expose a person to
public hatred, contempt, ridicule, aversion, or disgrace, induce an evil opinion of him in the minds
of right thinking persons, and deprive him of their friendly intercourse in society, regardless of
whether they actually produce such results.6Otherwise stated; words published are libelous if
they discredit plaintiff in the minds of any considerable and respectable class in the community,
taking into consideration the emotions, prejudices, and intolerance of mankind. 7 It has been held
that it is not necessary that the published statements make all or even a majority of those who
read them think any less of the person defamed, but it is enough if a noticeable part of those who
do read the statements are made to hate, despise, scorn or be contemptuous of the person
concerning whom the false statements are published.8

Thus, in order to be libelous per se, the defamatory words must be of such a nature that the court
can presume as a matter of law that they will tend to disgrace and degrade the person or hold
him up to public hatred, contempt, ridicule or cause him to be shunned and avoided; in other
words, they must reflect on his integrity, his character, and his good name and standing in the
community, and tend to expose him to public hatred, contempt, or disgrace.9 The imputation must
be one which tends to affect plaintiff in a class of society whose standard of opinion the court can
recognize.10 It is not sufficient, standing alone, that the language is unpleasant and annoys or irks
plaintiff, and subjects him to jests or banter, so as to affect his feelings. 11

In the present case, it is evident that the subject article attributes a discreditable or dishonorable
act or condition to all Muslims in general, a derision of the religious beliefs of the Muslims and of
the objectives of respondent Council to herald the truth about Islam, in particular. The portion of
the assailed article which declares that the Muslims worship the pigs as God is obnoxiously
contrary to the basic belief of the Muslims.

Thus, the article is not only an imputation of irreligious conduct but also a downright
misrepresentation of the religious beliefs of Muslims. It has been held that scandalous matter is
not necessary to make a libel; it is enough if the defendant induces an ill opinion to be held of the
plaintiff, or to make him contemptible or ridiculous; 12 or that the imputation tends to cause
dishonor, discredit or contempt of the offended party.13

Petitioners' stance that the article "Alam Ba Ninyo?" is but an expression of belief or opinion does
not justify said publication. It cannot be considered as a mere information being disseminated.
Petitioners' defense that the article itself was merely a contribution of a reader, or that the writer
was soliciting opinion from the readers, does not hold water, since the article did not in any way
refer to such circumstance. Verily, the article, read as a whole with the other paragraphs, calls
the attention of the readers to a statement of fact, not fiction, and that the writer speaks with
authority on the subject matter. Bulgar in fact prides itself as being the "Pahayagan Ng
Katotohanan".

Significantly, liability for libel does not depend on the intention of the defamer, but on the fact of
the defamation.14In matters of libel, the question is not what the writer of an alleged libel means,
but what is the meaning of the words he has used.15 The meaning of the writer is quite
immaterial. The question is, not what the writer meant, but what he conveyed to those who heard
or read.16
In other words, it is not the intention of the speaker or writer, or the understanding of the plaintiff
or of any particular hearer or reader, by which the actionable quality of the words is to be
determined. It is the meaning that the words in fact conveyed, rather than the effect which the
language complained of was fairly calculated to produce and would naturally produce on the
minds of persons of reasonable understanding, discretion, and candor, taking into consideration
accompanying explanations and surrounding circumstances which were known to the hearer or
reader. The alleged defamatory statement should be construed not only as to the expression
used but also with respect to the whole scope and apparent object of the writer. 17

Want of intention to vilify does not render an objectionable publication any the less a libel and a
publication is not excused by the publisher's ignorance that it contains libelous matter. 18 The state
of mind of the person who publishes a libel is immaterial in determining liability. The law looks at
the tendency and consequences of the publication rather than the motive or intention of the
writer or publisher.19 It does not signify what the motive of the person publishing the libel was, or
whether he intended it to have a libelous meaning or not.20 The defendant may not have intended
to injure the plaintiff's reputation at all and he may have published the words by mistake or
inadvertence,21 or in jest, or without intending to refer, or knowing that he was referring, to the
plaintiff, or any existing person, or again he may have been actuated by the best motives in
publishing the words, but such facts will usually afford the defendant no defense, though they
may be urged in mitigation of damages.22

Tested with the foregoing principles of law, there is no doubt that the article in question is
defamatory under Article 33 of the Civil Code. If the imputation is defamatory, 23 the Court has
held that malice is presumed and the burden of overcoming the presumption of malice by mere
preponderance of evidence rested on the petitioners.

A careful examination of the records of the case does not reveal any cogent reason that would
set aside the presumption of malice. In fact, there is convincing evidence that the publication of
the assailed article was malicious, as more extensively discussed in the latter portion of herein
opinion.

Furthermore, there is no showing that the instant case falls under any of the exceptions provided
for in Article 354 of the Revised Penal Code, to wit:

"Art. 354. Requirement of publicity. — Every defamatory imputation is presumed to be

malicious, even if it be true, if no good intention and justifiable motive for making it is
shown, except in the following cases:

"1. A private communication made by any person to another in the performance of any
legal, moral or social duty; and

"2. A fair and true report, made in good faith, without any comments or remarks, of any
judicial, legislative or other official proceedings which are not of confidential nature, or of
any statement, report or speech delivered in said proceedings, or of any other act
performed by public officers in the exercise of their functions."

Consequently, there is no compelling reason to disregard the findings of the Court of Appeals
that no evidence was presented to overcome said presumption of malice.

On the matter of publication, there is no dispute that the same is present, as the subject article
was admittedly published in the newspaper "Bulgar" which was circulated in Metro Manila and in
other parts of the country.

It must be emphasized that not only did both the trial court and the appellate court find that the
subject article was published, they also held that the subject article contains an imputation of a
discreditable act when it portrayed the Muslims to be worshipping the pig as their god.
But the trial court and the appellate court differed as to the presence of the element of the identity
of the persons defamed. While the trial court held that the libelous article does not identify the
personalities of the persons defamed and therefore respondents had no cause of action, the
Court of Appeals ruled that the Muslims were the defamed persons and respondent IDCP has
the requisite personality to sue for damages. The appellate court is right.

Specific identity of the person defamed means that the third person who read or learned about
the libelous article must know that it referred to the plaintiff.24 In order to maintain a libel suit, it is
essential that the victim is identifiable although it is not necessary that he be named; it is likewise
not sufficient that the offended party recognized himself as the person attacked or defamed, but it
must be shown that at least a third person could identify him as the object of the libelous
publication.25

It cannot be refuted that the obvious victims in the article in question are specifically identified —
the Muslims. The principle laid down in Newsweek, Inc. vs. Intermediate Appellate Court,26 that
"where the defamation is alleged to have been directed at a group or class, it is essential that the
statement must be so sweeping or all-embracing as to apply to every individual in that class or
group, or sufficiently specific so that each individual in that class or group can prove that the
defamatory statement specifically pointed to him, so that he can bring the action separately, if
need be," obviously applies to the present case. Certainly, the defamatory imputation contained
in the subject article is a sweeping statement affecting a common or general interest of all
Muslims, that is, their religious belief in Allah as the one and only God. The publication was
directed against all Muslims without exceptions and it is not necessary to name each one of them
as they could only have one cause of action which is the damage suffered by them caused by
the insult inflicted on their basic religious tenets.

All premises considered, petitioners are indeed liable for damages under Article 33 of the Civil
Code.

Significantly, the respondents brought to the attention of the Court of Appeals the failure of the
trial court to appreciate Article 26(4) of the Civil Code, but the appellate court simply delved
exclusively on the applicability of libel and the existence of its elements.

Ordinarily, the Court may only pass upon errors assigned. 27 However, this rule is not without
exceptions. The Court has ruled that an appellate court is accorded a broad discretionary power
to consider errors not assigned, involving, among others, (1) matters not assigned as errors on
appeal but consideration of which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice;
(2) matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to raise or
which the lower court ignored; and (3) matters not assigned as errors on appeal but upon which
the determination of a question properly assigned, is dependent. 28 Evidently, all three exceptions
apply to the present case.

Necessarily, the Court has to dwell on the applicability of Article 26 (4) of the Civil Code in
support of respondents' claim for damages.

Before proceeding any further, a distinction must first be made between a cause of action based
on libel or defamation, whether in a criminal or civil case, and one based on Article 26. In libel,
the gravamen of the claim is reputational harm; whereas, under Article 26, it can be the
embarrassment, emotional harm or mental distress caused upon a person. 29 In libel cases, its
four (4) constitutive elements, to wit: (a) defamatory imputation; (b) malice; (c) publication; and
(d) identifiability of the victim,30 must be established, by mere preponderance of evidence in a civil
case which herein petitioners have done in the present case. Said elements, however, are not
essential in a cause of action based on tort under Article 26, wherein one is liable for personal
injury, whether administered intentionally, wantonly or by negligence. 31 Personal injury herein
refers not only to reputation but also encompasses character, conduct, manner, and habits of a
person.32

American Tort Law, on the basis of which, Philippine Tort Law was patterned, has recognized that
if the plaintiff is shown to have suffered a wrong, the mere paucity of cases or absence of any
precedent does not constitute sufficient reason for refusing relief if a sound principle of law can
be found which governs, or which by analogy ought to govern.33 The fact that a case is novel
does not operate to defeat recovery, if it can be brought within the general rules of law applicable
to torts.34 Neither is the fact that a tort action does not fit into a nicely defined or established
"cubbyhole" of the law has been said not to warrant, in itself, the denial of relief to one who is
injured.35 Thus, to ignore the application of the proper provision of law in the instant case would
be an abdication of the judiciary's primordial objective, which is, the just resolution of disputes.

Article 26 is an integral part of the Chapter in the Civil Code on human relations, "designed to
indicate certain norms that spring from the fountain of good conscience. These guides for human
conduct should run as golden threads through society, to the end that law may approach its
supreme ideal, which is the sway and dominance of justice." 36 Article 26, which enhances and
preserves human dignity and personality, provides:

"Article 26. Every person shall respect the dignity, personality, privacy and peace of mind
of his neighbors and other persons. The following and similar acts, though they may not
constitute a criminal offense, shall produce a cause of action for damages, prevention
and other relief.

"(1) Prying into the privacy of another's residence;

"(2) Meddling with or disturbing the private life or family relations of another;

"(3) Intriguing to cause another to be alienated from his friends;

"(4) Vexing or humiliating another on account of his religious beliefs, lowly station
in life, place of birth, physical defect, or other personal condition." (Emphasis
supplied)

The raison d'être for the foregoing statutory provision, as stated by the Code Commission in its
Report, is worth setting forth verbatim:

"The sacredness of human personality is a concomitant of every plan for human

amelioration. The touchstone of every system of laws, of the culture and civilization of
every country, is how far it dignifies man. If in legislation, inadequate regard is observed
for human life and safety; if the laws do not sufficiently forestall human suffering, or do
not try effectively to curb those factors or influences that wound the noblest sentiments; if
the statutes insufficiently protect persons from being unjustly humiliated, in short, if
human personality is not properly exalted — then the laws are indeed defective. Sad to
say, such is to some "degree the present state of legislation in the Philippines. To remedy
this grave fault in the laws is one of the principal aims of the Project of Civil Code.
Instances will now be specified.

"The present laws, criminal and civil, do not adequately cope with the interferences and
vexations mentioned in Article 26."37 (Emphasis supplied)

Thus, Article 26 provides aggrieved individuals with a legal remedy against violations of human
personality, even though such do not amount to violations of penal laws. Social equality is not
sought, but simply due regard for decency and propriety. 38
Among the rights covered by Article 26 are: (a) personal dignity, (b) personal security; (c) family
relations, (d) social intercourse, (e) privacy and (f) peace of mind. 39 However, it has been held
that the violations mentioned in the Article 26 are not exclusive but are merely examples and do
not preclude other similar acts.40 Thus, disturbing or offensive utterances, such as threats, false
statements, or insulting, humiliating, scandalous, or abusive language, 41 may give rise to an
action in tort where such language causes mental or emotional disturbance, as in this case, or
bodily injury or illness resulting therefrom.42

Paragraph 4 of Article 26 which makes one liable for vexing or humiliating another on account of
his religious beliefs finds proper application in the case at bar. The Code Commission stressed in
no uncertain terms that religious freedom does not authorize anyone to heap obloquy and
disrepute upon another by reason of the latter's religion.43

In support of respondents' claim for damages, Professor Abdul Rafih Sayedy, Dean of the
Institute of Islamic Affairs of the University of the Philippines, testified in this wise:

"WITNESS:

"A: First, I understood that this tabloid is the voice of katotohanan but regarding this
article it is not 'katotohanan'. To the Muslim it is a blasphemy. It is an abuse and
desecration and belief of the Muslims and the Muslims are commanded by God to
worship no other than Him. So how could the publisher publish that the Muslims are
worshipping pigs, that Muslims in his mind do not eat animals while they are also eating
slaughtered chicken, cow and carabao and other non-prohibited animals. So to the
Muslims this is an insult, not only to the Muslims in Mindanao but to the whole Muslim
community. This is a blasphemy to the Muslims.

"Q As a Muslim, Professor Sayedy, how do you feel about this article?

"A I feel insulted and I feel that the beliefs of the Muslims are over abused by the
publisher and it is a defamation and desecration on the religion of the Islam.

"Q What is the concept of God insofar as the religion of Islam is concerned?

"A The concept of God is that God is the only God, He was not begotten and He is
to be worshipped and no other to be worshipped aside from him, He has no beginning
and has no end, He is the creator of all creatures and He should be honored by all
creatures."44

Clearly therefrom, the assailed article is vexatious and humiliating to Muslims as they adore only
one God, they call Allah. Muslims are called Muslims because they sincerely believe in the Quran
and the Hadith (the Saying and the Conduct of the Prophet). It cannot be over-stressed that
Muslims do not eat pork because it is forbidden in the Quran for being unclean not because they
hold pigs as sacred and worship them; and that to the Muslims, the greatest sin in Islam is to
worship persons or things other than Allah.45

Petitioner Myla C. Aguja, who testified as Myla Tabora, admitted in open court that she: wrote the
subject article; was a graduate of "Mass Com"; based the said article on her interpretation of
what she recalled she had read in Reader's Digest while she was still in high school; and did not
verify if what she recalled was true46 . Such shocking irresponsible attitude on her part who at that
time was an Assistant Editor of Bulgar is utterly malicious, in the same degree as the failure of
the rest of the petitioners (except Binegas, Jr.) 47 to verify the truthfulness of the subject article, for
which they should be held liable for damages.
The freedom of expression and the right of speech and of the press are, to be sure, among the
most zealously protected rights in the Constitution. But the constitutional right of freedom of
expression may not be availed of to broadcast lies or half-truths nor may it be used to insult
others, for such would be contrary to the plain mandate of the Civil Code for each person "to
respect the dignity, personality, privacy and peace of mind of his neighbors and other
persons." The freedom of speech does not require a journalist to guarantee the truth of what he
says or publishes but it does prohibit publishing or circulating statements in reckless disregard
without any bona fide effort to ascertain the truth thereof.48

By causing the assailed article to be published in reckless disregard of the truth thereof,
petitioners publisher MVRS, Editor-in-Chief Mars C. Laconsay, Assistant Editor and writer Myla
C. Aguja (Myla Tabora) exhibited utter irresponsibility and acted contrary to the Code of Ethics
adopted by the journalism profession in the Philippines, for which they deserve condemnation.
The assailed article has falsely portrayed all Muslims as worshippers of pig or swine and thus,
perverted their religious beliefs and demeaned the Muslims as a segment of human society. It
belittled the Muslims by inverting the relative importance of their religious beliefs and practice,
thereby disgracing the ideals and aspirations of the Muslim people. Such amounts to a violation
of their personal dignity and peace of mind, which are the very rights affirmed by Article 26.

Petitioner Binegas should be absolved from liability. It is not refuted that the principal function of
petitioner Binegas, Jr., as Circulation Manager of Bulgar, was to supervise the delivery and the
distribution of the paper, monitor the accounts of the agents and schedule the circulation
personnel. It is likewise unrebutted that petitioner Binegas, Jr. was never consulted on what
articles are to be published; that he had no authority to decide whether or not a certain
publication of Bulgar shall be circulated; and that his only duty was to distribute the issue after its
printing.49 As such, his duty being ministerial in character, petitioner Binegas, Jr., should have
been exonerated from liability.

Now, do plaintiffs-respondents IDCP and its officers have the requisite personality to institute the
suit? The answer is in the affirmative. Respondents IDCP and its officers have the requisite
personality to institute the suit inasmuch as the action is properly a class suit.

The concept of a "true" class suit has been elucidated upon in Re: Request of the Heirs of the
Passengers of Doña Paz,50 thus:

"What makes a situation a proper case for a class suit is the circumstance that there is
only one right or cause of action pertaining or belonging in common to many persons, not
separately or severally to distinct individuals.

'The 'true' class action, which is the invention of equity, is one which involves the
enforcement of a right which is joint, common, or secondary or derivative. x x (It)
is a suit wherein, but for the class action device, the joinder of all interested
parties would be essential.

'A 'true class action' — as distinguished from the so-called hybrid and the
spurious class action in U.S. Federal Practice — 'involves principles of
compulsory joinder, since x x (were it not) for the numerosity of the class
members all should x x (be) before the court. Included within the true class suit x
x (are) the shareholders' derivative suit and a class action by or against an
unincorporated association x x. A judgment in a true class suit, whether favorable
or unfavorable to the class, is binding under res judicata principles upon all the
members of the class, whether or not they were before the court. It is the
nondivisible nature of the right sued on which determines both the membership of
the class and the res judicata effect of the final determination of the right.'
 "The object of the suit is to obtain relief for or against numerous persons as a group or as
an integral entity, and not as separate, distinct individuals whose rights or liabilities are
separate from and independent of those affecting the others." (Emphasis supplied)

In order that a class suit may prosper, Section 12, Rule 3 of the Rules of Court requires the
concurrence of three (3) essential elements, namely: (1) that the subject matter of the
controversy is one of common or general interest to many persons; (2) that the parties are so
numerous that it is impracticable to bring them all before the court; and (3) that the action be
maintained by parties who will fairly and adequately represent the class.

Under the first requisite, the person who sues must have an interest in the controversy, common
with those for whom he sues, and there must be that unity of interest between him and all such
other persons which would entitle them to maintain the action if suit was brought by them jointly. 51

As to what constitutes common interest in the subject matter of the controversy has been
explained in Sulo ng Bayan, Inc. vs. Araneta, Inc.,52 thus:

"The interest that will allow parties to join in a bill of complaint, or that will enable the
court to dispense with the presence of all the parties, when numerous, except a
determinate number, is not only an interest in the question, but one in common in the
subject matter of the suit, x x x a community of interest growing out of the nature and
condition of the right in dispute; for, although there may not be any privity between the
numerous parties, there is a common title out of which the question arises, and which lies
at the foundation of the proceedings x x x [here] the only matter in common among the
plaintiffs, or between them and the defendants, is an interest in the question involved,
which alone cannot lay a foundation for the joinder of parties. There is scarcely a suit at
law, or in equity, which settles a principle or applies a principle to a given state of facts or
in which a general statute is interpreted, that does not involve a question in which other
parties are interested x x x."

It has further been held that in order to maintain a class action there must be an ascertainable
class as well as a community of interest among the members of that class in questions of law
and fact involved.53 The class must be cognizable and manageable, and must be defined at the
outset of the action. There must be a cognizable class beyond the general strains which can be
conceived to create a class of any superficially resembling parties, but it is not necessary that the
exact number comprising the class be specified or that the members be identified. 54

The first element is present in this case. The class spoken of in the assailed article that
segregates them from the other members of the general populace is the Muslim people, and their
common interest, undoubtedly, is their religious belief in adoring Allah as the one and only God
and that the greatest sin is to worship persons or things other than Allah. The article is an
outrageous misrepresentation, inflicting stark insult on the religious beliefs of the Muslims.

Concerning the second element, i.e., numerosity of parties — one must bear in mind that the
purpose. of the rule permitting class actions is to furnish a mode of obtaining a complete
determination of the rights of the parties in such cases, when the number is so great as to
preclude involvement by actual service. In this class of cases, one is allowed to sue for all as a
matter of convenience in the administration of justice. A class action is particularly proper in an
action wherein the persons are so multitudinous as vexatiously to prolong and probably
altogether prevent a full hearing.55

Judicial notice may be taken of the fact that Muslims in this country comprise a lot of the
population, thus, it is highly impractical to make them all parties or bring them all before the court.
It is beyond contradiction that the Muslims affected by the assailed article are multitudinous, and
therefore, the second element is present in the instant case.
With regards to the third element, that the action be maintained by one who fairly and adequately
represents the class, it is essential that the relief sought must be beneficial to the class members,
the party must represent the entire class asserted, and be a member of the class he claims to
represent, in addition to having an interest in the controversy common with those for whom he
sues.56 For adequate representation, it is sufficient that there are persons before the court who
have the same interest as the absent persons and are equally certain to bring forward the entire
merits of the question and thus give such interest effective protection. 57 It has also been held that
whether the class members are adequately represented by the named plaintiffs depends on the
quality of representation rather than on the number of representative parties as compared with
the total membership of the class.58 Thus, even one member of a large class can provide the kind
of representation for all that is contemplated by the class suit.59

Respondent IDCP, as a religious organization, being a federation or umbrella organization of

more than seventy (70) Muslim religious organizations in the Philippines, and its officers who are
individual respondents as well, carry the requisite personality to file a case for damages in behalf
of all Muslims. Unequivocally, they properly represent the Muslims who are similarly situated and
affected by the assailed article.

Respondent officers of IDCP namely, Abdulrahman R.T. Linzag, Ibrahim F. P. Arcilla, Abdul
Rashid De Guzman, and Ibrahim B. A. Junio, as well as their witness, Professor Abdul Rafih
Sayedy, not only testified on how the assailed article emotionally, as well as psychologically,
affected each of them, but also as to how the said article received the condemnation and
contempt of other Muslims, further evidenced by the letter dated September 21, 1992 from thirty-
one (31) students of the Islamic University Madinah Al-Mukarramah, K.S.A., 60 and the seething
letter of one Abdil T. Arafat of South Cotabato province, dated September 29, 1992. 61

Moreover, an officer may sue in his own behalf if the defamation affects him as well as the
corporation62 , or where the defamation against the officer has a direct relation to the
corporation's trade or business and it causes injury63.

Thus, without a shred of doubt, respondents IDCP and the individual respondents, and all
Muslims they represent, have interest so identical that the motive and inducement to protect and
preserve may be assumed to be the same in each.64 By instituting the suit, the respondents
necessarily represent all Muslims.65

Under Article 2217 of the Civil Code, moral damages which include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury, although incapable of pecuniary computation, may be recovered
for acts and actions based on Article 26.66

Individual Muslim plaintiffs-respondents, Abdulrahman R.T. Linzag, Ibrahim F. P. Arcilla, Abdul

Rashid De Guzman, and Ibrahim B. A. Junio, as well as their witness, Professor Abdul Rafih
Sayedy, as proper representatives of the class action testified on the despair, mental anguish,
social humiliation and inferior feeling experienced by the Muslims as a result of the vexatious
article.67 Thus, the award of moral damages is justified.

The award of exemplary damages and attorney's fees is likewise warranted and the amount is in
accordance with Articles 222968 and 220869 of the Civil Code.

However, damages awarded to individual respondents should be deleted inasmuch as the

instant case is considered as a class suit and they merely acted as officers and members of the
principal plaintiff-respondent IDCP.

One last point. There should be no room for apprehension on future litigations relating to the
assailed article in view of the fact that the instant suit is a class suit. In a class suit, each member
of the class for whose benefit the action is brought is a party plaintiff; the persons represented
are quasi parties or parties by representation. A suit brought in behalf of others in a class gives
the court jurisdiction of the whole subject matter, and of all the parties, such that the judgment will
be binding on all persons belonging to the class represented.70

In other words, a judgment in a class action concludes upon all members of the class, whether
formally joined as parties or not. 71 The class action has preclusive effect against one who was
not named representative of the class, as long as he was a member of the class which was a
party to the judgment.72

Thus, in the case at bar, the Muslims, who are parties represented by respondent IDCP and its
officers, are thereby precluded from instituting separate or individual suits for damages against
MVRS Publications, Inc., et al., as they are bound by the judgment in this class action, which
amounts to res judicata.

In the light of all the foregoing, I am constrained to dissent from the majority opinion.

Footnotes

1
Cf. Holmes, J., dissenting in Abrams v. United States, 250 U.S. 630.

2
Petitioners Mars C. Laconsay and Myla C. Aguja failed to file their Answer and were
declared in default.

3
Decision penned by Judge Vetino E. Reyes, RTC-Br. 4, Manila, Civil Case No. 92-
62441, "Islamic Da'wah Council of the Philippines, Inc. v. MVRS Publications, Inc."

4
Decision penned by Justice Teodoro P. Regino, concurred in by Justices Quirino D.
Abad Santos, Jr., and Conrado M. Vasquez, Jr.

5
Black's Law Dictionary (4th ed. 1951), 505.

6
Words and Phrases, "Defamation," citing Local 15 of Independent Workers of Noble
County, Inc. v. International Broth. of Elec. Workers, D.C., Ind., 273 F. Stipp. 313, 320.

7
Id., citing Whitby v. Associates Discount Corp., 207 N.E. 2d 482, 484, 591 Ill. App. 2d
337.

8
Prosser and Keeton on Torts, (5th ed. 1984).

9
50 Am. Jur. 2d, "Libel and Slander," 705 (1995).

10
Ibid.

11
50 Am Jur 2d, "Libel and Slander," 674 (1995).

12
Art. III, Sec. 4, 1987 Constitution.

13
G.R. No. 63559, 30 May 1986, 142 SCRA 171, 176-177.

14
567 F. 2d 1163, 1164 (1977).
15
P. Wittenberg, "Dangerous Words: A Guide to the Law of Libel," 226-227, citing People
v. Edmundson, 168 N.Y. Misc. 141.

16
Id., 227, citing Rex v. Gathercole, 2 Lewin 237.

Khalid Abdullah Tariq Al Mansour Faissal Fahd Al Talal v. Fanning, Civ. No. C 80-1869
17

RPA, 25 September 1980, 506 F. Supp. 186.

18
Id., 187.

19
Ibid.

20
See Note 8, 767–768.

21
50 Am Jur 2d, 675 (1995).

22
315 U.S. 568 (1942).

23
343 U.S. 250 (1952).

24
Not a group, unless the attack is directed against identifiable individuals within the
group.

25
Rollo, 55.

26
See SECOND RESTATEMENT OF THE LAW, TORTS 2D § 46.

§ 46. Outrageous Conduct Causing Severe Emotional Distress

(1) One who by extreme and outrageous conduct intentionally x x xcauses severe
emotional distress to another is subject to liability for such emotional distress, and if
bodily harm to the other results from it, for such bodily harmx x x.

See 38 Am. Jur. 2d § 15 citing cases. See also D. Givelber, The Right to Minimum
27

Social Decency and the Limits of Evenhandedness: Intentional Infliction of Emotional

Distress by Outrageous Conduct, 82 Col. L. Rev. 42 (1982).

28
Ibid.

29
Ibid.

30
Ibid.

31
Ibid.

32
See 38 Am. Jur 2d § 7 citing cases.

33
485 U.S. 46 (1988). Mr. Justice Anthony Kennedy did not take part.

34
See Note 8, § 12, p. 59 citing Magruder, Mental and Emotional Disturbance in the Law
of Torts, 49 Harv. L. Rev. 1033, 1035. See also SECOND RESTATEMENT OF THE LAW,
TORTS 2D § 46.
 49 Harv. L. Rev. 1053. See also SECOND RESTATEMENT OF THE LAW, TORTS 2D §
35

46 citing Magruder.

36
S. Olsen, White v. Monsanto: Louisiana Adopts the Restatement Approach to
Intentional Infliction of Emotional Distress, 66 Tulane L. Rev. 2096 (1992) citing
Magruder.

37
Ibid. citing 38 Am. Jur. 2D §§ 8–12.

38
Smolla, Free Speech in an Open Society, 1993 Ed., at pp. 160–162.

39
403 U.S. 15 (1971).

40
Id. at 25–26.

41
See Note 38.

42
395 U.S. 444 (1969).

43
403 U.S. 15 (1971).

44
See Harvard Law Review, Vol. 101:682 1988, at p. 684-687.

45
Ibid. at 447.

46
See Note 38 at p. 165.

47
59 Am Jur 2d, 456 (1977).

Citing Industrial Generating Co. v. Jenkins 410 SW 2d 658; Los Angeles County
48

Winans, 109 P 640, Weberpals v. Jenny, 133 NE 62.

49
Art. 2217, New Civil Code.

Simex International, Inc. v. Court of Appeals, G.R. No. 88013, 19 March 1990, 183
50

SCRA 360.

51
See Art. 2234, New Civil Code.

52
See Note 38 at p. 46.

53
Id., citing Gertz v. Robert Welch, Inc., 418 U.S. 323, 339–340 (1974);

VITUG, J., concurring:

1
See Worcester vs. Ocampo, 22 Phil. 42.

2
Black's Law Dictionary, 6th Ed., p. 1565.

3
Prosser and Keeton on Torts, 5th Ed., p. 55.

4
Restatement (Second) of Torts § 46 (1965)
5
Prosser and Keeton, supra, p. 59.

6
Slocum vs. Food Fair Stores of Florida, Inc., Fla. 1958, 100 So. 2d 396; Wallace vs.
Shoreham Hotel Corp., Mun. App. D.C. 1946, 49 A2d 81; Stavnezar vs. Sage-Allen &
Co., 1959, 146 Conn. 460, 152 A. 2d. 312.

7
Taft vs. Taft, 1867, 40 Vt. 229; Stratton vs. Posse Normal School of Gymnastics, 1928
163 N. E. 905; State National Bank of Iowa Park vs. Rogers, Tex. Civ. App. 1935, S. W.
2d 825.

8
Wallace vs. Shoreham Hotel Corp., supra.

9
53 C.J.S., Libel and Slander § 2.

10
Black's Law Dictionary, 6th Ed., p. 417.

11
Prosser and Keeton, supra, p. 771.

12
See Article 355, Revised Penal Code.

13
Article 353, Revised Penal Code.

Corpus vs. Cuaderno, Sr., 16 SCRA 807; Kunkle vs. Cablenews American, et al., 42
14

Phil. 757; Borjal vs. Court of Appeals, 301 SCRA 1.

15
50 Am Jur 2d (1995), p. 674.

16
Id.

17
Sec. 4, Art. III, 1987 Constitution.

18
Restatement (Second) of Torts §564A comment b (1977).

19
50 Am Jur 2d, (1995), p. 675.

20
Neil J. Rosini, The Practical Guide to Libel, supra, citing Brady v. Ottaway Newspapers,
Inc., 84 A.D. 2d 229.

21
50 Am Jur 2d, (1995), p. 675.

189 F. 86, as cited by Ella Cooper Thomas in The Law of Libel and Slander (New York,
22

1973), p. 21.

23
131 N.Y.S. 680, as cited in The Law of Libel and Slander, supra.

24
81 N.E. 459, as cited in The Law of Libel and Slander, supra.

25
142 SCRA 171

26
Uy Tioco vs. Yang Shu Wen, 32 Phil. 624.

27
ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA 572.

28
50 Am Jur 2d (1995), p. 678.
CARPIO, J., dissenting:

1
Brief for Plaintiffs-Appellants, pp. 4–5.

2
Pages 16–17, Petition.

3
Article 30 of the Civil Code provides as follows: "When a separate civil action is brought
to demand civil liability arising from a criminal offense, and no criminal proceedings are
instituted during the pendency of the civil case, a preponderance of evidence shall
likewise be sufficient to prove the act complained of."

4
Should be discreditable.

5
International Corporate Bank v. Gueco, 351 SCRA 516 (2001); French Oil Mill
Machinery Co., Inc. v. Court of Appeals, 295 SCRA 462 (1998); Lagandaon v. Court of
Appeals, 290 SCRA 330 (1998); Sandoval v. Court of Appeals, 260 SCRA 283 (1996).

6
Report of the Code Commission, pp. 32–33.

7
In People v. Silvela, 103 Phil. 773, the Court, citing American jurisprudence, stated: "If
the defamatory matter is not seen or heard by anyone except the defamer and the
defamed, damages to character reputation can not result since a man's reputation is the
estimate in which others hold him, and not what he himself thinks." Black's Law
Dictionary (6th Ed.) defines "reputation" thus: "Estimation in which one is held; the
character imputed to a person by those acquainted with him. That by which we are
known and is the total sum of how we are seen by othersx x x. General opinion, good or
bad, held of a person by those of the community in which he resides."

8
M.B.M. Co. v. Counce, 268 Ark. 269, 596 S.W. 2d 681 (1980); Section 46, Restatement
(Second) of Torts.

9
New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710 (1964).

10
485 U.S. 46 (1988).

11
Section 11, 1987 Constitution.

12
Section 18 (7), Article XIII, 1987 Constitution.

13
Entered into force on March 23, 1976.

14
Simon, Jr. v. Commission on Human Rights, 229 SCRA 117 (1994).

CCPR General Comment 11, 19th Session (1983), Office of the High Commissioner for
15

Human Rights.

La Chemise Lacoste, S.A. v. Fernandez, 129 SCRA 373 (1984); Ram Singh v. Insular
16

Collector of Customs, 38 Phil. 862 (1918).

17
Vienna Convention on the Law of Treaties, Art. 26.

18
3 S.C.R. 697 (1990).

19
315 U.S. 568, 62 S.Ct. 766 (1942).
 20
403 U.S. 15 (1971).

21
Supra, note 10.

22
New York Times v. Sullivan, 376 U.S. 254 (1964). Prior to New York Times, the
prevailing view in the U.S. was that lewd, obscene and profane speech was not
constitutionally protected, whether directed at private individuals or public officials. New
York Times imposed, with respect to public officials, a qualified constitutional privilege.
The U.S. Supreme Court stated that "the constitutional protections for speech and press
require a federal rule that prohibits a public official from recovering damages for a
defamatory falsehood relating to his official conduct unless he proves that the statement
was made with 'actual malice,' that is, with knowledge that it was false or made with
reckless disregard of whether it was false or not."

23
Record of the Constitutional Commission, Vol. 1, pp. 491–492.

24
Ibid.

25
Re: Request of the Heirs of the Passengers of Doña Paz, 159 SCRA 623 (1988).

26
343 U.S. 250 (1952).

27
395 U.S. 444 (1969).

28
274 U.S. 357.

Chaplinsky v. New Hampshire, supra, note 18; Hustler Magazine v. Falwell, supra, note
29

10.

30
Supra, note 18.

31
Hate Speech in the Constitutional Law of the United States, William B. Fisch, American
Journal of Comparative Law, Fall 2002.

32
"American constitutional law generally protects hate speech of various kinds, including
religious and racial. In this area, the law of the United States is precisely contrary to
international human rights norms. Article 20(2) of the International Covenant on Civil and
Political Rights states, 'Any advocacy of national, racial or religious hatred that
constitutes incitement to discrimination, hostility or violence shall be prohibited by law."'
David M. Smolin, Exporting the First Amendment? Evangelism, Proselytism, and the
International Religious Freedom Act, 31 Cumberland Law Review, 2000–2001.

33
ABS-CBN Broadcasting Corp. v. Commission on Elections, 323 SCRA 811 (2000).

34
Decision of Judge Vetino E. Reyes dated June 31, 1995, pp. 4–6.

35
Article 2217, Civil Code.

Antonio T. Carpio, Intentional Torts in Philippine Law, Philippine Law Journal, Vol. 47,
36

No. 5 (December 1972).

AUSTRIA-MARTINEZ, J., dissenting:

1
Quran, Chapter 16:115. See also Chapter 7:145.
2
Michael J. Diamond and Peter G. Gowing, "Islam and Muslim: Some Basic Information".
1981 New Day Publishing, Quezon City, pp. 29–30. (Michael J. Diamond is Vicar General
of the Prelature of Marawi, Marawi City, Lanao del Sur; Peter G. Gowing was a Doctor of
Theology in Ecumenics and Church History).

3
R. A. Epstein, C. O. Gregory, and H. Kalven, Jr., Cases and Materials on Torts, 1984
Ed., p. 1271 citing Restatement (Second) of the Law of Torts, Section 652E.

4
Luis B. Reyes, "The Revised Penal Code", Book II, Fourteenth Edition, Revised 1998,
p. 921.

5
Vasquez vs. Court of Appeals, 314 SCRA 460, 471 (1999).

6
53 C.J.S., Libel and Slander, § 13.

7
Ibid.

8
Ibid.

9
53 C.J.S., Libel and Slander, § 13. See also 50 Am. Jur. 2d, Libel and Slander, § 82.

10
Ibid.

11
Ibid.

12
25 Words and Phrases, Libel, p. 119 citing Cooper vs. Greeley, N.Y., 1 Denio, 347, 359.

13
Article 353, Revised Penal Code.

14
R. L. McEwen and P. S. C. Lewis, Gatley on Libel and Slander, § 89 (1967),
citing Russell L. J. in Cassidy vs. Daily Mirror, 2 K.B. 354 (1929); Newstead vs. London
Express, 1 K.B. 377, 396 (C.A.) (1940). See also 50 Am. Jur., Libel and Slander, § 25.

People vs. Encarnacion (CA), 48 Official Gazette 1817, 1820 (1952), citing Lord
15

Bramwell in Henty's Case, 52 L.J.Q.B. 232 (1882).

16
Ibid.

17
People vs. Encarnacion (CA), supra citing 53 C.J.S. 48–50.

18
M. H. Newell, The Law on Slander and Libel in Civil and Criminal Cases, § 6, (1924),
citing Curtis vs. Mussey, 6 Gray (Mass.) 261.

19
R. L. McEwen and P.S.C. Lewis, Gatley on Libel and Slander, § 8, (1967).

20
Ibid., citing Nevill vs. Fine Arts Co., 2 Q.B. 163 (1895).

21
Ibid., citing Blake vs. Stevens 11 L.T. 543 (1864); Fox vs. Broderick, 14 Ir. C.L.R. 453
(1864); Shepheard vs. Whitaker, LR.L. 10 C.P. 502 (1875); Tompson vs. Dashwood, 11
Q.B.D. 43 (1883); Morrison vs. Ritchie, 4 F. 645 (Ct. of Sess.) (1902); Van Wiginton vs.
Pulitzer, 218 Fed. R. 795 (1914).

22
Ibid., citing Cook vs. Ward, 6 Bing, 409 (1830); R. vs. Hicklin, L.R. 3 Q.B. 360.
(1868); Bowen vs. Hall, 6 Q.B.D. 343 (1881); Jones vs. Hulton, 2 K.B. 279 (1909).
23
Vicario vs. Court of Appeals, 308 SCRA 25, 34 (1999).

24
50 Am. Jur. 3d, Libel and Slander § 493.

Borjal vs. Court of Appeals, 301 SCRA 1, 18 (1999), citing Kunkle vs. Cablenews-
25

American, 42 Phil. 757 (1922), Corpus vs. Cuaderno, Sr., 16 SCRA 807 (1966),
and People vs. Monton, 6 SCRA 801 (1962).

26
142 SCRA 171 (1986).

Jimenez vs. Patricia, Inc., 340 SCRA 525 (2000); Philippine Basketball Association vs.
27

Court of Appeals, 337 SCRA 358 (2000); Victorias Milling Co., Inc. vs. Court of Appeals,
333 SCRA 663 (2000); Roman Catholic Archbishop of Manila vs. Court of Appeals, 269
SCRA 145, 153 (1997).

28
Catholic Bishop of Balanga vs. Court of Appeals, 264 SCRA 181, 191–192 (1996). See
also Sy vs. Court of Appeals, 330 SCRA 550, 555–556 (2000); Logronio vs. Taleseo, 312
SCRA 52, 61–62 (1999); Dando vs. Frazer, 227 SCRA 126, 133 (1993); Espina vs. Court
of Appeals, 215 SCRA 484, 488 (1992); Carillo vs. De Paz, 18 SCRA 467, 471
(1966); Hernandez vs. Andal, 78 Phil. 196, 209–210 (1947).

29
T. B. Aquino, Torts and Damages, 2001 Ed., p.470, citing Watkins, p. 145.

Vasquez vs. Court of Appeals, 314 SCRA 460, 471 (1999); Alonzo vs. Court of
30

Appeals, 241 SCRA 51, 59 (1995); Daez vs. Vasquez, 191 SCRA 61, 67 (1990).

31
74 Am Jur 2d Torts § 2, citing Fisher vs. Toler, 194 Kan 701, 401 P2d 1012.

74 Am Jur 2d Torts § 2, citing Tisdale vs. Eubanks, 180 NC 153, 104 SE 339, 11 ALR
32

374; Smith vs. Buck, 119 Ohio St 101, 162 NE 383, 61 ALR 1343.

33
74 Am Jur 2d Torts § 4; 1 Am Jur 2d, Actions § 49.

34
74 Am Jur 2d Torts § 4, citing Miller vs. Monsen, 228 Minn 400, 37 NW2d 543, Harris
vs. Nashville Trust Co., 128 Tenn 573, 162 SW 584.

74 Am Jur 2d Torts § 4, citing Seidel vs. Greenberg, 108 NJ Super 248, 260 A2d 863,
35

40 ALR 3d 987.

36
Report of the Code Commission, p. 39.

37
Report of the Code Commission, pp. 33–34.

38
Ibid.

39
Tolentino, supra at 89.

Concepcion vs. Court of Appeals, 324 SCRA 85, 94 (2000) citing E. P. Caguioa,
40

Comments and Cases on Civil Law, 1959 Ed., Vol. I, p. 41.

41
Ibid.

42
74 Am Jur 2d Torts § 32. 38 Am Jur 2d Fright, Shock and Mental Disturbance.
43
Report of the Code Commission, p. 33.

44
TSN, May 10, 1993, pp. 8–9.

45
Michael J. Diamond and Peter G. Gowing, supra, Note 24.

46
TSN, Hearing of November 18, 1990, pp. 8–9 and 19.

47
See next page.

In Re: Emil P. Jurado, 243 SCRA 299, 327 (1995), citing Ayer Productions Pty. Ltd. vs.
48

Capulong, 160 SCRA 861 (1988).

49
Ibid., pp. 6, 11–12.

159 SCRA 623, 627 (1988), citing 59 Am. Jur. 2d Parties § 415, Moore, Federal
50

Practice, 2d., Vol. 3B, pp. 23–257, 23–258.

51
Certia vs. Notre Dame du Lac University, 141 N.E. 318.

72 SCRA 347, 357 (1976) citing Scott vs. Donald, 165 U.S. 107, 41 Law. Ed. 447, 52 S.
52

Ct. 217.

53
67A C.J.S. Parties, § 24.

54
Ibid.

55
Ibid. Also 59 Am. Jur. 2d Parties §§ 46, 55 and 62; 67A C.J.S. Parties, § 698.

56
Ibid.

57
59 Am. Jur. 2d Parties § 63.

58
Ibid.

59
Ibid.

60
Exhibit "B".

61
Exhibit "C".

53 C.J.S., Libel and Slander, § 146 citing Stidham vs. State Bank of Ebson, 270 p.
62

594,126 Kan 600 (1928), Rusciano & Son Corporation vs. Mihalyfi, 1 N.Y.S. 2d 787, 165
Misc. 932; R.G. Dun & Co. vs. Shepp, 91 S.W. 2d 330, 127 Tex. 80.

63
Brayton vs. Cleveland Special Police Co., 63 Ohio St 83, 57 N.E. 1085 (1900).

59 Am. Jur. 2d Parties § 62, p. 473 citing Maxwell vs. Brougher, 222 P2d 910, 99 C.A.
64

2d 824.

59 Am. Jur. 2d Parties § 62, p. 473 citing Nunelly vs. First Federal Building & Loan
65

Association of Agden, 154 P.2d 620, 107 Utah 347.

66
Article 2219 Moral damages may be recovered in the following and analogous cases:
 xxx xxx xxx

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

xxx xxx xxx

TSNs, April 26, 1993, pp. 23, 25; July 30, 1993, pp. 13–14, 16–17; November 12, 1993;
67

pp. 7, 9, 20–21; April 18, 1994, pp. 7, 10–12.

68
Article 2229 Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.

69
Article 2208 In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

xxx xxx xxx

(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

70
67A C.J.S. Parties § 30.

71
59 Am. Jur. 2d Parties § 90, citing Williams v. State (La), 350 So. 2d 131; Schlosser v.
Allis-Chalmers Corp., 86 Wis. 2d 226, 271 N.W. 2d 879; Drainage Dist. Of Lincoln
County v. Kirkpatrick-Pettis Co., 140 Neb 530, 300 NW 582.

72
46 Am. Jur. 2d Judgments § 108.

THIRD DIVISION

QUEZON CITY GOVERNMENT G.R. No. 150304

and Engineer RAMIR J. TIAMZON,
Petitioners, Present:
 Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
Promulgated:

FULGENCIO DACARA,*
Respondent. June 15, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- x

DECISION

PANGANIBAN, J.:

T
he review of cases under Rule 45 of the Rules
of Court is limited to errors of law. Unless there
is a showing that the findings of the lower
court are totally devoid of support or are
glaringly erroneous, this Court will not analyze or
weigh evidence all over again. Under the
circumstance, the factual findings and
conclusions of the Court of Appeals affirming those of
the trial courts will be conclusive upon the Supreme
Court. Furthermore, well-entrenched is the rule that
points of law, theories, issues and arguments not
brought to the attention of the trial court cannot be
raised for the first time on appeal or certiorari. Finally,
this Court reiterates the principle that moral damages
are designed to compensate the claimant for actual
injury suffered, not to impose a penalty on the
wrongdoer. Hence, absent any definite finding as to
what they consist of, the alleged moral damages
suffered would become a penalty rather than a
compensation for actual injury suffered.

The Case

Before us is a Petition for Review[1] under Rule 45

of the Rules of Court, assailing the February 21, 2001
Decision[2] and the October 9, 2001 Resolution[3]of the
Court of Appeals (CA) in CA-GR CV No. 29392. The
challenged Decision disposed as follows:

WHEREFORE, premises considered, the Decision dated

June 29, 1990 in Civil Case No. Q-88-233 should
be AFFIRMED, with costs against the appellants.[4]
 The assailed Resolution denied petitioners Motion

for Reconsideration.

The Facts

The CA summarized the facts in this manner:

Sometime on February 28, 1988 at about 1:00 A.M., Fulgencio

Dacara, Jr., son of Fulgencio P. Dacara, Sr. and owner of 87
Toyota Corolla 4-door Sedan with Plate No. 877 (sic), while
driving the said vehicle, rammed into a pile of earth/street
diggings found at Matahimik St., Quezon City, which was then
being repaired by the Quezon City government. As a result,
Dacarra (sic), Jr. allegedly sustained bodily injuries and the
vehicle suffered extensive damage for it turned turtle when it hit
the pile of earth.

Indemnification was sought from the city government (Record, p.

22), which however, yielded negative results. Consequently,
Fulgencio P. Dacara (hereinafter referred to as FULGENCIO), for
and in behalf of his minor son, Jr., filed a Complaint (Record, p. 1)
for damages against the Quezon City and Engr. Ramir Tiamzon,
as defendants, before the Regional Trial Court, National Capital
Judicial Region, Branch 101, Quezon City, docketed as Civil Case
No. Q-88-233. FULGENCIO prayed that the amount of not less
than P20,000.00 actual or compensatory damages, P150,000.00
moral damages, P30,000.00 exemplary damages,
and P20,000.00 attorneys fees and costs of the suit be awarded
to him.

In an Answer with Affirmative and/or Special Defenses (Record, p.

11), defendants admitted the occurrence of the incident but
alleged that the subject diggings was provided with a moun[d] of
soil and barricaded with reflectorized traffic paint with sticks
placed before or after it which was visible during the incident on
 February 28, 1988 at 1:00 A.M. In short, defendants claimed that
they exercised due care by providing the area of the diggings all
necessary measures to avoid accident. Hence, the reason why
Fulgencio Dacara, Jr. fell into the diggings was precisely because
of the latters negligence and failure to exercise due care.[5]

After trial on the merits, the Regional Trial Court

(RTC), Branch 101, Quezon City, rendered its
Decision[6] dated June 29, 1990. The evidence proffered
by the complainant (herein respondent) was found to
be sufficient proof of the negligence of herein
petitioners. Under Article 2189 of the Civil Code, [7] the
latter were held liable as follows:
WHEREFORE, premises above considered, based on the
quantum of evidence presented by the plaintiff which tilts in their
favor elucidating the negligent acts of the city government
together with its employees when considered in the light of Article
2189, judgment is hereby rendered ordering the defendants to
indemnify the plaintiff the sum of twenty thousand pesos as
actual/compensatory damages, P10,000.00 as moral
damages, P5,000.00 as exemplary damages, P10,000.00 as
attorneys fees and other costs of suit.[8]

In their appeal to the CA, petitioners maintained that

they had observed due diligence and care in installing
preventive warning devices, and that it was in fact the
plaintiff who had failed to exercise prudence by driving
too fast to avoid the diggings. Moreover, the lower
court allegedly erred in using Article 2189 of the Civil
Code, which supposedly applied only to liability for the
death or injuries suffered by a person, not for damage
to property.

Ruling of the Court of

Appeals

The CA agreed with the RTCs finding that

petitioners negligence was the proximate cause of the

damage suffered by respondent.[9] Noting the failure of

petitioners to present evidence to support their

contention that precautionary measures had indeed

been observed, it ruled thus:

x x x. Sadly, the evidence indicates that [petitioners] failed to
show that they placed sufficient and adequate precautionary
signs at Matahimik Street to minimize or prevent the dangers to
life and limb under the circumstances. Contrary to the testimony
of the witnesses for the [petitioners], namely Engr. Ramir
Tiamzon, Ernesto Landrito and Eduardo Castillo, that there were
signs, gasera which was buried so that its light could not be
blown off by the wind and barricade, none was ever presented to
stress and prove the sufficiency and adequacy of said contention.
[10]
Further upholding the trial courts finding of
negligence on the part of herein petitioners, the CA
gave this opinion:
x x x. As observed by the trial court, the negligence of
[petitioners] was clear based on the investigation report of Pfc.
William P. Villafranca stating to the effect that the subject vehicle
rammed into a pile of earth from a deep excavation thereat
without any warning devi[c]e whatsoever and as a consequence
thereof, Dacara, Jr. lost control of his driven car and finally
turned-turtle causing substantial damage to the same. As a
defense against liability on the basis of quasi-delict, one must
have exercised the diligence of a good father of a family which
[petitioners] failed to establish in the instant case.[11]

Whether Article 2189 is applicable to cases in

which there has been no death or physical injury, the
CA ruled in the affirmative:
x x x. More importantly, we find it illogical to limit the liability
to death or personal injury only as argued by appellants in the
case at bar applying the foregoing provisions. For, injury is an act
that damages, harms or hurts and mean in common as the act or
result of inflicting on a person or thing something that causes
loss, pain, distress, or impairment. Injury is the most
comprehensive, applying to an act or result involving an
impairment or destruction of right, health, freedom, soundness, or
loss of something of value.[12]

Hence, this Petition.[13]

Issues
Petitioners raise the following issues for our
consideration:

1. The Honorable Court of Appeals decided a question of

law/substance contrary to applicable law and jurisprudence when
it affirmed the award of moral damage suit (sic) the amount
of P10,000.00.

2. The Honorable Court of Appeals decided a question of

law/substance contrary to applicable law and jurisprudence when
it affirmed the award of exemplary damage sin (sic) the amount
of P5,000.00 and attorneys fee in the [a]mount of P10,000.00.

3. The Honorable Court of Appeals gravely erred and/;or (sic) had

acted with grave abuse of discretion amounting to lack and/or
excess of jurisdiction when it refused to hold that respondents
son in the person of Fulgencio Dacara, Jr. was negligent at the
time of incident.[14]

Because the issues regarding the liability of petitioners

for moral and exemplary damages presuppose that

their negligence caused the vehicular accident, we

first resolve the question of negligence or the

proximate cause of the incident.

The Courts Ruling

The Petition is partly meritorious.

First Issue:
Negligence

Maintaining that they were not negligent,

petitioners insist that they placed all the necessary

precautionary signs to alert the public of a roadside

construction. They argue that the driver (Fulgencio

Dacara Jr.) of respondents car was overspeeding, and

that his own negligence was therefore the sole cause

of the incident.
 Proximate cause is defined as any cause that

produces injury in a natural and continuous sequence,

unbroken by any efficient intervening cause, such that

the result would not have occurred otherwise.

[15]
Proximate cause is determined from the facts of

each case, upon a combined consideration of logic,

common sense, policy and precedent.[16]

What really caused the subject vehicle to turn turtle is

a factual issue that this Court cannot pass upon,

absent any whimsical or capricious exercise of

judgment by the lower courts or an ample showing

that they lacked any basis for their conclusions. [17] The

unanimity of the CA and the trial court in their factual

ascertainment that petitioners negligence was the

proximate cause of the accident bars us from

supplanting their findings and substituting these with

our own. The function of this Court is limited to the

review of the appellate courts alleged errors of law. It

is not required to weigh all over again the factual

evidence already considered in the proceedings below.

[18]
Petitioners have not shown that they are entitled to

an exception to this rule.[19] They have not sufficiently

demonstrated any special circumstances to justify a

factual review.

That the negligence of petitioners was the proximate

cause of the accident was aptly discussed in the lower

courts finding, which we quote:

Facts obtaining in this case are crystal clear that the accident of
February 28, 1988 which caused almost the life and limb of
Fulgencio Dacara, Jr. when his car turned turtle was the
existence of a pile of earth from a digging done relative to the
base failure at Matahimik Street nary a lighting device or a
reflectorized barricade or sign perhaps which could have served
as an adequate warning to motorist especially during the thick of
the night where darkness is pervasive.

Contrary to the testimony of the witnesses for the defense that

there were signs, gasera which was buried so that its light could
not be blown off by the wind and barricade, none was ever
presented to stress the point that sufficient and adequate
precautionary signs were placed at Matahimik Street. If indeed
signs were placed thereat, how then could it be explained that
according to the report even of the policeman which for clarity is
quoted again, none was found at the scene of the accident.

xxxxxxxxx

Negligence of a person whether natural or juridical over a

particular set of events is transfixed by the attending
circumstances so that the greater the danger known or
reasonably anticipated, the greater is the degree of care required
to be observed.

xxxxxxxxx
 The provisions of Article 2189 of the New Civil Code
capsulizes the responsibility of the city government relative to the
maintenance of roads and bridges since it exercises the control
and supervision over the same. Failure of the defendant to
comply with the statutory provision found in the subject-article is
tantamount to negligence per se which renders the City
government liable. Harsh application of the law ensues as a result
thereof but the state assumed the responsibility for the
maintenance and repair of the roads and bridges and neither
exception nor exculpation from liability would deem just and
equitable.[20] (Emphasis supplied)

Petitioners belatedly point out that Fulgencio Jr.

was driving at the speed of 60 kilometers per hour
(kph) when he met the accident. This speed was
allegedly well above the maximum limit of 30 kph
allowed on city streets with light traffic, when not
designated through streets, as provided under the
Land Transportation and Traffic Code (Republic Act
4136). Thus, petitioners assert that Fulgencio Jr.,
having violated a traffic regulation, should be
presumed negligent pursuant to Article 2185 [21] of the
Civil Code.[22]

These matters were, however, not raised by

petitioners at any time during the trial. It is evident
from the records that they brought up for the first time
the matter of violation of RA 4136 in their Motion for
Reconsideration[23] of the CA Decision dated February
21, 2001. It is too late in the day for them to raise this
new issue. It is well-settled that points of law, theories
or arguments not brought out in the original
proceedings cannot be considered on review or appeal.
[24]
To consider their belatedly raised arguments at this
stage of the proceedings would trample on the basic
principles of fair play, justice, and due process.[25]

Indeed, both the trial and the appellate courts

findings, which are amply substantiated by the
evidence on record, clearly point to petitioners
negligence as the proximate cause of the damages
suffered by respondents car. No adequate reason has
been given to overturn this factual conclusion.

Second Issue:
Moral Damages
Petitioners argue that moral damages are recoverable
only in the instances specified in Article 2219 [26] of the
Civil Code. Although the instant case is an action for
quasi-delict, petitioners contend that moral damages
are not recoverable, because no evidence of physical
injury were presented before the trial court.[27]

To award moral damages, a court must be satisfied

with proof of the following requisites: (1) an injury --
whether physical, mental, or psychological -- clearly
sustained by the claimant; (2) a culpable act or
omission factually established; (3) a wrongful act or
omission of the defendant as the proximate cause of
the injury sustained by the claimant; and (4) the award
of damages predicated on any of the cases stated in
Article 2219.[28]

Article 2219(2) specifically allows moral damages

to be recovered for quasi-delicts, provided that the act
or omission caused physical injuries. There can be no
recovery of moral damages unless the quasi-delict
resulted in physical injury.[29] This rule was enunciated
in Malonzo v. Galang[30] as follows:

x x x. Besides, Article 2219 specifically mentions quasi-

delicts causing physical injuries, as an instance when moral
damages may be allowed, thereby implying that all other quasi-
delicts not resulting in physical injuries are excluded, excepting of
 course, the special torts referred to in Art. 309 (par. 9, Art. 2219)
and in Arts. 21, 26, 27, 28, 29, 30, 32, 34 and 35 on the chapter
on human relations (par. 10, Art. 2219).

In the present case, the Complaint alleged that

respondents son Fulgencio Jr. sustained physical

injuries. The son testified that he suffered a deep cut

on his left arm when the car overturned after hitting a

pile of earth that had been left in the open without any

warning device whatsoever.

It is apparent from the Decisions of the trial and the

appellate courts, however, that no other evidence

(such as a medical certificate or proof of medical

expenses) was presented to prove Fulgencio Jr.s bare

assertion of physical injury. Thus, there was no

credible proof that would justify an award of moral

damages based on Article 2219(2) of the Civil Code.

Moreover, the Decisions are conspicuously silent

with respect to the claim of respondent that his moral

sufferings were due to the negligence of petitioners.

The Decision of the trial court, which summarizes the

testimony of respondents four witnesses, makes no

mention of any statement regarding moral suffering,

such as mental anguish, besmirched reputation,

wounded feelings, social humiliation and the like.

Moral damages are not punitive in nature, but are

designed to compensate and alleviate in some way the
physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury
unjustly inflicted on a person.[31] Intended for the
restoration of the psychological or emotional status
quo ante, the award of moral damages is designed to
compensate emotional injury suffered, not to impose a
penalty on the wrongdoer.

For the court to arrive upon a judicious

approximation of emotional or moral injury, competent
and substantial proof of the
suffering experienced must be laid before it. Essential
to this approximation are definite findings as to what
the supposed moral damages suffered consisted of;
otherwise, such damages would become a penalty
rather than a compensation for actual injury suffered.
[32]

Furthermore, well-settled is the rule that moral

damages cannot be awarded -- whether in a civil[33] or a
criminal case[34] -- in the absence of proof of physical
suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral
shock, social humiliation, or similar injury.[35] The
award of moral damages must be solidly anchored on a
definite showing that respondent actually experienced
emotional and mental sufferings. Mere allegations do
not suffice; they must be substantiated by clear and
convincing proof.[36]

Third Issue:
Exemplary Damages

Petitioners argue that exemplary damages and

attorneys fees are not recoverable. Allegedly, the RTC
and the CA did not find that petitioners were guilty of
gross negligence in the performance of their duty and
responsibilities.[37]
 Exemplary damages cannot be recovered as a
matter of right.[38] While granting them is subject to
the discretion of the court, they can be awarded only
after claimants have shown their entitlement to moral,
temperate or compensatory damages.[39] In the case
before us, respondent sufficiently proved before the
courts a quo that petitioners negligence was the
proximate cause of the incident, thereby establishing
his right to actual or compensatory damages. He has
adduced adequate proof to justify his claim for the
damages caused his car. The question that remains,
therefore, is whether exemplary damages may be
awarded in additionto compensatory damages.

Article 2231 of the Civil Code mandates that in

cases of quasi-delicts, exemplary damages may be
recovered if the defendant acted with gross
negligence.[40] Gross negligence means such utter want
of care as to raise a presumption that the persons at
fault must have been conscious of the probable
consequences of their carelessness, and that they must
have nevertheless been indifferent (or worse) to the
danger of injury to the person or property of others.
[41]
The negligence must amount to a reckless disregard
for the safety of persons or property. Such a
circumstance obtains in the instant case.
 A finding of gross negligence can be discerned
from the Decisions of both the CA and the trial court.
We quote from the RTC Decision:

Sad to state that the City Government through its

instrumentalities have (sic) failed to show the modicum of
responsibility, much less, care expected of them (sic) by the
constituents of this City. It is even more deplorable that it was a
case of a street digging in a side street which caused the accident
in the so-called premier city.[42]

The CA reiterated the finding of the trial court

that petitioners negligence was clear, considering that
there was no warning device whatsoever[43] at the
excavation site.

The facts of the case show a complete disregard by

petitioners of any adverse consequence of their failure

to install even a single warning device at the area

under renovation. Considering further that the street

was dimly lit,[44] the need for adequate precautionary

measures was even greater. By carrying on the road

diggings without any warning or barricade, petitioners

demonstrated a wanton disregard for public safety.

Indeed, the February 28, 1988 incident was bound to

happen due to their gross negligence. It is clear that

under the circumstances, there is sufficient factual

basis for a finding of gross negligence on their part.

Article 2229 of the Civil Code provides that

exemplary damages may be imposed by way of

example or correction for the public good. The award

of these damages is meant to be a deterrent to socially

deleterious actions.[45] Public policy requires such

imposition to suppress wanton acts of an offender. [46] It

must be emphasized that local governments and their

employees should be responsible not only for the

maintenance of roads and streets, but also for the

safety of the public. Thus, they must secure

construction areas with adequate precautionary

measures.
 Not only is the work of petitioners impressed with

public interest; their very existence is justified only by

public service. Hence, local governments have the

paramount responsibility of keeping the interests of

the public foremost in their agenda. For these reasons,

it is most disturbing to note that the present

petitioners are the very parties responsible for

endangering the public through such a rash and

reckless act.

WHEREFORE, the Petition is hereby PARTLY

GRANTED. The Decision of the Court of Appeals
is AFFIRMED, with the MODIFICATION that the
award of moral damages is DELETED. No costs.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
 W E C O N C U R:

ANGELINA SANDOVAL-GUTIERREZ RENATO C.

CORONA Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had

been reached in consultation before the case was
assigned to the writer of the opinion of the Courts
Division.

ARTEMIO V.
PANGANIBAN
Associate Justice
Chairman, Third Division
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution,

and the Division Chairmans Attestation, it is hereby

certified that the conclusions in the above Decision

had been reached in consultation before the case was

assigned to the writer of the opinion of the Courts

Division.

HILARIO G. DAVIDE, JR.

Chief Justice

*
Although the Petition mentions Fulgencio Dacara as the
respondent, the body of the Petition, as well as the records of
the case, mentions Fulgencio P. Dacara Sr. as the proper
respondent.
[1]
Rollo, pp. 10-30.
[2]
Id., pp. 36-41. Third Division. Penned by Justice Mercedes Gozo-
Dadole, with the concurrence of Justices Fermin A. Martin Jr.
(Division chairman) and Portia Alio-Hormachuelos (member).
[3]
Id., pp. 53-54.
[4]
Assailed Decision, p. 5; rollo, p. 40.
[5]
CA Decision, pp. 1-2; id., pp. 36-37.
[6]
Penned by Judge Pedro T. Santiago; rollo, pp. 55-62.
[7]
Art. 2189. Provinces, cities, and municipalities shall be liable for
damages for the death of, or injuries suffered by, any person
by reason of the defective condition of roads, streets, bridges,
public buildings, and other public works under their control or
supervision.
[8]
RTC Decision, p. 8; rollo, p. 62.
[9]
Assailed Decision, p. 5; rollo, p. 40.
[10]
Id., p. 4; rollo, p. 39.
[11]
CA Decision, pp. 4-5; id., pp. 39-40.
[12]
Id., pp. 5 & 40.
[13]
The case was deemed submitted for decision on May 20, 2004,
upon this Courts receipt of respondents delayed, anemic 4-
page Memorandum, signed by Atty. Romulo R. Candoy.
Petitioners Memorandum, signed by Atty. Felixberto F. Abad,
was received by this Court on March 5, 2003.
[14]
Petitioners Memorandum, pp. 14-15; rollo, pp. 107-108; all caps
in the original.
[15]
Raynera v. Hiceta, 306 SCRA 102, 108, April 21, 1999.
[16]
Sangco, Torts and Damages (1993), Vol. I, p. 90.
[17]
Taedo v. CA, 252 SCRA 80, January 22, 1996; Engineering &
Machinery Corporation v. CA, 252 SCRA 156, January 24,
1996.
[18]
Kierulf v. CA, 269 SCRA 433, 442, March 13, 1997 (citing Gaw v.
IAC, 220 SCRA 405, March 24, 1993).
[19]
Regalado, Remedial Law Compendium (1999), Vol. I, pp. 542-
543. Fuentes v. CA, 268 SCRA 703, 708-709, February 26,
1997; Solid Homes, Inc. v. CA; 275 SCRA 267, 279; July 8,
1997; Spouses Quisumbing v. Manila Electric Company, 380
SCRA 195, April 3, 2002.
[20]
RTC Decision, pp. 6-8; rollo, pp. 60-62.
[21]
Article 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.
[22]
Petitioners Memorandum, pp. 37-40; rollo, pp. 129-132.
[23]
Petitioners Motion for Reconsideration, pp. 6-8; rollo, pp. 47-49.
[24]
Remman Enterprises, Inc. v. CA, 268 SCRA 690, February 26,
1997; Hufana v. Genato, 365 SCRA 385, September 17, 2001
[25]
De Rama v. CA, 353 SCRA 94, 105, February 28, 2001
(citing San Juan Structural and Steel Fabricators, Inc. v.
CA, 296 SCRA 631, 649, September 29, 1998).
[26]
Article 2219. Moral damages may be recovered in the following
analogous cases:
(1) A criminal offense resulting in physical
injuries;
(2) Quasi-delicts causing physical injuries;
 (3) Seduction, abduction, rape, or other
lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of
defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21,
26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female [who was] seduced, abducted,
raped, or abused, referred to in No. 3 of this article, may also
recover moral damages.
The spouse, descendants, ascendants, and brothers and
sisters may bring the action mentioned in No. 9 of this article,
in the order named.
[27]
Petitioners Memorandum, pp. 16-25; rollo, pp. 109-118.
[28]
Expertravel & Tours, Inc. v. CA, 368 Phil. 444, 448, June 25,
1999.
[29]
Strebel v. Figueras, 96 Phil. 321, 330, December 29,
1954; Expertravel Tours, Inc. v. CA, supra, p. 449.
[30]
Malonzo v. Galang, 109 Phil. 16, 20, July 27, 1960, per Reyes, J.
[31]
Expertravel & Tours, Inc. v. CA, supra (citing Dee Hua Liong
Electrical Equipment Corp. v. Reyes, 145 SCRA 713, 719,
November 25, 1986).
[32]
Malonzo v. Galang, supra, p. 21.
[33]
Dee Hua Liong Electrical Equipment Corp. v.
Reyes, supra; Mahinay v. Velasquez, Jr., 419 SCRA 118,
January 13, 2004; Malonzo v. Galang, supra.
[34]
People v. Baydo, 273 SCRA 526, June 17, 1997; People v. Serzo
Jr., 274 SCRA 553, June 20, 1997; People v. Teodoro, 280
SCRA 384, October 9, 1997; People v. Villanueva, 408 SCRA
571, August 11, 2003; People v. Escarlos, 410 SCRA 463,
September 10, 2003.
[35]
Art. 2217 of the New Civil Code.
[36]
Mahinay v. Velasquez Jr., supra, p. 121.
[37]
Petitioners Memorandum, p. 27; rollo, p. 120.
[38]
Article 2233 of the New Civil Code.
[39]
Article 2234, id.
[40]
Article 2231, id.
[41]
Amedo v. Rio Y Olabarrieta, Inc., 95 Phil. 33, 37, May 24,
1954; Benguet Electric Cooperative, Inc. v. CA, 378 Phil.
1137, 1151, December 23, 1999.
[42]
RTC Decision, p. 7; rollo, p. 61.
[43]
CA Decision, p. 4; rollo, p. 39.
[44]
Petitioners Memorandum, p. 20 (rollo, p. 113); RTC Decision, p.
3 (rollo, p. 57).
[45]
Benguet Electric Cooperative, Inc. v. CA, supra, p. 1151.
[46]
Civil Aeronautics Administration v. CA, 167 SCRA 28, November
8, 1988.