SECOND DIVISION
containing 26,000 yards valued at $5,200; (2) 37 cases containing 18,440
G.R. No. L-26339 December 14, 1979
MARIANO C. PAMINTUAN, petitioner-appellant,
vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-appellees.
V. E. del Rosario & Associates for appellant.
Sangco & Sangalang for private respondent.
AQUINO, J.:
This case is about the recovery compensatory, damages for breach of a
contract of sale in addition to liquidated damages.
Mariano C. Pamintuan appealed from the judgment of the Court of
Appeals wherein he was ordered to deliver to Yu Ping Kun Co., Inc.
certain plastic sheetings and, if he could not do so, to pay the latter
P100,559.28 as damages with six percent interest from the date of the
filing of the complaint. The facts and the findings of the Court of Appeals
are as follows:
In 1960, Pamintuan was the holder of a barter license wherein he was
authorized to export to Japan one thousand metric tons of white flint corn
valued at forty-seven thousand United States dollars in exchange for a
collateral importation of plastic sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to ship his corn to
Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic
sheetings. He contracted to sell the plastic sheetings to Yu Ping Kun Co.,
Inc. for two hundred sixty-five thousand five hundred fifty pesos. The
company undertook to open an irrevocable domestic letter of credit for
that amount in favor of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic sheetings
to the company at its bodegas in Manila or suburbs directly from the piers
"within one month upon arrival of" the carrying vessels. Any violation of
the contract of sale would entitle the aggreived party to collect from the
offending party liquidated damages in the sum of ten thousand pesos
(Exh. A).
On July 28, 1960, the company received a copy of the letter from the
Manila branch of Toyo Menka Kaisha, Ltd. confirming the acceptance by
Japanese suppliers of firm offers for the consignment to Pamintuan of
plastic sheetings valued at forty-seven thousand dollars. Acting on that
information, the company lost no time in securing in favor of Pamintuan
an irrevocable letter of credit for two hundred sixty-five thousand five
hundred fifty pesos.
Pamintuan was apprised by the bank on August 1, 1960 of that letter of
credit which made reference to the delivery to Yu Ping Kun Co., Inc. on or
before October 31, 1960 of 336, 360 yards of plastic sheetings (p. 21,
Record on Appeal).
On September 27 and 30 and October 4, 1960, the Japanese suppliers
shipped to Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic
sheetings in four shipments to wit: (1) Firm Offer No. 327 for 50,000
yards valued at $9,000; (2) Firm Offer No. 328 for 70,000 yards valued at
$8,050; (3) Firm Offers Nos. 329 and 343 for 175,000 and 18,440 yards
valued at $22,445 and $2,305, respectively, and (4) Firm Offer No. 330
for 26,000 yards valued at $5,200, or a total of 339,440 yards with an
aggregate value of $47,000 (pp. 4-5 and 239-40, Record on Appeal).
The plastic sheetings arrived in Manila and were received by Pamintuan.
Out of the shipments, Pamintuan delivered to the company's warehouse
only the following quantities of plastic sheetings:
November 11, 1960 — 140 cases, size 48 inches by 50 yards.
November 14, 1960 — 258 cases out of 352 cases. November
15, 1960 — 11 cases out of 352 cases. November 15, 1960 — 10 cases
out of 100 cases. November 15, 1960 — 30 cases out of 100 cases.
Pamintuan withheld delivery of (1) 50 cases of plastic sheetings
yards valued at $2,305; (3) 60 cases containing 30,000 yards valued at
$5,400 and (4) 83 cases containing 40,850 yards valued at $5,236.97.
While the plastic sheetings were arriving in Manila, Pamintuan informed
the president of Yu Ping Kun Co., Inc. that he was in dire need of cash
with which to pay his obligations to the Philippine National Bank.
Inasmuch as the computation of the prices of each delivery would
allegedly be a long process, Pamintuan requested that he be paid
immediately.
Consequently, Pamintuan and the president of the company, Benito Y.C.
Espiritu, agreed to fix the price of the plastic sheetings at P0.782 a yard,
regardless of the kind, quality or actual invoice value thereof. The parties
arrived at that figure by dividing the total price of P265,550 by 339,440
yards, the aggregate quantity of the shipments.
After Pamintuan had delivered 224,150 yards of sheetings of interior
quality valued at P163,.047.87, he refused to deliver the remainder of the
shipments with a total value of P102,502.13 which were covered by (i)
Firm Offer No. 330, containing 26,000 yards valued at P29,380; (2) Firm
Offer No. 343, containing 18,440 yards valued at P13,023.25; (3) Firm
Offer No. 217, containing 30,000 yards valued at P30,510 and (4) Firm
Offer No. 329 containing 40,850 yards valued at P29,588.88 (See pp. 243-
2, Record on Appeal).
As justification for his refusal, Pamintuan said that the company failed to
comply with the conditions of the contract and that it was novated with
respect to the price.
On December 2, 1960, the company filed its amended complaint for
damages against Pamintuan. After trial, the lower court rendered the
judgment mentioned above but including moral damages.
The unrealized profits awarded as damages in the trial court's decision
were computed as follows (pp. 248-9, Record on Appeal):
(1) 26,000 yards with a contract price of Pl.13 per yard and a selling
price at the time of delivery of Pl.75 a
yard........................................................... P16,120.00
(2) 18,000 yards with a contract price of P0.7062 per yard and selling
price of Pl.20 per yard at the time of delivery.........................................
9,105.67
(3) 30,000 yards with a contract price of Pl.017 per yard and a selling
price of Pl.70 per yard. 20,490.00
(4) 40,850 yards with a contract price of P0.7247 per yard and a
selling price of P1.25 a yard at the time of
delivery.............................................. 21,458.50 Total unrealized
profits....................... P67,174.17
The overpayment of P12,282.26 made to Pamintuan by Yu Ping Kun Co.,
Inc. for the 224,150 yards, which the trial court regarded as an item of
damages suffered by the company, was computed as follows (p. 71,
Record on Appeal):
Liquidation value of 224,150 yards at P0.7822 a yard
.............................................................................. P175,330.13
Actual peso value of 224,150 yards as per firm offers or as per
contract............................................ 163,047.87
Overpayment................................................................ P 12,282.26
To these two items of damages (P67,174.17 as unrealized profits and
P12,282.26 as overpayment), the trial court added (a) P10,000 as
stipulated liquidated damages, (b) P10,000 as moral damages, (c)
Pl,102.85 as premium paid by the company on the bond of P102,502.13
for the issuance of the writ of preliminary attachment and (d) P10,000 as
attorney's fees, or total damages of P110,559.28) p. 250, Record on
Appeal). The Court of Appeals affirmed that judgment with the
modification that the moral damages were disallowed (Resolution of June
29, 1966).
Pamintuan appealed. The Court of Appeals in its decision of March 18,
1966 found that the contract of sale between Pamintuan and the company
was partly consummated. The company fulfilled its obligation to obtain
the Japanese suppliers' confirmation of their acceptance of firm offers
totalling $47,000. Pamintuan reaped certain benefits from the contract.
Hence, he is estopped to repudiate it; otherwise, he would unjustly enrich
himself at the expense of the company.
The Court of Appeals found that the writ of attachment was properly
issued. It also found that Pamintuan was guilty of fraud because (1) he
was able to make the company agree to change the manner of paying the
price by falsely alleging that there was a delay in obtaining confirmation of
the suppliers' acceptance of the offer to buy; (2) he caused the plastic
sheetings to be deposited in the bonded warehouse of his brother and
then required his brother to make him Pamintuan), his attorney-in-fact so
that he could control the disposal of the goods; (3) Pamintuan, as
attorney-in-fact of the warehouseman, endorsed to the customs broker
the warehouse receipts covering the plastic sheetings withheld by him and
(4) he overpriced the plastic sheetings which he delivered to the
company.
The Court of Appeals described Pamintuan as a man "who, after having
succeeded in getting another to accommodate him by agreeing to
liquidate his deliveries on the basis of P0.7822 per yard, irrespective of
invoice value, on the pretense that he would deliver what in the first place
he ought to deliver anyway, when he knew all the while that he had no
such intention, and in the process delivered only the poorer or cheaper
kind or those which he had predetermined to deliver and did not conceal
in his brother's name and thus deceived the unwary party into overpaying
him the sum of P 1 2,282.26 for the said deliveries, and would thereafter
refuse to make any further delivery in flagrant violation of his plighted
word, would now ask us to sanction his actuation" (pp. 61-62, Rollo).
The main contention of appellant Pamintuan is that the buyer, Yu Ping
Kun Co., Inc., is entitled to recover only liquidated damages. That
contention is based on the stipulation "that any violation of the provisions
of this contract (of sale) shall entitle the aggrieved party to collect from
the offending party liquidated damages in the sum of P10,000 ".
Pamintuan relies on the rule that a penalty and liquidated damages are
the same (Lambert vs. Fox 26 Phil. 588); that "in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if there is no stipulation
to the contrary " (1st sentence of Art. 1226, Civil Code) and, it is argued,
there is no such stipulation to the contrary in this case and that
"liquidated damages are those agreed upon by the parties to a contract,
to be paid in case of breach thereof" (Art. 2226, Civil Code).
We hold that appellant's contention cannot be sustained because the
second sentence of article 1226 itself provides that I nevertheless,
damages shall be paid if the obligor ... is guilty of fraud in the fulfillment
of the obligation". "Responsibility arising from fraud is demandable in all
obligations" (Art. 1171, Civil Code). "In case of fraud, bad faith, malice or
wanton attitude, the obligor shall be responsible for an damages which
may be reasonably attributed to the non-performance of the obligation"
(Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty
of fraud because he did not make a complete delivery of the plastic
sheetings and he overpriced the same. That factual finding is conclusive
upon this Court.
There is no justification for the Civil Code to make an apparent distinction
between penalty and liquidated damages because the settled rule is that
there is no difference between penalty and liquidated damages insofar as
legal results are concerned and that either may be recovered without the
necessity of proving actual damages and both may be reduced when
proper (Arts. 1229, 2216 and 2227, Civil Code. See observations of Justice
J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p. 251).
Castan Tobeñas notes that the penal clause in an obligation has three
functions: "1. Una funcion coercitiva o de garantia, consistente en
estimular al deudor al complimiento de la obligacion principal, ante la
amenaza de tener que pagar la pena. 2. Una funcion liquidadora del daño,
o sea la de evaluar por anticipado los perjuicios que habria de ocasionar al
acreedor el incumplimiento o cumplimiento inadecuado de la obligacion.
3. Una funcion estrictamente penal, consistente en sancionar o castigar
dicho incumplimiento o cumplimiento inadecuado, atribuyendole
consecuencias mas onerosas para el deudor que las que normalmente
lleva aparejadas la infraccion contractual. " (3 Derecho Civil Espanol, 9th
Ed., p. 128).
The penalty clause is strictly penal or cumulative in character and does
not partake of the nature of liquidated damages (pena sustitutiva) when
the parties agree "que el acreedor podra pedir, en el supuesto
incumplimiento o mero retardo de la obligacion principal, ademas de la
pena, los danos y perjuicios. Se habla en este caso de pena cumulativa, a
differencia de aquellos otros ordinarios, en que la pena es sustitutiva de la
reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).
After a conscientious consideration of the facts of the case, as found by
Court of Appeals and the trial court, and after reflecting on the/tenor of
the stipulation for liquidated damages herein, the true nature of which is
not easy to categorize, we further hold that justice would be adequately
done in this case by allowing Yu Ping Kun Co., Inc. to recover only the
actual damages proven and not to award to it the stipulated liquidated
damages of ten thousand pesos for any breach of the contract. The
proven damages supersede the stipulated liquidated damages.
This view finds support in the opinion of Manresa (whose comments were
the bases of the new matter found in article 1226, not found in article
1152 of the old Civil Code) that in case of fraud the difference between
the proven damages and the stipulated penalty may be recovered (Vol. 8,
part. 1, Codigo Civil, 5th Ed., 1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety
thousand five hundred fifty-nine pesos and twenty-eight centavos
(P90,559.28), with six percent interest a year from the filing of the
complaint.
With that modification the judgment of the Court of Appeals is affirmed in
all respects. No costs in this instance.
SO ORDERED.
Barredo, Concepcion, Jr., and Santos, JJ., concur.
Abad Santos, J., concur in the result.
THIRD DIVISION
G.R. No. 196118 July 30, 2014
LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO,
Petitioner,
vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON
C. CASTILLO, JR., and TERESITA FLORESCASTILLO, Respondents.
DECISION
PERALTA, J.:
This is a Petition for Review questioning the Decision1 of the Court of
Appeals (CA) dated November 26, 2010, as well as its Resolution2 dated
March 17, 2011 in CA-G.R. CV No. 88914. The CA reversed and set aside
the Decision3 of the Regional Trial Court (RTC) of San Pablo City, Laguna,
Branch 32, dated October 16, 2006 in Civil Case No. SP-5882 (02), and
consequently, upheld the validity of the real estate mortgage entered into
by respondents spouses Leon C. Castillo, Jr. and Teresita Flores-Castillo,
and Security Bank Corporation (SBC).
The facts, as culled from the records, are as follows:
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are
siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo) were
doing business under the name of JRC Poultry Farms. Sometime in 1994,
the Spouses Castillo obtained a loan from respondent SBC in the amount
of ₱45,000,000.00. To secure said loan, they executed a real estate
mortgage on August 5, 1994 over eleven (11) parcels of land belonging to
different members of the Castillo family and which are all located in San
Pablo City.4 They also procured a second loan5 amounting to
₱2,500,000.00, which was covered by a mortgage on a land in Pasay City.
Subsequently, the Spouses Castillo failed to settle the loan, prompting
SBC to proceed with the foreclosure of the properties. SBC was then
adjudged as the winning bidder in the foreclosure sale held on July 29,
1999. Thereafter, they were able to redeem the foreclosed properties,
withthe exception of the lots covered by Torrens Certificate of Title(TCT)
Nos. 28302 and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial annulment
of the real estate mortgage. He alleged that he owns the property
covered by TCT No. 28297 and that the Spouses Castillo used it as one of
the collaterals for a loan without his consent. He contested his supposed
Special Power of Attorney (SPA) in Leon’s favor, claiming that it is
falsified. According to him, the date of issuance of his Community Tax
Certificate (CTC) as indicated on the notarization of said SPA is January
11, 1993, when he only secured the same on May 17, 1993. He also
assailed the foreclosure of the lots under TCT Nos.20030 and 10073 which
were still registered in the name of their deceased father. Lastly,
Leonardo attacked SBC’s imposition of penalty and interest on the loans
as being arbitrary and unconscionable.
On the other hand, the Spouses Castillo insisted on the validity of
Leonardo’s SPA. They alleged that they incurred the loan not only for
themselves, but also for the other members of the Castillo family who
needed money at that time. Upon receipt of the proceeds of the loan,
they distributed the same to their family members, as agreed upon.
However, when the loan became due, their relatives failed to pay their
respective shares such that Leon was forced to use his own money until
SBC had to finally foreclose the mortgage over the lots.6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in
Leonardo’s favor, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
Leonardo C. Castillo and against the defendants SECURITY BANK
CORPORATION, and JRC POULTRY FARMS or SPS. LEON C. CASTILLO,
JR. and TERESITA FLORES-CASTILLO declaring as null and void the Real
Estate Mortgage dated August 5, 1994, the Memorandum of Agreement
dated October 28, 1997 and the Certificate of Sale dated August 27, 1999
insofar as plaintiff’s property with Transfer Certificate of Title No. T-28297
is concerned. The Security Bank Corporation is likewise ordered to return
the ownership of the Transfer Certificate of Title No. T-28297 to plaintiff
Leonardo Castillo. Likewise, defendants spouses Leon C. Castillo, Jr. and
Teresita Flores-Castillo are hereby ordered to pay plaintiff moral damages
in the total amount of ₱500,000.00 and exemplary damages of
₱20,000.00. All other claims for damages and attorney’s fees are DENIED
for insufficiency of evidence.
SO ORDERED.7
Both parties elevated the case to the CA. On November 26, 2010, the CA
denied Leonardo’s appeal and granted that of the Spouses Castillo and
SBC. It reversed and set aside the RTC Decision, essentially ruling that the
August 5, 1994 real estate mortgage isvalid. Leonardo filed a Motion for
Reconsideration, but the same was denied for lack of merit.
Hence, Leonardo brought the case to the Court and filed the instant
Petition for Review.1âwphi1 The main issue soughtto be resolved here is
whether or not the real estate mortgage constituted over the property
under TCT No. T-28297 is valid and binding.
The Court finds the petition to be without merit.
As a rule, the jurisdiction of the Court over appealed cases from the CA is
limited to the review and revision of errors of law it allegedly committed,
as its findings of fact are deemed conclusive. Thus, the Court is not duty-
bound to evaluate and weigh the evidence all over again which were
already considered in the proceedings below, except when, as in this
case, the findings of fact of the CAare contrary to the findings and
conclusions of the trial court.8
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a principal
obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal of
their property, and in the absence thereof, they should be legally
authorized for the purpose.9
Leonardo asserts that his signature inthe SPA authorizing his brother,
Leon, to mortgage his property covered by TCT No. T-28297 was falsified.
He claims that he was in America at the time of its execution. As proof of
the forgery, he focuses on his alleged CTC used for the notarization10 of
the SPA on May 5, 1993 and points out that it appears to have been
issued on January 11, 1993 when, in fact, he only obtained it on May 17,
1993. But it is a settled rule that allegations of forgery, like all other
allegations, must be proved by clear, positive, and convincing evidence by
the party alleging it. It should not be presumed, but must beestablished
by comparing the alleged forged signature with the genuine signatures.11
Here, Leonardo simply relied on his self-serving declarations and refused
to present further corroborative evidence, saying that the falsified
document itself is the best evidence.12 He did not even bother comparing
the alleged forged signature on the SPA with samples of his real and
actual signature. What he consistently utilized as lone support for his
allegation was the supposed discrepancy on the date of issuance of his
CTC as reflectedon the subject SPA’s notarial acknowledgment. On the
contrary, in view of the great ease with which CTCs are obtained these
days,13 there is reasonable ground to believe that, as the CA correctly
observed, the CTC could have been issued with the space for the date left
blank and Leonardo merelyfilled it up to accommodate his assertions.
Also, upon careful examination, the handwriting appearing on the space
for the date of issuance is different from that on the computation of fees,
which in turn was consistent with the rest of the writings on the
document.14 He did not likewise attempt to show any evidence that
would back up his claim that at the time of the execution of the SPA on
May 5, 1993, he was actually in America and therefore could not have
possibly appeared and signed the document before the notary.
And even if the Court were to assume, simply for the sake of argument,
that Leonardo indeed secured his CTC only on May 17, 1993, this does
not automatically render the SPA invalid. The appellate court aptly held
that defective notarization will simply strip the document of its public
character and reduce it to a private instrument, but nonetheless, binding,
provided its validity is established by preponderance of evidence.15 Article
1358 of the Civil Code requires that the form of a contract that transmits
or extinguishes real rights over immovable property should be in a public
document, yet the failure to observethe proper form does not render the
transaction invalid.16 The necessity of a public document for said
contracts is only for convenience; it is not essential for validity or
enforceability.17 Even a sale of real property, though notcontained in a
public instrument or formal writing, is nevertheless valid and binding, for
even a verbal contract of sale or real estate produceslegal effects between
the parties.18 Consequently, when there is a defect in the notarization of
a document, the clear and convincing evidentiary standard originally
attached to a dulynotarized document is dispensed with, and the measure
to test the validity of such document is preponderance of evidence.19
Here, the preponderance ofevidence indubitably tilts in favor of the
respondents, still making the SPA binding between the parties even with
the aforementioned assumed irregularity.1âwphi1 There are several telling
circumstances that would clearly demonstrate that Leonardo was aware of
the mortgage and he indeed executed the SPA to entrust Leon with the
mortgage of his property. Leon had inhis possession all the titles covering
the eleven (11) properties mortgaged, including that of Leonardo.20
Leonardo and the rest of their relatives could not have just blindly ceded
their respective TCTs to Leon.21 It is likewise ridiculous how Leonardo
seemed to have been totally oblivious to the status of his property for
eight (8) long years, and would only find outabout the mortgage and
foreclosure from a nephew who himself had consented to the mortgage of
his own lot.22 Considering the lapse of time from the alleged forgery on
May 5, 1993 and the mortgage on August 5, 1994, to the foreclosure on
July 29, 1999, and to the supposed discovery in 2001, it appears that the
suit is a mere afterthought or a last-ditch effort on Leonardo’s part to
extend his hold over his property and to prevent SBC from consolidating
ownership over the same. More importantly, Leonardo himself admitted
on cross-examination that he granted Leon authority to mortgage, only
that, according to him, he thought it was going to be with China Bank,
and not SBC.23 But as the CA noted, there is no mention of a certainbank
in the subject SPA with which Leon must specifically deal. Leon, therefore,
was simply acting within the bounds of the SPA’s authority when
hemortgaged the lot to SBC.
True, banks and other financing institutions, in entering into mortgage
contracts, are expected to exercise due diligence.24 The ascertainment of
the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of its operations.25 In this
case, however, no evidence was presented to show that SBC was remiss
in the exercise of the standard care and prudence required of it or that it
was negligent in accepting the mortgage.26 SBC could not likewise
befaulted for relying on the presumption of regularity of the notarized SPA
when it entered into the subject mortgage agreement.
Finally, the Court finds that the interest and penalty charges imposed by
SBC are just, and not excessive or unconscionable.
Section 47 of The General Banking Law of 200027 thus provides:
Section 47. Foreclosure of Real Estate Mortgage.- In the event of
foreclosure, whether judicially or extra-judicially, of any mortgage on real
estate which is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property has been sold for
the full or partial payment of his obligation shall have the right within one
year after the sale of the real estate, to redeem the property by paying
the amount due under the mortgage deed, with interest thereon at the
rate specified in the mortgage, and all the costs and expenses incurred by
the bank or institutionfrom the sale and custody of said property less the
income derived therefrom. However,the purchaser at the auction sale
concerned whether in a judicial or extra-judicial foreclosure shall have the
right to enter upon and take possession of such property immediately
after the date of the confirmation of the auction sale and administer the
same in accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the filing by the petitioner
of a bond in an amount fixed by the court conditioned that he will pay all
the damages which the bank may suffer by the enjoining or the restraint
of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the
registration of the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of property that has been
sold in a foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration.28 Verily, the redemption
price comprises not only the total amount due under the mortgage deed,
but also with interest at the rate specified in the mortgage, and all the
foreclosure expenses incurred by the mortgagee bank.
To sustain Leonardo's claim that their payment of ₱45,000,000.00 had
already extinguished their entire obligation with SBC would mean that no
interest ever accrued from 1994, when the loan was availed, up to the
time the payment of ₱45,000,000.00 was made in 2000-2001.
SBC's 16% rate of interest is not computed per month, but rather per
annum or only 1.33% per month. In Spouses Bacolor v. Banco Filipino
Savings and Mortgage Bank, Dagupan City Branch,29 the Court held that
the interest rate of 24% per annum on a loan of ₱244,000.00 is not
considered as unconscionable and excessive. As such, the Court ruled that
the debtors cannot renege on their obligation to comply with what is
incumbent upon them under the contract of loan as they are bound by its
stipulations. Also, the 24o/o per annum rate or 2% per month for the
penalty charges imposed on account of default, cannot be considered as
skyrocketing. The enforcement of penalty can be demanded by the
creditor in case of non-performance due to the debtor's fault or fraud. The
nonperformance gives rise to the presumption of fault and in order to
avoid the penalty, the debtor has the burden of proving that the failure of
the performance was due to either force majeure or the creditor's own
acts.30 In the instant case, petitioner failed to discharge said burden and
thus cannot avoid the payment of the penalty charge agreed upon.
WHEREFORE, premises considered, the petition is DENIED. The Decision
of the Court of Appeals, dated November 26, 2010, as well as its
Resolution dated March 17, 2011 in CA-G.R. CV No. 88914, are hereby
AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
FIRST DIVISION
G.R. No. 183794, June 13, 2016
SPOUSES JAIME AND MATILDE POON, Petitioners, v. PRIME SAVINGS
BANK REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION AS STATUTORY LIQUIDATOR, Respondent.
DECISION
SERENO, C.J.:
Before this Court is a Petition for Review on Certiorari1 assailing the Court
of Appeals (CA) Decision2 which affirmed the Decision3 issued by Branch
21, Regional Trial Court (RTC) of Naga City.
The RTC ordered the partial rescission of the penal clause in the lease
contract over the commercial building of Spouses Jaime and Matilde Poon
(petitioners). It directed petitioners to return to Prime Savings Bank
(respondent) the sum of P1,740,000, representing one-half of the unused
portion of its advance rentals, in view of the closure of respondent's
business upon order by the Bangko Sentral ng Pilipinas (BSP).
Antecedent Facts
The facts are undisputed.
Petitioners owned a commercial building in Naga City, which they used for
their bakery business. On 3 November 2006, Matilde Poon and respondent
executed a 10-year Contract of Lease4 (Contract) over the building for the
latter's use as its branch office in Naga City. They agreed to a fixed
monthly rental of P60,000, with an advance payment of the rentals for the
first 100 months in the amount of P6,000,000. As agreed, the advance
payment was to be applied immediately, while the rentals for the
remaining period of the Contract were to be paid on a monthly
basis.5chanrobleslaw
In addition, paragraph 24 of the Contract
provides:ChanRoblesVirtualawlibrary
24. Should the lease[d] premises be closed, deserted or vacated by the
LESSEE, the LESSOR shall have the right to terminate the lease without
the necessity of serving a court order and to immediately repossess the
leased premises. Thereafter the LESSOR shall open and enter the leased
premises in the presence of a representative of the LESSEE (or of the
proper authorities) for the purpose of taking a complete inventory of all
furniture, fixtures, equipment and/or other materials or property found
within the leased premises.
The LESSOR shall thereupon have the right to enter into a new contract
with another party. All advanced rentals shall be forfeited in favor of the
LESSOR.6chanroblesvirtuallawlibrary
Barely three years later, however, the BSP placed respondent under the
receivership of the Philippine Deposit Insurance Corporation (PDIC) by
virtue of BSP Monetary Board Resolution No. 22,7 which
reads:ChanRoblesVirtualawlibrary
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift
Banks and Non-Bank Financial Institutions (DTBNBF1), in his
memorandum dated January 3, 2000, which report showed that the Prime
Savings Bank, Inc. (a) is unable to pay its liabilities as they became due in
the ordinary course of business; (b) has insufficient realizable assets as
determined by the Bangko Sentral ng Pilipinas to meet its liabilities; (c)
cannot continue in business without involving probable losses to its
depositors and creditors; and (d) has wilfully violated cease and desist
orders under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the
institution; x x x.8 (Emphasis supplied)
The BSP eventually ordered respondent's liquidation under Monetary
Board Resolution No. 664.9chanrobleslaw
On 12 May 2000, respondent vacated the leased premises and
surrendered them to petitioners.10 Subsequently, the PDIC issued
petitioners a demand letter11 asking for the return of the unused advance
rental amounting to P3,480,000 on the ground that paragraph 24 of the
lease agreement had become inoperative, because respondent's closure
constituted force majeure. The PDIC likewise invoked the principle of
rebus sic stantibus under Article 1267 of Republic Act No. 386 (Civil Code)
as alternative legal basis for demanding the refund.
Petitioners, however, refused the PDIC's demand.12 They maintained that
they were entitled to retain the remainder of the advance rentals following
paragraph 24 of their Contract.
Consequently, respondent sued petitioners before the RTC of Naga City
for a partial rescission of contract and/or recovery of a sum of money.
The RTC Ruling
After trial, the RTC ordered the partial rescission of the lease agreement,
disposing as follows:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby entered ordering the partial rescission
of the Contract of Lease dated November 3, 1996 particularly the second
paragraph of Par. 24 thereof and directing the defendant-spouses Jaime
and Matilde Poon to return or refund to the Plaintiff the sum of One
Million Seven Hundred Forty Thousand Pesos (P1,740,000) representing
one-half of the unused portion of the advance rentals.
Parties' respective claims for damages and attorney's fees are dismissed.
No costs.13chanroblesvirtuallawlibrary
The trial court ruled that the second clause in paragraph 24 of the
Contract was penal in nature, and that the clause was a valid contractual
agreement.14 Citing Provident Savings Bank v. CA15 as legal precedent, it
ruled that the premature termination of the lease due to the BSP's closure
of respondent's business was actually involuntary. Consequently, it would
be iniquitous for petitioners to forfeit the entire amount of P 3,480,000.16
Invoking its equity jurisdiction under Article 1229 of the Civil Code,17 the
trial court limited the forfeiture to only one-half of that amount to answer
for respondent's unpaid utility bills and E-VAT, as well as petitioner's lost
business opportunity from its former bakery business.18chanrobleslaw
The CA Ruling
On appeal, the CA affirmed the RTC Decision,19 but had a different
rationale for applying Article 1229. The appellate court ruled that the
closure of respondent's business was not a fortuitous event. Unlike
Provident Savings Bank,20 the instant case was one in which respondent
was found to have committed fraudulent acts and transactions. Lacking,
therefore, was the first requisite of a fortuitous event, i.e, that the cause
of the breach of obligation must be independent of the will of the
debtor.21chanrobleslaw
Still, the CA sustained the trial court's interpretation of the proviso on the
forfeiture of advance rentals as a penal clause and the consequent
application of Article 1229. The appellate court found that the forfeiture
clause in the Contract was intended to prevent respondent from
defaulting on the latter's obligation to finish the term of the lease. It
further found that respondent had partially performed that obligation and,
therefore, the reduction of the penalty was only proper. Similarly, it ruled
that the RTC had properly denied petitioners' claims for actual and moral
damages for lack of basis.22chanrobleslaw
On 10 July 2008,23 the CA denied petitioners' Motion for Reconsideration.
Hence, this Petition.
Issues
The issues to be resolved are whether (1) respondent may be released
from its contractual obligations to petitioners on grounds of fortuitous
event under Article 1174 of the Civil Code and unforeseen event under
Article 1267 of the Civil Code; (2) the proviso in the parties' Contract
allowing the forfeiture of advance rentals was a penal clause; and (3) the
penalty agreed upon by the parties may be equitably reduced under
Article 1229 of the Civil Code.
COURT RULING
We DENY the Petition.
Preliminarily, we address petitioners' claim that respondent had no cause
of action for rescission, because this case does not fall under any of the
circumstances enumerated in Articles 138124 and 138225 of the Civil
Code.
The legal remedy of rescission, however, is by no means limited to the
situations covered by the above provisions. The Civil Code uses rescission
in two different contexts, namely: (1) rescission on account of breach of
contract under Article 1191; and (2) rescission by reason of lesion or
economic prejudice under Article 1381.26 While the term "rescission" is
used in Article 1191, "resolution" was the original term used in the old
Civil Code, on which the article was based. Resolution is a principal action
based on a breach by a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under Article
1381 of the New Civil Code.27chanrobleslaw
It is clear from the allegations in paragraphs 12 and 13 of the
Complaint28 that respondent's right of action rested on the alleged abuse
by petitioners of their right under paragraph 24 of the Contract.
Respondent's theory before the trial court was that the tenacious
enforcement by petitioners of their right to forfeit the advance rentals was
tainted with bad faith, because they knew that respondent was already
insolvent. In other words, the action instituted by respondent was for the
rescission of reciprocal obligations under Article 1191. The lower courts,
therefore, correctly ruled that Articles 1381 and 1382 were inapposite.
We now resolve the main issues.
The closure of respondent's business was neither a fortuitous nor an
unforeseen event that rendered the lease agreement functus officio.
Respondent posits that it should be released from its contract with
petitioners, because the closure of its business upon the BSP's order
constituted a fortuitous event as the Court held in Provident Savings
Bank.29chanrobleslaw
The cited case, however, must always be read in the context of the earlier
Decision in Central Bank v. Court of Appeals.30 The Court ruled in that
case that the Monetary Board had acted arbitrarily and in bad faith in
ordering the closure of Provident Savings Bank. Accordingly, in the
subsequent case of Provident Savings Bank it was held that fuerza mayor
had interrupted the prescriptive period to file an action for the foreclosure
of the subject mortgage.31chanrobleslaw
In contrast, there is no indication or allegation that the BSP's action in this
case was tainted with arbitrariness or bad faith. Instead, its decision to
place respondent under receivership and liquidation proceedings was
pursuant to Section 30 of Republic Act No. 7653.32 Moreover, respondent
was partly accountable for the closure of its banking business. It cannot
be said, then, that the closure of its business was independent of its will
as in the case of Provident Savings Bank. The legal effect is analogous to
that created by contributory negligence in quasi-delict actions.
The period during which the bank cannot do business due to insolvency is
not a fortuitous event,33 unless it is shown that the government's action
to place a bank under receivership or liquidation proceedings is tainted
with arbitrariness, or that the regulatory body has acted without
jurisdiction.34chanrobleslaw
As an alternative justification for its premature termination of the
Contract, respondent lessee invokes the doctrine of unforeseen event
under Article 1267 of the Civil Code, which
provides:ChanRoblesVirtualawlibrary
Art. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
The theory of rebus sic stantibus in public international law is often cited
as the basis of the above article. Under this theory, the parties stipulate in
light of certain prevailing conditions, and the theory can be made to apply She asked first if how much I demand for the price.
when these conditions cease to exist.35 The Court, however, has once Q.
cautioned that Article 1267 is not an absolute application of the principle What did you tell her?
of rebus sic stantibus, otherwise, it would endanger the security of A.
contractual relations. After all, parties to a contract are presumed to have I told her, if they can give me P100,000.00 for the rental, I will give up
assumed the risks of unfavorable developments. It is only in absolutely the place.
exceptional changes of circumstance, therefore, that equity demands Q.
assistance for the debtor.36chanrobleslaw What do you mean P100,000.00 rental?
A.
Tagaytay Realty Co., Inc. v. Gacutan37 lays down the requisites for the That is only for the establishment [concerned].
application of Article 1267, as follows: Q.
What was the period to be covered by the P100,000.00 rental?
chanRoblesvirtualLawlibrary1. The event or change in circumstance could A.
not have been foreseen at the time of the execution of the contract. That is monthly basis.
Q.
2. It makes the performance of the contract extremely difficult but not So after telling Mrs. Lauang that you can be amenable to lease the place
impossible. for P100,000.00 monthly, what if any, did Mrs. Lauang tell you?
A.
3. It must not be due to the act of any of the parties. She told me it is very high. And then she asked me if it is still negotiable, I
answered, yes.
4. The contract is for a future prestation.38chanrobleslaw Q.
So, what happened after your clarified to her that [it is] still negotiable?
The difficulty of performance should be such that the party seeking to be A.
released from a contractual obligation would be placed at a disadvantage She asked me if there is other condition, and I answered her, yes, if your
by the unforeseen event. Mere inconvenience, unexpected impediments, client can give me advances I can lease my property.
increased expenses,39 or even pecuniary inability to fulfil an xxxx
engagement,40 will not relieve the obligor from an undertaking that it has Q.
knowingly and freely contracted. So what is your answer when you were asked for the amount of the
advances?
The law speaks of "service." This term should be understood as referring A.
to the performance of an obligation or a prestation.41 A prestation is the I told her I need 7 million pesos because I need to pay my debts.
object of the contract; i.e., it is the conduct (to give, to do or not to do) xxxx
required of the parties.42 In a reciprocal contract such as the lease in this Q.
case, one obligation of respondent as the lessee was to pay the agreed Who was with her when she came over?
rents for the whole contract period.43 It would be hard-pressed to A.
complete the lease term since it was already out of business only three A certain guy name Ricci and said that he is the assistant manager of the
and a half years into the 10-year contract period. Without a doubt, the Prime Savings Bank.
second and the fourth requisites mentioned above are present in this Q.
case. What did you and Mr. Ricci talk about?
A.
The first and the third requisites, however, are lacking. It must be noted I told him the same story as I talked with Mrs. Lauang.
that the lease agreement was for 10 years. As shown by the unrebutted Q.
testimony of Jaime Poon during trial, the parties had actually considered Was the agreement finally reached between you and Mr. Ricci?
the possibility of a deterioration or loss of respondent's business within A.
that period:ChanRoblesVirtualawlibrary Not yet, Sir.
ATTY. SALES Q.
Q. What happened after that?
Now to the offer of that real estate broker for possible lease of your A.
property at No. 38 General Luna Street, Naga City which was then the He said that he [will discuss] the matter with his higher officer, the branch
Madam Poon Bakery, what did you tell your real estate broker? manager in the person of Henry Lee.
WITNESS (JAIME POON) Q.
A. Were you able to meet this Henry Lee?
When Mrs. Lauang approached me, she told me that she has a client who A.
wants to lease a property in Naga City. After a week later.
Q. Q.
Did she disclose to you the identity of her client? Who was with Henry Lee?
A. A.
Yes, Sir. Mrs. Lauang.
Q. Q.
What was the name of her client? Was there a final agreement on the day when you and Henry Lee met?
A. A.
That is the Prime Savings Bank. Not yet, he offered to reduce the rental and also the advances. Finally I
Q. gave way after 2 or 3 negotiations.
After you have known that it was the Prime Savings Bank that [wanted] to Q.
lease your property located at No. 38 General Luna St., Naga City, what What happened after 2 or 3 negotiations?
did you tell Mrs. Lauang[?] A.
A. We arrived at P60,000.00 for monthly rentals and P6,000,000.00
I told her that if the price is good, I am willing to give up the place where advances for 100 months.
this bakery of mine is situated. Q.
Q. Was the agreement between you and the representative of the Prime
So, did Mrs. Lauang give you the quotation as to the price? Savings Bank reduced into writing?
A. A.
Yes, Sir. Yes Sir.
Q. xxxx
What was the amount? Q.
A.
Now, Mr. Poon, I would like to direct your attention to paragraphs 4 and 5
of the contract of lease which I read: Inasmuch as the leased property is
presently mortgaged with the PCI Bank, the Lessor and the Lessee hereby
agree that another property with a clean title shall serve as security for
herein Lessee; Provided that the mortgaged property with PCI Bank is
cancelled, the Lessee agrees that the above-mentioned property shall be
released to herein Lessor; paragraph 5 says: It is hereby stipulated that
should the leased property be foreclosed by the PCI Bank or any other
banking or financial institution, all unused rentals shall be returned by the
Lessor to the Lessee. Now, my question is: Who asked or requested that
paragraphs 4 and 5 be incorporated in the contract of lease?
A.
Mr. Lee himself.
Q.
The representative of the plaintiff?
A.
Yes, Sir.
Q.
Q. For what purpose did Mr. Lee ask these matters to be incorporated?
A.
Because they are worried that my building might be foreclosed because it
is under [mortgage] with the PCI Bank, that is why I gave them
protection of a clean title. But I also asked them, what will happen to me,
in case your bank will be closed?
Q.
When you asked that question, what did Mr. Lee tell you?
A.
He told me that I don't have to worry I will have P6,000,000 advances.
Q.
What was your protection as to the 6 million payment made by the
plaintiff?
A.
That is the protection for me because during that time I have my bakery
and I myself [spent] 2 million for the improvement of that bakery and I
have sacrificed that for the sake of the offer of lease.
Q.
In what manner that you are being protected for that 6 million pesos?
A.
They said that if in case the bank will be closed that advance of 6 million
pesos will be forfeited in my favor.
Q.
And that is what is found in paragraph 24 of the Contract of Lease which I
asked you to read?
A.
That is true.44
Clearly, the closure of respondent's business was not an unforeseen
event. As the lease was long-term, it was not lost on the parties that such
an eventuality might occur, as it was in fact covered by the terms of their
Contract. Besides, as We have previously discussed, the event was not
independent of respondent's will.
The forfeiture clause in the Contract is penal in nature.
Petitioners claim that paragraph 24 was not intended as a penal clause.
They add that respondent has not even presented any proof of that
intent. It was, therefore, a reversible error on the part of the CA to
construe its forfeiture provision of the Contract as penal in nature.
It is settled that a provision is a penal clause if it calls for the forfeiture of
any remaining deposit still in the possession of the lessor, without
prejudice to any other obligation still owing, in the event of the
termination or cancellation of the agreement by reason of the lessee's
violation of any of the terms and conditions thereof. This kind of
agreement may be validly entered into by the parties. The clause is an
accessory obligation meant to ensure the performance of the principal
obligation by imposing on the debtor a special prestation in case of
nonperformance or inadequate performance of the principal
obligation.45chanrobleslaw
It is evident from the above-quoted testimony of Jaime Poon that the
stipulation on the forfeiture of advance rentals under paragraph 24 is a
penal clause in the sense that it provides for liquidated damages.
Notably, paragraph 5 of the Contract also
provides:ChanRoblesVirtualawlibrary
5. It is hereby stipulated that should the leased property be foreclosed by
PCI Bank or any other banking or financial institution, all unused rentals
shall be returned by the LESSOR to the LESSEE; x x
x.46chanroblesvirtuallawlibrary
In effect, the penalty for the premature termination of the Contract works
both ways. As the CA correctly found, the penalty was to compel
respondent to complete the 10-year term of the lease. Petitioners, too,
were similarly obliged to ensure the peaceful use of their building by
respondent for the entire duration of the lease under pain of losing the
remaining advance rentals paid by the latter.
The forfeiture clauses of the Contract, therefore, served the two functions
of a penal clause, i.e., (1) to provide for liquidated damages and (2) to
strengthen the coercive force of the obligation by the threat of greater
responsibility in case of breach.47 As the CA correctly found, the
prestation secured by those clauses was the parties' mutual obligation to
observe the fixed term of the lease. For this reason, We sustain the lower
courts' finding that the forfeiture clause in paragraph 24 is a penal clause,
even if it is not expressly labelled as such.
A reduction of the penalty agreed upon by the parties is warranted under
Article 1129 of the Civil Code.
We have no reason to doubt that the forfeiture provisions of the Contract
were deliberately and intelligently crafted. Under Article 1196 of the Civil
Code,48 the period of the lease contract is deemed to have been set for
the benefit of both parties. Its continuance, effectivity or fulfillment
cannot be made to depend exclusively upon the free and uncontrolled
choice of just one party.49 Petitioners and respondent freely and
knowingly committed themselves to respecting the lease period, such that
a breach by either party would result in the forfeiture of the remaining
advance rentals in favor of the aggrieved party.
If this were an ordinary contest of rights of private contracting parties,
respondent lessee would be obligated to abide by its commitment to
petitioners. The general rule is that courts have no power to ease the
burden of obligations voluntarily assumed by parties, just because things
did not turn out as expected at the inception of the
contract.50chanrobleslaw
It must be noted, however, that this case was initiated by the PDIC in
furtherance of its statutory role as the fiduciary of Prime Savings Bank.51
As the state-appointed receiver and liquidator, the PDIC is mandated to
recover and conserve the assets of the foreclosed bank on behalf of the
latter's depositors and creditors.52 In other words, at stake in this case
are not just the rights of petitioners and the correlative liabilities of
respondent lessee. Over and above those rights and liabilities is the
interest of innocent debtors and creditors of a delinquent bank
establishment. These overriding considerations justify the 50% reduction
of the penalty agreed upon by petitioners and respondent lessee in
keeping with Article 1229 of the Civil Code, which
provides:ChanRoblesVirtualawlibrary
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even
if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
The reasonableness of a penalty depends on the circumstances in each
case, because what is iniquitous and unconscionable in one may be totally
just and equitable in another.53 In resolving this issue, courts may
consider factors including but not limited to the type, extent and purpose
of the penalty; the nature of the obligation; the mode of the breach and
its consequences; the supervening realities; and the standing and
relationship of the parties.54chanrobleslaw
Under the circumstances, it is neither fair nor reasonable to deprive
depositors and creditors of what could be their last chance to recoup
whatever bank assets or receivables the PDIC can still legally recover.
Besides, nothing has prevented petitioners from putting their building to
other profitable uses, since respondent surrendered the premises
immediately after the closure of its business. Strict adherence to the
doctrine of freedom of contracts, at the expense of the rights of innocent
creditors and investors, will only work injustice rather than promote
justice in this case.55 Such adherence may even be misconstrued as
condoning profligate bank operations. We cannot allow this to happen.
We are a Court of both law and equity; We cannot sanction grossly unfair
results without doing violence to Our solemn obligation to administer
justice fairly and equally to all who might be affected by our
decisions.56chanrobleslaw
Neither do We find any error in the trial court's denial of the damages and
attorney's fees claimed by petitioners. No proof of the supposed expenses
they have incurred for the improvement of the leased premises and the
payment of respondent's unpaid utility bills can be found in the records.
Actual and compensatory damages must be duly proven with a reasonable
degree of certainty.57chanrobleslaw
To recover moral and exemplary damages where there is a breach of
contract, the breach must be palpably wanton, reckless, malicious, in bad
faith, oppressive, or abusive. Attorney's fees are not awarded even if a
claimant is compelled to litigate or to incur expenses where no sufficient
showing of bad faith exists.58 None of these circumstances have been
shown in this case.
Finally, in line with prevailing jurisprudence,59 legal interest at the rate of
6% per annum is imposed on the monetary award computed from the
finality of this Decision until full payment.
WHEREFORE, premises considered, the Petition for Review on Certiorari is
DENIED. The Court of Appeals Decision dated 29 November 2007 and its
Resolution dated 10 July 2008 in CA-G.R. CV No. 75349 are hereby
MODIFIED in that legal interest at the rate of 6% per annum is imposed
on the monetary award computed from the finality of this Decision until
full payment.
No costs.
SO ORDERED.chanRoblesvirtualLawlibrary
Leonardo-De Castro, Bersamin, Perlas-Bernabe, and Caguioa, JJ., concur.
SECOND DIVISION
G.R. No. 204702 January 14, 2015
RICARDO C. HONRADO, Petitioner,
vs.
GMA NETWORK FILMS, INC., Respondent.
DECISION
CARPIO, J.:
The Case
We review1 the Decision2 of the Court of Appeals (CA) ordering petitioner
Ricardo C. Honrado (petitioner) to pay a sum of money to respondent
GMA Network Films, Inc. for breach of contract and breach of trust.
The Facts
On 11December 1998, respondent GMA Network Films, Inc. (GMA Films)
entered into a "TV Rights Agreement" (Agreement) with petitioner under
which petitioner, as licensor of 36 films, granted to GMA Films, for a fee of
₱60.75 million, the exclusive right to telecast the 36 films for a period of
three years. Under Paragraph 3 of the Agreement, the parties agreed that
"all betacam copies of the [films] should pass through broadcast quality
test conducted by GMA-7," the TV station operated by GMA Network, Inc.
(GMA Network), an affiliate of GMA Films. The parties also agreed to
submit the films for review by the Movie and Television Review and
Classification Board (MTRCB) and stipulated on the remedies in the event
that MTRCB bans the telecasting ofany of the films (Paragraph 4):
The PROGRAMME TITLES listed above shall be subject to approval by the
Movie and Television Review and Classification Board (MTRCB) and, in the
event of disapproval, LICENSOR [Petitioner] will either replace the
censored PROGRAMME TITLES with another title which is mutually
acceptable to both parties or, failure to do such, a proportionate reduction
from the total price shall either be deducted or refunded whichever is the
case by the LICENSOR OR LICENSEE [GMA Films].3 (Emphasis supplied)
Two of the films covered by the Agreement were Evangeline Katorse and
Bubot for which GMA Films paid ₱1.5 million each.
In 2003, GMA Films sued petitioner in the Regional Trial Court of Quezon
City (trial court) to collect ₱1.6 million representing the fee it paid for
Evangeline Katorse (₱1.5 million) and a portion of the fee it paid for Bubot
(₱350,0004). GMA Films alleged that it rejected Evangeline Katorse
because "its running time was too short for telecast"5 and petitioner only
remitted ₱900,000 to the owner of Bubot (Juanita Alano [Alano]), keeping
for himself the balance of ₱350,000. GMA Films prayed for the return of
such amount on the theory that an implied trust arose between the
parties as petitioner fraudulently kept it for himself.6
Petitioner denied liability, counter-alleging that after GMA Films rejected
Evangeline Katorse, he replaced it with another film, Winasak na
Pangarap, which GMA Films accepted. As proof of such acceptance,
petitioner invoked a certification of GMA Network, dated 30 March 1999,
attesting that such film "is of good broadcast quality"7 (Film Certification).
Regarding the fee GMA Films paid for Bubot, petitioner alleged that he
had settled his obligation to Alano. Alternatively, petitioner alleged that
GMA Films, being a stranger to the contracts he entered into with the
owners of the films in question, has no personality to question his
compliance with the terms of such contracts. Petitioner counterclaimed for
attorney’s fees.
The Ruling of the Trial Court
The trial court dismissed GMA Films’ complaint and, finding merit in
petitioner’s counterclaim, ordered GMA Films to pay attorney’s fees
(₱100,000). The trial court gave credence to petitioner’s defense that he
replaced Evangeline Katorse with Winasak na Pangarap. On the disposal
of the fee GMA Films paid for Bubot, the trial court rejected GMA Films’
theory of implied trust, finding insufficient GMA Films’ proof that petitioner
pocketed any portion of the fee in question.
GMA Films appealed to the CA.
The Ruling of the Court of Appeals
The CA granted GMA Films’ appeal, set aside the trial court’s ruling, and
ordered respondent to pay GMA Films ₱2 million8 as principal obligation
with 12% annual interest, exemplary damages (₱100,000), attorney’s fees
(₱200,000), litigation expenses (₱100,000) and the costs. Brushing aside
the trial court’s appreciation of the evidence, the CA found that (1) GMA
Films was authorized under Paragraph 4 of the Agreement to reject
Evangeline Katorse, and (2) GMA Films never accepted Winasak na
Pangarap as replacement because it was a "bold" film.9
On petitioner’s liability for the fee GMA Films paid for Bubot, the CA
sustained GMA Films’ contention that petitioner was under obligation to
turn over to the film owners the fullamount GMA Films paid for the films
as "nowhere in the TV Rights Agreement does it provide that the licensor
is entitled to any commission x x x [hence] x x x [petitioner] Honrado
cannot claim any portion of the purchase price paid for by x x x GMA
Films."10 The CA concluded that petitioner’s retention of a portion of the
fee for Bubot gave rise to an implied trust between him and GMA Films,
obligating petitioner, as trustee, to return to GMA Films, as beneficiary,
the amount claimed by the latter.
Hence, this petition. Petitioner prays for the reinstatement of the trial
court’s ruling while GMA Films attacks the petition for lack of merit.
The Issue
The question is whether the CA erred in finding petitioner liable for breach
of the Agreement and breach of trust.
The Ruling of the Court
We grant the petition. We find GMA Films’ complaint without merit and
accordingly reinstate the trial court’s ruling dismissing it with the
modification that the award of attorney’s fees is deleted. Petitioner
Committed No Breach of Contract or Trust
MTRCB Disapproval the Stipulated
Basis for Film Replacement
The parties do not quarrel on the meaning of Paragraph 4 of the
Agreement which states:
The PROGRAMME TITLES listed [in the Agreement] x x x shall be subject
to approval by the Movie and Television Review and Classification Board
(MTRCB) and, in the event of disapproval, LICENSOR [Petitioner] will
either replace the censored PROGRAMME TITLES with another title which
is mutually acceptable to both parties or, failure to do such, a
proportionate reduction from the total price shall either be deducted or
refunded whichever is the case by the LICENSOR OR LICENSEE [GMA
Films].11 (Emphasis supplied)
Under this stipulation, what triggersthe rejection and replacement of any
film listed in the Agreement is the "disapproval" of its telecasting by
MTRCB.
Nor is there any dispute that GMA Films rejected Evangeline Katorse not
because it was disapproved by MTRCB but because the film’s total running
time was too short for telecast (undertime). Instead of rejecting GMA
Films’ demand for falling outside of the terms of Paragraph 4, petitioner
voluntarily acceded to it and replaced such film with Winasak na
Pangarap. What is disputed is whether GMA Films accepted the
replacement film offered by petitioner.
Petitioner maintains that the Film Certification issued by GMA Network
attesting to the "good broadcast quality" of Winasak na Pangarap
amounted to GMA Films’ acceptance of such film. On the other hand, GMA
Films insists that such clearance pertained only to the technical quality of
the film but not to its content which it rejected because it found the film
as "bomba" (bold).12 The CA, working under the assumption that the
ground GMA Films invoked to reject Winasak na Pangarap was sanctioned
under the Agreement, found merit in the latter’s claim. We hold that
regardless of the import of the Film Certification, GMA Films’ rejection of
Winasak na Pangarap finds no basis in the Agreement.
In terms devoid of any ambiguity, Paragraph 4 of the Agreement requires
the intervention of MTRCB, the state censor, before GMA Films can reject
a film and require its replacement. Specifically, Paragraph 4 requires that
MTRCB, after reviewing a film listed in the Agreement, disapprove or X-
rate it for telecasting. GMA Films does not allege, and we find no proof on
record indicating, that MTRCB reviewed Winasak na Pangarap and X-rated
it. Indeed, GMA Films’ own witness, Jose Marie Abacan (Abacan), then
Vice-President for Program Management of GMA Network, testified during
trial that it was GMA Network which rejected Winasak na Pangarap
because the latter considered the film "bomba."13 In doing so, GMA
Network went beyond its assigned role under the Agreement of screening
films to test their broadcast quality and assumed the function of MTRCB
to evaluate the films for the propriety of their content. This runs counter
to the clear terms of Paragraphs 3 and 4 of the Agreement.
Disposal of the Fees Paid to
Petitioner Outside of the Terms
of the Agreement
GMA Films also seeks refund for the balance of the fees it paid to
petitioner for Bubot which petitioner allegedly failed to turn-over to the
film’s owner, Alano.14 Implicit in GMA Films’ claim is the theory that the
Agreement obliges petitioner to give to the film owners the entire amount
he received from GMA Films and that his failure to do so gave rise to an
implied trust, obliging petitioner to hold whatever amount he kept in trust
for GMA Films. The CA sustained GMA Films’ interpretation, noting that
the Agreement "does not provide that the licensor is entitled to any
commission."15
This is error.
The Agreement, as its full title denotes ("TV Rights Agreement"), is a
licensing contract, the essence of which is the transfer by the licensor
(petitioner) to the licensee (GMA Films), for a fee, of the exclusive right to
telecast the films listed in the Agreement. Stipulations for payment of
"commission" to the licensor is incongruous to the nature of such
contracts unless the licensor merely acted as agent of the film owners.
Nowhere in the Agreement, however, did the parties stipulate that
petitioner signed the contract in such capacity. On the contrary, the
Agreement repeatedly refers to petitioner as "licensor" and GMA Films as
"licensee." Nor did the parties stipulate that the fees paid by GMA Films
for the films listed in the Agreement will be turned over by petitioner to
the film owners. Instead, the Agreement merely provided that the total
fees will be paid in three installments (Paragraph 3).16
We entertain no doubt that petitioner forged separate contractual
arrangements with the owners of the films listed in the Agreement,
spelling out the terms of payment to the latter. Whether or not petitioner
complied with these terms, however, is a matter to which GMA Films
holds absolutely no interest. Being a stranger to such arrangements, GMA
Films is no more entitled to complain of any breach by petitioner of his
contracts with the film owners than the film owners are for any breach by
GMA Films of its Agreement with petitioner.
We find it unnecessary to pass upon the question whether an implied
trust arose between the parties, as held by the CA.1âwphi1 Such
conclusion was grounded on the erroneous assumption that GMA Films
holds an interest in the disposition of the licensing fees it paid to
petitioner.
Award of Attorney's Fees to Petitioner Improper
The trial court awarded attorney's fees to petitioner as it "deemed it just
and reasonable"17 to do so, using the amount provided by petitioner on
the witness stand (₱100,000). Undoubtedly, attorney's fees may be
awarded if the trial court "deems it just and equitable."18 Such ground,
however, must be fully elaborated in the body of the ruling.19 Its mere
invocation, without more, negates the nature of attorney's fees as a form
of actual damages.
WHEREFORE, we GRANT the petition. The Decision, dated 30 April 2012
and Resolution, dated 19 November 2012, of the Court of Appeals are SET
ASIDE. The Decision, dated 5 December 2008, of the Regional Trial Court
of Quezon City (Branch 223) is REINSTATED with the MODIFICATION that
the award of attorney's fees is DELETED.
SO ORDERED.
ANTONIO T. CARPIO
EN BANC
G.R. No. L-12191 October 14, 1918
JOSE CANGCO, plaintiff-appellant,
vs.
MANILA RAILROAD CO., defendant-appellee.
Ramon Sotelo for appellant.
Kincaid & Hartigan for appellee.
FISHER, J.:
At the time of the occurrence which gave rise to this litigation the plaintiff,
Jose Cangco, was in the employment of Manila Railroad Company in the
capacity of clerk, with a monthly wage of P25. He lived in the pueblo of
San Mateo, in the province of Rizal, which is located upon the line of the
defendant railroad company; and in coming daily by train to the
company's office in the city of Manila where he worked, he used a pass,
supplied by the company, which entitled him to ride upon the company's
trains free of charge. Upon the occasion in question, January 20, 1915,
the plaintiff arose from his seat in the second class-car where he was
riding and, making, his exit through the door, took his position upon the
steps of the coach, seizing the upright guardrail with his right hand for
support.
On the side of the train where passengers alight at the San Mateo station
there is a cement platform which begins to rise with a moderate gradient
some distance away from the company's office and extends along in front
of said office for a distance sufficient to cover the length of several
coaches. As the train slowed down another passenger, named Emilio
Zuñiga, also an employee of the railroad company, got off the same car,
alighting safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther the
plaintiff Jose Cangco stepped off also, but one or both of his feet came in
contact with a sack of watermelons with the result that his feet slipped
from under him and he fell violently on the platform. His body at once
rolled from the platform and was drawn under the moving car, where his
right arm was badly crushed and lacerated. It appears that after the
plaintiff alighted from the train the car moved forward possibly six meters
before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as
the railroad station was lighted dimly by a single light located some
distance away, objects on the platform where the accident occurred were
difficult to discern especially to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform
where the plaintiff alighted is found in the fact that it was the customary
season for harvesting these melons and a large lot had been brought to
the station for the shipment to the market. They were contained in
numerous sacks which has been piled on the platform in a row one upon
another. The testimony shows that this row of sacks was so placed of
melons and the edge of platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted upon one of these
melons at the moment he stepped upon the platform. His statement that
he failed to see these objects in the darkness is readily to be credited.
The plaintiff was drawn from under the car in an unconscious condition,
and it appeared that the injuries which he had received were very serious.
He was therefore brought at once to a certain hospital in the city of
Manila where an examination was made and his arm was amputated. The
result of this operation was unsatisfactory, and the plaintiff was then
carried to another hospital where a second operation was performed and
the member was again amputated higher up near the shoulder. It appears
in evidence that the plaintiff expended the sum of P790.25 in the form of
medical and surgical fees and for other expenses in connection with the
process of his curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First
Instance of the city of Manila to recover damages of the defendant
company, founding his action upon the negligence of the servants and
employees of the defendant in placing the sacks of melons upon the
platform and leaving them so placed as to be a menace to the security of
passenger alighting from the company's trains. At the hearing in the Court
of First Instance, his Honor, the trial judge, found the facts substantially
as above stated, and drew therefrom his conclusion to the effect that,
although negligence was attributable to the defendant by reason of the
fact that the sacks of melons were so placed as to obstruct passengers
passing to and from the cars, nevertheless, the plaintiff himself had failed
to use due caution in alighting from the coach and was therefore
precluded form recovering. Judgment was accordingly entered in favor of
the defendant company, and the plaintiff appealed.
It can not be doubted that the employees of the railroad company were
guilty of negligence in piling these sacks on the platform in the manner
above stated; that their presence caused the plaintiff to fall as he alighted
from the train; and that they therefore constituted an effective legal cause
of the injuries sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby occasioned unless
recovery is barred by the plaintiff's own contributory negligence. In
resolving this problem it is necessary that each of these conceptions of
liability, to-wit, the primary responsibility of the defendant company and
the contributory negligence of the plaintiff should be separately examined.
It is important to note that the foundation of the legal liability of the
defendant is the contract of carriage, and that the obligation to respond
for the damage which plaintiff has suffered arises, if at all, from the
breach of that contract by reason of the failure of defendant to exercise
due care in its performance. That is to say, its liability is direct and
immediate, differing essentially, in legal viewpoint from that presumptive
responsibility for the negligence of its servants, imposed by article 1903 of
the Civil Code, which can be rebutted by proof of the exercise of due care
in their selection and supervision. Article 1903 of the Civil Code is not
applicable to obligations arising ex contractu, but only to extra-contractual
obligations — or to use the technical form of expression, that article
relates only to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104
of the Civil Code, clearly points out this distinction, which was also
recognized by this Court in its decision in the case of Rakes vs. Atlantic,
Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093
Manresa clearly points out the difference between "culpa, substantive and
independent, which of itself constitutes the source of an obligation
between persons not formerly connected by any legal tie" and culpa
considered as an accident in the performance of an obligation already
existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest
squarely upon the proposition that article 1903 of the Civil Code is not
applicable to acts of negligence which constitute the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are
applicable are understood to be those not growing out of pre-existing
duties of the parties to one another. But where relations already formed
give rise to duties, whether springing from contract or quasi-contract,
then breaches of those duties are subject to article 1101, 1103, and 1104
of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep.,
359 at 365.)
This distinction is of the utmost importance. The liability, which, under the
Spanish law, is, in certain cases imposed upon employers with respect to
damages occasioned by the negligence of their employees to persons to
whom they are not bound by contract, is not based, as in the English
Common Law, upon the principle of respondeat superior — if it were, the
master would be liable in every case and unconditionally — but upon the
principle announced in article 1902 of the Civil Code, which imposes upon
all persons who by their fault or negligence, do injury to another, the
obligation of making good the damage caused. One who places a
powerful automobile in the hands of a servant whom he knows to be
ignorant of the method of managing such a vehicle, is himself guilty of an
act of negligence which makes him liable for all the consequences of his
imprudence. The obligation to make good the damage arises at the very
instant that the unskillful servant, while acting within the scope of his
employment causes the injury. The liability of the master is personal and
direct. But, if the master has not been guilty of any negligence whatever
in the selection and direction of the servant, he is not liable for the acts of
the latter, whatever done within the scope of his employment or not, if
the damage done by the servant does not amount to a breach of the
contract between the master and the person injured.
It is not accurate to say that proof of diligence and care in the selection
and control of the servant relieves the master from liability for the latter's
acts — on the contrary, that proof shows that the responsibility has never
existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-
contractual culpa is always based upon a voluntary act or omission which,
without willful intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in the
selection of his servant, taking into consideration the qualifications they
should possess for the discharge of the duties which it is his purpose to
confide to them, and directs them with equal diligence, thereby performs
his duty to third persons to whom he is bound by no contractual ties, and
he incurs no liability whatever if, by reason of the negligence of his
servants, even within the scope of their employment, such third person
suffer damage. True it is that under article 1903 of the Civil Code the law
creates a presumption that he has been negligent in the selection or
direction of his servant, but the presumption is rebuttable and yield to
proof of due care and diligence in this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as
found in the Porto Rico Code, has held that these articles are applicable to
cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20
Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the
case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an
action brought upon the theory of the extra-contractual liability of the
defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court,
after citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an injury is
caused by the negligence of a servant or employee there instantly arises a
presumption of law that there was negligence on the part of the master or
employer either in selection of the servant or employee, or in supervision
over him after the selection, or both; and (2) that that presumption is
juris tantum and not juris et de jure, and consequently, may be rebutted.
It follows necessarily that if the employer shows to the satisfaction of the
court that in selection and supervision he has exercised the care and
diligence of a good father of a family, the presumption is overcome and
he is relieved from liability.
This theory bases the responsibility of the master ultimately on his own
negligence and not on that of his servant. This is the notable peculiarity of
the Spanish law of negligence. It is, of course, in striking contrast to the
American doctrine that, in relations with strangers, the negligence of the
servant in conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in case of
extra-contractual culpa based upon negligence, it is necessary that there
shall have been some fault attributable to the defendant personally, and
that the last paragraph of article 1903 merely establishes a rebuttable
presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article
1903 is imposed by reason of the breach of the duties inherent in the
special relations of authority or superiority existing between the person
called upon to repair the damage and the one who, by his act or omission,
was the cause of it.
On the other hand, the liability of masters and employers for the negligent
acts or omissions of their servants or agents, when such acts or omissions
cause damages which amount to the breach of a contact, is not based
upon a mere presumption of the master's negligence in their selection or
control, and proof of exercise of the utmost diligence and care in this
regard does not relieve the master of his liability for the breach of his
contract.
Every legal obligation must of necessity be extra-contractual or
contractual. Extra-contractual obligation has its source in the breach or
omission of those mutual duties which civilized society imposes upon it
members, or which arise from these relations, other than contractual, of
certain members of society to others, generally embraced in the concept
of status. The legal rights of each member of society constitute the
measure of the corresponding legal duties, mainly negative in character,
which the existence of those rights imposes upon all other members of
society. The breach of these general duties whether due to willful intent
or to mere inattention, if productive of injury, give rise to an obligation to
indemnify the injured party. The fundamental distinction between
obligations of this character and those which arise from contract, rests
upon the fact that in cases of non-contractual obligation it is the wrongful
or negligent act or omission itself which creates the vinculum juris,
whereas in contractual relations the vinculum exists independently of the
breach of the voluntary duty assumed by the parties when entering into
the contractual relation.
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 — 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 person who acts or
mission 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 the
selection and control of one's agents or servants, or in the control of
persons who, by reason of their status, occupy a position of dependency
with respect to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by
contract to render service to another, is wholly different from that to
which article 1903 relates. When the sources of the obligation upon which
plaintiff's cause of action depends is a negligent act or omission, the
burden of proof rests upon plaintiff to prove the negligence — if he does
not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged that
plaintiff has failed or refused to perform the contract, it is not necessary
for plaintiff to specify in his pleadings whether the breach of the contract
is due to willful fault or to negligence on the part of the defendant, or of
his servants or agents. Proof of the contract and of its nonperformance is
sufficient prima facie to warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a
suing creditor should assume the burden of proof of its existence, as the
only fact upon which his action is based; while on the contrary, in a case
of negligence which presupposes the existence of a contractual obligation,
if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed.,
p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a
contract to show that the breach was due to the negligent conduct of
defendant or of his servants, even though such be in fact the actual cause
of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the
contract would not constitute a defense to the action. If the negligence of
servants or agents could be invoked as a means of discharging the liability
arising from contract, the anomalous result would be that person acting
through the medium of agents or servants in the performance of their
contracts, would be in a better position than those acting in person. If one
delivers a valuable watch to watchmaker who contract to repair it, and the
bailee, by a personal negligent act causes its destruction, he is
unquestionably liable. Would it be logical to free him from his liability for
the breach of his contract, which involves the duty to exercise due care in
the preservation of the watch, if he shows that it was his servant whose
negligence caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from damages arising
from the breach of their contracts if caused by negligent acts as such
juridical persons can of necessity only act through agents or servants, and
it would no doubt be true in most instances that reasonable care had
been taken in selection and direction of such servants. If one delivers
securities to a banking corporation as collateral, and they are lost by
reason of the negligence of some clerk employed by the bank, would it be
just and reasonable to permit the bank to relieve itself of liability for the
breach of its contract to return the collateral upon the payment of the
debt by proving that due care had been exercised in the selection and
direction of the clerk?
This distinction between culpa aquiliana, as the source of an obligation,
and culpa contractual as a mere incident to the performance of a contract
has frequently been recognized by the supreme court of Spain.
(Sentencias of June 27, 1894; November 20, 1896; and December 13,
1896.) In the decisions of November 20, 1896, it appeared that plaintiff's
action arose ex contractu, but that defendant sought to avail himself of
the provisions of article 1902 of the Civil Code as a defense. The Spanish
Supreme Court rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing obligation,
by fault or negligence, such as those to which article 1902 of the Civil
Code relates, but of damages caused by the defendant's failure to carry
out the undertakings imposed by the contracts . . . .
A brief review of the earlier decision of this court involving the liability of
employers for damage done by the negligent acts of their servants will
show that in no case has the court ever decided that the negligence of the
defendant's servants has been held to constitute a defense to an action
for damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that
the owner of a carriage was not liable for the damages caused by the
negligence of his driver. In that case the court commented on the fact
that no evidence had been adduced in the trial court that the defendant
had been negligent in the employment of the driver, or that he had any
knowledge of his lack of skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania Maritima (6
Phil. Rep., 215), the plaintiff sued the defendant for damages caused by
the loss of a barge belonging to plaintiff which was allowed to get adrift
by the negligence of defendant's servants in the course of the
performance of a contract of towage. The court held, citing Manresa (vol.
8, pp. 29, 69) that if the "obligation of the defendant grew out of a
contract made between it and the plaintiff . . . we do not think that the
provisions of articles 1902 and 1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued
the defendant to recover damages for the personal injuries caused by the
negligence of defendant's chauffeur while driving defendant's automobile
in which defendant was riding at the time. The court found that the
damages were caused by the negligence of the driver of the automobile,
but held that the master was not liable, although he was present at the
time, saying:
. . . unless the negligent acts of the driver are continued for a length of
time as to give the owner a reasonable opportunity to observe them and
to direct the driver to desist therefrom. . . . The act complained of must
be continued in the presence of the owner for such length of time that the
owner by his acquiescence, makes the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage &
Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its conclusion
as to the liability of the defendant upon article 1903, although the facts
disclosed that the injury complaint of by plaintiff constituted a breach of
the duty to him arising out of the contract of transportation. The express
ground of the decision in this case was that article 1903, in dealing with
the liability of a master for the negligent acts of his servants "makes the
distinction between private individuals and public enterprise;" that as to
the latter the law creates a rebuttable presumption of negligence in the
selection or direction of servants; and that in the particular case the
presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated
plaintiff's action as though founded in tort rather than as based upon the
breach of the contract of carriage, and an examination of the pleadings
and of the briefs shows that the questions of law were in fact discussed
upon this theory. Viewed from the standpoint of the defendant the
practical result must have been the same in any event. The proof
disclosed beyond doubt that the defendant's servant was grossly negligent
and that his negligence was the proximate cause of plaintiff's injury. It
also affirmatively appeared that defendant had been guilty of negligence
in its failure to exercise proper discretion in the direction of the servant.
Defendant was, therefore, liable for the injury suffered by plaintiff,
whether the breach of the duty were to be regarded as constituting culpa
aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and
69) whether negligence occurs an incident in the course of the
performance of a contractual undertaking or its itself the source of an
extra-contractual undertaking obligation, its essential characteristics are
identical. There is always an act or omission productive of damage due to
carelessness or inattention on the part of the defendant. Consequently,
when the court holds that a defendant is liable in damages for having
failed to exercise due care, either directly, or in failing to exercise proper
care in the selection and direction of his servants, the practical result is
identical in either case. Therefore, it follows that it is not to be inferred,
because the court held in the Yamada case that defendant was liable for
the damages negligently caused by its servants to a person to whom it
was bound by contract, and made reference to the fact that the defendant
was negligent in the selection and control of its servants, that in such a
case the court would have held that it would have been a good defense to
the action, if presented squarely upon the theory of the breach of the
contract, for defendant to have proved that it did in fact exercise care in
the selection and control of the servant.
The true explanation of such cases is to be found by directing the
attention to the relative spheres of contractual and extra-contractual
obligations. The field of non- contractual obligation is much more broader
than that of contractual obligations, comprising, as it does, the whole
extent of juridical human relations. These two fields, figuratively speaking,
concentric; that is to say, the mere fact that a person is bound to another
by contract does not relieve him from extra-contractual liability to such
person. When such a contractual relation exists the obligor may break the
contract under such conditions that the same act which constitutes the
source of an extra-contractual obligation had no contract existed between
the parties.
The contract of defendant to transport plaintiff carried with it, by
implication, the duty to carry him in safety and to provide safe means of
entering and leaving its trains (civil code, article 1258). That duty, being
contractual, was direct and immediate, and its non-performance could not
be excused by proof that the fault was morally imputable to defendant's
servants.
The railroad company's defense involves the assumption that even
granting that the negligent conduct of its servants in placing an
obstruction upon the platform was a breach of its contractual obligation to
maintain safe means of approaching and leaving its trains, the direct and
proximate cause of the injury suffered by plaintiff was his own
contributory negligence in failing to wait until the train had come to a
complete stop before alighting. Under the doctrine of comparative
negligence announced in the Rakes case (supra), if the accident was
caused by plaintiff's own negligence, no liability is imposed upon
defendant's negligence and plaintiff's negligence merely contributed to his
injury, the damages should be apportioned. It is, therefore, important to
ascertain if defendant was in fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to a
full stop before alighting, the particular injury suffered by him could not
have occurred. Defendant contends, and cites many authorities in support
of the contention, that it is negligence per se for a passenger to alight
from a moving train. We are not disposed to subscribe to this doctrine in
its absolute form. We are of the opinion that this proposition is too badly
stated and is at variance with the experience of every-day life. In this
particular instance, that the train was barely moving when plaintiff
alighted is shown conclusively by the fact that it came to stop within six
meters from the place where he stepped from it. Thousands of person
alight from trains under these conditions every day of the year, and
sustain no injury where the company has kept its platform free from
dangerous obstructions. There is no reason to believe that plaintiff would
have suffered any injury whatever in alighting as he did had it not been
for defendant's negligent failure to perform its duty to provide a safe
alighting place.
We are of the opinion that the correct doctrine relating to this subject is
that expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as
follows:
The test by which to determine whether the passenger has been guilty of
negligence in attempting to alight from a moving railway train, is that of
ordinary or reasonable care. It is to be considered whether an ordinarily
prudent person, of the age, sex and condition of the passenger, would
have acted as the passenger acted under the circumstances disclosed by
the evidence. This care has been defined to be, not the care which may or
should be used by the prudent man generally, but the care which a man
of ordinary prudence would use under similar circumstances, to avoid
injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this court in
Picart vs. Smith (37 Phil. rep., 809), we may say that the test is this; Was
there anything in the circumstances surrounding the plaintiff at the time
he alighted from the train which would have admonished a person of
average prudence that to get off the train under the conditions then
existing was dangerous? If so, the plaintiff should have desisted from
alighting; and his failure so to desist was contributory
negligence.1awph!l.net
As the case now before us presents itself, the only fact from which a
conclusion can be drawn to the effect that plaintiff was guilty of
contributory negligence is that he stepped off the car without being able
to discern clearly the condition of the platform and while the train was yet
slowly moving. In considering the situation thus presented, it should not
be overlooked that the plaintiff was, as we find, ignorant of the fact that
the obstruction which was caused by the sacks of melons piled on the
platform existed; and as the defendant was bound by reason of its duty
as a public carrier to afford to its passengers facilities for safe egress from
its trains, the plaintiff had a right to assume, in the absence of some
circumstance to warn him to the contrary, that the platform was clear.
The place, as we have already stated, was dark, or dimly lighted, and this
also is proof of a failure upon the part of the defendant in the
performance of a duty owing by it to the plaintiff; for if it were by any
possibility concede that it had right to pile these sacks in the path of
alighting passengers, the placing of them adequately so that their
presence would be revealed.
As pertinent to the question of contributory negligence on the part of the
plaintiff in this case the following circumstances are to be noted: The
company's platform was constructed upon a level higher than that of the
roadbed and the surrounding ground. The distance from the steps of the
car to the spot where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident to
stepping off. The nature of the platform, constructed as it was of cement
material, also assured to the passenger a stable and even surface on
which to alight. Furthermore, the plaintiff was possessed of the vigor and
agility of young manhood, and it was by no means so risky for him to get
off while the train was yet moving as the same act would have been in an
aged or feeble person. In determining the question of contributory
negligence in performing such act — that is to say, whether the passenger
acted prudently or recklessly — the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been observed, as a
general rule are less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the free
movement of the limbs. Again, it may be noted that the place was
perfectly familiar to the plaintiff as it was his daily custom to get on and of
the train at this station. There could, therefore, be no uncertainty in his
mind with regard either to the length of the step which he was required to
take or the character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to alight while
the train was yet slightly under way was not characterized by imprudence
and that therefore he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the accident, was
earning P25 a month as a copyist clerk, and that the injuries he has
suffered have permanently disabled him from continuing that
employment. Defendant has not shown that any other gainful occupation
is open to plaintiff. His expectancy of life, according to the standard
mortality tables, is approximately thirty-three years. We are of the opinion
that a fair compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also entitled to
recover of defendant the additional sum of P790.25 for medical attention,
hospital services, and other incidental expenditures connected with the
treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby rendered
plaintiff for the sum of P3,290.25, and for the costs of both instances. So
ordered.
Arellano, C.J., Torres, Street and Avanceña, JJ., concur.
ECOND DIVISION
G.R. No. 73867 February 29, 1988
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,
vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR.,
AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO
CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO,
VIRGILIO CASTRO AND GLORIA CASTRO, and HONORABLE
INTERMEDIATE APPELLATE COURT, respondents.
PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate
Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-70245,
entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast
Communication/Philippine Wireless, Inc., Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio
Castro, Sr. and mother of the other plaintiffs, passed away in Lingayen,
Pangasinan. On the same day, her daughter Sofia C. Crouch, who was
then vacationing in the Philippines, addressed a telegram to plaintiff
Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170
announcing Consolacion's death. The telegram was accepted by the
defendant in its Dagupan office, for transmission, after payment of the
required fees or charges.
The telegram never reached its addressee. Consolacion was interred with
only her daughter Sofia in attendance. Neither the husband nor any of the
other children of the deceased, then all residing in the United States,
returned for the burial.
When Sofia returned to the United States, she discovered that the wire
she had caused the defendant to send, had not been received. She and
the other plaintiffs thereupon brought action for damages arising from
defendant's breach of contract. The case was filed in the Court of First
Instance of Pangasinan and docketed therein as Civil Case No. 15356. The
only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its
control." 1 No evidence appears on record that defendant ever made any
attempt to advise the plaintiff Sofia C. Crouch as to why it could not
transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the
defendant (now petitioner) to pay the plaintiffs (now private respondents)
damages, as follows, with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory
damages and P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary
damages in the amount of P1,000.00 to each of the plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the
trial court's decision but eliminated the award of P16,000.00 as
compensatory damages to Sofia C. Crouch and the award of P1,000.00 to
each of the private respondents as exemplary damages. The award of
P20,000.00 as moral damages to each of Sofia C. Crouch, Ignacio Castro,
Jr. and Esmeralda C. Floro was also reduced to P120,000. 00 for each. 3
Petitioner appeals from the judgment of the appellate court, contending
that the award of moral damages should be eliminated as defendant's
negligent act was not motivated by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P
31.92, the fee or charges paid by Sofia C. Crouch for the telegram that
was never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "those who in the performance of
their obligations are guilty of fraud, negligence or delay, and those who in
any manner contravene the tenor thereof, are liable for damages." Art.
2176 also provides that "whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage
done."
In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to send
said private respondent's message overseas by telegram. This, petitioner
did not do, despite performance by said private respondent of her
obligation by paying the required charges. Petitioner was therefore guilty
of contravening its obligation to said private respondent and is thus liable
for damages.
This liability is not limited to actual or quantified damages. To sustain
petitioner's contrary position in this regard would result in an inequitous
situation where petitioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states:
"Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate
results of the defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence,
was precisely the cause of the suffering private respondents had to
undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the sorrow
that the overseas children must have suffered upon learning of the death
of their mother after she had already been interred, without being given
the opportunity to even make a choice on whether they wanted to pay
her their last respects? There is no doubt that these emotional sufferings
were proximately caused by appellant's omission and substantive law
provides for the justification for the award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory
damages to Sofia C. Crouch representing the expenses she incurred when
she came to the Philippines from the United States to testify before the
trial court. Had petitioner not been remiss in performing its obligation,
there would have been no need for this suit or for Mrs. Crouch's
testimony.
The award of exemplary damages by the trial court is likewise justified
and, therefore, sustained in the amount of P1,000.00 for each of the
private respondents, as a warning to all telegram companies to observe
due diligence in transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is
modified so that petitioner is held liable to private respondents in the
following amounts:
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private
respondents;
(3) P16,000.00 as compensatory damages, to private respondent
Sofia C. Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
Yap (Chairman), Paras and Sarmiento, JJ., concur.
THIRD DIVISION
G.R. No. 158911 March 4, 2008
MANILA ELECTRIC COMPANY, Petitioner,
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-
RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE PANADO,
Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the
Rules of Court, praying that the Decision1 of the Court of Appeals (CA)
dated December 16, 2002, ordering petitioner Manila Electric Company
(MERALCO) to pay Leoncio Ramoy2 moral and exemplary damages and
attorney's fees, and the CA Resolution3 dated July 1, 2003, denying
petitioner's motion for reconsideration, be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately
summarized the facts as culled from the records, thus:
The evidence on record has established that in the year 1987 the National
Power Corporation (NPC) filed with the MTC Quezon City a case for
ejectment against several persons allegedly illegally occupying its
properties in Baesa, Quezon City. Among the defendants in the ejectment
case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On April
28, 1989 after the defendants failed to file an answer in spite of summons
duly served, the MTC Branch 36, Quezon City rendered judgment for the
plaintiff [MERALCO] and "ordering the defendants to demolish or remove
the building and structures they built on the land of the plaintiff and to
vacate the premises." In the case of Leoncio Ramoy, the Court found that
he was occupying a portion of Lot No. 72-B-2-B with the exact location of
his apartments indicated and encircled in the location map as No. 7. A
copy of the decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B,
2-C, pp. 128-131, Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the "immediate
disconnection of electric power supply to all residential and commercial
establishments beneath the NPC transmission lines along Baesa, Quezon
City (Exh. 7, p. 143, Record). Attached to the letter was a list of
establishments affected which included plaintiffs Leoncio and Matilde
Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After
deliberating on NPC's letter, Meralco decided to comply with NPC's request
(Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of
disconnection to all establishments affected including plaintiffs Leoncio
Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde Macabagdal (Exhibits
3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose
Valiza (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a joint
survey to determine all the establishments which are considered under
NPC property in view of the fact that "the houses in the area are very
close to each other" (Exh. 12). Shortly thereafter, a joint survey was
conducted and the NPC personnel pointed out the electric meters to be
disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein
respondents] was disconnected (Exhibits D to G, with submarkings, pp.
86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the registered
owners of a parcel of land covered by TCT No. 326346, a portion of which
was occupied by plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza
and Cyrene S. Panado as lessees. When the Meralco employees were
disconnecting plaintiffs' power connection, plaintiff Leoncio Ramoy
objected by informing the Meralco foreman that his property was outside
the NPC property and pointing out the monuments showing the
boundaries of his property. However, he was threatened and told not to
interfere by the armed men who accompanied the Meralco employees.
After the electric power in Ramoy's apartment was cut off, the plaintiffs-
lessees left the premises.
During the ocular inspection ordered by the Court and attended by the
parties, it was found out that the residence of plaintiffs-spouses Leoncio
and Matilde Ramoy was indeed outside the NPC property. This was
confirmed by defendant's witness R.P. Monsale III on cross-examination
(TSN, October 13, 1993, pp. 10 and 11). Monsale also admitted that he
did not inform his supervisor about this fact nor did he recommend re-
connection of plaintiffs' power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco re-
connected the electric service of four customers previously disconnected
none of whom was any of the plaintiffs (Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein respondents'
claim for moral damages, exemplary damages and attorney's fees.
However, the RTC ordered MERALCO to restore the electric power supply
of respondents.
Respondents then appealed to the CA. In its Decision dated December 16,
2002, the CA faulted MERALCO for not requiring from National Power
Corporation (NPC) a writ of execution or demolition and in not
coordinating with the court sheriff or other proper officer before
complying with the NPC's request. Thus, the CA held MERALCO liable for
moral and exemplary damages and attorney's fees. MERALCO's motion for
reconsideration of the Decision was denied per Resolution dated July 1,
2003.
Hence, herein petition for review on certiorari on the following grounds:
I said with conclusiveness that respondents have no right or proper interest
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO
NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE
OF RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL
AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO
UNDER THE CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH
IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF THE
RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a Service
Contract whereby it is obliged to supply respondents with electricity.
Nevertheless, upon request of the NPC, MERALCO disconnected its power
supply to respondents on the ground that they were illegally occupying
the NPC's right of way. Under the Service Contract, "[a] customer of
electric service must show his right or proper interest over the property in
order that he will be provided with and assured a continuous electric
service."7 MERALCO argues that since there is a Decision of the
Metropolitan Trial Court (MTC) of Quezon City ruling that herein
respondents were among the illegal occupants of the NPC's right of way,
MERALCO was justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on
culpa contractual or breach of contract for the latter's discontinuance of
its service to respondents under Article 1170 of the Civil Code which
provides:
Article 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court
expounded on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right
of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance
of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves
to preserve the interests of the promissee that may include his
"expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had
the contract been performed, or his "reliance interest," which is his
interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract
not been made; or his "restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make recompense to the one
who has been injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability.9 (Emphasis supplied)
Article 1173 also provides that 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. The Court emphasized in Ridjo Tape &
Chemical Corporation v. Court of Appeals10 that "as a public utility,
MERALCO has the obligation to discharge its functions with utmost care
and diligence."11
The Court agrees with the CA that under the factual milieu of the present
case, MERALCO failed to exercise the utmost degree of care and diligence
required of it. To repeat, it was not enough for MERALCO to merely rely
on the Decision of the MTC without ascertaining whether it had become
final and executory. Verily, only upon finality of said Decision can it be
over the subject property, thus, are not entitled to the services of
MERALCO.
Although MERALCO insists that the MTC Decision is final and executory, it
never showed any documentary evidence to support this allegation.
Moreover, if it were true that the decision was final and executory, the
most prudent thing for MERALCO to have done was to coordinate with the
proper court officials in determining which structures are covered by said
court order. Likewise, there is no evidence on record to show that this
was done by MERALCO.
The utmost care and diligence required of MERALCO necessitates such
great degree of prudence on its part, and failure to exercise the diligence
required means that MERALCO was at fault and negligent in the
performance of its obligation. In Ridjo Tape,12 the Court explained:
[B]eing a public utility vested with vital public interest, MERALCO is
impressed with certain obligations towards its customers and any
omission on its part to perform such duties would be prejudicial to its
interest. For in the final analysis, the bottom line is that those who do not
exercise such prudence in the discharge of their duties shall be made to
bear the consequences of such oversight.13
This being so, MERALCO is liable for damages under Article 1170 of the
Civil Code.
The next question is: Are respondents entitled to moral and exemplary
damages and attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances,
such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by
withholding from him and his tenants the supply of electricity to which
they were entitled under the Service Contract. This is contrary to public
policy because, as discussed above, MERALCO, being a vital public utility,
is expected to exercise utmost care and diligence in the performance of its
obligation. It was incumbent upon MERALCO to do everything within its
power to ensure that the improvements built by respondents are within
the NPC’s right of way before disconnecting their power supply. The Court
emphasized in Samar II Electric Cooperative, Inc. v. Quijano14 that:
Electricity is a basic necessity the generation and distribution of which is
imbued with public interest, and its provider is a public utility subject to
strict regulation by the State in the exercise of police power. Failure to
comply with these regulations will give rise to the presumption of bad
faith or abuse of right.15 (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and
diligence in the performance of its obligation to Leoncio Ramoy, its
customer, is tantamount to bad faith. Leoncio Ramoy testified that he
suffered wounded feelings because of MERALCO's actions.16
Furthermore, due to the lack of power supply, the lessees of his four
apartments on subject lot left the premises.17 Clearly, therefore, Leoncio
Ramoy is entitled to moral damages in the amount awarded by the CA.

Leoncio Ramoy, the lone witness for respondents, was the only one who
testified regarding the effects on him of MERALCO's electric service
disconnection. His co-respondents Matilde Ramoy, Rosemarie Ramoy,
Ofelia Durian and Cyrene Panado did not present any evidence of
damages they suffered.
It is a hornbook principle that damages may be awarded only if proven. In
Mahinay v. Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be pleading
and proof of moral suffering, mental anguish, fright and the like. While
respondent alleged in his complaint that he suffered mental anguish,
serious anxiety, wounded feelings and moral shock, he failed to prove
them during the trial. Indeed, respondent should have taken the witness
stand and should have testified on the mental anguish, serious anxiety,
wounded feelings and other emotional and mental suffering he
purportedly suffered to sustain his claim for moral damages. Mere
allegations do not suffice; they must be substantiated by clear and
convincing proof. No other person could have proven such damages
except the respondent himself as they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral
damages may be awarded, the amount of indemnity being left to the
discretion of the court, it is nevertheless essential that the claimant should
satisfactorily show the existence of the factual basis of damages and its
causal connection to defendant’s acts. This is so because moral damages,
though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of
mental suffering. Thus, if the plaintiff fails to take the witness stand and
testify as to his/her social humiliation, wounded feelings and anxiety,
moral damages cannot be awarded. In Cocoland Development
Corporation vs. National Labor Relations Commission, the Court held that
"additional facts must be pleaded and proven to warrant the grant of
moral damages under the Civil Code, these being, x x x social humiliation,
wounded feelings, grave anxiety, etc. that resulted therefrom."
x x x The award of moral damages must be anchored to a clear showing
that respondent actually experienced mental anguish, besmirched
reputation, sleepless nights, wounded feelings or similar injury. There was
no better witness to this experience than respondent himself. Since
respondent failed to testify on the witness stand, the trial court did not
have any factual basis to award moral damages to him.19 (Emphasis
supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his wounded
feelings, may be awarded moral damages.20
With regard to exemplary damages, Article 2232 of the Civil Code provides
that in contracts and quasi-contracts, the court may award exemplary
damages if the defendant, in this case MERALCO, acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner, while Article 2233
of the same Code provides that such damages cannot be recovered as a
matter of right and the adjudication of the same is within the discretion of
the court.1avvphi1
The Court finds that MERALCO fell short of exercising the due diligence
required, but its actions cannot be considered wanton, fraudulent,
reckless, oppressive or malevolent. Records show that MERALCO did take
some measures, i.e., coordinating with NPC officials and conducting a
joint survey of the subject area, to verify which electric meters should be
disconnected although these measures are not sufficient, considering the
degree of diligence required of it. Thus, in this case, exemplary damages
should not be awarded.
Since the Court does not deem it proper to award exemplary damages in
this case, then the CA's award for attorney's fees should likewise be
deleted, as Article 2208 of the Civil Code states that in the absence of
stipulation, attorney's fees cannot be recovered except in cases provided
for in said Article, to wit:
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;
(2) When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmen’s compensation and
employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney’s fees and expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be
reasonable.
None of the grounds for recovery of attorney's fees are present.
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court
of Appeals is AFFIRMED with MODIFICATION. The award for exemplary
damages and attorney's fees is DELETED.
No costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
SECOND DIVISION
G.R. No. 162467 May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,
vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC.,
Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the 1997
Rules of Civil Procedure of the 29 October 20032 Decision of the Court of
Appeals and the 26 February 2004 Resolution3 of the same court denying
petitioner’s 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. McGee’s 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 receipt6 to
Phoenix and McGee.
Phoenix and McGee instituted an action for damages7 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 ship’s officers, who
would not have accepted the cargoes on board the vessel and signed the
foreman’s 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 ₱83,945.80 as actual damages and ₱100,000.00 as attorney’s
fees.9 The actual damages were awarded as reimbursement for the
expenses incurred by Mindanao Terminal’s 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 aside10 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 attorney’s fees of 20% of the
claim."11 It sustained Phoenix’s and McGee’s 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 200414 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 Mistrau making 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 carriers15 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 Court’s 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 contract18 . 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.
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.1avvphi1
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 ship’s 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
evidence25 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.261avvphi1
We adopt the findings27 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
vessel’s 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 vessel’s 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 foreman’s 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
Ahn34 and on the survey report35 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 stowage37 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 Comment38 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 ship’s 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 attorney’s fees in favor
of petitioner.lawphil.net 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 ₱83,945.80 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 Court of Davao City, Branch 12 in Civil Case No. 25,311.97
is hereby REINSTATED MINUS the awards of ₱100,000.00 as attorney’s
fees and ₱83,945.80 as actual damages.
SO ORDERED.
DANTE O. TINGAAssociate Justice
SECOND DIVISION
G.R. No. 71049 May 29, 1987
BERNARDINO JIMENEZ, petitioner,
vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.
PARAS, J.:
This is a petition for review on certiorari of: (1) the decision * of the
Intermediate Appellate Court in AC-G.R. No. 013887-CV Bernardino
Jimenez v. Asiatic Integrated Corporation and City of Manila, reversing the
decision ** of the Court of First Instance of Manila, Branch XXII in Civil
Case No. 96390 between the same parties, but only insofar as holding
Asiatic Integrated Corporation solely liable for damages and attorney's
fees instead of making the City of Manila jointly and solidarily liable with it
as prayed for by the petitioner and (2) the resolution of the same
Appellate Court denying his Partial Motion for Reconsideration (Rollo, p.
2).
The dispositive portion of the Intermediate Appellate Court's decision is as
follows:
WHEREFORE, the decision appealed from is hereby REVERSED. A new
one is hereby entered ordering the defendant Asiatic Integrated
Corporation to pay the plaintiff P221.90 actual medical expenses, P900.00
for the amount paid for the operation and management of a school bus,
P20,000.00 as moral damages due to pains, sufferings and sleepless
nights and P l0,000.00 as attorney's fees.
SO ORDERED. (p. 20, Rollo)
The findings of respondent Appellate Court are as follows:
The evidence of the plaintiff (petitioner herein) shows that in the morning
of August 15, 1974 he, together with his neighbors, went to Sta. Ana
public market to buy "bagoong" at the time when the public market was
flooded with ankle deep rainwater. After purchasing the "bagoong" he
turned around to return home but he stepped on an uncovered opening
which could not be seen because of the dirty rainwater, causing a dirty
and rusty four- inch nail, stuck inside the uncovered opening, to pierce
the left leg of plaintiff-petitioner penetrating to a depth of about one and
a half inches. After administering first aid treatment at a nearby
drugstore, his companions helped him hobble home. He felt ill and
developed fever and he had to be carried to Dr. Juanita Mascardo. Despite
the medicine administered to him by the latter, his left leg swelled with
great pain. He was then rushed to the Veterans Memorial Hospital where
he had to be confined for twenty (20) days due to high fever and severe
pain.
Upon his discharge from the hospital, he had to walk around with crutches
for fifteen (15) days. His injury prevented him from attending to the
school buses he is operating. As a result, he had to engage the services of
one Bienvenido Valdez to supervise his business for an aggregate
compensation of nine hundred pesos (P900.00). (Decision, AC-G.R. CV
No. 01387, Rollo, pp. 13-20).
Petitioner sued for damages the City of Manila and the Asiatic Integrated
Corporation under whose administration the Sta. Ana Public Market had
been placed by virtue of a Management and Operating Contract (Rollo, p.
47).
The lower court decided in favor of respondents, the dispositive portion of
the decision reading:
WHEREFORE, judgment is hereby rendered in favor of the defendants and
against the plaintiff dismissing the complaint with costs against the
plaintiff. For lack of sufficient evidence, the counterclaims of the
defendants are likewise dismissed. (Decision, Civil Case No. 96390, Rollo,
p. 42).
As above stated, on appeal, the Intermediate Appellate Court held the
Asiatic Integrated Corporation liable for damages but absolved respondent
City of Manila.
Hence this petition.
The lone assignment of error raised in this petition is on whether or not
the Intermediate Appellate Court erred in not ruling that respondent City
of Manila should be jointly and severally liable with Asiatic Integrated
Corporation for the injuries petitioner suffered.
In compliance with the resolution of July 1, 1985 of the First Division of
this Court (Rollo, p. 29) respondent City of Manila filed its comment on
August 13, 1985 (Rollo, p. 34) while petitioner filed its reply on August 21,
1985 (Reno, p. 51).
Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p.
62) gave due course to the petition and required both parties to submit
simultaneous memoranda
Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while
respondent filed its memorandum on October 24, 1985 (Rollo, p. 82).
In the resolution of October 13, 1986, this case was transferred to the
Second Division of this Court, the same having been assigned to a
member of said Division (Rollo, p. 92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court, there is no doubt
that the plaintiff suffered injuries when he fell into a drainage opening
without any cover in the Sta. Ana Public Market. Defendants do not deny
that plaintiff was in fact injured although the Asiatic Integrated
Corporation tries to minimize the extent of the injuries, claiming that it
was only a small puncture and that as a war veteran, plaintiff's
hospitalization at the War Veteran's Hospital was free. (Decision, AC-G.R.
CV No. 01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be held liable for the
injuries sustained by the petitioner because under the Management and
Operating Contract, Asiatic Integrated Corporation assumed all
responsibility for damages which may be suffered by third persons for any
cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under
Article 1, Section 4 of Republic Act No. 409 as amended (Revised Charter
of Manila) which provides:
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
any other officers while enforcing or attempting to enforce said provisions.
This issue has been laid to rest in the case of City of Manila v. Teotico (22
SCRA 269-272 [1968]) where the Supreme Court squarely ruled that
Republic Act No. 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 of the Philippines
which provides that:
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 roads, streets, bridges, public buildings and other public
works under their control or supervision.
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, Art. 1, sec. 4, R.A. No. 409
refers to liability arising from negligence, in general, regardless of the
object, thereof, while Article 2189 of the Civil Code governs liability due to
"defective streets, public buildings and other public works" in particular
and is therefore decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article
2189 of the Civil Code, it is not necessary for the liability therein
established to attach, that the defective public works belong to the
province, city or municipality from which responsibility is exacted. What
said article requires is that the province, city or municipality has either
"control or supervision" over the public building in question.
In the case at bar, there is no question that the Sta. Ana Public Market,
despite the Management and Operating Contract between respondent City
and Asiatic Integrated Corporation remained under the control of the
former.
For one thing, said contract is explicit in this regard, when it provides:
II
That immediately after the execution of this contract, the SECOND PARTY
shall start the painting, cleaning, sanitizing and repair of the public
markets and talipapas and within ninety (90) days thereof, the SECOND
PARTY shall submit a program of improvement, development,
rehabilitation and reconstruction of the city public markets and talipapas
subject to prior approval of the FIRST PARTY. (Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and talipapas shall
be retained by the SECOND PARTY as long as their services remain
satisfactory and they shall be extended the same rights and privileges as
heretofore enjoyed by them. Provided, however, that the SECOND PARTY
shall have the right, subject to prior approval of the FIRST PARTY to
discharge any of the present employees for cause. (Rollo, p. 45).

VII
That the SECOND PARTY may from time to time be required by the FIRST
PARTY, or his duly authorized representative or representatives, to report,
on the activities and operation of the City public markets and talipapas
and the facilities and conveniences installed therein, particularly as to
their cost of construction, operation and maintenance in connection with
the stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject public market
was admitted by Mayor Ramon Bagatsing in his letter to Secretary of
Finance Cesar Virata which reads:
These cases arose from the controversy over the Management and
Operating Contract entered into on December 28, 1972 by and between
the City of Manila and the Asiatic Integrated Corporation, whereby in
consideration of a fixed service fee, the City hired the services of the said
corporation to undertake the physical management, maintenance,
rehabilitation and development of the City's public markets and' Talipapas'
subject to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise of these
powers vis-a-vis the existence of the contract, inasmuch as the City
retains the power of supervision and control over its public markets and
talipapas under the terms of the contract. (Exhibit "7-A") (Emphasis
supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana
Public Market whose primary duty is to take direct supervision and control
of that particular market, more specifically, to check the safety of the
place for the public.
Thus the Asst. Chief of the Market Division and Deputy Market
Administrator of the City of Manila testified as follows:
Court This market master is an employee of the City of Manila?
Mr. Ymson Yes, Your Honor.
Q What are his functions?
A Direct supervision and control over the market area assigned to
him."(T.s.n.,pp. 41-42, Hearing of May 20, 1977.)
xxx xxx xxx
Court As far as you know there is or is there any specific employee
assigned with the task of seeing to it that the Sta. Ana Market is safe for
the public?
Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has its own
market master. The primary duty of that market master is to make the
direct supervision and control of that particular market, the check or
verifying whether the place is safe for public safety is vested in the market
master. (T.s.n., pp. 2425, Hearing of July 27, 1977.) (Emphasis supplied.)
(Rollo, p. 76).
Finally, Section 30 (g) of the Local Tax Code as amended, provides:
The treasurer shall exercise direct and immediate supervision
administration and control over public markets and the personnel thereof,
including those whose duties concern the maintenance and upkeep of the
market and ordinances and other pertinent rules and regulations.
(Emphasis supplied.) (Rollo, p. 76)
The contention of respondent City of Manila that petitioner should not
have ventured to go to Sta. Ana Public Market during a stormy weather is
indeed untenable. As observed by respondent Court of Appeals, it is an
error for the trial court to attribute the negligence to herein petitioner.
More specifically stated, the findings of appellate court are as follows:
... The trial court even chastised the plaintiff for going to market on a
rainy day just to buy bagoong. A customer in a store has the right to
assume that the owner will comply with his duty to keep the premises
safe for customers. If he ventures to the store on the basis of such
assumption and is injured because the owner did not comply with his
duty, no negligence can be imputed to the customer. (Decision, AC-G. R.
CV No. 01387, Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one must have
exercised the diligence of a good father of a family. (Art. 1173 of the Civil
Code).
There is no argument that it is the duty of the City of Manila to exercise
reasonable care to keep the public market reasonably safe for people
frequenting the place for their marketing needs.
While it may be conceded that the fulfillment of such duties is extremely
difficult during storms and floods, it must however, be admitted that
ordinary precautions could have been taken during good weather to
minimize the dangers to life and limb under those difficult circumstances.
For instance, the drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is the fact, that the
City should have seen to it that the openings were covered. Sadly, the
evidence indicates that long before petitioner fell into the opening, it was
already uncovered, and five (5) months after the incident happened, the
opening was still uncovered. (Rollo, pp. 57; 59). Moreover, while there are
findings that during floods the vendors remove the iron grills to hasten
the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17), there is
no showing that such practice has ever been prohibited, much less
penalized by the City of Manila. Neither was it shown that any sign had
been placed thereabouts to warn passersby of the impending danger.
To recapitulate, it appears evident that the City of Manila is likewise liable
for damages under Article 2189 of the Civil Code, respondent City having
retained control and supervision over the Sta. Ana Public Market and as
tort-feasor under Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the
middle of the passageways and if any, that they were adequately covered.
Had the opening been covered, petitioner could not have fallen into it.
Thus the negligence of the City of Manila is the proximate cause of the
injury suffered, the City is therefore liable for the injury suffered by the
peti- 4 petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint
tort-feasors are solidarily liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby
MODIFIED, making the City of Manila and the Asiatic Integrated
Corporation solidarily liable to pay the plaintiff P221.90 actual medical
expenses, P900.00 for the amount paid for the operation and
management of the school bus, P20,000.00 as moral damages due to
pain, sufferings and sleepless nights and P10,000.00 as attorney's fees.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes JJ., concur.
SECOND DIVISION
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977
decision of the Court of Appeals in CA-G.R. No. 51771-R modifying the
decision of the Court of First Instance of Manila, Branch V, in Civil Case
No. 74958 dated September 21, 1971 as modified by the Order of the
lower court dated December 8, 1971. The Court of Appeals in modifying
the decision of the lower court included an award of an additional amount
of P200,000.00 to the Philippine Bar Association to be paid jointly and
severally by the defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the plaintiff, jointly and
severally, the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full
payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants' counterclaims
for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-party
defendants (except Roman Ozaeta) to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to include an
award of P200,000.00 in favor of plaintiff-appellant Philippine Bar
Association, with interest at the legal rate from November 29, 1968 until
full payment to be paid jointly and severally by defendant United
Construction Co., Inc. and third party defendants (except Roman Ozaeta).
In all other respects, the judgment dated September 21, 1971 as modified
in the December 8, 1971 Order of the lower court is hereby affirmed with
COSTS to be paid by the defendant and third party defendant (except
Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co.,
Inc. and Juan J. Carlos in L-47863 seek the reversal of the decision of the
Court of Appeals, among other things, for exoneration from liability while
petitioner Philippine Bar Association in L-47896 seeks the modification of
aforesaid decision to obtain an award of P1,830,000.00 for the loss of the
PBA building plus four (4) times such amount as damages resulting in
increased cost of the building, P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First
Instance of Manila were consolidated by this Court in the resolution of
May 10, 1978 requiring the respective respondents to comment. (Rollo, L-
47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record
on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169) and
affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association,
incorporated under the Corporation Law, decided to construct an office
building on its 840 square meters lot located at the comer of Aduana and
Arzobispo Streets, Intramuros, Manila. The construction was undertaken
by the United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general manager of said
corporation. The proposal was approved by plaintiff's board of directors
and signed by its president Roman Ozaeta, a third-party defendant in this
case. The plans and specifications for the building were prepared by the
other third-party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit
Manila and its environs and the building in question sustained major
damage. The front columns of the building buckled, causing the building
to tilt forward dangerously. The tenants vacated the building in view of its
precarious condition. As a temporary remedial measure, the building was
shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the
recovery of damages arising from the partial collapse of the building
against United Construction, Inc. and its President and General Manager
Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the
building was accused by defects in the construction, the failure of the
contractors to follow plans and specifications and violations by the
defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who
prepared the plans and specifications, alleging in essence that the
collapse of the building was due to the defects in the said plans and
specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for
having included Juan J. Carlos, President of the United Construction Co.,
Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil
& Sons and Juan F. Nakpil presented a written stipulation which reads:
1. That in relation to defendants' answer with counterclaims and
third- party complaints and the third-party defendants Nakpil & Sons'
answer thereto, the plaintiff need not amend its complaint by including
the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties
defendant.
2. That in the event (unexpected by the undersigned) that the
Court should find after the trial that the above-named defendants Juan J.
Carlos and United Construction Co., Inc. are free from any blame and
liability for the collapse of the PBA Building, and should further find that
the collapse of said building was due to defects and/or inadequacy of the
plans, designs, and specifications p by the third-party defendants, or in
the event that the Court may find Juan F. Nakpil and Sons and/or Juan F.
Nakpil contributorily negligent or in any way jointly and solidarily liable
with the defendants, judgment may be rendered in whole or in part. as
the case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in
favor of the plaintiff to all intents and purposes as if plaintiff's complaint
has been duly amended by including the said Juan F. Nakpil & Sons and
Juan F. Nakpil as parties defendant and by alleging causes of action
against them including, among others, the defects or inadequacy of the
plans, designs, and specifications prepared by them and/or failure in the
performance of their contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to approve this
stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969,
during which among others, the parties agreed to refer the technical
issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who
was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building during the
August 2, 1968 earthquake had been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and specifications prepared
by third-party defendants;
(b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage
sustained;
(c) The alleged failure of defendants to observe the requisite quality of
materials and workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision
expected of the architect, the contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a
combination of the above-enumerated factors, the degree or proportion in
which each individual factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be completely
demolished or whether it may still be repaired and restored to a
tenantable condition. In the latter case, the determination of the cost of
such restoration or repair, and the value of any remaining construction,
such as the foundation, which may still be utilized or availed of (Record on
Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-
technical issues. As aforestated the technical issues were referred to the
Commissioner. The non-technical issues were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the
ground that it may topple down in case of a strong earthquake. The
motions were opposed by the defendants and the matter was referred to
the Commissioner. Finally, on April 30, 1979 the building was authorized
to be demolished at the expense of the plaintiff, but not another
earthquake of high intensity on April 7, 1970 followed by other strong
earthquakes on April 9, and 12, 1970, caused further damage to the
property. The actual demolition was undertaken by the buyer of the
damaged building. (Record on Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted his
report on September 25, 1970 with the findings that while the damage
sustained by the PBA building was caused directly by the August 2, 1968
earthquake whose magnitude was estimated at 7.3 they were also caused
by the defects in the plans and specifications prepared by the third-party
defendants' architects, deviations from said plans and specifications by
the defendant contractors and failure of the latter to observe the requisite
workmanship in the construction of the building and of the contractors,
architects and even the owners to exercise the requisite degree of
supervision in the construction of subject building.
All the parties registered their objections to aforesaid findings which in
turn were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner except as to
the holding that the owner is charged with full nine supervision of the
construction. The Court sees no legal or contractual basis for such
conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed
decision which was modified by the Intermediate Appellate Court on
November 28, 1977.
All the parties herein appealed from the decision of the Intermediate
Appellate Court. Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the Association
of Civil Engineers, and the Philippine Institute of Architects filed with the
Court a motion to intervene as amicus curiae. They proposed to present a
position paper on the liability of architects when a building collapses and
to submit likewise a critical analysis with computations on the divergent
views on the design and plans as submitted by the experts procured by
the parties. The motion having been granted, the amicus curiae were
granted a period of 60 days within which to submit their position.
After the parties had all filed their comments, We gave due course to the
petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24,
1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications of
the Nakpils were not defective. But the Commissioner, when asked by Us
to comment, reiterated his conclusion that the defects in the plans and
specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the
Manila Code (Ord. No. 4131) and the 1966 Asep Code, the Commissioner
added that even if it can be proved that the defects in the construction
alone (and not in the plans and design) caused the damage to the
building, still the deficiency in the original design and jack of specific
provisions against torsion in the original plans and the overload on the
ground floor columns (found by an the experts including the original
designer) certainly contributed to the damage which occurred. (Ibid, p.
174).
In their respective briefs petitioners, among others, raised the following
assignments of errors: Philippine Bar Association claimed that the
measure of damages should not be limited to P1,100,000.00 as estimated
cost of repairs or to the period of six (6) months for loss of rentals while
United Construction Co., Inc. and the Nakpils claimed that it was an act of
God that caused the failure of the building which should exempt them
from responsibility and not the defective construction, poor workmanship,
deviations from plans and specifications and other imperfections in the
case of United Construction Co., Inc. or the deficiencies in the design,
plans and specifications prepared by petitioners in the case of the Nakpils.
Both UCCI and the Nakpils object to the payment of the additional amount
of P200,000.00 imposed by the Court of Appeals. UCCI also claimed that it
should be reimbursed the expenses of shoring the building in the amount
of P13,661.28 while the Nakpils opposed the payment of damages jointly
and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an unusually
strong earthquake-which caused the failure of the building, exempts from
liability, parties who are otherwise liable because of their negligence.
The applicable law governing the rights and liabilities of the parties herein
is Article 1723 of the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years
from the completion of the structure the same should collapse by reason
of a defect in those plans and specifications, or due to the defects in the
ground. The contractor is likewise responsible for the damage if the
edifice fags within the same period on account of defects in the
construction or the use of materials of inferior quality furnished by him, or
due to any violation of the terms of the contract. If the engineer or
architect supervises the construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does not imply waiver of any
of the causes of action by reason of any defect mentioned in the
preceding paragraph.
The action must be brought within ten years following the collapse of the
building.
On the other hand, the general rule is that no person shall be responsible
for events which could not be foreseen or which though foreseen, were
inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by no
amount of foresight, pains or care, reasonably to have been expected,
could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous
event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code,
for a breach of an obligation due to an "act of God," the following must
concur: (a) the cause of the breach of the obligation must be independent
of the will of the debtor; (b) the event must be either unforseeable or
unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the debtor must
be free from any participation in, or aggravation of the injury to the
creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v.
Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527;
Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v.
Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for
in Article 1170 of the Civil Code, which results in loss or damage, the
obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and all
human agencies are to be excluded from creating or entering into the
cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man,
whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it were, and removed from the
rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with
an act of God in producing a loss, such person is not exempt from liability
by showing that the immediate cause of the damage was the act of God.
To be exempt from liability for loss because of an act of God, he must be
free from any previous negligence or misconduct by which that loss or
damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors,
55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower court and in
the Intermediate Appellate Court. Defendant United Construction Co., Inc.
was found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in
the construction as well as to exercise the requisite degree of supervision;
while the third-party defendants were found to have inadequacies or
defects in the plans and specifications prepared by them. As correctly
assessed by both courts, the defects in the construction and in the plans
and specifications were the proximate causes that rendered the PBA
building unable to withstand the earthquake of August 2, 1968. For this
reason the defendant and third-party defendants cannot claim exemption
from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are
conclusive on the parties and on this court (cases cited in Tolentino vs. de
Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134
SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely
on speculation, surmise and conjectures; (2) the inference made is
manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on misapprehension of facts; (5) the findings of fact
are conflicting , (6) the Court of Appeals went beyond the issues of the
case and its findings are contrary to the admissions of both appellant and
appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA
289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the
findings of facts of the Court of Appeals are contrary to those of the trial
court; (8) said findings of facts are conclusions without citation of specific
evidence on which they are based; (9) the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the
respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs.
Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of
fact of the Court of Appeals is premised on the supposed absence of
evidence and is contradicted by evidence on record (Salazar vs. Gutierrez,
May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the exceptions
above-mentioned. On the contrary, the records show that the lower court
spared no effort in arriving at the correct appreciation of facts by the
referral of technical issues to a Commissioner chosen by the parties whose
findings and conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the Supreme
Court.
In any event, the relevant and logical observations of the trial court as
affirmed by the Court of Appeals that "while it is not possible to state with
certainty that the building would not have collapsed were those defects
not present, the fact remains that several buildings in the same area
withstood the earthquake to which the building of the plaintiff was
similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to
the PBA for the partial collapse (and eventual complete collapse) of its
building.
The Court of Appeals affirmed the finding of the trial court based on the
report of the Commissioner that the total amount required to repair the
PBA building and to restore it to tenantable condition was P900,000.00
inasmuch as it was not initially a total loss. However, while the trial court
awarded the PBA said amount as damages, plus unrealized rental income
for one-half year, the Court of Appeals modified the amount by awarding
in favor of PBA an additional sum of P200,000.00 representing the
damage suffered by the PBA building as a result of another earthquake
that occurred on April 7, 1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be P1,830,000.00
representing the total value of the building (L-47896, PBA's No. 1
Assignment of Error, p. 19), while both the NAKPILS and UNITED question
the additional award of P200,000.00 in favor of the PBA (L- 47851,
NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The
PBA further urges that the unrealized rental income awarded to it should
not be limited to a period of one-half year but should be computed on a
continuing basis at the rate of P178,671.76 a year until the judgment for
the principal amount shall have been satisfied L- 47896, PBA's No. 11
Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968
earthquake was only partial and it is undisputed that the building could
then still be repaired and restored to its tenantable condition. The PBA,
however, in view of its lack of needed funding, was unable, thru no fault
of its own, to have the building repaired. UNITED, on the other hand,
spent P13,661.28 to shore up the building after the August 2, 1968
earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on
April 7, 1970, the trial court after the needed consultations, authorized the
total demolition of the building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable for
the damage resulting from the partial and eventual collapse of the PBA
building as a result of the earthquakes.
We quote with approval the following from the erudite decision penned by
Justice Hugo E. Gutierrez (now an Associate Justice of the Supreme
Court) while still an Associate Justice of the Court of Appeals:
There is no question that an earthquake and other forces of nature such
as cyclones, drought, floods, lightning, and perils of the sea are acts of
God. It does not necessarily follow, however, that specific losses and
suffering resulting from the occurrence of these natural force are also acts
of God. We are not convinced on the basis of the evidence on record that
from the thousands of structures in Manila, God singled out the blameless
PBA building in Intramuros and around six or seven other buildings in
various parts of the city for collapse or severe damage and that God alone
was responsible for the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the
designs and plans, defective construction, poor workmanship, deviation
from plans and specifications and other imperfections. These deficiencies
are attributable to negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and third party
defendants-appellants presented in their briefs are premised on legal
generalizations or speculations and on theological fatalism both of which
ignore the plain facts. The lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the
August 2, 1968 earthquake was of such an overwhelming and destructive
character that by its own force and independent of the particular
negligence alleged, the injury would have been produced. If we follow this
line of speculative reasoning, we will be forced to conclude that under
such a situation scores of buildings in the vicinity and in other parts of
Manila would have toppled down. Following the same line of reasoning,
Nakpil and Sons alleges that the designs were adequate in accordance
with pre-August 2, 1968 knowledge and appear inadequate only in the
light of engineering information acquired after the earthquake. If this
were so, hundreds of ancient buildings which survived the earthquake
better than the two-year old PBA building must have been designed and
constructed by architects and contractors whose knowledge and foresight
were unexplainably auspicious and prophetic. Fortunately, the facts on
record allow a more down to earth explanation of the collapse. The failure
of the PBA building, as a unique and distinct construction with no
reference or comparison to other buildings, to weather the severe
earthquake forces was traced to design deficiencies and defective
construction, factors which are neither mysterious nor esoteric. The
theological allusion of appellant United that God acts in mysterious ways
His wonders to perform impresses us to be inappropriate. The evidence
reveals defects and deficiencies in design and construction. There is no
mystery about these acts of negligence. The collapse of the PBA building
was no wonder performed by God. It was a result of the imperfections in
the work of the architects and the people in the construction company.
More relevant to our mind is the lesson from the parable of the wise man
in the Sermon on the Mount "which built his house upon a rock; and the
rain descended and the floods came and the winds blew and beat upon
that house; and it fen not; for it was founded upon a rock" and of the
"foolish upon the sand. And the rain descended and man which built his
house the floods came, and the winds blew, and beat upon that house;
and it fell and great was the fall of it. (St. Matthew 7: 24-27)." The
requirement that a building should withstand rains, floods, winds,
earthquakes, and natural forces is precisely the reason why we have
professional experts like architects, and engineers. Designs and
constructions vary under varying circumstances and conditions but the
requirement to design and build well does not change.
The findings of the lower Court on the cause of the collapse are more
rational and accurate. Instead of laying the blame solely on the motions
and forces generated by the earthquake, it also examined the ability of
the PBA building, as designed and constructed, to withstand and
successfully weather those forces.
The evidence sufficiently supports a conclusion that the negligence and
fault of both United and Nakpil and Sons, not a mysterious act of an
inscrutable God, were responsible for the damages. The Report of the
Commissioner, Plaintiff's Objections to the Report, Third Party Defendants'
Objections to the Report, Defendants' Objections to the Report,
Commissioner's Answer to the various Objections, Plaintiffs' Reply to the
Commissioner's Answer, Defendants' Reply to the Commissioner's Answer,
Counter-Reply to Defendants' Reply, and Third-Party Defendants' Reply to
the Commissioner's Report not to mention the exhibits and the
testimonies show that the main arguments raised on appeal were already
raised during the trial and fully considered by the lower Court. A
reiteration of these same arguments on appeal fails to convince us that
we should reverse or disturb the lower Court's factual findings and its
conclusions drawn from the facts, among them:
The Commissioner also found merit in the allegations of the defendants as
to the physical evidence before and after the earthquake showing the
inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy of
design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward the
Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior
columns reduces the cross-sectional area of each of the columns and the
strength thereof.
4. Two front corners, A7 and D7 columns were very much less
reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of design;
1. Column A7 suffered the severest fracture and maximum
sagging. Also D7.
2. There are more damages in the front part of the building than
towards the rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the
building.
4. Floors showed maximum sagging on the sides and toward the
front corner parts of the building.
5. There was a lateral displacement of the building of about 8",
Maximum sagging occurs at the column A7 where the floor is lower by 80
cm. than the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects in the
design, plans and specifications of the PBA building which involved
appreciable risks with respect to the accidental forces which may result
from earthquake shocks. He conceded, however, that the fact that those
deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for
earthquake forces mitigates in a large measure the responsibility or
liability of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this portion
of the Commissioner's report, voiced opposition to the same on the
grounds that (a) the finding is based on a basic erroneous conception as
to the design concept of the building, to wit, that the design is essentially
that of a heavy rectangular box on stilts with shear wan at one end; (b)
the finding that there were defects and a deficiency in the design of the
building would at best be based on an approximation and, therefore,
rightly belonged to the realm of speculation, rather than of certainty and
could very possibly be outright error; (c) the Commissioner has failed to
back up or support his finding with extensive, complex and highly
specialized computations and analyzes which he himself emphasizes are
necessary in the determination of such a highly technical question; and
(d) the Commissioner has analyzed the design of the PBA building not in
the light of existing and available earthquake engineering knowledge at
the time of the preparation of the design, but in the light of recent and
current standards.
The Commissioner answered the said objections alleging that third-party
defendants' objections were based on estimates or exhibits not presented
during the hearing that the resort to engineering references posterior to
the date of the preparation of the plans was induced by the third-party
defendants themselves who submitted computations of the third-party
defendants are erroneous.
The issue presently considered is admittedly a technical one of the highest
degree. It involves questions not within the ordinary competence of the
bench and the bar to resolve by themselves. Counsel for the third-party
defendants has aptly remarked that "engineering, although dealing in
mathematics, is not an exact science and that the present knowledge as
to the nature of earthquakes and the behaviour of forces generated by
them still leaves much to be desired; so much so "that the experts of the
different parties, who are all engineers, cannot agree on what equation to
use, as to what earthquake co-efficients are, on the codes to be used and
even as to the type of structure that the PBA building (is) was (p. 29,
Memo, of third- party defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were to be
tried and inquired into by the Court itself, coupled with the intrinsic nature
of the questions involved therein, constituted the reason for the reference
of the said issues to a Commissioner whose qualifications and experience
have eminently qualified him for the task, and whose competence had not
been questioned by the parties until he submitted his report. Within the
pardonable limit of the Court's ability to comprehend the meaning of the
Commissioner's report on this issue, and the objections voiced to the
same, the Court sees no compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in the design,
plans and specifications prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the
plans and specifications, and how said deviations contributed to the (8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals
damage sustained by the building. are uneven 2" to 4",

(b) The alleged failure of defendants to observe the requisite (9) Column A3 — Lack of lateral ties,
quality of materials and workmanship in the construction of the building.
(10) Column A4 — Spirals cut off and welded to two separate
These two issues, being interrelated with each other, will be discussed clustered vertical bars,
together.
(11) Column A4 — (second floor Column is completely hollow to a
The findings of the Commissioner on these issues were as follows: height of 30"

We now turn to the construction of the PBA Building and the alleged (12) Column A5 — Spirals were cut from the floor level to the
deficiencies or defects in the construction and violations or deviations bottom of the spandrel beam to a height of 6 feet,
from the plans and specifications. All these may be summarized as
follows: (13) Column A6 — No spirals up to a height of 30' above the ground
floor level,
a. Summary of alleged defects as reported by Engineer Mario M.
Bundalian. (14) Column A7— Lack of lateralties or spirals,

(1) Wrongful and defective placing of reinforcing bars. c. Summary of alleged defects as reported by the experts of the
Third-Party defendants.
(2) Absence of effective and desirable integration of the 3 bars in
the cluster. Ground floor columns.

(3) Oversize coarse aggregates: 1-1/4 to 2" were used. (1) Column A4 — Spirals are cut,
Specification requires no larger than 1 inch.
(2) Column A5 — Spirals are cut,
(4) Reinforcement assembly is not concentric with the column,
eccentricity being 3" off when on one face the main bars are only 1 1/2' (3) Column A6 — At lower 18" spirals are absent,
from the surface.
(4) Column A7 — Ties are too far apart,
(5) Prevalence of honeycombs,
(5) Column B5 — At upper fourth of column spirals are either
(6) Contraband construction joints, absent or improperly spliced,

(7) Absence, or omission, or over spacing of spiral hoops, (6) Column B6 — At upper 2 feet spirals are absent,

(8) Deliberate severance of spirals into semi-circles in noted on Col. (7) Column B7 — At upper fourth of column spirals missing or
A-5, ground floor, improperly spliced.

(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, (8) Column C7— Spirals are absent at lowest 18"
ground floor,
(9) Column D5 — At lowest 2 feet spirals are absent,
(10) Undergraduate concrete is evident,
(10) Column D6 — Spirals are too far apart and apparently
(11) Big cavity in core of Column 2A-4, second floor, improperly spliced,

(12) Columns buckled at different planes. Columns buckled worst (11) Column D7 — Lateral ties are too far apart, spaced 16" on
where there are no spirals or where spirals are cut. Columns suffered centers.
worst displacement where the eccentricity of the columnar reinforcement
assembly is more acute. There is merit in many of these allegations. The explanations given by the
engineering experts for the defendants are either contrary to general
b. Summary of alleged defects as reported by Engr. Antonio principles of engineering design for reinforced concrete or not applicable
Avecilla. to the requirements for ductility and strength of reinforced concrete in
earthquake-resistant design and construction.
Columns are first (or ground) floor, unless otherwise stated.
We shall first classify and consider defects which may have appreciable
(1) Column D4 — Spacing of spiral is changed from 2" to 5" on bearing or relation to' the earthquake-resistant property of the building.
centers,
As heretofore mentioned, details which insure ductility at or near the
(2) Column D5 — No spiral up to a height of 22" from the ground connections between columns and girders are desirable in earthquake
floor, resistant design and construction. The omission of spirals and ties or
hoops at the bottom and/or tops of columns contributed greatly to the
(3) Column D6 — Spacing of spiral over 4 l/2, loss of earthquake-resistant strength. The plans and specifications
required that these spirals and ties be carried from the floor level to the
(4) Column D7 — Lack of lateral ties, bottom reinforcement of the deeper beam (p. 1, Specifications, p. 970,
Reference 11). There were several clear evidences where this was not
(5) Column C7 — Absence of spiral to a height of 20" from the done especially in some of the ground floor columns which failed.
ground level, Spirals are at 2" from the exterior column face and 6" from
the inner column face, There were also unmistakable evidences that the spacings of the spirals
and ties in the columns were in many cases greater than those called for
(6) Column B6 — Lack of spiral on 2 feet below the floor beams, in the plans and specifications resulting again in loss of earthquake-
resistant strength. The assertion of the engineering experts for the
(7) Column B5 — Lack of spirals at a distance of 26' below the defendants that the improper spacings and the cutting of the spirals did
beam, not result in loss of strength in the column cannot be maintained and is
certainly contrary to the general principles of column design and
construction. And even granting that there be no loss in strength at the
yield point (an assumption which is very doubtful) the cutting or improper
spacings of spirals will certainly result in the loss of the plastic range or
ductility in the column and it is precisely this plastic range or ductility
which is desirable and needed for earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the column A4,
second floor, and although this column did not fail, this is certainly an
evidence on the part of the contractor of poor construction.
The effect of eccentricities in the columns which were measured at about
2 1/2 inches maximum may be approximated in relation to column loads
and column and beam moments. The main effect of eccentricity is to
change the beam or girder span. The effect on the measured eccentricity
of 2 inches, therefore, is to increase or diminish the column load by a
maximum of about 1% and to increase or diminish the column or beam
movements by about a maximum of 2%. While these can certainly be
absorbed within the factor of safety, they nevertheless diminish said
factor of safety.
The cutting of the spirals in column A5, ground floor is the subject of
great contention between the parties and deserves special consideration.
The proper placing of the main reinforcements and spirals in column A5,
ground floor, is the responsibility of the general contractor which is the
UCCI. The burden of proof, therefore, that this cutting was done by others
is upon the defendants. Other than a strong allegation and assertion that
it is the plumber or his men who may have done the cutting (and this was
flatly denied by the plumber) no conclusive proof was presented. The
engineering experts for the defendants asserted that they could have no
motivation for cutting the bar because they can simply replace the spirals
by wrapping around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was sometimes
done through the beam and girder reinforcements which were already in
place as in the case of column A4 second floor. If the reinforcement for
the girder and column is to subsequently wrap around the spirals, this
would not do for the elasticity of steel would prevent the making of tight
column spirals and loose or improper spirals would result. The proper way
is to produce correct spirals down from the top of the main column bars, a
procedure which can not be done if either the beam or girder
reinforcement is already in place. The engineering experts for the
defendants strongly assert and apparently believe that the cutting of the
spirals did not materially diminish the strength of the column. This belief
together with the difficulty of slipping the spirals on the top of the column
once the beam reinforcement is in place may be a sufficient motivation for
the cutting of the spirals themselves. The defendants, therefore, should
be held responsible for the consequences arising from the loss of strength
or ductility in column A5 which may have contributed to the damages
sustained by the building.
The lack of proper length of splicing of spirals was also proven in the
visible spirals of the columns where spalling of the concrete cover had
taken place. This lack of proper splicing contributed in a small measure to
the loss of strength.
The effects of all the other proven and visible defects although nor can
certainly be accumulated so that they can contribute to an appreciable
loss in earthquake-resistant strength. The engineering experts for the
defendants submitted an estimate on some of these defects in the
amount of a few percent. If accumulated, therefore, including the effect
of eccentricity in the column the loss in strength due to these minor
defects may run to as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom
and/or at the top of some of the ground floor columns contributed greatly
to the collapse of the PBA building since it is at these points where the
greater part of the failure occurred. The liability for the cutting of the
spirals in column A5, ground floor, in the considered opinion of the
Commissioner rests on the shoulders of the defendants and the loss of
strength in this column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects,
deficiencies and violations of the plans and specifications of the PBA
building contributed to the damages which resulted during the earthquake
of August 2, 1968 and the vice of these defects and deficiencies is that
they not only increase but also aggravate the weakness mentioned in the
design of the structure. In other words, these defects and deficiencies not
only tend to add but also to multiply the effects of the shortcomings in the
design of the building. We may say, therefore, that the defects and
deficiencies in the construction contributed greatly to the damage which
occurred.
Since the execution and supervision of the construction work in the hands
of the contractor is direct and positive, the presence of existence of all the
major defects and deficiencies noted and proven manifests an element of
negligence which may amount to imprudence in the construction work.
(pp. 42-49, Commissioners Report).
As the parties most directly concerned with this portion of the
Commissioner's report, the defendants voiced their objections to the same
on the grounds that the Commissioner should have specified the defects
found by him to be "meritorious"; that the Commissioner failed to indicate
the number of cases where the spirals and ties were not carried from the
floor level to the bottom reinforcement of the deeper beam, or where the
spacing of the spirals and ties in the columns were greater than that
called for in the specifications; that the hollow in column A4, second floor,
the eccentricities in the columns, the lack of proper length of splicing of
spirals, and the cut in the spirals in column A5, ground floor, did not
aggravate or contribute to the damage suffered by the building; that the
defects in the construction were within the tolerable margin of safety; and
that the cutting of the spirals in column A5, ground floor, was done by the
plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many
of the defects were minor only the totality of the defects was considered.
As regards the objection as to failure to state the number of cases where
the spirals and ties were not carried from the floor level to the bottom
reinforcement, the Commissioner specified groundfloor columns B-6 and
C-5 the first one without spirals for 03 inches at the top, and in the latter,
there were no spirals for 10 inches at the bottom. The Commissioner
likewise specified the first storey columns where the spacings were
greater than that called for in the specifications to be columns B-5, B-6, C-
7, C-6, C-5, D-5 and B-7. The objection to the failure of the Commissioner
to specify the number of columns where there was lack of proper length
of splicing of spirals, the Commissioner mentioned groundfloor columns B-
6 and B-5 where all the splices were less than 1-1/2 turns and were not
welded, resulting in some loss of strength which could be critical near the
ends of the columns. He answered the supposition of the defendants that
the spirals and the ties must have been looted, by calling attention to the
fact that the missing spirals and ties were only in two out of the 25
columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor,
did not aggravate or contribute to the damage, but averred that it is
"evidence of poor construction." On the claim that the eccentricity could
be absorbed within the factor of safety, the Commissioner answered that,
while the same may be true, it also contributed to or aggravated the
damage suffered by the building.
The objection regarding the cutting of the spirals in Column A-5,
groundfloor, was answered by the Commissioner by reiterating the
observation in his report that irrespective of who did the cutting of the
spirals, the defendants should be held liable for the same as the general
contractor of the building. The Commissioner further stated that the loss
of strength of the cut spirals and inelastic deflections of the supposed
lattice work defeated the purpose of the spiral containment in the column
and resulted in the loss of strength, as evidenced by the actual failure of
this column.
Again, the Court concurs in the findings of the Commissioner on these
issues and fails to find any sufficient cause to disregard or modify the
same. As found by the Commissioner, the "deviations made by the
defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also
aggravated the damage caused by the defects in the plans and
specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-
142)
The afore-mentioned facts clearly indicate the wanton negligence of both
the defendant and the third-party defendants in effecting the plans,
designs, specifications, and construction of the PBA building and We hold
such negligence as equivalent to bad faith in the performance of their
respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49
O.G. 4379, 4380) which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability
for the natural and probable consequences thereof, although the act of a
third person, or an act of God for which he is not responsible, intervenes
to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth
to tell hundreds of ancient buildings in the vicinity were hardly affected by
the earthquake. Only one thing spells out the fatal difference; gross
negligence and evident bad faith, without which the damage would not
have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, We
deem it reasonable to render a decision imposing, as We do hereby
impose, upon the defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p.
10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception of
attorney's fees) occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being
payable upon the finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be imposed upon
afore-mentioned amounts from finality until paid. Solidary costs against
the defendant and third-party defendants (except Roman Ozaeta).
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
The Lawphil Project - Arellano Law Foundation
FIRST DIVISION
G.R. No. 189563 April 7, 2014
GILAT SATELLITE NETWORKS, LTD., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC.,
Respondent.
DECISION
SERENO, CJ:
This is an appeal via a Petition for Review on Certiorari1 filed 6 November
2009 assailing the Decision2 and Resolution3 of the Court of Appeals (CA)
in CA-G.R. CV No. 89263, which reversed the Decision4 of the Regional
Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02-461,
ordering respondent to pay petitioner a sum of money.
The antecedent facts, as culled from the CA, are as follows:
On September 15, 1999, One Virtual placed with GILAT a purchase order
for various telecommunications equipment (sic), accessories, spares,
services and software, at a total purchase price of Two Million One
Hundred Twenty Eight Thousand Two Hundred Fifty Dollars
(US$2,128,250.00). Of the said purchase price for the goods delivered,
One Virtual promised to pay a portion thereof totalling US$1.2 Million in
accordance with the payment schedule dated 22 November 1999. To
ensure the prompt payment of this amount, it obtained defendant UCPB
General Insurance Co., Inc.’s surety bond dated 3 December 1999, in
favor of GILAT.
During the period between [sic] September 1999 and June 2000, GILAT
shipped and delivered to One Virtual the purchased products and
equipment, as evidenced by airway bills/Bill of Lading (Exhibits "F", "F-1"
to "F-8"). All of the equipment (including the software components for
which payment was secured by the surety bond, was shipped by GILAT
and duly received by One Virtual. Under an endorsement dated December
23, 1999 (Exhibit "E"), the surety issued, with One Virtual’s conformity, an
amendment to the surety bond, Annex "A" thereof, correcting its expiry
date from May 30, 2001 to July 30, 2001.
One Virtual failed to pay GILAT the amount of Four Hundred Thousand
Dollars (US$400,000.00) on the due date of May 30, 2000 in accordance
with the payment schedule attached as Annex "A" to the surety bond,
prompting GILAT to write the surety defendant UCPB on June 5, 2000, a
demand letter (Exhibit "G") for payment of the said amount of
US$400,000.00. No part of the amount set forth in this demand has been
paid to date by either One Virtual or defendant UCPB. One Virtual likewise
failed to pay on the succeeding payment instalment date of 30 November
2000 as set out in Annex "A" of the surety bond, prompting GILAT to send
a second demand letter dated January 24, 2001, for the payment of the
full amount of US$1,200,000.00 guaranteed under the surety bond, plus
interests and expenses (Exhibits "H") and which letter was received by the
defendant surety on January 25, 2001. However, defendant UCPB failed
to settle the amount of US$1,200,000.00 or a part thereof, hence, the
instant complaint."5 (Emphases in the original)
On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a
Complaint6 against respondent UCPB General Insurance Co., Inc., to
recover the amounts supposedly covered by the surety bond, plus
interests and expenses. After due hearing, the RTC rendered its
Decision,7 the dispositive portion of which is herein quoted:
WHEREFORE, premises considered, the Court hereby renders judgment
for the plaintiff, and against the defendant, ordering, to wit:
1. The defendant surety to pay the plaintiff the amount of One Million
Two Hundred Thousand Dollars (US$1,200,000.00) representing the
principal debt under the Surety Bond, with legal interest thereon at the
rate of 12% per annum computed from the time the judgment becomes
final and executory until the obligation is fully settled; and
2. The defendant surety to pay the plaintiff the amount of Forty Four
Thousand Four Dollars and Four Cents (US$44,004.04) representing
attorney’s fees and litigation expenses.
Accordingly, defendant’s counterclaim is hereby dismissed for want of
merit.
SO ORDERED. (Emphasis in the original)
In so ruling, the RTC reasoned that there is "no dispute that plaintiff
[petitioner] delivered all the subject equipments [sic] and the same was
installed. Even with the delivery and installation made, One Virtual failed
to pay any of the payments agreed upon. Demand notwithstanding,
defendant failed and refused and continued to fail and refused to settle
the obligation."8
Considering that its liability was indeed that of a surety, as "spelled out in
the Surety Bond executed by and between One Virtual as Principal, UCPB
as Surety and GILAT as Creditor/Bond Obligee,"9 respondent agreed and
bound itself to pay in accordance with the Payment Milestones. This
obligation was not made dependent on any condition outside the terms
and conditions of the Surety Bond and Payment Milestones.10
Insofar as the interests were concerned, the RTC denied petitioner’s claim
on the premise that while a surety can be held liable for interest even if it
becomes more onerous than the principal obligation, the surety shall only
accrue when the delay or refusal to pay the principal obligation is without
any justifiable cause.11 Here, respondent failed to pay its surety
obligation because of the advice of its principal (One Virtual) not to pay.12
The RTC then obligated respondent to pay petitioner the amount of
USD1,200,000.00 representing the principal debt under the Surety Bond,
with legal interest at the rate of 12% per annum computed from the time
the judgment becomes final and executory, and USD44,004.04
representing attorney’s fees and litigation expenses.
On 18 October 2007, respondent appealed to the CA.13 The appellate
court rendered a Decision14 in the following manner:
WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction.
The trial court’s Decision dated December 28, 2006 is VACATED. Plaintiff-
appellant Gilat Satellite Networks Ltd., and One Virtual are ordered to
proceed to arbitration, the outcome of which shall necessary bind the
parties, including the surety, defendant-appellant United Coconut Planters
Bank General Insurance Co., Inc.
SO ORDERED. (Emphasis in the original)
The CA ruled that in "enforcing a surety contract, the ‘complementary-
contracts-construed-together’ doctrine finds application." According to this
doctrine, the accessory contract must be construed with the principal
agreement.15 In this case, the appellate court considered the Purchase
Agreement entered into between petitioner and One Virtual as the
principal contract,16 whose stipulations are also binding on the parties to
the suretyship.17 Bearing in mind the arbitration clause contained in the
Purchase Agreement18 and pursuant to the policy of the courts to
encourage alternative dispute resolution methods,19 the trial court’s
Decision was vacated; petitioner and One Virtual were ordered to proceed
to arbitration.
On 9 September 2008, petitioner filed a Motion for Reconsideration with
Motion for Oral Argument. The motion was denied for lack of merit in a
Resolution20 issued by the CA on 16 September 2009.
Hence, the instant Petition.
On 31 August 2010, respondent filed a Comment21 on the Petition for
Review. On 24 November 2010, petitioner filed a Reply.22
ISSUES
From the foregoing, we reduce the issues to the following:
1. Whether or not the CA erred in dismissing the case and ordering
petitioner and One Virtual to arbitrate; and
2. Whether or not petitioner is entitled to legal interest due to the delay in
the fulfilment by respondent of its obligation under the Suretyship
Agreement.
THE COURT’S RULING
The existence of a suretyship agreement does not give the surety the
right to intervene in the principal contract, nor can an arbitration clause
between the buyer and the seller be invoked by a non-party such as the
surety.
Petitioner alleges that arbitration laws mandate that no court can compel
arbitration, unless a party entitled to it applies for this relief.23 This
referral, however, can only be demanded by one who is a party to the
arbitration agreement.24 Considering that neither petitioner nor One
Virtual has asked for a referral, there is no basis for the CA’s order to
arbitrate.
Moreover, Articles 1216 and 2047 of the Civil Code25 clearly provide that
the creditor may proceed against the surety without having first sued the
principal debtor.26 Even the Surety Agreement itself states that
respondent becomes liable upon "mere failure of the Principal to make
such prompt payment."27 Thus, petitioner should not be ordered to make
a separate claim against One Virtual (via arbitration) before proceeding
against respondent.28
On the other hand, respondent maintains that a surety contract is merely
an accessory contract, which cannot exist without a valid obligation.29
Thus, the surety may avail itself of all the defenses available to the
principal debtor and inherent in the debt30 – that is, the right to invoke
the arbitration clause in the Purchase Agreement.
We agree with petitioner.
In suretyship, the oft-repeated rule is that a surety’s liability is joint and
solidary with that of the principal debtor. This undertaking makes a surety
agreement an ancillary contract, as it presupposes the existence of a
principal contract.31 Nevertheless, although the contract of a surety is in
essence secondary only to a valid principal obligation, its liability to the
creditor or "promise" of the principal is said to be direct, primary and
absolute; in other words, a surety is directly and equally bound with the
principal.32 He becomes liable for the debt and duty of the principal
obligor, even without possessing a direct or personal interest in the
obligations constituted by the latter.33 Thus, a surety is not entitled to a
separate notice of default or to the benefit of excussion.34 It may in fact
be sued separately or together with the principal debtor.35
After a thorough examination of the pieces of evidence presented by both
parties,36 the RTC found that petitioner had delivered all the goods to
One Virtual and installed them. Despite these compliances, One Virtual
still failed to pay its obligation,37 triggering respondent’s liability to
petitioner as the former’s surety.1âwphi1 In other words, the failure of
One Virtual, as the principal debtor, to fulfill its monetary obligation to
petitioner gave the latter an immediate right to pursue respondent as the
surety.
Consequently, we cannot sustain respondent’s claim that the Purchase
Agreement, being the principal contract to which the Suretyship
Agreement is accessory, must take precedence over arbitration as the
preferred mode of settling disputes.
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction
Co. Ltd.,38 that "[the] acceptance [of a surety agreement], however,
does not change in any material way the creditor’s relationship with the
principal debtor nor does it make the surety an active party to the
principal creditor-debtor relationship. In other words, the acceptance does
not give the surety the right to intervene in the principal contract. The
surety’s role arises only upon the debtor’s default, at which time, it can be
directly held liable by the creditor for payment as a solidary obligor."
Hence, the surety remains a stranger to the Purchase Agreement. We
agree with petitioner that respondent cannot invoke in its favor the
arbitration clause in the Purchase Agreement, because it is not a party to
that contract.39 An arbitration agreement being contractual in nature,40 it
is binding only on the parties thereto, as well as their assigns and heirs.41
Second, Section 24 of Republic Act No. 928542 is clear in stating that a
referral to arbitration may only take place "if at least one party so
requests not later than the pre-trial conference, or upon the request of
both parties thereafter." Respondent has not presented even an iota of
evidence to show that either petitioner or One Virtual submitted its
contesting claim for arbitration.
Third, sureties do not insure the solvency of the debtor, but rather the
debt itself.43 They are contracted precisely to mitigate risks of non-
performance on the part of the obligor. This responsibility necessarily
places a surety on the same level as that of the principal debtor.44 The
effect is that the creditor is given the right to directly proceed against
either principal debtor or surety. This is the reason why excussion cannot
be invoked.45 To require the creditor to proceed to arbitration would
render the very essence of suretyship nugatory and diminish its value in
commerce. At any rate, as we have held in Palmares v. Court of
Appeals,46 "if the surety is dissatisfied with the degree of activity
displayed by the creditor in the pursuit of his principal, he may pay the
debt himself and become subrogated to all the rights and remedies of the
creditor."
Interest, as a form of indemnity, may be awarded to a creditor for the
delay incurred by a debtor in the payment of the latter’s obligation,
provided that the delay is inexcusable.
Anent the issue of interests, petitioner alleges that it deserves to be paid
legal interest of 12% per annum from the time of its first demand on
respondent on 5 June 2000 or at most, from the second demand on 24
January 2001 because of the latter’s delay in discharging its monetary
obligation.47 Citing Article 1169 of the Civil Code, petitioner insists that
the delay started to run from the time it demanded the fulfilment of
respondent’s obligation under the suretyship contract. Significantly,
respondent does not contest this point, but instead argues that it is only
liable for legal interest of 6% per annum from the date of petitioner’s last
demand on 24 January 2001.
In rejecting petitioner’s position, the RTC stated that interests may only
accrue when the delay or the refusal of a party to pay is without any
justifiable cause.48 In this case, respondent’s failure to heed the demand
was due to the advice of One Virtual that petitioner allegedly breached its
undertakings as stated in the Purchase Agreement.49 The CA, however,
made no pronouncement on this matter.
We sustain petitioner.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the
payment of a sum of money, and the debtor incurs a delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation,
the legal interest."
Delay arises from the time the obligee judicially or extrajudicially demands
from the obligor the performance of the obligation, and the latter fails to
comply.50 Delay, as used in Article 1169, is synonymous with default or
mora, which means delay in the fulfilment of obligations.51 It is the
nonfulfillment of an obligation with respect to time.52 In order for the
debtor (in this case, the surety) to be in default, it is necessary that the
following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that
the creditor requires the performance judicially or extrajudicially.53
Having held that a surety upon demand fails to pay, it can be held liable
for interest, even if in thus paying, its liability becomes more than the
principal obligation.54 The increased liability is not because of the
contract, but because of the default and the necessity of judicial
collection.55
However, for delay to merit interest, it must be inexcusable in nature. In
Guanio v. Makati-Shangri-la Hotel,56 citing RCPI v. Verchez,57 we held
thus:
In culpa contractual x x x the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right
of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance
of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves
to preserve the interests of the promissee that may include his
"expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had
the contract been performed, or his "reliance interest," which is his
interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract
not been made; or his "restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make RECOMPENSE to the
one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like
proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability. (Emphasis ours)
We agree with petitioner that records are bereft of proof to show that
respondent’s delay was indeed justified by the circumstances – that is,
One Virtual’s advice regarding petitioner’s alleged breach of obligations.
The lower court’s Decision itself belied this contention when it said that
"plaintiff is not disputing that it did not complete commissioning work on
one of the two systems because One Virtual at that time is already in
default and has not paid GILAT."58 Assuming arguendo that the
commissioning work was not completed, respondent has no one to blame
but its principal, One Virtual; if only it had paid its obligation on time,
petitioner would not have been forced to stop operations. Moreover, the
deposition of Mr. Erez Antebi, vice president of Gilat, repeatedly stated
that petitioner had delivered all equipment, including the licensed
software; and that the equipment had been installed and in fact, gone
into operation.59 Notwithstanding these compliances, respondent still
failed to pay.
As to the issue of when interest must accrue, our Civil Code is explicit in
stating that it accrues from the time judicial or extrajudicial demand is
made on the surety. This ruling is in accordance with the provisions of
Article 1169 of the Civil Code and of the settled rule that where there has
been an extra-judicial demand before an action for performance was filed,
interest on the amount due begins to run, not from the date of the filing
of the complaint, but from the date of that extra-judicial demand.60
Considering that respondent failed to pay its obligation on 30 May 2000 in
accordance with the Purchase Agreement, and that the extrajudicial
demand of petitioner was sent on 5 June 2000,61 we agree with the latter
that interest must start to run from the time petitioner sent its first
demand letter (5 June 2000), because the obligation was already due and
demandable at that time.
With regard to the interest rate to be imposed, we take cue from Nacar v.
Gallery Frames,62 which modified the guidelines established in Eastern
Shipping Lines v. CA63 in relation to Bangko Sentral-Monetary Board
Circular No. 799 (Series of 2013), to wit:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded.1âwphi1 In the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
xxxx
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
Applying the above-discussed concepts and in the absence of an
agreement as to interests, we are hereby compelled to award petitioner
legal interest at the rate of 6% per annum from 5 June 2000, its first date
of extra judicial demand, until the satisfaction of the debt in accordance
with the revised guidelines enunciated in Nacar.
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED.
The assailed Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 89263 are REVERSED. The Decision of the Regional Trial Court,
Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as
the award of legal interest is concerned. Respondent is hereby ordered to
pay legal interest at the rate of 6% per annum from 5 June 2000 until the
satisfaction of its obligation under the Suretyship Contract and Purchase
Agreement.
SO ORDERED.
MARIA LOURDES P. A. SERENO
FIRST DIVISION
G.R. No. 184458 January 14, 2015
RODRIGO RIVERA, Petitioner,
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents.
x-----------------------x
G.R. No. 184472
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule
45 of the Rules of Court assailing the Decision1 of the Court of Appeals in
CA-G.R. SP No. 90609 which affirmed with modification the separate
rulings of the Manila City trial courts, the Regional Trial Court, Branch 17
in Civil Case No. 02-1052562 and the Metropolitan Trial Court (MeTC),
Branch 30, in Civil Case No. 163661,3 a case for collection of a sum of
money due a promissory note. While all three (3) lower courts upheld the
validity and authenticity of the promissory note as duly signed by the
obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the
appellate court modified the trial courts’ consistent awards: (1) the
stipulated interest rate of sixty percent (60%) reduced to twelve percent
(12%) per annumcomputed from the date of judicial or extrajudicial
demand, and (2) reinstatement of the award of attorney’s fees also in a
reduced amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no
valid promissory note and questions the entire ruling of the lower courts.
On the other hand, petitioners in G.R. No. 184472, Spouses Salvador and
Violeta Chua (Spouses Chua), take exception to the appellate court’s
reduction of the stipulated interest rate of sixty percent (60%) to twelve
percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since
1973: Rivera and Salvador are kumpadres, the former is the godfather of
the Spouses Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred
Twenty Thousand Philippine Currency (₱120,000.00) on December 31,
1995.
It is agreed and understood that failure on my part to pay the amount of
(120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully
paid for.
Should this note be referred to a lawyer for collection, I agree to pay the
further sum equivalent to twenty percent (20%) of the total amount due
and payable as and for attorney’s fees which in no case shall be less than
₱5,000.00 and to pay in addition the cost of suit and other incidental
litigation expense.
Any action which may arise in connection with this note shall be brought
in the proper Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated
in the promissory note, Rivera, as partial payment for the loan, issued and
delivered to the SpousesChua, as payee, a check numbered 012467,
dated 30 December 1998, drawn against Rivera’s current account with the
Philippine Commercial International Bank (PCIB) in the amount of
₱25,000.00.
On 21 December 1998, the Spouses Chua received another check
presumably issued by Rivera, likewise drawn against Rivera’s PCIB current
account, numbered 013224, duly signed and dated, but blank as to payee
and amount. Ostensibly, as per understanding by the parties, PCIB Check
No. 013224 was issued in the amount of ₱133,454.00 with "cash" as
payee. Purportedly, both checks were simply partial payment for Rivera’s
loan in the principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the
reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at
₱366,000.00 covering the principal of ₱120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment
from Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the
Spouses Chua were constrained to file a suit on 11 June 1999. The case
was raffled before the MeTC, Branch 30, Manila and docketed as Civil
Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1)
he never executed the subject Promissory Note; (2) in all instances when
he obtained a loan from the Spouses Chua, the loans were always
covered by a security; (3) at the time of the filing of the complaint, he still
had an existing indebtedness to the Spouses Chua, secured by a real
estate mortgage, but not yet in default; (4) PCIB Check No. 132224
signed by him which he delivered to the Spouses Chua on 21 December
1998, should have been issued in the amount of only 1,300.00,
representing the amount he received from the Spouses Chua’s saleslady;
(5) contrary to the supposed agreement, the Spouses Chua presented the
check for payment in the amount of ₱133,454.00; and (6) there was no
demand for payment of the amount of ₱120,000.00 prior to the
encashment of PCIB Check No. 0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and
denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective
witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and oral
evidence (consisting of the testimonies of [the spouses] Chua and NBI
Senior Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI
(1987); NBI document examiner (1989); NBI Senior Document Examiner
(1994 to the date he testified); registered criminologist; graduate of 18th
Basic Training Course [i]n Questioned Document Examination conducted
by the NBI; twice attended a seminar on US Dollar Counterfeit Detection
conducted by the US Embassy in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design conducted by the NBI
Academy; seminar lecturer on Questioned Documents, Signature
Verification and/or Detection; had examined more than a hundred
thousand questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported
signature of [Rivera] appearing in the Promissory Note and compared the
signature thereon with the specimen signatures of [Rivera] appearing on
several documents. After a thorough study, examination, and comparison
of the signature on the questioned document (Promissory Note) and the
specimen signatures on the documents submitted to him, he concluded
that the questioned signature appearing in the Promissory Note and the
specimen signatures of [Rivera] appearing on the other documents
submitted were written by one and the same person. In connection with
his findings, Magbojos prepared Questioned Documents Report No. 712-
1000 dated 8 January 2001, with the following conclusion: "The
questioned and the standard specimen signatures RODGRIGO RIVERA
were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are
"kumpadres;" in May 1998, he obtained a loan from [respondent]
Salvador and executed a real estate mortgage over a parcel of land in
favor of [respondent Salvador] as collateral; aside from this loan, in
October, 1998 he borrowed ₱25,000.00 from Salvador and issued PCIB
Check No. 126407 dated 30 December 1998; he expressly denied
execution of the Promissory Note dated 24 February 1995 and alleged
that the signature appearing thereon was not his signature; [respondent
Salvador’s] claim that PCIB Check No. 0132224 was partial payment for
the Promissory Note was not true, the truth being that he delivered the
check to [respondent Salvador] with the space for amount left blank as he
and [respondent] Salvador had agreed that the latter was to fill it in with
the amount of ₱1,300.00 which amount he owed [the spouses Chua];
however, on 29 December 1998 [respondent] Salvador called him and
told him that he had written ₱133,454.00 instead of ₱1,300.00; x x x. To
rebut the testimony of NBI Senior Document Examiner Magbojos, [Rivera]
reiterated his averment that the signature appearing on the Promissory
Note was not his signature and that he did not execute the Promissory
Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:

WHEREFORE, [Rivera] is required to pay [the spouses Chua]:
₱120,000.00 plus stipulated interest at the rate of 5% per month from 1
January 1996, and legal interest at the rate of 12% percent per annum
from 11 June 1999, as actual and compensatory damages; 20% of the
whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the
Decision of the MeTC, but deleted the award of attorney’s fees to the
Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby
deleted, the rest of the Decision dated October 21, 2002 is hereby
AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore
the signature of Rivera. Undaunted, Rivera appealed to the Court of
Appeals which affirmed Rivera’s liability under the Promissory Note,
reduced the imposition of interest on the loan from 60% to 12% per
annum, and reinstated the award of attorney’s fees in favor of the
Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject
to the MODIFICATION that the interest rate of 60% per annum is hereby
reduced to12% per annum and the award of attorney’s fees is reinstated
atthe reduced amount of ₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in
G.R. No. 184458 and the Spouses Chua in G.R. No. 184472, respectively
raising the following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE RULING OF THE RTC AND M[e]TC THAT THERE WAS A
VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT DEMAND IS NO LONGER NECESSARY AND IN APPLYING
THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING ATTORNEY’S FEES DESPITE THE FACT THAT THE SAME HAS
NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT [THE
SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION OF THE RTC
DELETING THE AWARD OF ATTORNEY’S FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED
GROSS LEGAL ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY
REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER
ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS
ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST
IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE,
ILLEGAL, IMMORAL OR VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472
and denied the petition, via a Minute Resolution, for failure to sufficiently
show any reversible error in the ruling of the appellate court specifically
concerning the correct rate of interest on Rivera’s indebtedness under the
Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of
Rivera questioning the entire ruling of the Court of Appeals in CA-G.R. SP
No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims
that given his friendship withthe Spouses Chua who were money lenders,
he has been able to maintain a loan account with them. However, each of
these loan transactions was respectively "secured by checks or sufficient
collateral."
Rivera points out that the Spouses Chua "never demanded payment for
the loan nor interest thereof (sic) from [Rivera] for almost four (4) years
from the time of the alleged default in payment [i.e., after December 31,
1995]."13
On the issue of the supposed forgery of the promissory note, we are not
inclined to depart from the lower courts’ uniform rulings that Rivera
indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the
promissory note was forged, only that the signature is not his and varies
from his usual signature. He likewise makes a confusing defense of having
previously obtained loans from the Spouses Chua who were money
lenders and who had allowed him a period of "almost four (4) years"
before demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the
testimony of the National Bureau of Investigation (NBI) handwriting
expert on the integrity of the promissory note. On that score, the
appellate court aptly disabled Rivera’s contention:
[Rivera] failed to adduce clear and convincing evidence that the signature
on the promissory note is a forgery. The fact of forgery cannot be
presumed but must be proved by clear, positive and convincing evidence.
Mere variance of signatures cannot be considered as conclusive proof that
the same was forged. Save for the denial of Rivera that the signature on
the note was not his, there is nothing in the records to support his claim
of forgery. And while it is true that resort to experts is not mandatory or
indispensable to the examination of alleged forged documents, the
opinions of handwriting experts are nevertheless helpful in the court’s
determination of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of
the promissory note and the testimony of the NBI witness. In fact, even a
perfunctory comparison of the signatures offered in evidence would lead
to the conclusion that the signatures were made by one and the same
person.
It is a basic rule in civil cases that the party having the burden of proof
must establish his case by preponderance of evidence, which simply
means "evidence which is of greater weight, or more convincing than that
which is offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses
Chua] have established a prima faciecase in their favor, hence, the burden
of evidence has shifted to [Rivera] to prove his allegation of forgery.
Unfortunately for [Rivera], he failed to substantiate his defense.14 Well-
entrenched in jurisprudence is the rule that factual findings of the trial
court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and are considered conclusive between the
parties.15 A review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such as: (1) when
the findings of a trial court are grounded entirely on speculation, surmises
or conjectures; (2) when a lower court's inference from its factual findings
is manifestly mistaken, absurd or impossible; (3) when there is grave
abuse of discretion in the appreciation of facts; (4) when the findings of
the appellate court go beyond the issues of the case, or fail to notice
certain relevant facts which, if properly considered, will justify a different
conclusion; (5) when there is a misappreciation of facts; (6) when the
findings of fact are conclusions without mention of the specific evidence
on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record.16 None of these exceptions obtains
in this instance. There is no reason to depart from the separate factual
findings of the three (3) lower courts on the validity of Rivera’s signature
reflected in the Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he
sets up in his Answer to the plaintiff’s claim or cause of action, upon
which issue is joined, whether they relate to the whole case or only to
certain issues in the case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly
disputed by the testimony of a handwriting expert from the NBI. While it
is true that resort to experts is not mandatory or indispensable to the
examination or the comparison of handwriting, the trial courts in this case,
on its own, using the handwriting expert testimony only as an aid, found
the disputed document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the
following: categorical statement of [respondent] Salvador that [Rivera]
signed the Promissory Note before him, in his ([Rivera’s]) house; the
conclusion of NBI Senior Documents Examiner that the questioned
signature (appearing on the Promissory Note) and standard specimen
signatures "Rodrigo Rivera" "were written by one and the same person";
actual view at the hearing of the enlarged photographs of the questioned
signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it
is beyond logic for a money lender to extend another loan on May 4, 1998
secured by a real estate mortgage, when he was already in default and
has not been paying any interest for a loan incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing friendship
of the parties as "kumpadres," Rivera was allowed another loan, albeit
this time secured by a real estate mortgage, which will cover Rivera’s loan
should Rivera fail to pay. There is nothing inconsistent with the Spouses
Chua’s two (2) and successive loan accommodations to Rivera: one,
secured by a real estate mortgage and the other, secured by only a
Promissory Note.
Also completely plausible is thatgiven the relationship between the
parties, Rivera was allowed a substantial amount of time before the
Spouses Chua demanded payment of the obligation due under the
Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced
claim of forgery and a discordant defense to assail the authenticity and
validity of the Promissory Note. Although the burden of proof rested on
the Spouses Chua having instituted the civil case and after they
established a prima facie case against Rivera, the burden of evidence
shifted to the latter to establish his defense.21 Consequently, Rivera failed
to discharge the burden of evidence, refute the existence of the
Promissory Note duly signed by him and subsequently, that he did not fail
to pay his obligation thereunder. On the whole, there was no question left
on where the respective evidence of the parties preponderated—in favor
of plaintiffs, the Spouses Chua. Rivera next argues that even assuming
the validity of the Promissory Note, demand was still necessary in order to
charge him liable thereunder. Rivera argues that it was grave error on the
part of the appellate court to apply Section 70 of the Negotiable
Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable instrument
and the provisions of the NIL do not apply to this case. Section 1 of the
NIL requires the concurrence of the following elements to be a negotiable
instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is: SECTION 184. Promissory Note, Defined. – A
negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed
by the maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or to bearer. Where a note is
drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein
respondents, the Spouses Chua, and not to order or to bearer, or to the
order of the Spouses Chua as payees. However, even if Rivera’s
Promissory Note is not a negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides that presentment for
payment is not necessary to charge the person liable on the instrument,
Rivera is still liable under the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation
falls due and becomes demandable—31 December 1995. As of 1 January
1996, Rivera had already incurred in delay when he failed to pay the
amount of ₱120,000.00 due to the Spouses Chua on 31 December 1995
under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the
debtor in default: (1) when there is an express stipulation to that effect;
(2) where the law so provides; (3) when the period is the controlling
motive or the principal inducement for the creation of the obligation; and
(4) where demand would be useless. In the first two paragraphs, it is not
sufficient that the law or obligation fixes a date for performance; it must
further state expressly that after the period lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of
interest:
It is agreed and understood that failure on my part to pay the amount of
(₱120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully
paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest
from the "date of default" until the entire obligation is fully paid for. The
parties evidently agreed that the maturity of the obligation at a date
certain, 31 December 1995, will give rise to the obligation to pay interest.
The Promissory Note expressly provided that after 31 December 1995,
default commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day
following 31 December 1995, the due date of the obligation. On that date,
Rivera became liable for the stipulated interest which the Promissory Note
says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the
principal amount of ₱120,000.00. Thereafter, on 1 January 1996, upon
default, Rivera became liable to pay the Spouses Chua damages, in the
form of stipulated interest.
The liability for damages of those who default, including those who are
guilty of delay, in the performance of their obligations is laid down on
Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of
interest as an indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six
percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the
obligation is for a sum of money; (2) the debtor, Rivera, incurred in delay
when he failed to pay on or before 31 December 1995; and (3) the
Promissory Note provides for an indemnity for damages upon default of
Rivera which is the payment of a 5%monthly interest from the date of
default.
We do not consider the stipulation on payment of interest in this case as a
penal clause although Rivera, as obligor, assumed to pay additional 5%
monthly interest on the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of
noncompliance, if there isno stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
The penal clause is generally undertaken to insure performance and works
as either, or both, punishment and reparation. It is an exception to the
general rules on recovery of losses and damages. As an exception to the
general rule, a penal clause must be specifically set forth in the
obligation.25
In high relief, the stipulation in the Promissory Note is designated as
payment of interest, not as a penal clause, and is simply an indemnity for
damages incurred by the Spouses Chua because Rivera defaulted in the
payment of the amount of ₱120,000.00. The measure of damages for the
Rivera’s delay is limited to the interest stipulated in the Promissory Note.
In apt instances, in default of stipulation, the interest is that provided by
law.26
In this instance, the parties stipulated that in case of default, Rivera will
pay interest at the rate of 5% a month or 60% per annum. On this score,
the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states
the date of payment tobe 31 December 1995. Given this circumstance,
demand by the creditor isno longer necessary in order that delay may
exist since the contract itself already expressly so declares. The mere
failure of [Spouses Chua] to immediately demand or collect payment of
the value of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error when it
imposed interest from 1 January 1996 on the ratiocination that [Spouses
Chua] were relieved from making demand under Article 1169 of the Civil
Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60%
per annum in addition to legal interests and attorney’s fees is, indeed,
highly iniquitous and unreasonable. Stipulated interest rates are illegal if
they are unconscionable and the Court is allowed to temper interest rates
when necessary. Since the interest rate agreed upon is void, the parties
are considered to have no stipulation regarding the interest rate, thus, the
rate of interest should be 12% per annum computed from the date of
judicial or extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest
rate, on top of the legal interest and attorney’s fees, steep, tantamount to
it being illegal, iniquitous and unconscionable. Significantly, the issue on
payment of interest has been squarely disposed of in G.R. No. 184472
denying the petition of the Spouses Chua for failure to sufficiently
showany reversible error in the ruling of the appellate court, specifically
the reduction of the interest rate imposed on Rivera’s indebtedness under
the Promissory Note. Ultimately, the denial of the petition in G.R. No.
184472 is res judicata in its concept of "bar by prior judgment" on
whether the Court of Appeals correctly reduced the interest rate stipulated
in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the
following requisites concur: (1) the former judgment or order must be
final; (2) the judgment or order must be on the merits; (3) the decision
must have been rendered by a court having jurisdiction over the subject
matter and the parties; and (4) there must be, between the first and the
second action, identity of parties, of subject matter and of causes of
action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an
identity of parties and subject matter raising specifically errors in the
Decision of the Court of Appeals. Where the Court of Appeals’ disposition
on the propriety of the reduction of the interest rate was raised by the
Spouses Chua in G.R. No. 184472, our ruling thereon affirming the Court
of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default
under the Promissory Note, the then prevailing rate of legal interest was
12% per annum under Central Bank (CB) Circular No. 416 in cases
involving the loan or for bearance of money.29 Thus, the legal interest
accruing from the Promissory Note is 12% per annum from the date of
default on 1 January 1996. However, the 12% per annumrate of legal
interest is only applicable until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of
2013 reducing the rate of legal interest to 6% per annum. Pursuant to our
ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is prospectively
applied from 1 July 2013. In short, the applicable rate of legal interest
from 1 January 1996, the date when Rivera defaulted, to date when this
Decision becomes final and executor is divided into two periods reflecting
two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30
June 2013; and (2) 6% per annum FROM 1 July 2013 to date when this
Decision becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial
demand was made, to the date when this Decision becomes final and
executory, such is likewise divided into two periods: (1) 12% per annum
from 11 June 1999, the date of judicial demand to 30 June 2013; and (2)
6% per annum from 1 July 2013 to date when this Decision becomes final
and executor.31 We base this imposition of interest on interest due
earning legal interest on Article 2212 of the Civil Code which provides that
"interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed
by Rivera to the Spouses Chua could already be determined with
reasonable certainty given the wording of the Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or for bearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6%
per annum to be computed from default, i.e., from judicial or extra judicial
demand under and subject to the provisions ofArticle 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per
annum.1âwphi1 No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when
such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged. 3. When the judgment of the court awarding
a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a for bearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue
to be implemented applying the rate of interest fixed therein. (Emphasis
supplied)
On the reinstatement of the award of attorney’s fees based on the
stipulation in the Promissory Note, weagree with the reduction thereof but
not the ratiocination of the appellate court that the attorney’s fees are in
the nature of liquidated damages or penalty. The interest imposed in the
Promissory Note already answers as liquidated damages for Rivera’s
default in paying his obligation. We award attorney’s fees, albeit in a
reduced amount, in recognition that the Spouses Chua were compelled to
litigate and incurred expenses to protect their interests.34 Thus, the
award of ₱50,000.00 as attorney’s fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total
amount owed by Rivera to the Spouses Chua:
Face value of the Promissory Note Stipulated Interest A & B
Interest due earning legal interest A & B Attorney’s fees
Total
Amount
February 24, 1995 to
December 31, 1995 A. January 1, 1996 to
June 30, 2013
B. July 1 2013 to date when this Decision becomes final and executory A.
June 11, 1999 (date of judicial demand) to June 30, 2013
B. July 1, 2013 to date when this Decision becomes final and executory
Wholesale Amount
₱120,000.00 A. 12 % per annumon the principal amount of
₱120,000.00
B. 6% per annumon the principal amount of ₱120,000.00 A. 12% per
annumon the total amount of column 2
B. 6% per annumon the total amount of column 235 ₱50,000.00
Total amount of Columns 1-4
The total amount owing to the Spouses Chua set forth in this Decision
shall further earn legal interest at the rate of 6% per annum computed
from its finality until full payment thereof, the interim period being
deemed to be a forbearance of credit.
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of
the Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner
Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta
Chua the following:
(1) the principal amount of ₱120,000.00;
(2) legal interest of 12% per annumof the principal amount of
₱120,000.00 reckoned from 1 January 1996 until 30 June 2013;
(3) legal interest of 6% per annumof the principal amount of ₱120,000.00
form 1 July 2013 to date when this Decision becomes final and executory;
(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11
June 1999, date of judicial demand, to 30 June 2013, as interest due
earning legal interest;
(5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from
1 July 2013 to date when this Decision becomes final and executor,
asinterest due earning legal interest;
(6) Attorney’s fees in the amount of ₱50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the
finality of this Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.
SO ORDERED.
JOSE PORTUGAL PEREZ
SECOND DIVISION
[G.R. No. 176868 : July 26, 2010]
SOLAR HARVEST, INC., PETITIONER, VS. DAVAO CORRUGATED CARTON
CORPORATION, RESPONDENT.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated
September 21, 2006 and Resolution[2] dated February 23, 2007, which
denied petitioner's motion for reconsideration. The assailed Decision
denied petitioner's claim for reimbursement for the amount it paid to
respondent for the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an
agreement with respondent, Davao Corrugated Carton Corporation, for
the purchase of corrugated carton boxes, specifically designed for
petitioner's business of exporting fresh bananas, at US$1.10 each. The
agreement was not reduced into writing. To get the production underway,
petitioner deposited, on March 31, 1998, US$40,150.00 in respondent's
US Dollar Savings Account with Westmont Bank, as full payment for the
ordered boxes.
Despite such payment, petitioner did not receive any boxes from
respondent. On January 3, 2001, petitioner wrote a demand letter for
reimbursement of the amount paid.[3] On February 19, 2001, respondent
replied that the boxes had been completed as early as April 3, 1998 and
that petitioner failed to pick them up from the former's warehouse 30
days from completion, as agreed upon. Respondent mentioned that
petitioner even placed an additional order of 24,000 boxes, out of which,
14,000 had been manufactured without any advanced payment from
petitioner. Respondent then demanded petitioner to remove the boxes
from the factory and to pay the balance of US$15,400.00 for the
additional boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and
damages against respondent. The Complaint averred that the parties
agreed that the boxes will be delivered within 30 days from payment but
respondent failed to manufacture and deliver the boxes within such time.
It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate
production of the ordered boxes, but every time, defendant [would] only
show samples of boxes and ma[k]e repeated promises to deliver the said
ordered boxes.
7. That because of the failure of the defendant to deliver the ordered
boxes, plaintiff ha[d] to cancel the same and demand payment and/or
refund from the defendant but the latter refused to pay and/or refund the
US$40,150.00 payment made by the former for the ordered boxes.[4]
In its Answer with Counterclaim,[5] respondent insisted that, as early as
April 3, 1998, it had already completed production of the 36,500 boxes,
contrary to petitioner's allegation. According to respondent, petitioner, in
fact, made an additional order of 24,000 boxes, out of which, 14,000 had
been completed without waiting for petitioner's payment. Respondent
stated that petitioner was to pick up the boxes at the factory as agreed
upon, but petitioner failed to do so. Respondent averred that, on October
8, 1998, petitioner's representative, Bobby Que (Que), went to the factory
and saw that the boxes were ready for pick up. On February 20, 1999,
Que visited the factory again and supposedly advised respondent to sell
the boxes as rejects to recoup the cost of the unpaid 14,000 boxes,
because petitioner's transaction to ship bananas to China did not
materialize. Respondent claimed that the boxes were occupying
warehouse space and that petitioner should be made to pay storage fee
at P60.00 per square meter for every month from April 1998. As
counterclaim, respondent prayed that judgment be rendered ordering
petitioner to pay $15,400.00, plus interest, moral and exemplary
damages, attorney's fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes
and that respondent already completed the initial order of 36,500 boxes
and 14,000 boxes out of the second order. It maintained that
respondent only manufactured a sample of the ordered boxes and that
respondent could not have produced 14,000 boxes without the required
pre-payments.[6]
During trial, petitioner presented Que as its sole witness. Que testified
that he ordered the boxes from respondent and deposited the money in
respondent's account.[7] He specifically stated that, when he visited
respondent's factory, he saw that the boxes had no print of petitioner's
logo.[8] A few months later, he followed-up the order and was told that
the company had full production, and thus, was promised that production
of the order would be rushed. He told respondent that it should indeed
rush production because the need for the boxes was urgent. Thereafter,
he asked his partner, Alfred Ong, to cancel the order because it was
already late for them to meet their commitment to ship the bananas to
China.[9] On cross-examination, Que further testified that China Zero
Food, the Chinese company that ordered the bananas, was sending a ship
to Davao to get the bananas, but since there were no cartons, the ship
could not proceed. He said that, at that time, bananas from Tagum
Agricultural Development Corporation (TADECO) were already there. He
denied that petitioner made an additional order of 24,000 boxes. He
explained that it took three years to refer the matter to counsel because
respondent promised to pay.[10]
For respondent, Bienvenido Estanislao (Estanislao) testified that he met
Que in Davao in October 1998 to inspect the boxes and that the latter
got samples of them. In February 2000, they inspected the boxes again
and Que got more samples. Estanislao said that petitioner did not pick up
the boxes because the ship did not arrive.[11] Jaime Tan (Tan),
president of respondent, also testified that his company finished
production of the 36,500 boxes on April 3, 1998 and that petitioner made
a second order of 24,000 boxes. He said that the agreement was for
respondent to produce the boxes and for petitioner to pick them up from
the warehouse.[12] He also said that the reason why petitioner did not
pick up the boxes was that the ship that was to carry the bananas did not
arrive.[13] According to him, during the last visit of Que and Estanislao,
he asked them to withdraw the boxes immediately because they were
occupying a big space in his plant, but they, instead, told him to sell the
cartons as rejects. He was able to sell 5,000 boxes at P20.00 each for a
total of P100,000.00. They then told him to apply the said amount to the
unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that
respondent did not commit any breach of faith that would justify
rescission of the contract and the consequent reimbursement of the
amount paid by petitioner. The RTC said that respondent was able to
produce the ordered boxes but petitioner failed to obtain possession
thereof because its ship did not arrive. It thus dismissed the complaint
and respondent's counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of defendant and against the plaintiff and, accordingly, plaintiff's
complaint is hereby ordered DISMISSED without pronouncement as to
cost. Defendant's counterclaims are similarly dismissed for lack of merit.
SO ORDERED.[14]
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of merit.[15]
The appellate court held that petitioner failed to discharge its burden of
proving what it claimed to be the parties' agreement with respect to the
delivery of the boxes. According to the CA, it was unthinkable that, over a
period of more than two years, petitioner did not even demand for the
delivery of the boxes. The CA added that even assuming that the
agreement was for respondent to deliver the boxes, respondent would not
be liable for breach of contract as petitioner had not yet demanded from it
the delivery of the boxes.[16]
Petitioner moved for reconsideration,[17] but the motion was denied by
the CA in its Resolution of February 23, 2007.[18]
In this petition, petitioner insists that respondent did not completely
manufacture the boxes and that it was respondent which was obliged to
deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the
grant of this petition.
Petitioner's claim for reimbursement is actually one for rescission (or
resolution) of contract under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art.
1191 should be taken in conjunction with Art. 1169 of the same law,
which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that
the fulfillment of the parties' respective obligations should be
simultaneous. Hence, no demand is generally necessary because, once a
party fulfills his obligation and the other party does not fulfill his, the latter
automatically incurs in delay. But when different dates for performance of
the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present
article,[19] that is, the other party would incur in delay only from the
moment the other party demands fulfillment of the former's obligation.
Thus, even in reciprocal obligations, if the period for the fulfillment of the
obligation is fixed, demand upon the obligee is still necessary before the
obligor can be considered in default and before a cause of action for
rescission will accrue.
Evident from the records and even from the allegations in the complaint
was the lack of demand by petitioner upon respondent to fulfill its
obligation to manufacture and deliver the boxes. The Complaint only
alleged that petitioner made a "follow-up" upon respondent, which,
however, would not qualify as a demand for the fulfillment of the
obligation. Petitioner's witness also testified that they made a follow-up of
the boxes, but not a demand. Note is taken of the fact that, with respect
to their claim for reimbursement, the Complaint alleged and the witness
testified that a demand letter was sent to respondent. Without a previous
demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not
yet be considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the
present case, petitioner's claim for reimbursement would still fail, as the
circumstances would show that respondent was not guilty of breach of
contract.
The existence of a breach of contract is a factual matter not usually
reviewed in a petition for review under Rule 45.[20] The Court, in
petitions for review, limits its inquiry only to questions of law. After all, it
is not a trier of facts, and findings of fact made by the trial court,
especially when reiterated by the CA, must be given great respect if not
considered as final.[21] In dealing with this petition, we will not veer
away from this doctrine and will thus sustain the factual findings of the
CA, which we find to be adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished
boxes and the production report thereof, there is ample showing that the
boxes had already been manufactured by respondent. There is the
testimony of Estanislao who accompanied Que to the factory, attesting
that, during their first visit to the company, they saw the pile of
petitioner's boxes and Que took samples thereof. Que, petitioner's
witness, himself confirmed this incident. He testified that Tan pointed the
boxes to him and that he got a sample and saw that it was blank. Que's
absolute assertion that the boxes were not manufactured is, therefore,
implausible and suspicious.
In fact, we note that respondent's counsel manifested in court, during
trial, that his client was willing to shoulder expenses for a representative
of the court to visit the plant and see the boxes.[22] Had it been true that
the boxes were not yet completed, respondent would not have been so
bold as to challenge the court to conduct an ocular inspection of their
warehouse. Even in its Comment to this petition, respondent prays that
petitioner be ordered to remove the boxes from its factory site,[23] which
could only mean that the boxes are, up to the present, still in
respondent's premises.
We also believe that the agreement between the parties was for petitioner
to pick up the boxes from respondent's warehouse, contrary to
petitioner's allegation. Thus, it was due to petitioner's fault that the boxes
were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for
respondent to deliver the boxes within 30 days from payment, as alleged
in the Complaint. Its sole witness, Que, was not even competent to testify
on the terms of the agreement and, therefore, we cannot give much
credence to his testimony. It appeared from the testimony of Que that he
did not personally place the order with Tan, thus:
Q.
No, my question is, you went to Davao City and placed your order there?
A.
I made a phone call.
Q.
You made a phone call to Mr. Tan?
A.
The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact
with Mr. Tan.
Q.
So, your first statement that you were the one who placed the order is not
true?
A.
That's true. The Solar Harvest made a contact with Mr. Tan and I
deposited the money in the bank.
Q.
You said a while ago [t]hat you were the one who called Mr. Tan and
placed the order for 36,500 boxes, isn't it?
A.
First time it was Mr. Alfred Ong.
Q.
It was Mr. Ong who placed the order[,] not you?
A.
Yes, sir.[24]
Q.
Is it not a fact that the cartons were ordered through Mr. Bienvenido
Estanislao?
A.
Yes, sir.[25]
Moreover, assuming that respondent was obliged to deliver the boxes, it
could not have complied with such obligation. Que, insisting that the
boxes had not been manufactured, admitted that he did not give
respondent the authority to deliver the boxes to TADECO:
Q.
Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A.
No, sir. As I have said, before the delivery, we must have to check the
carton, the quantity and quality. But I have not seen a single carton.
Q.
Are you trying to impress upon the [c]ourt that it is only after the boxes
are completed, will you give authority to Mr. Tan to deliver the boxes to
TADECO[?]
A.
Sir, because when I checked the plant, I have not seen any carton. I
asked Mr. Tan to rush the carton but not...[26]
Q.
Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
A.
Because I have not seen any of my carton.
Q.
You don't have any authority yet given to Mr. Tan?
A.
None, your Honor.[27]
Surely, without such authority, TADECO would not have allowed
respondent to deposit the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action
for rescission, the evidence having shown that respondent did not commit
any breach of its contractual obligation. As previously stated, the subject
boxes are still within respondent's premises. To put a rest to this dispute,
we therefore relieve respondent from the burden of having to keep the
boxes within its premises and, consequently, give it the right to dispose of
them, after petitioner is given a period of time within which to remove
them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of
Appeals Decision dated September 21, 2006 and Resolution dated
February 23, 2007 are AFFIRMED. In addition, petitioner is given a period
of 30 days from notice within which to cause the removal of the
36,500
boxes from respondent's warehouse. After the lapse of said period and
petitioner fails to effect such removal, respondent shall have the right to
dispose of the boxes in any manner it may deem fit.
SO ORDERED.
Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.
FIRST DIVISION
G.R. No. L-30056 August 30, 1988
MARCELO AGCAOILI, plaintiff-appellee
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.
Artemio L. Agcaoili for plaintiff-appellee.
Office of the Government Corporate Counsel for defendant-appellant.
NARVASA, J.:
The appellant Government Service Insurance System, (GSIS, for short)
having approved the application of the appellee Agcaoili for the purchase
of a house and lot in the GSIS Housing Project at Nangka Marikina, Rizal,
subject to the condition that the latter should forthwith occupy the house,
a condition that Agacoili tried to fulfill but could not for the reason that
the house was absolutely uninhabitable; Agcaoili, after paying the first
installment and other fees, having thereafter refused to make further
payment of other stipulated installments until GSIS had made the house
habitable; and appellant having refused to do so, opting instead to cancel
the award and demand the vacation by Agcaoili of the premises; and
Agcaoili having sued the GSIS in the Court of First Instance of Manila for
specific performance with damages and having obtained a favorable
judgment, the case was appealled to this Court by the GSIS. Its appeal
must fail.
The essential facts are not in dispute. Approval of Agcaoili's
aforementioned application for purchase 1 was contained in a letter 2
addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva
in behalf of the Chairman-General Manager, reading as follows:
Please be informed that your application to purchase a house and lot in
our GSIS Housing Project at Nangka, Marikina, Rizal, has been approved
by this Office. Lot No. 26, Block No. (48) 2, together with the housing unit
constructed thereon, has been allocated to you.
You are, therefore, advised to occupy the said house immediately.
If you fail to occupy the same within three (3) days from receipt of this
notice, your application shall be considered automatically disapproved and
the said house and lot will be awarded to another applicant.
Agcaoili lost no time in occupying the house. He could not stay in it,
however, and had to leave the very next day, because the house was
nothing more than a shell, in such a state of incompleteness that civilized
occupation was not possible: ceiling, stairs, double walling, lighting
facilities, water connection, bathroom, toilet kitchen, drainage, were
inexistent. Agcaoili did however ask a homeless friend, a certain
Villanueva, to stay in the premises as some sort of watchman, pending
completion of the construction of the house. Agcaoili thereafter
complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees.
Agcaoili paid the first monthly installment and the incidental fees, 3 but
refused to make further payments until and unless the GSIS completed
the housing unit. What the GSIS did was to cancel the award and require
Agcaoili to vacate the premises. 4 Agcaoili reacted by instituting suit in the
Court of First Instance of Manila for specific performance and damages. 5
Pending the action, a written protest was lodged by other awardees of
housing units in the same subdivision, regarding the failure of the System
to complete construction of their own houses. 6 Judgment was in due
course rendered ,7 on the basis of the evidence adduced by Agcaoili only,
the GSIS having opted to dispense with presentation of its own proofs.
The judgment was in Agcaoili's favor and contained the following
dispositions, 8 to wit:
1) Declaring the cancellation of the award (of a house and lot) in
favor of plaintiff (Mariano Agcaoili) illegal and void;
2) Ordering the defendant (GSIS) to respect and enforce the
aforesaid award to the plaintiff relative to Lot No. 26, Block No. (48) 2 of
the Government Service Insurance System (GSIS) low cost housing
project at Nangka Marikina, Rizal;
3) Ordering the defendant to complete the house in question so as
to make the same habitable and authorizing it (defendant) to collect the
monthly amortization thereon only after said house shall have been
completed under the terms and conditions mentioned in Exhibit A ;and
4) Ordering the defendant to pay P100.00 as damages and
P300.00 as and for attorney's fees, and costs.
Appellant GSIS would have this Court reverse this judgment on the
argument that—
1) Agcaoili had no right to suspend payment of amortizations on
account of the incompleteness of his housing unit, since said unit had
been sold "in the condition and state of completion then existing ... (and)
he is deemed to have accepted the same in the condition he found it
when he accepted the award;" and assuming indefiniteness of the
contract in this regard, such circumstance precludes a judgment for
specific performance. 9
2) Perfection of the contract of sale between it and Agcaoili being
conditioned upon the latter's immediate occupancy of the house subject
thereof, and the latter having failed to comply with the condition, no
contract ever came into existence between them ;10
3) Agcaoili's act of placing his homeless friend, Villanueva, in
possession, "without the prior or subsequent knowledge or consent of the
defendant (GSIS)" operated as a repudiation by Agcaoili of the award and
a deprivation of the GSIS at the same time of the reasonable rental value
of the property. 11
Agcaoili's offer to buy from GSIS was contained in a printed form drawn
up by the latter, entitled "Application to Purchase a House and/or Lot."
Agcaoili filled up the form, signed it, and submitted it.12 The acceptance
of the application was also set out in a form (mimeographed) also
prepared by the GSIS. As already mentioned, this form sent to Agcaoili,
duly filled up, advised him of the approval of his "application to purchase
a house and lot in our GSIS Housing Project at NANGKA, MARIKINA,
RIZAL," and that "Lot No. 26, Block No. (48) 2, together with the housing
unit constructed thereon, has been allocated to you." Neither the
application form nor the acceptance or approval form of the GSIS — nor
the notice to commence payment of a monthly amortizations, which again
refers to "the house and lot awarded" — contained any hint that the
house was incomplete, and was being sold "as is," i.e., in whatever state
of completion it might be at the time. On the other hand, the condition
explicitly imposed on Agcaoili — "to occupy the said house immediately,"
or in any case within three (3) days from notice, otherwise his "application
shall be considered automatically disapproved and the said house and lot
will be awarded to another applicant" — would imply that construction of
the house was more or less complete, and it was by reasonable
standards, habitable, and that indeed, the awardee should stay and live in
it; it could not be interpreted as meaning that the awardee would occupy
it in the sense of a pioneer or settler in a rude wilderness, making do with
whatever he found available in the envirornment.
There was then a perfected contract of sale between the parties; there
had been a meeting of the minds upon the purchase by Agcaoili of a
determinate house and lot in the GSIS Housing Project at Nangka
Marikina, Rizal at a definite price payable in amortizations at P31.56 per
month, and from that moment the parties acquired the right to
reciprocally demand performance. 13 It was, to be sure, the duty of the
GSIS, as seller, to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purpose contemplated ,14 in other words,
to deliver the house subject of the contract in a reasonably livable state.
This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it
under pain of cancellation of the sale. Under the circumstances there can
hardly be any doubt that the house contemplated was one that could be
occupied for purposes of residence in reasonable comfort and
convenience. There would be no sense to require the awardee to
immediately occupy and live in a shell of a house, a structure consisting
only of four walls with openings, and a roof, and to theorize, as the GSIS
does, that this was what was intended by the parties, since the contract
did not clearly impose upon it the obligation to deliver a habitable house,
is to advocate an absurdity, the creation of an unfair situation. By any
objective interpretation of its terms, the contract can only be understood
as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably
habitable dwelling in return for his undertaking to pay the stipulated price.
Since GSIS did not fulfill that obligation, and was not willing to put the
house in habitable state, it cannot invoke Agcaoili's suspension of
payment of amortizations as cause to cancel the contract between them.
It is axiomatic that "(i)n reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him."15
Nor may the GSIS succeed in justifying its cancellation of the award to
Agcaoili by the claim that the latter had not complied with the condition of
occupying the house within three (3) days. The record shows that Agcaoili
did try to fulfill the condition; he did try to occupy the house but found it
to be so uninhabitable that he had to leave it the following day. He did
however leave a friend in the structure, who being homeless and hence
willing to accept shelter even of the most rudimentary sort, agreed to stay
therein and look after it. Thus the argument that Agcaoili breached the
agreement by failing to occupy the house, and by allowing another person
to stay in it without the consent of the GSIS, must be rejected as devoid
of merit.
Finally, the GSIS should not be heard to say that the agreement between
it and Agcaoili is silent, or imprecise as to its exact prestation Blame for
the imprecision cannot be imputed to Agcaoili; it was after all the GSIS
which caused the contract to come into being by its written acceptance of
Agcaoili's offer to purchase, that offer being contained in a printed form
supplied by the GSIS. Said appellant having caused the ambiguity of
which it would now make capital, the question of interpretation arising
therefrom, should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring
that the contract between the parties had not been validly cancelled and
was therefore still in force, and that Agcaoili could not be compelled by
the GSIS to pay the stipulated price of the house and lot subject of the
contract until and unless it had first completed construction of the house.
This would leave the contract hanging or in suspended animation, as it
were, Agcaoili unwilling to pay unless the house were first completed, and
the GSIS averse to completing construction, which is precisely what has
been the state of affairs between the parties for more than twenty (20)
years now. On the other hand, assuming it to be feasible to still finish the
construction of the house at this time, to compel the GSIS to do so so that
Agcaoili's prestation to pay the price might in turn be demanded, without
modifying the price therefor, would not be quite fair. The cost to the GSIS
of completion of construction at present prices would make the stipulated
price disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction,
to the end that it may render complete justice to both parties.
As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83
SCRA 579, 589 [1978]). "(E)quity as the complement of legal jurisdiction
seeks to reach and do complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their judgments to
the special circumstances of cases, are incompetent so to do. Equity
regards the spirit of and not the letter, the intent and not the form, the
substance rather than the circumstance, as it is variously expressed by
different courts... " 16
In this case, the Court can not require specific performance of the
contract in question according to its literal terms, as this would result in
inequity. The prevailing rule is that in decreeing specific performance
equity requires 17 —
... not only that the contract be just and equitable in its provisions, but
that the consequences of specific performance likewise be equitable and
just. The general rule is that this equitable relief will not be granted if,
under the circumstances of the case, the result of the specific
enforcement of the contract would be harsh, inequitable, oppressive, or
result in an unconscionable advantage to the plaintiff . .
In the exercise of its equity jurisdiction, the Court may adjust the rights of
parties in accordance with the circumstances obtaining at the time of
rendition of judgment, when these are significantly different from those
existing at the time of generation of those rights.
The Court is not restricted to an adjustment of the rights of the parties as
they existed when suit was brought, but will give relief appropriate to
events occuring ending the suit. 18
While equitable jurisdiction is generally to be determined with reference to
the situation existing at the time the suit is filed, the relief to be accorded
by the decree is governed by the conditions which are shown to exist at
the time of making thereof, and not by the circumstances attending the
inception of the litigation. In making up the final decree in an equity suit
the judge may rightly consider matters arising after suit was brought.
Therefore, as a general rule, equity will administer such relief as the
nature, rights, facts and exigencies of the case demand at the close of the
trial or at the time of the making of the decree. 19
That adjustment is entirely consistent with the Civil Law principle that in
the exercise of rights a person must act with justice, give everyone his
due, and observe honesty and good faith. 20 Adjustment of rights has
been held to be particularly applicable when there has been a
depreciation of currency.
Depreciation of the currency or other medium of payment contracted for
has frequently been held to justify the court in withholding specific
performance or at least conditioning it upon payment of the actual value
of the property contracted for. Thus, in an action for the specific
performance of a real estate contract, it has been held that where the
currency in which the plaintiff had contracted to pay had greatly
depreciated before enforcement was sought, the relief would be denied
unless the complaint would undertake to pay the equitable value of the
land. (Willard & Tayloe [U.S.] 8 Wall 557,19 L. Ed 501; Doughdrill v.
Edwards, 59 Ala 424) 21
In determining the precise relief to give, the Court will "balance the
equities" or the respective interests of the parties, and take account of the
relative hardship that one relief or another may occasion to them .22
The completion of the unfinished house so that it may be put into
habitable condition, as one form of relief to the plaintiff Agcaoili, no longer
appears to be a feasible option in view of the not inconsiderable time that
has already elapsed. That would require an adjustment of the price of the
subject of the sale to conform to present prices of construction materials
and labor. It is more in keeping with the realities of the situation, and with
equitable norms, to simply require payment for the land on which the
house stands, and for the house itself, in its unfinished state, as of the
time of the contract. In fact, this is an alternative relief proposed by
Agcaoili himself, i.e., "that judgment issue . . (o)rdering the defendant
(GSIS) to execute a deed of sale that would embody and provide for a
reasonable amortization of payment on the basis of the present actual
unfinished and uncompleted condition, worth and value of the said house.
23
WHEREFORE, the judgment of the Court a quo insofar as it invalidates
and sets aside the cancellation by respondent GSIS of the award in favor
of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost
housing project at Nangka, Marikina, Rizal, and orders the former to
respect the aforesaid award and to pay damages in the amounts
specified, is AFFIRMED as being in accord with the facts and the law. Said
judgments is however modified by deleting the requirement for
respondent GSIS "to complete the house in question so as to make the
same habitable," and instead it is hereby ORDERED that the contract
between the parties relative to the property above described be modified
by adding to the cost of the land, as of the time of perfection of the
contract, the cost of the house in its unfinished state also as of the time of
perfection of the contract, and correspondingly adjusting the
amortizations to be paid by petitioner Agcaoili, the modification to be
effected after determination by the Court a quo of the value of said house
on the basis of the agreement of the parties, or if this is not possible by
such commissioner or commissioners as the Court may appoint. No
pronouncement as to costs.
SO ORDERED.
EN BANC
G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of
the trial court dated February 20, 1958, awarding to the plaintiffs-
appellees the amount of $286,000.00 as damages for breach of contract
and dismissing the counterclaim and third party complaint of the
defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National
Rice and Corn Administration (NARIC) is hereby abolished and all its
assets, liabilities, functions, powers which are not inconsistent with the
provisions of this Act, and all personnel are transferred "to the Rice and
Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly
be adjusted and read as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding
called by the NARIC for the supply of 20,000 metric tons of Burmese rice.
As her bid of $203.00 per metric ton was the lowest, she was awarded
the contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee
Paz P. Arrieta and the appellant corporation entered into a Contract of
Sale of Rice, under the terms of which the former obligated herself to
deliver to the latter 20,000 metric tons of Burmess Rice at $203.00 per
metric ton, CIF Manila. In turn, the defendant corporation committed itself
to pay for the imported rice "by means of an irrevocable, confirmed and
assignable letter of credit in U.S. currency in favor of the plaintiff-appellee
and/or supplier in Burma, immediately." Despite the commitment to pay
immediately "by means of an irrevocable, confirmed and assignable Letter
of Credit," however, it was only on July 30, 1952, or a full month from the
execution of the contract, that the defendant corporation, thru its general
manager, took the first to open a letter of credit by forwarding to the
Philippine National Bank its Application for Commercial Letter Credit. The
application was accompanied by a transmittal letter, the relevant
paragraphs of which read:
In view of the fact that we do not have sufficient deposit with your
institution with which to cover the amount required to be deposited as a
condition for the opening of letters of credit, we will appreciate it if this
application could be considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to
meet which is August 4, 1952, and in order to comply therewith, it is
imperative that the L/C be opened prior to that date. We would therefore
request your full cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised
the appellant corporation of the extreme necessity for the immediate
opening of the letter credit since she had by then made a tender to her
supplier in Rangoon, Burma, "equivalent to 5% of the F.O.B. price of
20,000 tons at $180.70 and in compliance with the regulations in Rangoon
this 5% will be confiscated if the required letter of credit is not received
by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant
corporation that its application, "for a letter of credit for $3,614,000.00 in
favor of Thiri Setkya has been approved by the Board of Directors with
the condition that marginal cash deposit be paid and that drafts are to be
paid upon presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of
Exhibits). Furthermore, the Bank represented that it "will hold your
application in abeyance pending compliance with the above stated
requirement."
As it turned out, however, the appellant corporation not in any financial
position to meet the condition. As matter of fact, in a letter dated August
2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this
connection, please be advised that our application for opening of the
letter of credit has been presented to the bank since July 30th but the
latter requires that we first deposit 50% of the value of the letter
amounting to aproximately $3,614,000.00 which we are not in a position
to meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of
Exhibits)
Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or
assignee for $3,614,000.00," (which is more than two months from the
execution of the contract) the party named by the appellee as beneficiary
of the letter of credit.1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in Rangoon
was cancelled and the 5% deposit, amounting to 524,000 kyats or
approximately P200,000.00 was forfeited. In this connection, it must be
made of record that although the Burmese authorities had set August 4,
1952, as the deadline for the remittance of the required letter of credit,
the cancellation of the allocation and the confiscation of the 5% deposit
were not effected until August 20, 1952, or, a full half month after the
expiration of the deadline. And yet, even with the 15-day grace, appellant
corporation was unable to make good its commitment to open the
disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice
allocation. When the futility of reinstating the same became apparent, she
offered to substitute Thailand rice instead to the defendant NARIC,
communicating at the same time that the offer was "a solution which
should be beneficial to the NARIC and to us at the same time." (Exh. X-
Pe., Exh. 25—Def., p. 38, Folder of Exhibits). This offer for substitution,
however, was rejected by the appellant in a resolution dated November
15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding
compensation for the damages caused her in the sum of $286,000.00,
U.S. currency, representing unrealized profit. The demand having been
rejected she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila
Underwriters Insurance Company was brought to the suit as a third party
defendant to hold it liable on the performance bond it executed in favor of
the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by the appellee herein in
Rangoon, Burma, was the failure of the letter of credit to be opened with
the contemplated period. This failure must, therefore, be taken as the
immediate cause for the consequent damage which resulted. As it is then,
the disposition of this case depends on a determination of who was
responsible for such failure. Stated differently, the issue is whether
appellant's failure to open immediately the letter of credit in dispute
amounted to a breach of the contract of July 1, 1952 for which it may be
held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening
of the letter of credit. On the contrary, it insists that the fault lies with the
appellee. Appellant contends that the disputed negotiable instrument was
not promptly secured because the appellee , failed to seasonably furnish
data necessary and required for opening the same, namely, "(1) the
amount of the letter of credit, (2) the person, company or corporation in
whose favor it is to be opened, and (3) the place and bank where it may
be negotiated." Appellant would have this Court believe, therefore, that
had these informations been forthwith furnished it, there would have been
no delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the
explanation reaches into an area of the proceedings into which We are
not at liberty to encroach. The explanation refers to a question of fact.
Nothing in the record suggests any arbitrary or abusive conduct on the
part of the trial judge in the formulation of the ruling. His conclusion on
the matter is sufficiently borne out by the evidence presented. We are
denied, therefore, the prerogative to disturb that finding, consonant to the
time-honored tradition of this Tribunal to hold trial judges better situated
to make conclusions on questions of fact. For the record, We quote
hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due
to the failure of plaintiff to name the supplier, the amount and the bank is
not tenable. Plaintiff stated in Court that these facts were known to
defendant even before the contract was executed because these facts
were necessarily revealed to the defendant before she could qualify as a
bidder. She stated too that she had given the necessary data immediately
after the execution of Exh. "A" (the contract of July 1, 1952) to Mr.
GABRIEL BELMONTE, General Manager of the NARIC, both orally and in
writing and that she also pressed for the opening of the letter of credit on
these occasions. These statements have not been controverted and
defendant NARIC, notwithstanding its previous intention to do so, failed to
present Mr. Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part
of the record of this case, it is clear that what singularly delayed the
opening of the stipulated letter of credit and which, in turn, caused the
cancellation of the allocation in Burma, was the inability of the appellant
corporation to meet the condition importation by the Bank for granting
the same. We do not think the appellant corporation can refute the fact
that had it been able to put up the 50% marginal cash deposit demanded
by the bank, then the letter of credit would have been approved, opened
and released as early as August 4, 1952. The letter of the Philippine
National Bank to the NARIC was plain and explicit that as of the said date,
appellant's "application for a letter of credit ... has been approved by the
Board of Directors with the condition that 50% marginal cash deposit be
paid and that drafts are to be paid upon presentment." (Emphasis
supplied)
The liability of the appellant, however, stems not alone from this failure or
inability to satisfy the requirements of the bank. Its culpability arises from
its willful and deliberate assumption of contractual obligations even as it
was well aware of its financial incapacity to undertake the prestation. We
base this judgment upon the letter which accompanied the application
filed by the appellant with the bank, a part of which letter was quoted
earlier in this decision. In the said accompanying correspondence,
appellant admitted and owned that it did "not have sufficient deposit with
your institution (the PNB) with which to cover the amount required to be
deposited as a condition for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned
admission. First, that the appellant knew the bank requirements for
opening letters of credit; second, that appellant also knew it could not
meet those requirement. When, therefore, despite this awareness that
was financially incompetent to open a letter of credit immediately,
appellant agreed in paragraph 8 of the contract to pay immediately "by
means of an irrevocable, confirm and assignable letter of credit," it must
be similarly held to have bound itself to answer for all and every
consequences that would result from the representation. aptly observed
by the trial court:
... Having called for bids for the importation of rice involving millions,
$4,260,000.00 to be exact, it should have a certained its ability and
capacity to comply with the inevitably requirements in cash to pay for
such importation. Having announced the bid, it must be deemed to have
impliedly assured suppliers of its capacity and facility to finance the
importation within the required period, especially since it had imposed the
supplier the 90-day period within which the shipment of the rice must be
brought into the Philippines. Having entered in the contract, it should
have taken steps immediately to arrange for the letter of credit for the
large amount involved and inquired into the possibility of its issuance.
In relation to the aforequoted observation of the trial court, We would like
to make reference also to Article 11 of the Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or
default in the performance of obligations a decreed liable; in general,
every debtor who fails in performance of his obligations is bound to
indemnify for the losses and damages caused thereby (De la Cruz
Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21
Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez,
46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil.
459; Acme Films v. Theaters Supply, 63 Phil. 657). The phrase "any
manner contravene the tenor" of the obligation includes any illicit act
which impairs the strict and faithful fulfillment of the obligation or every
kind or defective performance. (IV Tolentino, Civil Code of the Philippines,
citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to
substitute Thailand rice for the originally contracted Burmese rice
amounted to a waiver by the appellee of whatever rights she might have
derived from the breach of the contract. We disagree. Waivers are not
presumed, but must be clearly and convincingly shown, either by express
stipulation or acts admitting no other reasonable explanation. (Ramirez v.
Court of Appeals, 52 O.G. 779.) In the case at bar, no such intent to
waive has been established.
We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court based its
award. Under the contract, the NARIC bound itself to buy 20,000 metric
tons of Burmese rice at "$203.00 U.S. Dollars per metric ton, all net
shipped weight, and all in U.S. currency, C.I.F. Manila ..." On the other
hand, documentary and other evidence establish with equal certainty that
the plaintiff-appellee was able to secure the contracted commodity at the
cost price of $180.70 per metric ton from her supplier in Burma.
Considering freights, insurance and charges incident to its shipment here
and the forfeiture of the 5% deposit, the award granted by the lower
court is fair and equitable. For a clearer view of the equity of the damages
awarded, We reproduce below the testimony of the appellee, adequately
supported by the evidence and record:
Q. Will you please tell the court, how much is the damage you suffered?
A. Because the selling price of my rice is $203.00 per metric ton, and the
cost price of my rice is $180.00 We had to pay also $6.25 for shipping and
about $164 for insurance. So adding the cost of the rice, the freight, the
insurance, the total would be about $187.99 that would be $15.01 gross
profit per metric ton, multiply by 20,000 equals $300,200, that is my
supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of the
actual figures involved in the transaction. A precise and more exact
demonstration of the equity of the award herein is provided by Exhibit HH
of the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far
as germane.
It is equally of record now that as shown in her request dated July 29,
1959, and other communications subsequent thereto for the opening by
your corporation of the required letter of credit, Mrs. Arrieta was
supposed to pay her supplier in Burma at the rate of One Hundred Eighty
Dollars and Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight
Dollars ($8.00) in the same currency per ton for shipping and other
handling expenses, so that she is already assured of a net profit of
Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency, per ton or a
total of Two Hundred and Eighty Six Thousand Dollars ($286,000.00),
U.S. Currency, in the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered,
likewise by way of unrealized profit damages in the total sum of
$406,000.00 from the failure of the projected contract to materialize. This
counterclaim was supported by a cost study made and submitted by the
appellant itself and wherein it was illustrated how indeed had the
importation pushed thru, NARIC would have realized in profit the amount
asserted in the counterclaim. And yet, the said amount of P406,000.00
was realizable by appellant despite a number of expenses which the
appellee under the contract, did not have to incur. Thus, under the cost
study submitted by the appellant, banking and unloading charges were to
be shouldered by it, including an Import License Fee of 2% and
superintendence fee of $0.25 per metric ton. If the NARIC stood to profit
over P400 000.00 from the disputed transaction inspite of the extra
expenditures from which the herein appellee was exempt, we are
convicted of the fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in the
dispositive portion of the decision appeal from insofar as it expresses the
amount of damages in U.S. currency and not in Philippine Peso. Republic
Act 529 specifically requires the discharge of obligations only "in any coin
or currency which at the time of payment is legal tender for public and
private debts." In view of that law, therefore, the award should be
converted into and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in
the conversion here decreed. Should it be at the time of the breach, at
the time the obligation was incurred or at the rate of exchange prevailing
on the promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an
action for recovery of damages for breach of contract, even if the
obligation assumed by the defendant was to pay the plaintiff a sum of
money expressed in American currency, the indemnity to be allowed
should be expressed in Philippine currency at the rate of exchange at the
time of the judgment rather than at the rate of exchange prevailing on
the date of defendant's breach. This ruling, however, can neither be
applied nor extended to the case at bar for the same was laid down when
there was no law against stipulating foreign currencies in Philippine
contracts. But now we have Republic Act No. 529 which expressly
declares such stipulations as contrary to public policy, void and of no
effect. And, as We already pronounced in the case of Eastboard
Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September
10, 1957, if there is any agreement to pay an obligation in a currency
other than Philippine legal tender, the same is null and void as contrary to
public policy (Republic Act 529), and the most that could be demanded is
to pay said obligation in Philippine currency "to be measured in the
prevailing rate of exchange at the time the obligation was incurred (Sec.
1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby
affirmed, with the sole modification that the award should be converted
into the Philippine peso at the rate of exchange prevailing at the time the
obligation was incurred or on July 1, 1952 when the contract was
executed. The appellee insurance company, in the light of this judgment,
is relieved of any liability under this suit. No pronouncement as to costs.
THIRD DIVISION
G.R. No. 159617 August 8, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam,
Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner
corporation) seeking to annul the Decision1 of the Court of Appeals dated
March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV
No. 56633.
It appears that on different dates from September to October 1987, Lulu
V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia
de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque,
Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop vault.
The incident was entered in the police blotter of the Southern Police
District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside the
office, two (2) male unidentified persons entered into the said office with
guns drawn. Suspects(sic) (1) went straight inside and poked his gun
toward Romeo Sicam and thereby tied him with an electric wire while
suspects (sic) (2) poked his gun toward Divina Mata and Isabelita
Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects
asked forcibly the case and assorted pawned jewelries items mentioned
above.
Suspects after taking the money and jewelries fled on board a Marson
Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987
informing her of the loss of her jewelry due to the robbery incident in the
pawnshop. On November 2, 1987, respondent Lulu then wrote a letter4 to
petitioner Sicam expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East Bank near the
pawnshop since it had been the practice that before they could withdraw,
advance notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested petitioner Sicam
to prepare the pawned jewelry for withdrawal on November 6, 1987 but
petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar
Jorge, filed a complaint against petitioner Sicam with the Regional Trial
Court of Makati seeking indemnification for the loss of pawned jewelry
and payment of actual, moral and exemplary damages as well as
attorney's fees. The case was docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-
in-interest as the pawnshop was incorporated on April 20, 1987 and
known as Agencia de R.C. Sicam, Inc; that petitioner corporation had
exercised due care and diligence in the safekeeping of the articles pledged
with it and could not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include
petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is
concerned considering that he is not the real party-in-interest.
Respondents opposed the same. The RTC denied the motion in an Order
dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January 12,
1993, dismissing respondents’ complaint as well as petitioners’
counterclaim. The RTC held that petitioner Sicam could not be made
personally liable for a claim arising out of a corporate transaction; that in
the Amended Complaint of respondents, they asserted that "plaintiff
pawned assorted jewelries in defendants' pawnshop"; and that as a
consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable
for the loss of the pawned jewelry since it had not been rebutted by
respondents that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim from liability for
the loss, citing the case of Austria v. Court of Appeals;7 and that the
parties’ transaction was that of a pledgor and pledgee and under Art.
1174 of the Civil Code, the pawnshop as a pledgee is not responsible for
those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated
March 31, 2003, the CA reversed the RTC, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and
the Decision dated January 12, 1993,of the Regional Trial Court of Makati,
Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to
pay appellants the actual value of the lost jewelry amounting to
P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the
CA applied the doctrine of piercing the veil of corporate entity reasoning
that respondents were misled into thinking that they were dealing with
the pawnshop owned by petitioner Sicam as all the pawnshop tickets
issued to them bear the words "Agencia de R.C. Sicam"; and that there
was no indication on the pawnshop tickets that it was the petitioner
corporation that owned the pawnshop which explained why respondents
had to amend their complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a
pawnshop is that it should take steps to secure and protect the pledged
items and should take steps to insure itself against the loss of articles
which are entrusted to its custody as it derives earnings from the
pawnshop trade which petitioners failed to do; that Austria is not
applicable to this case since the robbery incident happened in 1961 when
the criminality had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory negligence and should be
held liable for the loss of jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop business are
expected to foresee.
The CA concluded that both petitioners should be jointly and severally
held liable to respondents for the loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution dated
August 8, 2003.
Hence, the instant petition for review with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF
TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF
TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS
OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING
MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s finding
that petitioner Sicam is personally liable for the loss of the pawned
jewelries is "a virtual and uncritical reproduction of the arguments set out
on pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents in their
Appellants’ Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended
Complaint that Agencia de R.C. Sicam, Inc. is the present owner of
Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule
against said conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those
raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have
pierced the corporate veil since a corporation has a personality distinct
and separate from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their
negligence is likewise an unedited reproduction of respondents’ brief
which had the following defects:
(1) There were unrebutted evidence on record that petitioners had
observed the diligence required of them, i.e, they wanted to open a vault
with a nearby bank for purposes of safekeeping the pawned articles but
was discouraged by the Central Bank (CB) since CB rules provide that they
can only store the pawned articles in a vault inside the pawnshop
premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance
against the loss of the pledged jelweries, but it is judicial notice that due
to high incidence of crimes, insurance companies refused to cover
pawnshops and banks because of high probability of losses due to
robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-
46), the victim of robbery was exonerated from liability for the sum of
money belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto.
The parties subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents’ (appellants’) brief
filed with the CA, we find the same to be not fatally infirmed. Upon
examination of the Decision, we find that it expressed clearly and
distinctly the facts and the law on which it is based as required by Section
8, Article VIII of the Constitution. The discretion to decide a case one way
or another is broad enough to justify the adoption of the arguments put
forth by one of the parties, as long as these are legally tenable and
supported by law and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the
review of errors of law committed by the appellate court. Generally, the
findings of fact of the appellate court are deemed conclusive and we are
not duty-bound to analyze and calibrate all over again the evidence
adduced by the parties in the court a quo.12 This rule, however, is not
without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory13 as is
obtaining in the instant case.
However, after a careful examination of the records, we find no
justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged
petitioner Sicam liable together with petitioner corporation. The rule is
that the veil of corporate fiction may be pierced when made as a shield to
perpetrate fraud and/or confuse legitimate issues. 14 The theory of
corporate entity was not meant to promote unfair objectives or otherwise
to shield them.15
Notably, the evidence on record shows that at the time respondent Lulu
pawned her jewelry, the pawnshop was owned by petitioner Sicam
himself. As correctly observed by the CA, in all the pawnshop receipts
issued to respondent Lulu in September 1987, all bear the words "Agencia
de R. C. Sicam," notwithstanding that the pawnshop was allegedly
incorporated in April 1987. The receipts issued after such alleged
incorporation were still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the wrong impression
to respondents and the public as well, that the pawnshop was owned
solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter16 dated
October 15, 1987 addressed to the Central Bank, expressly referred to
petitioner Sicam as the proprietor of the pawnshop notwithstanding the
alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had
alleged in their Amended Complaint that petitioner corporation is the
present owner of the pawnshop, the CA is bound to decide the case on
that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission,
verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no
such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the
party making it and does not require proof, admits of two exceptions, to
wit: (1) when it is shown that such admission was made through palpable
mistake, and (2) when it is shown that no such admission was in fact
made. The latter exception allows one to contradict an admission by
denying that he made such an admission.17
The Committee on the Revision of the Rules of Court explained the
second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the
admission "out of context," then the one making the "admission" may
show that he made no "such" admission, or that his admission was taken
out of context.

x x x that the party can also show that he made no "such admission", i.e.,
not in the sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states
that the admission may be contradicted by showing that "no admission
was made," the rule would not really be providing for a contradiction of
the admission but just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that
petitioner corporation is the present owner of the pawnshop, they did so
only because petitioner Sicam alleged in his Answer to the original
complaint filed against him that he was not the real party-in-interest as
the pawnshop was incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety shows that respondents referred to
both petitioner Sicam and petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed to both the failure to
observe due diligence commensurate with the business which resulted in
the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion to
Dismiss Amended Complaint, insofar as petitioner Sicam is concerned,
averred as follows:
Roberto C. Sicam was named the defendant in the original complaint
because the pawnshop tickets involved in this case did not show that the
R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the Complaint. He merely
added "that defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in
the subject transactions in this case which was the cause of the instant
action. He cannot now ask for the dismissal of the complaint against him
simply on the mere allegation that his pawnshop business is now
incorporated. It is a matter of defense, the merit of which can only be
reached after consideration of the evidence to be presented in due
course.19
Unmistakably, the alleged admission made in respondents' Amended
Complaint was taken "out of context" by petitioner Sicam to suit his own
purpose. Ineluctably, the fact that petitioner Sicam continued to issue
pawnshop receipts under his name and not under the corporation's name
militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in
piercing the veil of corporate fiction of petitioner corporation, as it was not
an issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he
was not the real party-in-interest because since April 20, 1987, the
pawnshop business initiated by him was incorporated and known as
Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he
submitted that as far as he was concerned, the basic issue was whether
he is the real party in interest against whom the complaint should be
directed.20 In fact, he subsequently moved for the dismissal of the
complaint as to him but was not favorably acted upon by the trial court.
Moreover, the issue was squarely passed upon, although erroneously, by
the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he
is concerned for the reason that he cannot be made personally liable for a
claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr.
The amended complaint itself asserts that "plaintiff pawned assorted
jewelries in defendant's pawnshop." It has been held that " as a
consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholder's debt or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of
whether petitioner Sicam is personally liable is inextricably connected with
the determination of the question whether the doctrine of piercing the
corporate veil should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the
pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event
and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a)
the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that constitutes the
caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c)
the occurrence must be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and, (d) the obligor must be free
from any participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on
him who invokes it.24 And, in order for a fortuitous event to exempt one
from liability, it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person
who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with
an act of God in producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the damage or injury
was a fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person's participation -- whether
by active intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he
started the pawnshop business in 1983, he thought of opening a vault
with the nearby bank for the purpose of safekeeping the valuables but
was discouraged by the Central Bank since pawned articles should only be
stored in a vault inside the pawnshop. The very measures which
petitioners had allegedly adopted show that to them the possibility of
robbery was not only foreseeable, but actually foreseen and anticipated.
Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of
fortuitous event.
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. In
Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully and
forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere forceful taking
of another's property. It must be proved and established that the event
was an act of God or was done solely by third parties and that neither the
claimant nor the person alleged to be negligent has any participation. In
accordance with the Rules of Evidence, the burden of proving that the
loss was due to a fortuitous event rests on him who invokes it — which in
this case is the private respondent. However, other than the police report
of the alleged carnapping incident, no other evidence was presented by
private respondent to the effect that the incident was not due to its fault.
A police report of an alleged crime, to which only private respondent is
privy, does not suffice to establish the carnapping. Neither does it prove
that there was no fault on the part of private respondent notwithstanding
the parties' agreement at the pre-trial that the car was carnapped.
Carnapping does not foreclose the possibility of fault or negligence on the
part of private respondent.28
Just like in Co, petitioners merely presented the police report of the
Parañaque Police Station on the robbery committed based on the report
of petitioners' employees which is not sufficient to establish robbery. Such
report also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in
finding that petitioners are guilty of concurrent or contributory negligence
as provided in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and
other establishments which are engaged in making loans secured by
pledges, the special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge, mortgage and
antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code,
provides that the creditor shall take care of the thing pledged with the
diligence of a good father of a family. This means that petitioners must
take care of the pawns the way a prudent person would as to his own
property.
In this connection, Article 1173 of the Civil Code further 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 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.
We expounded in Cruz v. Gangan30 that 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 not do.31 It is
want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would have
used in the same situation. Petitioners were guilty of negligence in the
operation of their pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact
that there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock
in the afternoon and it happened on a Saturday and everything was quiet
in the area BF Homes Parañaque they pretended to pawn an article in the
pawnshop, so one of my employees allowed him to come in and it was
only when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is
partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the
reason why the robbers were able to get all the items pawned to you
inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in
the operation of the pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the pawnshop from
unlawful intrusion. There was no clear showing that there was any
security guard at all. Or if there was one, that he had sufficient training in
securing a pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were allowed to enter
the premises. In fact, it is even doubtful that there was a security guard,
since it is quite impossible that he would not have noticed that the
robbers were armed with caliber .45 pistols each, which were allegedly
poked at the employees.33 Significantly, the alleged security guard was
not presented at all to corroborate petitioner Sicam's claim; not one of
petitioners' employees who were present during the robbery incident
testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the
time of robbery is clearly a proof of petitioners' failure to observe the
care, precaution and vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was open, the
combination was already off. Considering petitioner Sicam's testimony that
the robbery took place on a Saturday afternoon and the area in BF Homes
Parañaque at that time was quiet, there was more reason for petitioners
to have exercised reasonable foresight and diligence in protecting the
pawned jewelries. Instead of taking the precaution to protect them, they
let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.
We, however, do not agree with the CA when it found petitioners
negligent for not taking steps to insure themselves against loss of the
pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations
for Pawnshops, which took effect on July 13, 1973, and which was issued
pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is
provided that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of
a pawnshop and the pawns pledged to it must be insured against fire and
against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764
which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office
building/premises and pawns of a pawnshop must be insured against fire.
(emphasis supplied).
where the requirement that insurance against burglary was deleted.
Obviously, the Central Bank considered it not feasible to require insurance
of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the
above-quoted amendment, there is no statutory duty imposed on
petitioners to insure the pawned jewelry in which case it was error for the
CA to consider it as a factor in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed
to exercise the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he is
placed and the importance of the act which he is to perform.34 Thus, the
cases of Austria v. Court of Appeals,35 Hernandez v. Chairman,
Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their
pleadings, where the victims of robbery were exonerated from liability,
find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with
diamonds to be sold on commission basis, but which Abad failed to
subsequently return because of a robbery committed upon her in 1961.
The incident became the subject of a criminal case filed against several
persons. Austria filed an action against Abad and her husband (Abads) for
recovery of the pendant or its value, but the Abads set up the defense
that the robbery extinguished their obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if committed, that Maria
Abad was guilty of negligence. The CA, however, reversed the RTC
decision holding that the fact of robbery was duly established and
declared the Abads not responsible for the loss of the jewelry on account
of a fortuitous event. We held that for the Abads to be relieved from the
civil liability of returning the pendant under Art. 1174 of the Civil Code, it
would only be sufficient that the unforeseen event, the robbery, took
place without any concurrent fault on the debtor’s part, and this can be
done by preponderance of evidence; that to be free from liability for
reason of fortuitous event, the debtor must, in addition to the casus itself,
be free of any concurrent or contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at the time
the Decision was promulgated in 1971, the City of Manila and its suburbs
had a high incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously avoided without
suitable precaution and protection; that the conduct of Maria Abad in
returning alone to her house in the evening carrying jewelry of
considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did not
hold Abad liable for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached the level of
incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was
already prevalent and petitioners in fact had already foreseen it as they
wanted to deposit the pawn with a nearby bank for safekeeping.
Moreover, unlike in Austria, where no negligence was committed, we
found petitioners negligent in securing their pawnshop as earlier
discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing
officer of the Ternate Beach Project of the Philippine Tourism in Cavite. In
the morning of July 1, 1983, a Friday, he went to Manila to encash two
checks covering the wages of the employees and the operating expenses
of the project. However for some reason, the processing of the check was
delayed and was completed at about 3 p.m. Nevertheless, he decided to
encash the check because the project employees would be waiting for
their pay the following day; otherwise, the workers would have to wait
until July 5, the earliest time, when the main office would open. At that
time, he had two choices: (1) return to Ternate, Cavite that same
afternoon and arrive early evening; or (2) take the money with him to his
house in Marilao, Bulacan, spend the night there, and leave for Ternate
the following day. He chose the second option, thinking it was the safer
one. Thus, a little past 3 p.m., he took a passenger jeep bound for
Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep
was held up and the money kept by Hernandez was taken, and the
robbers jumped out of the jeep and ran. Hernandez chased the robbers
and caught up with one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who held the stolen money
escaped. The Commission on Audit found Hernandez negligent because
he had not brought the cash proceeds of the checks to his office in
Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding
to encash the check and bringing it home to Marilao, Bulacan instead of
Ternate, Cavite due to the lateness of the hour for the following reasons:
(1) he was moved by unselfish motive for his co-employees to collect their
wages and salaries the following day, a Saturday, a non-working, because
to encash the check on July 5, the next working day after July 1, would
have caused discomfort to laborers who were dependent on their wages
for sustenance; and (2) that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the trips to the two
places, said decision seemed logical at that time. We further held that the
fact that two robbers attacked him in broad daylight in the jeep while it
was on a busy highway and in the presence of other passengers could not
be said to be a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the
robbery in this case took place in the pawnshop which is under the control
of petitioners. Petitioners had the means to screen the persons who were
allowed entrance to the premises and to protect itself from unlawful
intrusion. Petitioners had failed to exercise precautionary measures in
ensuring that the robbers were prevented from entering the pawnshop
and for keeping the vault open for the day, which paved the way for the
robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological
Education and Skills Development Authority (TESDA), boarded the Light
Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her
handbag was slashed and the contents were stolen by an unidentified
person. Among those stolen were her wallet and the government-issued
cellular phone. She then reported the incident to the police authorities;
however, the thief was not located, and the cellphone was not recovered.
She also reported the loss to the Regional Director of TESDA, and she
requested that she be freed from accountability for the cellphone. The
Resident Auditor denied her request on the ground that she lacked the
diligence required in the custody of government property and was ordered
to pay the purchase value in the total amount of P4,238.00. The COA
found no sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that riding the LRT
cannot per se be denounced as a negligent act more so because Cruz’s
mode of transit was influenced by time and money considerations; that
she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm
meeting; that any prudent and rational person under similar circumstance
can reasonably be expected to do the same; that possession of a
cellphone should not hinder one from boarding the LRT coach as Cruz did
considering that whether she rode a jeep or bus, the risk of theft would
have also been present; that because of her relatively low position and
pay, she was not expected to have her own vehicle or to ride a taxicab;
she did not have a government assigned vehicle; that placing the
cellphone in a bag away from covetous eyes and holding on to that bag as
she did is ordinarily sufficient care of a cellphone while traveling on board
the LRT; that the records did not show any specific act of negligence on
her part and negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners'
pawnshop and they were negligent in not exercising the precautions justly
demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court
of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003,
are AFFIRMED.
Costs against petitioners.
SO ORDERED.
THIRD DIVISION
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION,
INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER CORPORATION,
respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of the
respondent Court of Appeals which adjudged the National Power
Corporation liable for damages against Engineering Construction, Inc. The
appellate court, however, reduced the amount of damages awarded by
the trial court. Hence, both parties filed their respective petitions: the
National Power Corporation (NPC) in G.R. No. 47379, questioning the
decision of the Court of Appeals for holding it liable for damages and the
Engineering Construction, Inc. (ECI) in G.R. No. 47481, questioning the
same decision for reducing the consequential damages and attorney's fees
and for eliminating the exemplary damages.
The facts are succinctly summarized by the respondent Court of Appeals,
as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a
successful bidder, executed a contract in Manila with the National
Waterworks and Sewerage Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, equipment, and materials (not
furnished by Owner), and to construct the proposed 2nd lpo-Bicti Tunnel,
Intake and Outlet Structures, and Appurtenant Structures, and
Appurtenant Features, at Norzagaray, Bulacan, and to complete said
works within eight hundred (800) calendar days from the date the
Contractor receives the formal notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase comprising, the
tunnel work covering a distance of seven (7) kilometers, passing through
the mountain, from the Ipo river, a part of Norzagaray, Bulacan, where
the Ipo Dam of the defendant National Power Corporation is located, to
Bicti; the other phase consisting of the outworks at both ends of the
tunnel.
By September 1967, the plaintiff corporation already had completed the
first major phase of the work, namely, the tunnel excavation work. Some
portions of the outworks at the Bicti site were still under construction. As
soon as the plaintiff corporation had finished the tunnel excavation work
at the Bicti site, all the equipment no longer needed there were
transferred to the Ipo site where some projects were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit
Central Luzon, passing through defendant's Angat Hydro-electric Project
and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project
area, and heavy rains intermittently fell. Due to the heavy downpour, the
water in the reservoir of the Angat Dam was rising perilously at the rate of
sixty (60) centimeters per hour. To prevent an overflow of water from the
dam, since the water level had reached the danger height of 212 meters
above sea level, the defendant corporation caused the opening of the
spillway gates." (pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the
evidence preponlderantly established the fact that due to the negligent
manner with which the spillway gates of the Angat Dam were opened, an
extraordinary large volume of water rushed out of the gates, and hit the
installations and construction works of ECI at the lpo site with terrific
impact, as a result of which the latter's stockpile of materials and supplies,
camp facilities and permanent structures and accessories either washed
away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the appellant
exercised extraordinary care in the opening of the spillway gates of the
Angat Dam. Maintainers of the dam knew very well that it was far more
safe to open them gradually. But the spillway gates were opened only
when typhoon Welming was already at its height, in a vain effort to race
against time and prevent the overflow of water from the dam as it 'was
rising dangerously at the rate of sixty centimeters per hour. 'Action could
have been taken as early as November 3, 1967, when the water in the
reservoir was still low. At that time, the gates of the dam could have been
opened in a regulated manner. Let it be stressed that the appellant knew
of the coming of the typhoon four days before it actually hit the project
area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a list of
estimated losses and damages to the tunnel project (Ipo side) caused by
the instant flooding of the Angat River (Exh. J-1). The damages were
itemized in four categories, to wit: Camp Facilities P55,700.00;
Equipment, Parts and Plant — P375,659.51; Materials P107,175.80; and
Permanent Structures and accessories — P137,250.00, with an aggregate
total amount of P675,785.31. The list is supported by several vouchers
which were all submitted as Exhibits K to M-38 a, N to O, P to U-2 and V
to X- 60-a (Vide: Folders Nos. 1 to 4). The appellant did not submit proofs
to traverse the aforementioned documentary evidence. We hold that the
lower court did not commit any error in awarding P 675,785.31 as actual
or compensatory damages.
However, We cannot sustain the award of P333,200.00 as consequential
damages. This amount is broken down as follows: P213,200.00 as and for
the rentals of a crane to temporarily replace the one "destroyed beyond
repair," and P120,000.00 as one month bonus which the appellee failed to
realize in accordance with the contract which the appellee had with
NAWASA. Said rental of the crane allegedly covered the period of one
year at the rate of P40.00 an hour for 16 hours a day. The evidence,
however, shows that the appellee bought a crane also a crawler type, on
November 10, 1967, six (6) days after the incident in question (Exh N)
And according to the lower court, which finding was never assailed, the
appellee resumed its normal construction work on the Ipo- Bicti Project
after a stoppage of only one month. There is no evidence when the
appellee received the crane from the seller, Asian Enterprise Limited. But
there was an agreement that the shipment of the goods would be
effected within 60 days from the opening of the letter of credit (Exh.
N).<äre||anº•1àw> It appearing that the contract of sale was
consummated, We must conclude or at least assume that the crane was
delivered to the appellee within 60 days as stipulated. The appellee then
could have availed of the services of another crane for a period of only
one month (after a work stoppage of one month) at the rate of P 40.00
an hour for 16 hours a day or a total of P 19,200.00 as rental.
But the value of the new crane cannot be included as part of actual
damages because the old was reactivated after it was repaired. The cost
of the repair was P 77,000.00 as shown in item No. 1 under the
Equipment, Parts and Plants category (Exh. J-1), which amount of repair
was already included in the actual or compensatory damages. (pp. 54-56,
L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus from
NAWASA in the amount of P120,000.00 (computed at P4,000.00 a day in
case construction is finished before the specified time, i.e., within 800
calendar days), considering that the incident occurred after more than
three (3) years or one thousand one hundred seventy (1,170) days. The
court also eliminated the award of exemplary damages as there was no
gross negligence on the part of NPC and reduced the amount of attorney's
fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision
as being erroneous on the ground that the destruction and loss of the
ECI's equipment and facilities were due to force majeure. It argues that
the rapid rise of the water level in the reservoir of its Angat Dam due to
heavy rains brought about by the typhoon was an extraordinary
occurrence that could not have been foreseen, and thus, the subsequent
release of water through the spillway gates and its resultant effect, if any,
on ECI's equipment and facilities may rightly be attributed to force
majeure.
On the other hand, ECI assails the reduction of the consequential
damages from P333,200.00 to P19,000.00 on the grounds that the
appellate court had no basis in concluding that ECI acquired a new
Crawler-type crane and therefore, it only can claim rentals for the
temporary use of the leased crane for a period of one month; and that the
award of P4,000.00 a day or P120,000.00 a month bonus is justified since
the period limitation on ECI's contract with NAWASA had dual effects, i.e.,
bonus for earlier completion and liquidated damages for delayed
performance; and in either case at the rate of P4,000.00 daily. Thus, since
NPC's negligence compelled work stoppage for a period of one month, the
said award of P120,000.00 is justified. ECI further assailes the reduction
of attorney's fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of
fact and that of the trial court's, petitioner NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height
of typhoon "Welming" when it knew very well that it was safer to have
opened the same gradually and earlier, as it was also undeniable that NPC
knew of the coming typhoon at least four days before it actually struck.
And even though the typhoon was an act of God or what we may call
force majeure, NPC cannot escape liability because its negligence was the
proximate cause of the loss and damage. As we have ruled in Juan F.
Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for
in Article 1170 of the Civil Code, which results in loss or damage, the
obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and
human agencies are to be excluded from creating or entering into the
cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man,
whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it was, and removed from the
rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with
an act of God in producing a loss, such person is not exempt from liability
by showing that the immediate cause of the damage was the act of God.
To be exempt from liability for loss because of an act of God, he must be
free from any previous negligence or misconduct by which the loss or
damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors,
55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was negligence on the
part of NPC is a question of fact which properly falls within the jurisdiction
of the Court of Appeals and will not be disturbed by this Court unless the
same is clearly unfounded. Thus, in Tolentino v. Court of appeals, (150
SCRA 26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally final
and conclusive upon the Supreme Court (Leonardo v. Court of Appeals,
120 SCRA 890 [1983]. In fact it is settled that the Supreme Court is not
supposed to weigh evidence but only to determine its substantially (Nuñez
v. Sandiganbayan, 100 SCRA 433 [1982] and will generally not disturb
said findings of fact when supported by substantial evidence (Aytona v.
Court of Appeals, 113 SCRA 575 [1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other hand
substantial evidence is defined as such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion (Philippine Metal
Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police
Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA
302 [1985])
Therefore, the respondent Court of Appeals did not err in holding the NPC
liable for damages.
Likewise, it did not err in reducing the consequential damages from
P333,200.00 to P19,000.00. As shown by the records, while there was no
categorical statement or admission on the part of ECI that it bought a new
crane to replace the damaged one, a sales contract was presented to the
effect that the new crane would be delivered to it by Asian Enterprises
within 60 days from the opening of the letter of credit at the cost of
P106,336.75. The offer was made by Asian Enterprises a few days after
the flood. As compared to the amount of P106,336.75 for a brand new
crane and paying the alleged amount of P4,000.00 a day as rental for the
use of a temporary crane, which use petitioner ECI alleged to have lasted
for a period of one year, thus, totalling P120,000.00, plus the fact that
there was already a sales contract between it and Asian Enterprises, there
is no reason why ECI should opt to rent a temporary crane for a period of
one year. The appellate court also found that the damaged crane was
subsequently repaired and reactivated and the cost of repair was
P77,000.00. Therefore, it included the said amount in the award of of
compensatory damages, but not the value of the new crane. We do not
find anything erroneous in the decision of the appellate court that the
consequential damages should represent only the service of the
temporary crane for one month. A contrary ruling would result in the
unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the same was
granted by the trial court on the premise that it represented ECI's lost
opportunity "to earn the one month bonus from NAWASA ... ." As stated
earlier, the loss or damage to ECI's equipment and facilities occurred long
after the stipulated deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at that point in time.
The supposed liquidated damages for failure to finish the project within
the stipulated period or the opposite of the claim for bonus is not clearly
presented in the records of these petitions. It is not shown that NAWASA
imposed them.
As to the question of exemplary damages, we sustain the appellate court
in eliminating the same since it found that there was no bad faith on the
part of NPC and that neither can the latter's negligence be considered
gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA
713, 719) we ruled:
Neither may private respondent recover exemplary damages since he is
not entitled to moral or compensatory damages, and again because the
petitioner is not shown to have acted in a wanton, fraudulent, reckless or
oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2
SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA
577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA
155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan
v. Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from P50,000.00 to
P30,000.00. There are no compelling reasons why we should set aside the
appellate court's finding that the latter amount suffices for the services
rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are
both DISMISSED for LACK OF MERIT. The decision appealed from is
AFFIRMED.
SO ORDERED.
SECOND DIVISION
G.R. No. 185798 January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC.,
Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
1997 Rules .of Civil Procedure assailing the Decision1 of the Court of
Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the
Office of the President in O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the
Central Park Place Tower while co-petitioner Fil-Estate Network, Inc. is its
authorized marketing agent. Respondent Spouses Conrado and Maria
Victoria Ronquillo purchased from petitioners an 82-square meter
condominium unit at Central Park Place Tower in Mandaluyong City for a
pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-
FOUR THOUSAND ONLY (₱5,174,000.00). On 29 August 1997,
respondents executed and signed a Reservation Application Agreement
wherein they deposited ₱200,000.00 as reservation fee. As agreed upon,
respondents paid the full downpayment of ₱1,552,200.00 and had been
paying the ₱63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise
stopped paying their monthly amortization. Claiming to have paid a total
of ₱2,198,949.96 to petitioners, respondents through two (2) successive
letters, demanded a full refund of their payment with interest. When their
demands went unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the Housing and Land Use
Regulatory Board (HLURB). Respondents prayed for
reimbursement/refund of ₱2,198,949.96 representing the total
amortization payments, ₱200,000.00 as and by way of moral damages,
attorney’s fees and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against
petitioners for failing to file their Answer within the reglementary period
despite service of summons.2
Petitioners filed a motion to lift order of default and attached their position
paper attributing the delay in construction to the 1997 Asian financial
crisis. Petitioners denied committing fraud or misrepresentation which
could entitle respondents to an award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor,
rendered judgment ordering petitioners to jointly and severally pay
respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT
THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100
(₱2,198,949.96) with interest thereon at twelve percent (12%) per annum
to be computed from the time of the complainants’ demand for refund on
October 08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable
to this Office fifteen (15) days upon receipt of this decision, for violation
of Section 20 in relation to Section 38 of PD 957.3
The Arbiter considered petitioners’ failure to develop the condominium
project as a substantial breach of their obligation which entitles
respondents to seek for rescission with payment of damages. The Arbiter
also stated that mere economic hardship is not an excuse for contractual
and legal delay.
Petitioners appealed the Arbiter’s Decision through a petition for review
pursuant to Rule XII of the 1996 Rules of Procedure of HLURB. On 17
February 2005, the Board of Commissioners of the HLURB denied4 the
petition and affirmed the Arbiter’s Decision. The HLURB reiterated that the
depreciation of the peso as a result of the Asian financial crisis is not a
fortuitous event which will exempt petitioners from the performance of
their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied5 on 8 May
2006. Thereafter, petitioners filed a Notice of Appeal with the Office of the
President. On 18 April 2007, petitioners’ appeal was dismissed6 by the
Office of the President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for
review under Rule 43 containing the same arguments they raised before
the HLURB and the Office of the President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HONORABLE HOUSING AND LAND USE REGULATORY
BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND
RESPONDENTS-APPELLEES THE SUM OF ₱2,198,949.96 WITH 12%
INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING
THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST
PETITIONERS-APPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE OFFICE BELOW ORDERING PETITIONERS-
APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM OF
₱100,000.00 AS MORAL DAMAGES AND ₱50,000.00 AS ATTORNEY’S FEES
CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HOUSING AND LAND USE REGULATORY BOARD
ORDERING PETITIONERS-APPELLANTS TO PAY ₱10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL
BASIS TO SUPPORT SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for review for
lack of merit. The appellate court echoed the HLURB Arbiter’s ruling that
"a buyer for a condominium/subdivision unit/lot unit which has not been
developed in accordance with the approved condominium/subdivision plan
within the time limit for complying with said developmental requirement
may opt for reimbursement under Section 20 in relation to Section 23 of
Presidential Decree (P.D.) 957 x x x."9 The appellate court supported the
HLURB Arbiter’s conclusion, which was affirmed by the HLURB Board of
Commission and the Office of the President, that petitioners’ failure to
develop the condominium project is tantamount to a substantial breach
which warrants a refund of the total amount paid, including interest. The
appellate court pointed out that petitioners failed to prove that the Asian
financial crisis constitutes a fortuitous event which could excuse them
from the performance of their contractual and statutory obligations. The
appellate court also affirmed the award of moral damages in light of
petitioners’ unjustified refusal to satisfy respondents’ claim and the legality
of the administrative fine, as provided in Section 20 of Presidential Decree
No. 957.
Petitioners sought reconsideration but it was denied in a Resolution10
dated 11 December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the
same grounds for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN
TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT WHICH
SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS
DESPITE LACK OF CAUSE OF ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE
LIABLE UNDER THE PREMISES, THE HONORABLE COURT OF APPEALS
ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF
TWELVE PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT
AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT
INCLUDING THE PAYMENT OF ₱100,000.00 AS MORAL DAMAGES,
₱50,000.00 AS ATTORNEY’S FEES AND ₱10,000.00 AS ADMINISTRATIVE
FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT
SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action because
they allegedly have not committed any act of misrepresentation
amounting to bad faith which could entitle respondents to a refund.
Petitioners claim that there was a mere delay in the completion of the
project and that they only resorted to "suspension and reformatting as a
testament to their commitment to their buyers." Petitioners attribute the
delay to the 1997 Asian financial crisis that befell the real estate industry.
Invoking Article 1174 of the New Civil Code, petitioners maintain that they
cannot be held liable for a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account
of suspension of development on a project. They liken their situation to a
bank which this Court, in Overseas Bank v. Court of Appeals,12 adjudged
as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central
Bank.
Lastly, petitioners aver that they should not be ordered to pay moral
damages because they never intended to cause delay, and again blamed
the Asian economic crisis as the direct, proximate and only cause of their
failure to complete the project. Petitioners submit that moral damages
should not be awarded unless so stipulated except under the instances
enumerated in Article 2208 of the New Civil Code. Lastly, petitioners
refuse to pay the administrative fine because the delay in the project was
caused not by their own deceptive intent to defraud their buyers, but due
to unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian
financial crisis constitute a fortuitous event which would justify delay by
petitioners in the performance of their contractual obligation; 2) assuming
that petitioners are liable, whether or not 12% interest was correctly
imposed on the judgment award, and 3) whether the award of moral
damages, attorney’s fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by petitioners in all
the legal fora. The rulings were consistent that first, the Asian financial
crisis is not a fortuitous event that would excuse petitioners from
performing their contractual obligation; second, as a result of the breach
committed by petitioners, respondents are entitled to rescind the contract
and to be refunded the amount of amortizations paid including interest
and damages; and third, petitioners are likewise obligated to pay
attorney’s fees and the administrative fine.
This petition did not present any justification for us to deviate from the
rulings of the HLURB, the Office of the President and the Court of
Appeals.
Indeed, the non-performance of petitioners’ obligation entitles
respondents to rescission under Article 1191 of the New Civil Code which
states:
Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule
governing the sale of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1âwphi1 No installment payment
made by a buyer in a subdivision or condominium project for the lot or
unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer,
desists from further payment due to the failure of the owner or developer
to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid
including amortization interests but excluding delinquency interests, with
interest thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to
rescind the contract and demand reimbursement for the payments they
had made to petitioners.
Notably, the issues had already been settled by the Court in the case of
Fil-Estate Properties, Inc. v. Spouses Go13 promulgated on 17 August
2007, where the Court stated that the Asian financial crisis is not an
instance of caso fortuito. Bearing the same factual milieu as the instant
case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about
a different condominium property. The company likewise reneged on its
obligation to respondents therein by failing to develop the condominium
project despite substantial payment of the contract price. Fil-Estate
advanced the same argument that the 1997 Asian financial crisis is a
fortuitous event which justifies the delay of the construction project. First
off, the Court classified the issue as a question of fact which may not be
raised in a petition for review considering that there was no variance in
the factual findings of the HLURB, the Office of the President and the
Court of Appeals. Second, the Court cited the previous rulings of Asian
Construction and Development Corporation v. Philippine Commercial
International Bank14 and Mondragon Leisure and Resorts Corporation v.
Court of Appeals15 holding that the 1997 Asian financial crisis did not
constitute a valid justification to renege on obligations. The Court
expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty e.g.
increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a real
estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence,
and fluctuations in currency exchange rates happen everyday, thus, not
an instance of caso fortuito.16
The aforementioned decision becomes a precedent to future cases in
which the facts are substantially the same, as in this case. The principle of
stare decisis, which means adherence to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid
by respondents plus 6% legal interest computed from the date of
demand. The Court also awarded attorney’s fees. We follow that ruling in
the case before us.
The resulting modification of the award of legal interest is, also, in line
with our recent ruling in Nacar v. Gallery Frames,17 embodying the
amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board
in BSP-MB Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.
We likewise affirm the award of attorney’s fees because respondents were
forced to litigate for 14 years and incur expenses to protect their rights
and interest by reason of the unjustified act on the part of petitioners.18
The imposition of ₱10,000.00 administrative fine is correct pursuant to
Section 38 of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe and impose
fines not exceeding ten thousand pesos for violations of the provisions of
this Decree or of any rule or regulation thereunder. Fines shall be payable
to the Authority and enforceable through writs of execution in accordance
with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral
damages may be awarded in breach of contract cases, the defendant
must have acted in bad faith, must be found guilty of gross negligence
amounting to bad faith, or must have acted in wanton disregard of
contractual obligations.19 The Arbiter found petitioners to have acted in
bad faith when they breached their contract, when they failed to address
respondents’ grievances and when they adamantly refused to refund
respondents' payment.
In fine, we find no reversible error on the merits in the impugned Court of
Appeals' Decision and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is
AFFIRMED with the MODIFICATION that the legal interest to be paid is
SIX PERCENT (6%) on the amount due computed from the time of
respondents' demand for refund on 8 October 1998.
SO ORDERED.
SECOND DIVISION
July 11, 2016
G.R. No. 194121

TORRES-MADRID BROKERAGE, INC., Petitioner
vs.
FEB MITSUI MARINE INSURANCE CO., INC. and BENJAMIN P. MANALAST
AS, doing business under the name of BMT TRUCKING SERVICES,
Respondents
DECISION
BRION, J.:
We resolve the petition for review on certiorari challenging the Court of
Appeals' (CA) October 14, 2010 decision in CA-G.R. CV No. 91829.1
The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case No.
01-1596, and found petitioner Torres-Madrid Brokerage, Inc. (TMBI) and
respondent Benjamin P. Manalastas jointly and solidarily liable to
respondent FEB Mitsui Marine Insurance Co., Inc. (Mitsui) for damages
from the loss of transported cargo.
Antecedents
On October 7, 2000, a shipment of various electronic goods from Thailand
and Malaysia arrived at the Port of Manila for Sony Philippines, Inc.
(Sony). Previous to the arrival, Sony had engaged the services of TMBI to
facilitate, process, withdraw, and deliver the shipment from the port to its
warehouse in Biñan, Laguna.2
TMBI – who did not own any delivery trucks – subcontracted the services
of Benjamin Manalastas’ company, BMT Trucking Services (BMT), to
transport the shipment from the port to the Biñan warehouse.3
Incidentally, TMBI notified Sony who had no objections to the
arrangement.4
Four BMT trucks picked up the shipment from the port at about 11:00
a.m. of October 7, 2000. However, BMT could not immediately undertake
the delivery because of the truck ban and because the following day was
a Sunday. Thus, BMT scheduled the delivery on October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT’s garage
for Laguna.5 However, only three trucks arrived at Sony’s Biñan
warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-
391) was found abandoned along the Diversion Road in Filinvest, Alabang,
Muntinlupa City.6 Both the driver and the shipment were missing.
Later that evening, BMT’s Operations Manager Melchor Manalastas
informed Victor Torres, TMBI’s General Manager, of the development.7
They went to Muntinlupa together to inspect the truck and to report the
matter to the police.8
Victor Torres also filed a complaint with the National Bureau of
Investigation (NBI) against Lapesura for "hijacking."9 The complaint
resulted in a recommendation by the NBI to the Manila City Prosecutor’s
Office to prosecute Lapesura for qualified theft.10
TMBI notified Sony of the loss through a letter dated October 10, 2000.11
It also sent BMT a letter dated March 29, 2001, demanding payment for
the lost shipment. BMT refused to pay, insisting that the goods were
"hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the
insurer of the goods. After evaluating the merits of the claim, Mitsui paid
Sony PHP7,293,386.23 corresponding to the value of the lost goods.12
After being subrogated to Sony’s rights, Mitsui sent TMBI a demand letter
dated August 30, 2001 for payment of the lost goods. TMBI refused to
pay Mitsui’s claim. As a result, Mitsui filed a complaint against TMBI on
November 6, 2001,
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as
a third-party defendant. TMBI alleged that BMT’s driver, Lapesura, was
responsible for the theft/hijacking of the lost cargo and claimed BMT’s
negligence as the proximate cause of the loss. TMBI prayed that in the
event it is held liable to Mitsui for the loss, it should be reimbursed by
BMT.
At the trial, it was revealed that BMT and TMBI have been doing business
with each other since the early 80’s. It also came out that there had been
a previous hijacking incident involving Sony’s cargo in 1997, but neither
Sony nor its insurer filed a complaint against BMT or TMBI.13
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly
and solidarily liable to pay Mitsui PHP 7,293,386.23 as actual damages,
attorney’s fees equivalent to 25% of the amount claimed, and the costs of
the suit.14 The RTC held that TMBI and Manalastas were common carriers
and had acted negligently.
Both TMBI and BMT appealed the RTC’s verdict.
TMBI denied that it was a common carrier required to exercise
extraordinary diligence. It maintains that it exercised the diligence of a
good father of a family and should be absolved of liability because the
truck was "hijacked" and this was a fortuitous event.
BMT claimed that it had exercised extraordinary diligence over the lost
shipment, and argued as well that the loss resulted from a fortuitous
event.
On October 14, 2010, the CA affirmed the RTC’s decision but reduced the
award of attorney’s fees to PHP 200,000.
The CA held: (1) that "hijacking" is not necessarily a fortuitous event
because the term refers to the general stealing of cargo during transit;15
(2) that TMBI is a common carrier engaged in the business of transporting
goods for the general public for a fee;16 (3) even if the "hijacking" were a
fortuitous event, TMBI’s failure to observe extraordinary diligence in
overseeing the cargo and adopting security measures rendered it liable for
the loss;17 and (4) even if TMBI had not been negligent in the handling,
transport and the delivery of the shipment, TMBI still breached its
contractual obligation to Sony when it failed to deliver the shipment.18
TMBI disagreed with the CA’s ruling and filed the present petition on
December 3, 2010.
The Arguments
TMBI’s Petition
TMBI insists that the hijacking of the truck was a fortuitous event. It
contests the CA’s finding that neither force nor intimidation was used in
the taking of the cargo. Considering Lapesura was never found, the Court
should not discount the possibility that he was a victim rather than a
perpetrator.19
TMBI denies being a common carrier because it does not own a single
truck to transport its shipment and it does not offer transport services to
the public for compensation.20 It emphasizes that Sony knew TMBI did
not have its own vehicles and would subcontract the delivery to a third-
party.
Further, TMBI now insists that the service it offered was limited to the
processing of paperwork attendant to the entry of Sony’s goods. It denies
that delivery of the shipment was a part of its obligation.21
TMBI solely blames BMT as it had full control and custody of the cargo
when it was lost.22 BMT, as a common carrier, is presumed negligent and
should be responsible for the loss.
BMT’s Comment
BMT insists that it observed the required standard of care.23 Like the
petitioner, BMT maintains that the hijacking was a fortuitous event – a
force majeure – that exonerates it from liability.24 It points out that
Lapesura has never been seen again and his fate remains a mystery. BMT
likewise argues that the loss of the cargo necessarily showed that the
taking was with the use of force or intimidation.25
If there was any attendant negligence, BMT points the finger on TMBI
who failed to send a representative to accompany the shipment.26 BMT
further blamed TMBI for the latter’s failure to adopt security measures to
protect Sony’s cargo.27
Mitsui’s Comment
Mitsui counters that neither TMBI nor BMT alleged or proved during the
trial that the taking of the cargo was accompanied with grave or
irresistible threat, violence, or force.28 Hence, the incident cannot be
considered "force majeure" and TMBI remains liable for breach of
contract.
Mitsui emphasizes that TMBI’s theory – that force or intimidation must
have been used because Lapesura was never found – was only raised for
the first time before this Court.29 It also discredits the theory as a mere
conjecture for lack of supporting evidence.
Mitsui adopts the CA’s reasons to conclude that TMBI is a common carrier.
It also points out Victor Torres’ admission during the trial that TMBI’s
brokerage service includes the eventual delivery of the cargo to the
consignee.30
Mitsui invokes as well the legal presumption of negligence against TMBI,
pointing out that TMBI simply entrusted the cargo to BMT without
adopting any security measures despite: (1) a previous hijacking incident
when TMBI lost Sony’s cargo; and (2) TMBI’s knowledge that the cargo
was worth more than 10 million pesos.31
Mitsui affirms that TMBI breached the contract of carriage through its
negligent handling of the cargo, resulting in its loss.
The Court’s Ruling
A brokerage may be considered a
common carrier if it also undertakes to
deliver the goods for its customers
Common carriers are persons, corporations, firms or associations engaged
in the business of transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public.32 By
the nature of their business and for reasons of public policy, they are
bound to observe extraordinary diligence in the vigilance over the goods
and in the safety of their passengers.33
In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a
customs broker – whose principal business is the preparation of the
correct customs declaration and the proper shipping documents – is still
considered a common carrier if it also undertakes to deliver the goods for
its customers. The law does not distinguish between one whose principal
business activity is the carrying of goods and one who undertakes this
task only as an ancillary activity.35 This ruling has been reiterated in
Schmitz Transport & Brokerage Corp. v. Transport Venture, Inc.,36
Loadmasters Customs Services, Inc. v. Glodel Brokerage
Corporation,37and Westwind Shipping Corporation v. UCPB General
Insurance Co., Inc.38
Despite TMBI’s present denials, we find that the delivery of the goods is
an integral, albeit ancillary, part of its brokerage services. TMBI admitted
that it was contracted to facilitate, process, and clear the shipments from
the customs authorities, withdraw them from the pier, then transport and
deliver them to Sony’s warehouse in Laguna.39
Further, TMBI’s General Manager Victor Torres described the nature of its
services as follows:
ATTY. VIRTUDAZO: Could you please tell the court what is the nature of
the business of [TMBI]?
Witness MR. Victor Torres of Torres Madrid: We are engaged in customs
brokerage business. We acquire the release documents from the Bureau
of Customs and eventually deliver the cargoes to the consignee’s
warehouse and we are engaged in that kind of business, sir.40
That TMBI does not own trucks and has to subcontract the delivery of its
clients’ goods, is immaterial. As long as an entity holds itself to the public
for the transport of goods as a business, it is considered a common carrier
regardless of whether it owns the vehicle used or has to actually hire
one.41
Lastly, TMBI’s customs brokerage services – including the
transport/delivery of the cargo – are available to anyone willing to pay its
fees. Given these circumstances, we find it undeniable that TMBI is a
common carrier.
Consequently, TMBI should be held responsible for the loss, destruction,
or deterioration of the goods it transports unless it results from:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.42
For all other cases - such as theft or robbery – a common carrier is
presumed to have been at fault or to have acted negligently, unless it can
prove that it observed extraordinary diligence.43
Simply put, the theft or the robbery of the goods is not considered a
fortuitous event or a force majeure. Nevertheless, a common carrier may
absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the
goods;44 or (2) if it stipulated with the shipper/owner of the goods to
limit its liability for the loss, destruction, or deterioration of the goods to a
degree less than extraordinary diligence.45
However, a stipulation diminishing or dispensing with the common
carrier’s liability for acts committed by thieves or robbers who do not act
with grave or irresistible threat, violence, or force is void under Article
1745 of the Civil Code for being contrary to public policy.46 Jurisprudence,
too, has expanded Article 1734’s five exemptions. De Guzman v. Court of
Appeals47 interpreted Article 1745 to mean that a robbery attended by
"grave or irresistible threat, violence or force" is a fortuitous event that
absolves the common carrier from liability.
In the present case, the shipper, Sony, engaged the services of TMBI, a
common carrier, to facilitate the release of its shipment and deliver the
goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation – the delivery of the cargo – to another common carrier, BMT.
Despite the subcontract, TMBI remained responsible for the cargo. Under
Article 1736, a common carrier’s extraordinary responsibility over the
shipper’s goods lasts from the time these goods are unconditionally placed
in the possession of, and received by, the carrier for transportation, until
they are delivered, actually or constructively, by the carrier to the
consignee.48
That the cargo disappeared during transit while under the custody of BMT
– TMBI’s subcontractor – did not diminish nor terminate TMBI’s
responsibility over the cargo. Article 1735 of the Civil Code presumes that
it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI
simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise
carries with it the presumption of fault or negligence, thus rendering it
liable to Sony/Mitsui for breach of contract.
Specifically, TMBI’s current theory – that the hijacking was attended by
force or intimidation – is untenable.
First, TMBI alleged in its Third Party Complaint against BMT that Lapesura
was responsible for hijacking the shipment.49 Further, Victor Torres filed
a criminal complaint against Lapesura with the NBI.50 These actions
constitute direct and binding admissions that Lapesura stole the cargo.
Justice and fair play dictate that TMBI should not be allowed to change its
legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory
through evidence. Thus, the theory remained an unsupported allegation
no better than speculations and conjectures. The CA therefore correctly
disregarded the defense of force majeure.
TMBI and BMT are not solidarily liable
to Mitsui
We disagree with the lower courts’ ruling that TMBI and BMT are solidarily
liable to Mitsui for the loss as joint tortfeasors. The ruling was based on
Article 2194 of the Civil Code:
Art. 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary.
Notably, TMBI’s liability to Mitsui does not stem from a quasi-delict (culpa
aquiliana) but from its breach of contract (culpa contractual). The tie that
binds TMBI with Mitsui is contractual, albeit one that passed on to Mitsui
as a result of TMBI’s contract of carriage with Sony to which Mitsui had
been subrogated as an insurer who had paid Sony’s insurance claim. The
legal reality that results from this contractual tie precludes the application
of quasi-delict based Article 2194.
A third party may recover from a
common carrier for quasi-delict but must
prove actual negligence
We likewise disagree with the finding that BMT is directly liable to
Sony/Mitsui for the loss of the cargo. While it is undisputed that the cargo
was lost under the actual custody of BMT (whose employee is the primary
suspect in the hijacking or robbery of the shipment), no direct contractual
relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui’s
cause of action against BMT could only arise from quasi-delict, as a third
party suffering damage from the action of another due to the latter’s fault
or negligence, pursuant to Article 2176 of the Civil Code.51
We have repeatedly distinguished between an action for breach of
contract (culpa contractual) and an action for quasi-delict (culpa
aquiliana).
In culpa contractual, the plaintiff only needs to establish the existence of
the contract and the obligor’s failure to perform his obligation. It is not
necessary for the plaintiff to prove or even allege that the obligor’s non-
compliance was due to fault or negligence because Article 1735 already
presumes that the common carrier is negligent. The common carrier can
only free itself from liability by proving that it observed extraordinary
diligence. It cannot discharge this liability by shifting the blame on its
agents or servants.52
On the other hand, the plaintiff in culpa aquiliana must clearly establish
the defendant’s fault or negligence because this is the very basis of the
action.53 Moreover, if the injury to the plaintiff resulted from the act or
omission of the defendant’s employee or servant, the defendant may
absolve himself by proving that he observed the diligence of a good father
of a family to prevent the damage.54
In the present case, Mitsui’s action is solely premised on TMBI’s breach of
contract. Mitsui did not even sue BMT, much less prove any negligence on
its part. If BMT has entered the picture at all, it is because TMBI sued it
for reimbursement for the liability that TMBI might incur from its contract
of carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold
BMT liable to Mitsui for quasi-delict.
BMT is liable to TMBI for breach of their
contract of carriage
We do not hereby say that TMBI must absorb the loss. By subcontracting
the cargo delivery to BMT, TMBI entered into its own contract of carriage
with a fellow common carrier.
The cargo was lost after its transfer to BMT' s custody based on its
contract of carriage with TMBI. Following Article 1735, BMT is presumed
to be at fault. Since BMT failed to prove that it observed extraordinary
diligence in the performance of its obligation to TMBI, it is liable to TMBI
for breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching
the contract of carriage. In tum, TMBI is entitled to reimbursement from
BMT due to the latter's own breach of its contract of carriage with TMBI.
The proverbial buck stops with BMT who may either: (a) absorb the loss,
or (b) proceed after its missing driver, the suspected culprit, pursuant to
Article 2181.55
WHEREFORE, the Court hereby ORDERS petitioner TorresMadrid
Brokerage, Inc. to pay the respondent FEB Mitsui Marine Insurance Co",
Inc. the following:
a. Actual damages in the amount of PHP 7,293,386.23 plus legal interest
from the time the complaint was filed until it is fully paid;
b. Attorney's foes in the amount of PHP 200,000.00; and
c. Costs of suit.
Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE
Torres-Madrid Brokerage, Inc. of the above-mentioned amounts.
SO ORDERED.
ARTURO D. BRION
SECOND DIVISION
G.R. No. 209969, September 27, 2017
JOSE SANICO AND VICENTE CASTRO, Petitioners, v. WERHERLINA P.
COLIPANO, Respondent.
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of
the Rules of Court filed by petitioners Jose Sanico (Sanico) and Vicente
Castro (Castro), assailing the Decision2 dated September 30, 2013 of the
Court of Appeals (CA) in CA-G.R. CEB-CV No. 01889. The CA affirmed with
modification the Decision3 dated October 27, 2006 of the Regional Trial
Court, Branch 25, Danao City (RTC) which found Sanico and Castro liable
for breach of' contract of carriage and awarded actual and compensatory
damages for loss of income in favor of respondent Werherlina P. Colipano
(Colipano). The CA reduced the compensatory damages that the RTC
awarded.
Antecedents
Colipano filed a complaint on January 7, 1997 for breach of contract of
carriage and damages against Sanico and Castro.4 In her complaint,
Colipano claimed that at 4:00 P.M. more or less of December 25, 1993,
Christmas Day, she and her daughter were; paying passengers in the
jeepney operated by Sanico, which was driven by Castro.5 Colipano
claimed she was made to sit on an empty beer case at the edge of the
rear entrance/exit of the jeepney with her sleeping child on her lap.6 And,
at an uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney
slid backwards because it did not have the power to reach the top.7
Colipano pushed both her feet against the step board to prevent herself
and her child from being thrown out of the exit, but because the step
board was wet, her left foot slipped and got crushed between the step
board and a coconut tree which the jeepney bumped, causing the jeepney
to stop its backward movement.8 Colipano's leg was badly injured and
was eventually amputated.9 Colipano prayed for actual damages, loss of
income, moral damages, exemplary damages, and attorney's fees.10
In their answer, Sanico and Castro admitted that Colipano's leg was
crushed and amputated but claimed that it! was Colipano's fault that her
leg was crushed.11 They admitted that the jeepney slid backwards
because the jeepney lost power.12 The conductor then instructed
everyone not to panic but Colipano tried to disembark and her foot got
caught in between the step board and the coconut tree.13 Sanico claimed
that he paid for all the hospital and medical expenses of Colipano,14 and
that Colipano eventually freely and voluntarily executed an Affidavit of
Desistance and Release of Claim.15
After trial, the RTC found that Sanico and Castro breached the contract of
carriage between them and Colipano but only awarded actual and
compensatory damages in favor of Colipano. The dispositive portion of the
RTC Decision states:
WHEREFORE, premises considered, this Court finds the defendants
LIABLE for breach of contract of carriage and are solidarily liable to pay
plaintiff:
Actual damages in the amount of P2,098.80; and
Compensatory damages for loss of income in the amount of P360,000.00.
No costs.
SO ORDERED.16
Only Sanico and Castro appealed to the CA, which affirmed with
modification the RTC Decision. The dispositive portion of the CA Decision
states:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY
GRANTED. The Decision dated October 27, 2006 of the Regional Trial
Court, Branch 25, Danao City, in Civil Case No. DNA-418, is AFFIRMED
with MODIFICATION in that the award for compensatory damages for loss
of income in paragraph 2 of the dispositive portion of the RTC's decision,
is reduced to P200,000.00.
SO ORDERED.17
Without moving for the reconsideration of the CA Decision, Sanico and
Castro filed this petition before the Court assailing the CA Decision.
Issues
Whether the CA erred in finding that Sanico and Castro breached the
contract of carriage with Colipano;
Whether the Affidavit of Desistance and Release of Claim is binding on
Colipano; and
Whether the CA erred in the amount of damages awarded.
The Court's Ruling
The Court partly grants the petition.
Only Sanico breached the contract of carriage.
Here, it is beyond dispute that Colipano was injured while she was a
passenger in the jeepney owned and operated by Sanico that was being
driven by Castro. Both the CA and RTC found Sanico and Castro jointly
and severally liable. This, however, is erroneous because only Sanico was
the party to the contract of carriage with Colipano.
Since the cause of action is based on a breach of a contract of carriage,
the liability of Sanico is direct as the contract is between him and
Colipano. Castro, being merely the driver of Sanico's jeepney, cannot be
made liable as he is not a party to the contract of carriage.
In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for
breach of a contract of carriage is dismissible as against the employee
who was driving the bus because the parties to the contract of carriage
are only the passenger, the bus owner, and the operator, viz.:
The complaint against Caccam was therefore properly dismissed. He was
not a party to the contract; he was a mere employee of the BAL. The
parties to that contract are Juana Soberano, the passenger, and the MRR
and its subsidiary, the BAL, the bus owner and operator, respectively; and
consequent to the inability of the defendant companies to carry Juana
Soberano and her baggage arid personal effects securely and safely to her
destination as imposed by law (art. 1733, in relation to arts. 1736 and
1755, N.C.C.), their liability to her becomes direct and immediate.19
Since Castro was not a party to the contract of carriage, Colipano had no
cause of action against him and the pomplaint against him should be
dismissed. Although he was driving the jeepney, he was a mere employee
of Sanico, who was the operator and owner of the jeepney. The obligation
to carry Colipano safely to her destination was with Sanico. In fact, the
elements of a contract of carriage existeid between Colipano and Sanico:
consent, as shown when Castro, as employee of Sanico, accepted
Colipano as a passenger when he allowed Colipano to board the jeepney,
and as to Colipano, when she boarded the jeepney; cause or
consideration, when Colipano, for her part, paid her fare; and, object, the
transportation of Colipano from the place of departure to the place of
destination.20
Having established that the contract of carriage was only between Sanico
and Colipano and that therefore Colipano had no cause of action against
Castro, the Court next determines whether Sanico breached his
obligations to Colipano under the contract.
Sanico is liable as operator and owner of a common carrier.
Specific to a contract of carriage, ithe Civil Code requires common carriers
to observe extraordinary diligence in safely transporting their passengers.
Article 1733 of the Civil Code states:
ART. 1733. Common carriers, fijpm the nature of their business and for
reasons of public policy, are bbund to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in Articles 1734, 1735 and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth
in Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code,
means that common carriers have the obligation to carry passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances.
In case of death of or injury to their passengers, Article 1756 of the Civil
Code provides that common carriers are presumed to have been at fault
or negligent, and this presumption can be overcome only by proof of the
extraordinary diligence exercised to ensure the safety of the
passengers.21
Being an operator and owner of a common carrier, Sanico was required to
observe extraordinary diligence in safely transporting Colipano. When
Colipano's leg was injured while she was a passenger in Sanico's jeepney,
the presumption of fault or negligence on Sanico's part arose and he had
the burden to prove that he exercised the extraordinary diligence required
of him. He failed to do this.
In Calalas v. Court of Appeals,22 the Court found that allowing the
respondent in that case to be seated in an extension seat, which was a
wooden stool at the rear of the jeepney, "placed [the respondent] in a
peril greater than that to which the other passengers were exposed."23
The Court further ruled that the petitioner in Calalas was not only "unable
to overcome the presumption of negligence imposed on him for the injury
sustained by [the respondent], but also, the evidence shows he was
actually negligent in transporting passengers."24
Calalas squarely applies here. Sanico failed to rebut the presumption of
fault or negligence under the Civil Code. More than this, the evidence
indubitably established Sanico's negligence when Castro made Colipano sit
on an empty beer case at the edge of the rear entrance/exit of the
jeepney with her sleeping child on her lap, which put her and her child in
greater peril than the other passengers. As the CA correctly held:
For the driver, Vicente Castro, to allow a seat extension made of an empty
case of beer clearly indicates lack of prudence. Permitting Werherlina to
occupy an improvised seat in the rear portion of the jeepney, with a child
on her lap to boot, exposed her and her child in a peril greater than that
to which the other passengers were exposed. The use of an improvised
seat extension is undeniable, in view of the testimony of plaintiffs witness,
which is consistent with Werherlina's testimonial assertion. Werherlina and
her witness's testimony were accorded belief by the RTC. Factual findings
of the trial court are entitled to great weight on appeal and should not be
disturbed except for strong and valid reasons, because the trial court ip in
a better position to examine the demeanor of the witnesses while
testifying.25
The CA also correctly held that the!defense of engine failure, instead of
exonerating Sanico, only aggravated his already precarious position.26
The engine failure "hinted lack of regular check and maintenance to
ensure that the engine is at its best, considering that the jeepney
regularly passes through a mountainous area."27 This failure to ensure
that the jeepney can safely transport passengers through its route which
required navigation through a mountainous area is proof of fault on
Sanico's part. In the face of such evidence, there is no question as to
Sanico's fault or negligence.
Further, common carriers may also be liable for damages when they
contravene the tenor of their obligations. Article 1170 of the Civil Code
states:
ART. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner
contravene the tenor' of the obligation includes any illicit act or omission
which impairs the strict and faithful fulfillment of the obligation and every
kind of defective performance."29 There is no question here that making
Colipano sit on the empty beer case was a clear showing of how Sanico
contravened the tenor of his obligation to safely transport Colipano from
the place of departure to the place of destination as far as human care
and foresight can provide, using the utmost diligence of very cautious
persons, and with due regard for all the circumstances.
Sanico's attempt to evade liability by arguing that he exercised
extraordinary diligence when he hired; Castro, who was allegedly an
experienced and time-tested driver, whom he had even accompanied on a
test-drive and in whom he was personally convinced of the driving
skills,30 are not enough to exonerate him from liability - because the
liability of common carriers does not cease upon p!roof that they
exercised all the diligence of a good father of a family irii the selection.
and supervision of their employees. This is the express mandate of Article
1759 of the Civil Code:
ART. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former's
employees, although such employees may have acted beyond the scope
of their authority or in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.
The only defenses available to common carriers are (1) proof that they
observed extraordinary diligence as prescribed in Article 1756,31 and (2)
following Article 1174 of the Civil Code, proof that the injury or death was
brought about by an event which "could not be foreseen, or which,
though foreseen, were inevitable," or a fortuitous event.
The Court finds that neither of these defenses obtain. Thus, Sanico is
liable for damages to Colipano because of the injury that Colipano
suffered as a passenger of Sanico's jeepney.
The Affidavit of Desistance and Release of Claim is void.
Sanico cannot be exonerated from liability under the Affidavit of
Desistance and Release of Claim32and his payment of the hospital and
medical bills of Colipano amounting to P44,900.00.33
The RTC ruled that "the Affidavit of Desistance and Release of Claim is not
binding on plaintiff [Colipano] in the absence of proof that the contents
thereof were sufficiently translated and explained to her."34 The CA
affirmed the findings of the RTC and ruled that the document was not
binding on Colipano, as follows:
Finally, We sustain the RTC's finding that the affidavit of desistance and
release of claim, offered by defendants-appellants, are not binding on
Werherlina, quoting with approval its reflection on the matter, saying:
xxx this Court finds that the Affidavit of Desistance and Release of Claim
is not binding on plaintiff in the absence of proof that the contents thereof
were sufficiently explained to her. It is clear from the plaintiffs
circumstances that she is not able to understand English, more so
stipulations stated in the said Affidavit and Release. It is understandable
that in her pressing need, the plaintiff may have been easily convinced to
sign the document with the promise that she will be compensated for her
injuries.35
The Court finds no reason to depart from these findings of the CA and the
RTC.
For there to be a valid waiver, the following requisites are essential:
(1) that the person making the waiver possesses the right, (2) that he has
the capacity and power to dispose of the right, (3) that the waiver must
be clear and unequivocal although it may be made expressly or impliedly,
and (4) that the waiver is not contrary to law, public policy, public order,
morals, good customs or prejudicial to a third person with a right
recognized by law.36
While the first two requirements can be said to exist in this case, the third
and fourth requirements are, however, lacking.
For the waiver to be clear and unequivocal, the person waiving the right
should understand what she is waiving and the effect of such waiver. Both
the CA and RTC made the factual deitermination that Colipano was not
able to understand English and that there was no proof that the
documents and their contents and effects were explained to her. These
findings of the RTC, affirmed by the CA, are entitled to great weight and
respect.37 As this Court held in Philippine National Railways Corp. v.
Vizcara38:
It is a well-established rule that factual fill dings by the CA are conclusive
on the parties and are not reviewable byj this Court. They are entitled to
great weight and respect, even finality, especially when, as in this case,
the CA affirmed the factual findings arrived at by the trial court.39
Although there are exceptions to this rule,40 the exceptions are absent
here.
Colipano could not have clearly and unequivocally waived her right to
claim damages when she had no understanding of the right she was
waiving and the extent of that right. Worse, she was made to sign a
document written in a language she did not understand.
The fourth requirement for a valid waiver is also lacking as the waiver,
based on the attendant facts, can only be construed as contrary to public
policy. The doctrine in Gatchalian v. Delim,41 which the CA correctly
cited,42 is applicable here:
Finally, because what is involved here is the liability of a common carrier
for injuries sustained by passengers in respect of whose safety a common
carrier must exercise extraordinary diligence, we must construe any such
purported waiver most strictly against the common carrier. For a waiver to
be valid and effective, it must not be contrary to law, morals, public policy
or good customs. To uphold a supposed waiver of any right to claim
damages by an injured passenger, under circumstances like those
exhibited in this case, would be to dilute and weaken the standard of
extraordinary diligence exacted by the law from common carriers and
hence to render that standard unenforceable. We believe such a
purported waiver is offensive to public policy.43
"[P]ublic policy refers to the aims of the state to promote the social and
general well-being of the inhabitants."44 The Civil Code requires
extraordinary diligence from common carriers because the nature of their
business requires the public to put their safety and lives in the hands of
these common carriers. The State imposes this extraordinary diligence to
promote the well-being of the public who avail themselves of the services
of common carriers. Thus, in instances of injury or death, a waiver of the
right to claim damages is strictly construed against the common carrier so
as not to dilute or weaken the public policy behind the required standard
of extraordinary diligence.
It was for this reason that in Gatchalian, the waiver was considered
offensive to public policy because it was shown that the passenger was
still in the hospital and was dizzy when she signed the document. It was
also shown that when she saw the other passengers signing the
document, she signed it without reading it. .
Similar to Gatchalian, Colipano testified that she did not understand the
document she signed.45 She also did not understand the nature and
extent of her waiver as the content of the document was not explained to
her.46 The waiver is therefore void because it is contrary to public
policy.47
The Court reiterates that waivers executed under similar circumstances
are indeed contrary to public policy and are void.48 To uphold waivers
taken from injured passengers who have no knowledge of their
entitlement under the law and the extent of liability of common carriers
would indeed dilute the extraordinary diligence required from common
carriers, and contravene a public policy reflected in the Civil Code.
Amount of compensatory damages granted is incorrect.
On the amount of damages, the RiTC awarded P2,098.80 as actual
damages and P360,000.00 as compensatoiy damages for loss of income,
as follows:
[T]his Court can only award actual damages in the amount that is duly deceased is employed as a daily wage worker earning less than the
supported by receipts, that is, P2,098.80 mid not P7,277.80 as prayed for minimum wage under current labor laws.55
by plaintiff as there is no basis for the amount prayed for. However, The CA applied the correct formula for computing the loss of Colipano's
considering that plaintiff has suffered the loss of one leg which has earning capacity:
caused her to be limited in her movement thus resulting in loss of Net earning capacity = Life expectancy x [Gross Annual Income - Living
livelihood, she is entitled to compensatory damages for lost income at the Expenses (50% of gross annual income)], where life expectancy = 2/3
rate of P12,000.00/year for thirty years in the amount of P360,000.00.49 (80-the age of the deceased).56
The CA, on the other hand, modified the award of the RTC by reducing However, the CA erred when it used Colipano's age at the time she
the compensatory damages from P360,000.00 to P200,000.00, thus: testified as basis for computing the loss of earning capacity.57 The loss of
By virtue of their negligence, defendants-appellants are liable to pay earning capacity commenced when Colipano's leg was crushed on
Werheiiina compensatory damages for loss of earning capacity. In arriving December 25, 1993. Given that Colipano was 30 years old when she
at the proper amount, the Supremip Court has consistently used the testified on October 14, 1997, she was roughly 27 years old on December
following formula: 25, 1993 when the injury was sustained. Following the foregoing formula,
Net Earning Capacity the net earning capacity of Colipano is P212,000.00.58
=
Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross Sanico is liable to pay interest.
annual income)]
� Interest is a form of actual or compensatory damages as it belongs to
� where life expectancy Chapter 259 of Title XVIII on Damages� of the Civil Code. Under Article
= 2210 of the Civil Code, "[i]nterest may, in the discretion of the court, be
2/3 (80 - the age of the deceased). allowed upon damages awarded for breach of contract." Here, given the
Based on the stated formula, the damages due to Werherlina for loss of gravity of the breach of the contract of carriage causing the serious injury
earning capacity is: to the leg of Colipano that resulted in its amputation, the Court deems it
Net Earning Capacity just and equitable to award interest from the date of the RTC decision.
= Since the award of damages was given by the RTC in its Decision dated
[2/3 x (80-30)] x (P12,000.00 x (50%) October 27, 2006, the interest on the amount awarded shall be deemed
� to run beginning October 27, 2006.
�
As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of
= Appeals,60 the Court ruled that "[w]hen an obligation, not constituting a
(2/3 x 50) x P6,000.00 loan or forbearance of money, is breached, an interest on the amount of
� damages awarded may be imposed at the discretion of the court at the
�� rate of 6% per annum."61 Further, upon finality of the judgment
= awarding a sum of money, the rate of interest shall be 12% per annum
33.33 x P6,000.00 � from such finality until satisfaction because the interim period is
�� considered a forbearance of credit.62 Subsequently, in Nacar v. Gallery
= Frames,63 the rate of legal interest for loans or forbearance of any
P200,000.00 money, goods or credits and the rate allowed in judgments was lowered
The award of the sum of P200,000.00 as compensatory damages for loss from 12% to 6%. Thus, the applicable rate of interest to the award of
of earning capacity is in order, notwithstanding the objections of damages to Colipano is 6%.
defendants-appellants with respect to lack of evidence on Werherlina's
age and annual income.50 WHEREFORE, premises considered, the petition for review is hereby
Sanico argues that Colipano failed to present documentary evidence to PARTLY GRANTED. As to petitioner Vicente Castro, the Decision of the
support her age and her income, so that her testimony is self-serving and Court of Appeals dated September 30, 2013 is REVERSED and SET ASIDE
that there was no basis for the award of compensatory damages in her and the complaint against him is dismissed for lack of cause of action. As
favor.51 Sanico is gravely mistaken. to petitioner Jose Sanico, the Decision of the Court of Appeals is hereby
AFFIRMED with MODIFICATIONS, Petitioner Jose Sanico is liable and
The Court has held in Heirs of Pedro Cleme�a y Zurbano v. Heirs of Irene ordered to pay respondent Werherlina Colipano the following
B. Bien52 that testimonial evidence cannot be objected to on the ground amounts:Actual damages in the amount of P2,098.80;
of being self-serving, thus:
"Self-serving evidence" is not to be taken literally to mean any evidence Compensatory damages for loss of income in the amount of P212,000.00;
that serves its proponent's interest. The term, if used with any legal
sense, refers only to acts or declarations made by a party in his own Interest on the total amount of the damages awarded in 1 and 2 at the
interest at some place and time out of court, and it does not include rate of 6% per annum reckoned from October 27, 2006 until finality of
testimony that he gives as a witness in court. Evidence of this sort is this Decision. The total amount of the foregoing shall, in turn, earn
excluded on the same ground as any hearsay evidence, that is, lack of interest at the rate of 6% per annum from finality of this Decision until full
opportunity for cross-examination by the adverse party and on the payment thereof.
consideration that its admission would open the door to fraud and
fabrication. In contrast, a party's testimony in court is sworn and subject SO ORDERED.
to cross-examination by the other party, and therefore, not susceptible to
an objection on the ground that it is self-serving.53 Peralta,**(Acting Chairperson), Perlas-Bernabe, and Reyes, Jr., JJ.,
Colipano was subjected to cross-examination and both the RTC and CA concur.
believed her testimony on her age and annual income. In fact, as these Carpio, J., on official leave.
are questions of facts, these findings of the RTC and CA are likewise
binding on the Court.54

Further, although as a general rule, documentary evidence is required to EN BANC

prove loss of earning capacity, Colipano's testimony on her annual
earnings of P12,000.00 is an allowed exception. There are two exceptions
to the general rule and Colipano's testimonial evidence falls under the
second exception, viz.: G.R. No. L-29155 May 13, 1970
By way of exception, damages for loss of earning capacity may be
awarded despite the absence of documentary evidence when (1) the UNIVERSAL FOOD CORPORATION, petitioner,
deceased is self-employed earning less than the minimum wage under vs.
current labor laws, and judicial notice may be taken of the fact that in the THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and
deceased's line of work no documentary evidence is available; or (2) the VICTORIANO N. FRANCISCO, respondents.

Wigberto E. Tañada for petitioner.
Teofilo Mendoza for respondents.
CASTRO, J.:
Petition for certiorari by the Universal Food Corporation against the
decision of the Court of Appeals of February 13, 1968 in CA-G.R. 31430-R
(Magdalo V. Francisco, Sr. and Victoriano V. Francisco, plaintiffs-
appellants vs. Universal Food Corporation, defendant-appellee), the
dispositive portion of which reads as follows: "WHEREFORE the appealed
decision is hereby reversed; the BILL OF ASSIGNMENT marked Exhibit A
is hereby rescinded, and defendant is hereby ordered to return to plaintiff
Magdalo V. Francisco, Sr., his Mafran sauce trademark and formula
subject-matter of Exhibit A, and to pay him his monthly salary of P300.00
from December 1, 1960, until the return to him of said trademark and
formula, plus attorney's fees in the amount of P500.00, with costs against
defendant."1
On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V.
Francisco filed with the Court of First Instance of Manila, against, the
Universal Food Corporation, an action for rescission of a contract entitled
"Bill of Assignment." The plaintiffs prayed the court to adjudge the
defendant as without any right to the use of the Mafran trademark and
formula, and order the latter to restore to them the said right of user; to
order the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary
from December 1, 1960, as well as damages in the sum of P40,000, and
to pay the costs of suit.1
On February 28, the defendant filed its answer containing admissions and
denials. Paragraph 3 thereof "admits the allegations contained in
paragraph 3 of plaintiffs' complaint." The answer further alleged that the
defendant had complied with all the terms and conditions of the Bill of
Assignment and, consequently, the plaintiffs are not entitled to rescission
thereof; that the plaintiff Magdalo V. Francisco, Sr. was not dismissed
from the service as permanent chief chemist of the corporation as he is
still its chief chemist; and, by way of special defenses, that the aforesaid
plaintiff is estopped from questioning 1) the contents and due execution
of the Bill of Assignment, 2) the corporate acts of the petitioner,
particularly the resolution adopted by its board of directors at the special
meeting held on October 14, 1960, to suspend operations to avoid further
losses due to increase in the prices of raw materials, since the same
plaintiff was present when that resolution was adopted and even took part
in the consideration thereof, 3) the actuations of its president and general
manager in enforcing and implementing the said resolution, 4) the fact
that the same plaintiff was negligent in the performance of his duties as
chief chemist of the corporation, and 5) the further fact that the said
plaintiff was delinquent in the payment of his subscribed shares of stock
with the corporation. The defendant corporation prayed for the dismissal
of the complaint, and asked for P750 as attorney's fees and P5,000 in
exemplary or corrective damages.
On June 25, 1962 the lower court dismissed the plaintiffs' complaint as
well as the defendant's claim for damages and attorney's fees, with costs
against the former, who promptly appealed to the Court of Appeals. On
February 13, 1969 the appellate court rendered the judgment now the
subject of the present recourse.
The Court of Appeals arrived at the following "uncontroverted" findings of
fact:
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or
invented a formula for the manufacture of a food seasoning (sauce)
derived from banana fruits popularly known as MAFRAN sauce; that the
manufacture of this product was used in commercial scale in 1942, and in
the same year plaintiff registered his trademark in his name as owner and
inventor with the Bureau of Patents; that due to lack of sufficient capital
to finance the expansion of the business, in 1960, said plaintiff secured
the financial assistance of Tirso T. Reyes who, after a series of
negotiations, formed with others defendant Universal Food Corporation
eventually leading to the execution on May 11, 1960 of the aforequoted
"Bill of Assignment" (Exhibit A or 1).
Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V.
Francisco, Sr. was appointed Chief Chemist with a salary of P300.00 a
month, and plaintiff Victoriano V. Francisco was appointed auditor and
superintendent with a salary of P250.00 a month. Since the start of the
operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr.,
when preparing the secret materials inside the laboratory, never allowed
anyone, not even his own son, or the President and General Manager
Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the
formula secret to himself. However, said plaintiff expressed a willingness
to give the formula to defendant provided that the same should be placed
or kept inside a safe to be opened only when he is already incapacitated
to perform his duties as Chief Chemist, but defendant never acquired a
safe for that purpose. On July 26, 1960, President and General Manager
Tirso T. Reyes wrote plaintiff requesting him to permit one or two
members of his family to observe the preparation of the 'Mafran Sauce'
(Exhibit C), but said request was denied by plaintiff. In spite of such
denial, Tirso T. Reyes did not compel or force plaintiff to accede to said
request. Thereafter, however, due to the alleged scarcity and high prices
of raw materials, on November 28, 1960, Secretary-Treasurer Ciriaco L.
de Guzman of defendant issued a Memorandum (Exhibit B), duly
approved by the President and General Manager Tirso T. Reyes that only
Supervisor Ricardo Francisco should be retained in the factory and that
the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the
time being until the corporation should resume its operation. Some five
(5) days later, that is, on December 3, 1960, President and General
Manager Tirso T. Reyes, issued a memorandom to Victoriano Francisco
ordering him to report to the factory and produce "Mafran Sauce" at the
rate of not less than 100 cases a day so as to cope with the orders of the
corporation's various distributors and dealers, and with instructions to
take only the necessary daily employees without employing permanent
employees (Exhibit B). Again, on December 6, 1961, another
memorandum was issued by the same President and General Manager
instructing the Assistant Chief Chemist Ricardo Francisco, to recall all daily
employees who are connected in the production of Mafran Sauce and also
some additional daily employees for the production of Porky Pops (Exhibit
B-1). On December 29, 1960, another memorandum was issued by the
President and General Manager instructing Ricardo Francisco, as Chief
Chemist, and Porfirio Zarraga, as Acting Superintendent, to produce
Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with
further instructions to hire daily laborers in order to cope with the full
blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received
his salary as Chief Chemist in the amount of P300.00 a month only until
his services were terminated on November 30, 1960. On January 9 and
16, 1961, defendant, acting thru its President and General Manager,
authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the
corporation including its trademarks, formula and assets at a price of not
less than P300,000.00 (Exhibits D and D-1). Due to these successive
memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled
back to work, the latter filed the present action on February 14, 1961.
About a month afterwards, in a letter dated March 20, 1961, defendant,
thru its President and General Manager, requested said plaintiff to report
for duty (Exhibit 3), but the latter declined the request because the
present action was already filed in court (Exhibit J).
1. The petitioner's first contention is that the respondents are not
entitled to rescission. It is argued that under article 1191 of the new Civil
Code, the right to rescind a reciprocal obligation is not absolute and can
be demanded only if one is ready, willing and able to comply with his own
obligation and the other is not; that under article 1169 of the same Code,
in reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him; that in this case the trial court found that the
respondents not only have failed to show that the petitioner has been
guilty of default in performing its contractual obligations, "but the record
sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco
who had been remiss in the compliance of his contractual obligation to
cede and transfer to the defendant the formula for Mafran sauce;" that
even the respondent Court of Appeals found that as "observed by the
lower court, 'the record is replete with the various attempt made by the
defendant (herein petitioner) to secure the said formula from Magdalo V.
Francisco to no avail; and that upon the foregoing findings, the
respondent Court of Appeals unjustly concluded that the private
respondents are entitled to rescind the Bill of Assignment.
The threshold question is whether by virtue of the terms of the Bill of
Assignment the respondent Magdalo V. Francisco, Sr. ceded and
transferred to the petitioner corporation the formula for Mafran sauce.2
The Bill of Assignment sets forth the following terms and conditions:
THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and
exclusive owner of the MAFRAN trade-mark and the formula for MAFRAN
SAUCE;
THAT for and in consideration of the royalty of TWO (2%) PER CENTUM
of the net annual profit which the PARTY OF THE Second Part [Universal
Food Corporation] may realize by and/or out of its production of MAFRAN
SAUCE and other food products and from other business which the Party
of the Second Part may engage in as defined in its Articles of
Incorporation, and which its Board of Directors shall determine and
declare, said Party of the First Part hereby assign, transfer, and convey all
its property rights and interest over said Mafran trademark and formula
for MAFRAN SAUCE unto the Party of the Second Part;
THAT the payment for the royalty of TWO (2%) PER CENTUM of the
annual net profit which the Party of the Second Part obligates itself to pay
unto the Party of the First Part as founder and as owner of the MAFRAN
trademark and formula for MAFRAN SAUCE, shall be paid at every end of
the Fiscal Year after the proper accounting and inventories has been
undertaken by the Party of the Second Part and after a competent auditor
designated by the Board of Directors shall have duly examined and
audited its books of accounts and shall have certified as to the correctness
of its Financial Statement;
THAT it is hereby understood that the Party of the First Part, to improve
the quality of the products of the Party of the First Part and to increase its
production, shall endeavor or undertake such research, study,
experiments and testing, to invent or cause to invent additional formula or
formulas, the property rights and interest thereon shall likewise be
assigned, transferred, and conveyed unto the Party of the Second Part in
consideration of the foregoing premises, covenants and stipulations:
THAT in the operation and management of the Party of the First Part, the
Party of the First Part shall be entitled to the following Participation:
(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second
Vice-President and Chief Chemist of the Party of the Second Part, which
appointments are permanent in character and Mr. VICTORIANO V.
FRANCISCO shall be appointed Auditor thereof and in the event that the
Treasurer or any officer who may have the custody of the funds, assets
and other properties of the Party of the Second Part comes from the Party
of the First Part, then the Auditor shall not be appointed from the latter;
furthermore should the Auditor be appointed from the Party representing
the majority shares of the Party of the Second Part, then the Treasurer
shall be appointed from the Party of the First Part;
(b) THAT in case of death or other disabilities they should become
incapacitated to discharge the duties of their respective position, then,
their shares or assigns and who may have necessary qualifications shall
be preferred to succeed them;
(c) That the Party of the First Part shall always be entitled to at
least two (2) membership in the Board of Directors of the Party of the
Second Part;
(d) THAT in the manufacture of MAFRAN SAUCE and other food
products by the Party of the Second Part, the Chief Chemist shall have
and shall exercise absolute control and supervision over the laboratory
assistants and personnel and in the purchase and safekeeping of the
Chemicals and other mixtures used in the preparation of said products;
THAT this assignment, transfer and conveyance is absolute and
irrevocable in no case shall the PARTY OF THE First Part ask, demand or
sue for the surrender of its rights and interest over said MAFRAN
trademark and mafran formula, except when a dissolution of the Party of
the Second Part, voluntary or otherwise, eventually arises, in which case
then the property rights and interests over said trademark and formula
shall automatically revert the Party of the First Part.
Certain provisions of the Bill of Assignment would seem to support the
petitioner's position that the respondent patentee, Magdalo V. Francisco,
Sr. ceded and transferred to the petitioner corporation the formula for
Mafran sauce. Thus, the last part of the second paragraph recites that the
respondent patentee "assign, transfer and convey all its property rights
and interest over said Mafran trademark and formula for MAFRAN SAUCE
unto the Party of the Second Part," and the last paragraph states that
such "assignment, transfer and conveyance is absolute and irrevocable
(and) in no case shall the PARTY OF THE First Part ask, demand or sue
for the surrender of its rights and interest over said MAFRAN trademark
and mafran formula."
However, a perceptive analysis of the entire instrument and the language
employed therein3 would lead one to the conclusion that what was
actually ceded and transferred was only the use of the Mafran sauce
formula. This was the precise intention of the parties,4 as we shall
presently show.
Firstly, one of the principal considerations of the Bill of Assignment is the
payment of "royalty of TWO (2%) PER CENTUM of the net annual profit"
which the petitioner corporation may realize by and/or out of its
production of Mafran sauce and other food products, etc. The word
"royalty," when employed in connection with a license under a patent,
means the compensation paid for the use of a patented invention.
'Royalty,' when used in connection with a license under a patent, means
the compensation paid by the licensee to the licensor for the use of the
licensor's patented invention." (Hazeltine Corporation vs. Zenith Radio
Corporation, 100 F. 2d 10, 16.)5
Secondly, in order to preserve the secrecy of the Mafran formula and to
prevent its unauthorized proliferation, it is provided in paragraph 5-(a) of
the Bill that the respondent patentee was to be appointed "chief chemist
... permanent in character," and that in case of his "death or other
disabilities," then his "heirs or assigns who may have necessary
qualifications shall be preferred to succeed" him as such chief chemist. It
is further provided in paragraph 5-(d) that the same respondent shall
have and shall exercise absolute control and supervision over the
laboratory assistants and personnel and over the purchase and
safekeeping of the chemicals and other mixtures used in the preparation
of the said product. All these provisions of the Bill of Assignment clearly
show that the intention of the respondent patentee at the time of its
execution was to part, not with the formula for Mafran sauce, but only its
use, to preserve the monopoly and to effectively prohibit anyone from
availing of the invention.6
Thirdly, pursuant to the last paragraph of the Bill, should dissolution of
the Petitioner corporation eventually take place, "the property rights and
interests over said trademark and formula shall automatically revert to the
respondent patentee. This must be so, because there could be no
reversion of the trademark and formula in this case, if, as contended by
the petitioner, the respondent patentee assigned, ceded and transferred
the trademark and formula — and not merely the right to use it — for
then such assignment passes the property in such patent right to the
petitioner corporation to which it is ceded, which, on the corporation
becoming insolvent, will become part of the property in the hands of the
receiver thereof.7
Fourthly, it is alleged in paragraph 3 of the respondents' complaint that
what was ceded and transferred by virtue of the Bill of Assignment is the
"use of the formula" (and not the formula itself). This incontrovertible fact
is admitted without equivocation in paragraph 3 of the petitioner's
answer. Hence, it does "not require proof and cannot be contradicted."8
The last part of paragraph 3 of the complaint and paragraph 3 of the
answer are reproduced below for ready reference:
3. — ... and due to these privileges, the plaintiff in return assigned to
said corporation his interest and rights over the said trademark and
formula so that the defendant corporation could use the formula in the
preparation and manufacture of the mafran sauce, and the trade name for
the marketing of said project, as appearing in said contract ....
3. — Defendant admits the allegations contained in paragraph 3 of
plaintiff's complaint.
Fifthly, the facts of the case compellingly demonstrate continued
possession of the Mafran sauce formula by the respondent patentee.
Finally, our conclusion is fortified by the admonition of the Civil Code that
a conveyance should be interpreted to effect "the least transmission of
right,"9 and is there a better example of least transmission of rights than
allowing or permitting only the use, without transfer of ownership, of the
formula for Mafran sauce.
The foregoing reasons support the conclusion of the Court of Appeals 10
that what was actually ceded and transferred by the respondent patentee
Magdalo V. Francisco, Sr. in favor of the petitioner corporation was only
the use of the formula. Properly speaking, the Bill of Assignment vested in
the petitioner corporation no title to the formula. Without basis, therefore,
is the observation of the lower court that the respondent patentee "had
been remiss in the compliance of his contractual obligation to cede and
transfer to the defendant the formula for Mafran sauce."
2. The next fundamental question for resolution is whether the
respondent Magdalo V. Francisco, Sr. was dismissed from his position as
chief chemist of the corporation without justifiable cause, and in violation
of paragraph 5-(a) of the Bill of Assignment which in part provides that his
appointment is "permanent in character."
The petitioner submits that there is nothing in the successive memoranda
issued by the corporate officers of the petitioner, marked exhibits B, B-1
and B-2, from which can be implied that the respondent patentee was
being dismissed from his position as chief chemist of the corporation. The
fact, continues the petitioner, is that at a special meeting of the board of
directors of the corporation held on October 14, 1960, when the board
decided to suspend operations of the factory for two to four months and
to retain only a skeletal force to avoid further losses, the two private
respondents were present, and the respondent patentee was even
designated as the acting superintendent, and assigned the mission of
explaining to the personnel of the factory why the corporation was
stopping operations temporarily and laying off personnel. The petitioner
further submits that exhibit B indicates that the salary of the respondent
patentee would not be paid only during the time that the petitioner
corporation was idle, and that he could draw his salary as soon as the
corporation resumed operations. The clear import of this exhibit was
allegedly entirely disregarded by the respondent Court of Appeals, which
concluded that since the petitioner resumed partial production of Mafran
sauce without notifying the said respondent formally, the latter had been
dismissed as chief chemist, without considering that the petitioner had to
resume partial operations only to fill its pending orders, and that the
respondents were duly notified of that decision, that is, that exhibit B-1
was addressed to Ricardo Francisco, and this was made known to the
respondent Victoriano V. Francisco. Besides, the records will show that the
respondent patentee had knowledge of the resumption of production by
the corporation, but in spite of such knowledge he did not report for work.
The petitioner further submits that if the respondent patentee really had
unqualified interest in propagating the product he claimed he so dearly
loved, certainly he would not have waited for a formal notification but
would have immediately reported for work, considering that he was then
and still is a member of the corporation's board of directors, and insofar
as the petitioner is concerned, he is still its chief chemist; and because
Ricardo Francisco is a son of the respondent patentee to whom had been
entrusted the performance of the duties of chief chemist, while the
respondent Victoriano V. Francisco is his brother, the respondent patentee
could not feign ignorance of the resumption of operations.
The petitioner finally submits that although exhibit B-2 is addressed to
Ricardo Francisco, and is dated December 29, 1960, the records will show
that the petitioner was set to resume full capacity production only
sometime in March or April, 1961, and the respondent patentee cannot
deny that in the very same month when the petitioner was set to resume
full production, he received a copy of the resolution of its board of
directors, directing him to report immediately for duty; that exhibit H, of a
later vintage as it is dated February 1, 1961, clearly shows that Ricardo
Francisco was merely the acting chemist, and this was the situation on
February 1, 1961, thirteen days before the filing of the present action for
rescission. The designation of Ricardo Francisco as the chief chemist
carried no weight because the president and general manager of the
corporation had no power to make the designation without the consent of
the corporation's board of directors. The fact of the matter is that
although the respondent Magdalo V. Francisco, Sr. was not mentioned in
exhibit H as chief chemist, this same exhibit clearly indicates that Ricardo
Francisco was merely the acting chemist as he was the one assisting his
father.
In our view, the foregoing submissions cannot outweigh the
uncontroverted facts. On November 28, 1960 the secretary-treasurer of
the corporation issued a memorandum (exh. B), duly approved by its
president and general manager, directing that only Ricardo Francisco be
retained in the factory and that the salary of respondent patentee, as
chief chemist, be stopped for the time being until the corporation resumed
operations. This measure was taken allegedly because of the scarcity and
high prices of raw materials. Five days later, however, or on December 3,
the president and general manager issued a memorandum (exh. B-1)
ordering the respondent Victoria V. Francisco to report to the factory and
to produce Mafran sauce at the rate of no less than 100 cases a day to
cope with the orders of the various distributors and dealers of the
corporation, and instructing him to take only the necessary daily
employees without employing permanent ones. Then on December 6, the
same president and general manager issued yet another memorandum
(exh. B-2), instructing Ricardo Francisco, as assistant chief chemist, to
recall all daily employees connected with the production of Mafran sauce
and to hire additional daily employees for the production of Porky Pops.
Twenty-three days afterwards, or on December 29, the same president
and general manager issued still another memorandum (exh. S-2),
directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as
acting superintendent, to produce Mafran sauce and, Porky Pops in full
swing, starting January 2, 1961, with the further instruction to hire daily
laborers in order to cope with the full blast production. And finally, at the
hearing held on October 24, 1961, the same president and general
manager admitted that "I consider that the two months we paid him
(referring to respondent Magdalo V. Francisco, Sr.) is the separation pay."
The facts narrated in the preceding paragraph were the prevailing milieu
on February 14, 1961 when the complaint for rescission of the Bill of
Assignment was filed. They clearly prove that the petitioner, acting
through its corporate officers, 11 schemed and maneuvered to ease out,
separate and dismiss the said respondent from the service as permanent
chief chemist, in flagrant violation of paragraph 5-(a) and (b) of the Bill of
Assignment. The fact that a month after the institution of the action for
rescission, the petitioner corporation, thru its president and general
manager, requested the respondent patentee to report for duty (exh. 3),
is of no consequence. As the Court of Appeals correctly observed, such
request was a "recall to placate said plaintiff."
3. We now come to the question of rescission of the Bill of
Assignment. In this connection, we quote for ready reference the
following articles of the new Civil Code governing rescission of contracts:
ART. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with articles 1385 and 1388
of the Mortgage Law.
ART. 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
ART. 1384. Rescission shall be only to the extent necessary to cover the
damages caused.
At the moment, we shall concern ourselves with the first two paragraphs
of article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between fulfillment
and rescission of the obligation, with payment of damages in either case.
In this case before us, there is no controversy that the provisions of the
Bill of Assignment are reciprocal in nature. The petitioner corporation
violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by
terminating the services of the respondent patentee Magdalo V. Francisco,
Sr., without lawful and justifiable cause.
Upon the factual milieu, is rescission of the Bill of Assignment proper?
The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement. 12 The question of whether a breach of a contract is
substantial depends upon the attendant circumstances. 13 The petitioner
contends that rescission of the Bill of Assignment should be denied,
because under article 1383, rescission is a subsidiary remedy which
cannot be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. However, in this case the
dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the
permanent chief chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment. He was dismissed without
any fault or negligence on his part. Thus, apart from the legal principle
that the option — to demand performance or ask for rescission of a
contract — belongs to the injured party, 14 the fact remains that the
respondents-appellees had no alternative but to file the present action for
rescission and damages. It is to be emphasized that the respondent
patentee would not have agreed to the other terms of the Bill of
Assignment were it not for the basic commitment of the petitioner
corporation to appoint him as its Second Vice-President and Chief Chemist
on a permanent basis; that in the manufacture of Mafran sauce and other
food products he would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safeguarding
of said products;" and that only by all these measures could the
respondent patentee preserve effectively the secrecy of the formula,
prevent its proliferation, enjoy its monopoly, and, in the process afford
and secure for himself a lifetime job and steady income. The salient
provisions of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the appointment of the
respondent patentee as Second Vice-President and chief chemist on a
permanent status; the obligation of the said respondent patentee to
continue research on the patent to improve the quality of the products of
the corporation; the need of absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping
of the chemicals and other mixtures used in the preparation of said
product — all these provisions of the Bill of Assignment are so
interdependent that violation of one would result in virtual nullification of
the rest.
4. The petitioner further contends that it was error for the Court of
Appeals to hold that the respondent patentee is entitled to payment of his
monthly salary of P300 from December 1, 1960, until the return to him of
the Mafran trademark and formula, arguing that under articles 1191, the
right to specific performance is not conjunctive with the right to rescind a
reciprocal contract; that a plaintiff cannot ask for both remedies; that the
appellate court awarded the respondents both remedies as it held that the
respondents are entitled to rescind the Bill of Assignment and also that
the respondent patentee is entitled to his salary aforesaid; that this is a
gross error of law, when it is considered that such holding would make
the petitioner liable to pay respondent patentee's salary from December 1,
1960 to "kingdom come," as the said holding requires the petitioner to
make payment until it returns the formula which, the appellate court itself
found, the corporation never had; that, moreover, the fact is that the said
respondent patentee refused to go back to work, notwithstanding the call
for him to return — which negates his right to be paid his back salaries for
services which he had not rendered; and that if the said respondent is
entitled to be paid any back salary, the same should be computed only
from December 1, 1960 to March 31, 1961, for on March 20, 1961 the
petitioner had already formally called him back to work.
The above contention is without merit. Reading once more the Bill of
Assignment in its entirety and the particular provisions in their proper
setting, we hold that the contract placed the use of the formula for
Mafran sauce with the petitioner, subject to defined limitations. One of the
considerations for the transfer of the use thereof was the undertaking on
the part of the petitioner corporation to employ the respondent patentee
as the Second Vice-President and Chief Chemist on a permanent status, at
a monthly salary of P300, unless "death or other disabilities supervened.
Under these circumstances, the petitioner corporation could not escape
liability to pay the private respondent patentee his agreed monthly salary,
as long as the use, as well as the right to use, the formula for Mafran
sauce remained with the corporation.
5. The petitioner finally contends that the Court of Appeals erred
in ordering the corporation to return to the respondents the trademark
and formula for Mafran sauce, when both the decision of the appellate
court and that of the lower court state that the corporation is not aware
nor is in possession of the formula for Mafran sauce, and the respondent
patentee admittedly never gave the same to the corporation. According to
the petitioner these findings would render it impossible to carry out the
order to return the formula to the respondent patentee. The petitioner's
predicament is understandable. Article 1385 of the new Civil Code
provides that rescission creates the obligation to return the things which
were the object of the contract. But that as it may, it is a logical inference
from the appellate court's decision that what was meant to be returned to
the respondent patentee is not the formula itself, but only its use and the
right to such use. Thus, the respondents in their complaint for rescission
specifically and particularly pray, among others, that the petitioner
corporation be adjudged as "without any right to use said trademark and
formula."
ACCORDINGLY, conformably with the observations we have above made,
the judgment of the Court of Appeals is modified to read as follows:
"Wherefore the appealed decision is reversed. The Bill of Assignment
(Exhibit A) is hereby rescinded, and the defendant corporation is ordered
to return and restore to the plaintiff Magdalo V. Francisco, Sr. the right to
the use of his Mafran sauce trademark and formula, subject-matter of the
Bill of Assignment, and to this end the defendant corporation and all its
assigns and successors are hereby permanently enjoined, effective
immediately, from using in any manner the said Mafran sauce trademark
and formula. The defendant corporation shall also pay to Magdalo V.
Francisco, Sr. his monthly salary of P300 from December 1, 1960, until
the date of finality of this judgment, inclusive, the total amount due to
him to earn legal interest from the date of the finality of this judgment
until it shall have been fully paid, plus attorney's fees in the amount of
P500, with costs against the defendant corporation." As thus modified, the
said judgment is affirmed, with costs against the petitioner corporation.
EN BANC
G.R. No. L-47774 March 14, 1941
MAGDALENA ESTATE, INC., petitioner-appellant,
vs.
LOUIS J. MYRICK, respondent-appellee.
Felipe Ysmael and Eusebio C. Encarnacion for petitioner.
Andres C. Aguilar for respondent.
LAUREL, J.:
On January 2, 1928, the Magdalena Estate, Inc., sold to Louis J. Myrick
lots Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivision, San
Juan Rizal, their contract of sale No. SJ-639 (Exhibits B and 1) providing
that the price of P7,953 shall be payable in 120 equal monthly
installments of P96.39 each on the second day of every month beginning
the date of execution of the agreement. Simultaneously, the vendee
executed and delivered to the vendor a promissory note (Exhibits C and 2)
for the whole purchase price, wherein it was stipulated that "si cualquier
pago o pagos de este pagare quedasen en mora por mas de dos meses,
entonces todos el saldo no pagado del mismo con cualesquiera intereses
que hubiese devengado, vercera y sera exigible inmediatamente y
devengara intereses al mismo tipo de 9 por ciento al año hasta su
completo pago, y en tal caso me comprometo, ademas, a pagar al
tenedor de este pagare el 10 por ciento de la cantidad en concepto de
honorarios de abogado."
In pursuance of said agreement, the vendee made several monthly
payments amounting to P2,596.08, the last being on October 4, 1930,
although the first installment due and unpaid was that of May 2, 1930. By
reason of this default, the vendor, through its president, K.H. Hemady, on
December 14, 1932, notified the vendee that, in view of his inability to
comply with the terms of their contract, said agreement had been
cancelled as of that date, thereby relieving him of any further obligation
thereunder, and that all amounts paid by him had been forfeited in favor
of the vendor, who assumes the absolute right over the lots in question.
To this communication, the vendee did not reply, and it appears likewise
that the vendor thereafter did not require him to make any further
disbursements on account of the purchase price.
On July 22, 1936, Louis J. Myrick, respondent herein, commenced the
present action in the Court of First Instance of Albay, praying for an entry
of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08
with legal interest thereon from the filing of the complaint until its
payment, and for costs of the suit. Said defendant, the herein petitioner,
on September 7, 1936, filed his answer consisting in a general denial and
a cross-complaint and counterclaim, alleging that contract SJ-639 was still
in full force and effect and that, therefore, the plaintiff should be
condemned to pay the balance plus interest and attorneys' fees. After due
trial, the Court of First Instance of Albay, on January 31, 1939, rendered
its decision ordering the defendant to pay the plaintiff the sum of
P2,596.08 with legal interest from December 14, 1932 until paid and
costs, and dismissing defendant's counterclaim. From this judgment, the
Magdalena Estate, Inc. appealed to the Court of Appeals, where the cause
was docketed as CA-G.R. No. 5037, and which, on August 23, 1940,
confirmed the decision of the lower court, with the only modification that
the payment of interest was to be computed from the date of the filing of
the complaint instead of from the date of the cancellation of the contract.
A motion for reconsideration was presented, which was denied on
September 6, 1940. Hence, the present petition for a writ of certiorari.
Petitioner-appellant assigns several errors which we proceed to discuss in
the course of this opinion.
Petitioner holds that contract SJ-639 has not been rendered inefficacious
by its letter to the respondent, dated December 14, 1932, and submits
the following propositions: (1) That the intention of the author of a
written instrument shall always prevail over the literal sense of its
wording; (2) that a bilateral contract may be resolved or cancelled only by
the prior mutual agreement of the parties, which is approved by the
judgment of the proper court; and (3) that the letter of December 14,
1932 was not assented to by the respondent, and therefore, cannot be
deemed to have produced a cancellation, even if it ever was intended.
Petitioner contends that the letter in dispute is a mere notification and, to
this end, introduced in evidence the disposition of Mr. K.H. Hemady,
president of the Magdalena Estate, Inc. wherein he stated that the word
"cancelled" in the letter of December 14, 1932, "es un error de mi
interpretacion sin ninguna intencion de cancelar," and the testimony of
Sebastian San Andres, one of its employees, that the lots were never
offered for sale after the mailing of the letter aforementioned. Upon the
other hand, the Court of Appeals, in its decision of August 23, 1940,
makes the finding that "notwithstanding the deposition of K.H. Hemady,
president of the defendant corporation, to the effect that the contract was
not cancelled nor was his intention to do so when he wrote the letter of
December 14, 1932, marked Exhibit 6 and D (pp. 6-7, deposition Exhibit
1-a), faith and credit cannot be given to such testimony in view of the
clear terms of the letter which evince his unequivocal intent to resolve the
contract. His testimony is an afterthought. The intent to resolve the
contract is expressed unmistakably not only in the letter of December 14,
1932, already referred to (Exhibit 6 and D), but is reiterated in the letters
which the president of the defendant corporation states that plaintiff lost
his rights for the land for being behind more than two years, and of April
10, 1035 (Exhibit G), where defendant's president makes the following
statements: "Confirming the verbal arrangement had between you and
our Mr. K.H. Hemady regarding the account of Mr. Louis J. Myrick under
contract No. SJ-639, already cancelled."
This conclusion of fact of the Court of Appeals is final and should not be
disturbed. (Guico vs. Mayuga and Heirs of Mayuga, 63 Phil., 328;
Mamuyac vs. Abena, XXXVIII Off. Gaz. 84.) Where the terms of a writing
are clear, positive and unambiguous, the intention of the parties should
be gleaned from the language therein employed, which is conclusive in
the absence of mistake (13 C.J. 524; City of Manila vs. Rizal Park Co., 52
Phil. 515). The proposition that the intention of the writer, once
ascertained, shall prevail over the literal sense of the words employed is
not absolute and should be deemed secondary to and limited by the
primary rule that, when the text of the instrument is explicit and leaves no
doubt as to its intention, the court may not read into it any other which
would contradict its plain import. Besides, we have met with some
circumstances of record which demonstrate the unequivocal determination
of the petitioner to cancel their contract. They are: (1) the act of the
petitioner in immediately taking possession of the lots in question and
offering to resell them to Judge M.V. del Rosario, as demonstrated by his
letter marked Exhibit G, shortly after December 14, 1932; (2) his failure to
demand from the respondent the balance of the account after the mailing
of the disputed letter; and (3) the letters of January 10, 1933 (Exhibit F-2)
and April 10, 1935 (Exhibit G) reiterate, in clear terms, the intention to
cancel first announced by petitioner since December 14, 1932.
It is next argued that contract SJ-639, being a bilateral agreement, in the
absence of a stipulation permitting its cancellation, may not be resolved
by the mere act of the petitioner. The fact that the contracting parties
herein did not provide for resolution is now of no moment, for the reason
that the obligations arising from the contract of sale being reciprocal, such
obligations are governed by article 1124 of the Civil Code which declares
that the power to resolve, in the event that one of the obligors should not
perform his part, is implied. (Mateos vs. Lopez, 6 Phil., 206; Cortez vs.
Bibaño & Beramo, 41 Phil. 298; Cui. vs. Sun Chan, 41 Phil., 523; Po Pauco
vs. Siguenza, 49 Phil., 404.) Upon the other hand, where, as in this case,
the petitioner cancelled the contract, advised the respondent that he has
been relieved of his obligations thereunder, and led said respondent to
believe it so and act upon such belief, the petitioner may not be allowed,
in the language of section 333 of the Code of Civil Procedure (now section
68 (a) of Rule 123 of the New Rules of Court), in any litigation the course
of litigation or in dealings in nais, be permitted to repudiate his
representations, or occupy inconsistent positions, or, in the letter of the
Scotch law, to "approbate and reprobate." (Bigelow on Estoppel, page
673; Toppan v. Cleveland, Co. & C.R. Co., Fed. Cas. 14,099.)
The contract of sale, contract SJ-639, contains no provision authorizing
the vendor, in the event of failure of the vendee to continue in the
payment of the stipulated monthly installments, to retain the amounts
paid to him on account of the purchase price. The claim, therefore, of the
petitioner that it has the right to forfeit said sums in its favor is untenable.
Under article 1124 of the Civil Code, however, he may choose between
demanding the fulfillment of the contract or its resolution. These remedies
are alternative and not cumulative, and the petitioner in this case, having
to cancel the contract, cannot avail himself of the other remedy of
exacting performance. (Osorio & Tirona vs. Bennet & Provincial Board of
Cavite, 41 Phil., 301; Yap Unki vs. Chua Jamco, 14 Phil., 602.) As a
consequence of the resolution, the parties should be restored, as far as
practicable, to their original situation (Po Pauco vs. Siguenza, supra)
which can be approximated only by ordering, as we do now, the return of
the things which were the object of the contract, with their fruits and of
the price, with its interest (article 1295, Civil Code), computed from the
date of the institution of the action. (Verceluz vs. Edaño, 46 Phil. 801.)
The writ prayed for is hereby denied, with costs against the petitioner. So
ordered.
Imperial, Diaz, Moran, and Horrilleno, JJ., concur.
EN BANC
G.R. No. L-28602 September 29, 1970
UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF
FIRST INSTANCE IN QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M.
Amores and Special Counsel Perfecto V. Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.

REYES, J.B.L., J.:
Three (3) orders of the Court of First Instance of Rizal (Quezon City),
issued in its Civil Case No. 9435, are sought to be annulled in this petition
for certiorari and prohibition, filed by herein petitioner University of the
Philippines (or UP) against the above-named respondent judge and the
Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first
order, dated 25 February 1966, enjoined UP from awarding logging rights
over its timber concession (or Land Grant), situated at the Lubayat areas
in the provinces of Laguna and Quezon; the second order, dated 14
January 1967, adjudged UP in contempt of court, and directed Sta. Clara
Lumber Company, Inc. to refrain from exercising logging rights or
conducting logging operations on the concession; and the third order,
dated 12 December 1967, denied reconsideration of the order of
contempt.
As prayed for in the petition, a writ of preliminary injunction against the
enforcement or implementation of the three (3) questioned orders was
issued by this Court, per its resolution on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the public
domain and given as an endowment to UP, an institution of higher
learning, to be operated and developed for the purpose of raising
additional income for its support, pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a
logging agreement under which the latter was granted exclusive authority,
for a period starting from the date of the agreement to 31 December
1965, extendible for a further period of five (5) years by mutual
agreement, to cut, collect and remove timber from the Land Grant, in
consideration of payment to UP of royalties, forest fees, etc.; that
ALUMCO cut and removed timber therefrom but, as of 8 December 1964,
it had incurred an unpaid account of P219,362.94, which, despite
repeated demands, it had failed to pay; that after it had received notice
that UP would rescind or terminate the logging agreement, ALUMCO
executed an instrument, entitled "Acknowledgment of Debt and Proposed
Manner of Payments," dated 9 December 1964, which was approved by
the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this
paragraph are not sufficient to liquidate the foregoing indebtedness of the
DEBTOR in favor of the CREDITOR, the balance outstanding after the said
payments have been applied shall be paid by the DEBTOR in full no later
than June 30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its
promises or undertakings in this document, the DEBTOR agrees without
reservation that the CREDITOR shall have the right and the power to
consider the Logging Agreement dated December 2, 1960 as rescinded
without the necessity of any judicial suit, and the CREDITOR shall be
entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way
of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid
account, for the period from 9 December 1964 to 15 July 1965, in the
amount of P61,133.74, in addition to the indebtedness that it had
previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it
had, as of that date, considered as rescinded and of no further legal effect
the logging agreement that they had entered in 1960; and on 7
September 1965, UP filed a complaint against ALUMCO, which was
docketed as Civil Case No. 9435 of the Court of First Instance of Rizal
(Quezon City), for the collection or payment of the herein before stated
sums of money and alleging the facts hereinbefore specified, together
with other allegations; it prayed for and obtained an order, dated 30
September 1965, for preliminary attachment and preliminary injunction
restraining ALUMCO from continuing its logging operations in the Land
Grant.
That before the issuance of the aforesaid preliminary injunction UP had
taken steps to have another concessionaire take over the logging
operation, by advertising an invitation to bid; that bidding was conducted,
and the concession was awarded to Sta. Clara Lumber Company, Inc.; the
logging contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to discharge the writs
of attachment and preliminary injunction but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner
University from conducting the bidding; on 27 November 1965, it filed a
second petition for preliminary injunction; and, on 25 February 1966,
respondent judge issued the first of the questioned orders, enjoining UP
from awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its
contract with Sta. Clara Lumber Company, Inc., and said company had
started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the
court, in an order dated 14 January 1967, declared petitioner UP in
contempt of court and, in the same order, directed Sta. Clara Lumber
Company, Inc., to refrain from exercising logging rights or conducting
logging operations in the concession.
The UP moved for reconsideration of the aforesaid order, but the motion
was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land Grant, which
purpose, anyway, is embodied in Act 3608 and, therefore, conclusively
known, respondent ALUMCO did not deny the foregoing allegations in the
petition. In its answer, respondent corrected itself by stating that the
period of the logging agreement is five (5) years - not seven (7) years, as
it had alleged in its second amended answer to the complaint in Civil Case
No. 9435. It reiterated, however, its defenses in the court below, which
maybe boiled down to: blaming its former general manager, Cesar Guy, in
not turning over management of ALUMCO, thereby rendering it unable to
pay the sum of P219,382.94; that it failed to pursue the manner of
payments, as stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" because the logs that it had cut turned out to be
rotten and could not be sold to Sta. Clara Lumber Company, Inc., under
its contract "to buy and sell" with said firm, and which contract was
referred and annexed to the "Acknowledgment of Debt and Proposed
Manner of Payments"; that UP's unilateral rescission of the logging
contract, without a court order, was invalid; that petitioner's supervisor
refused to allow respondent to cut new logs unless the logs previously cut
during the management of Cesar Guy be first sold; that respondent was
permitted to cut logs in the middle of June 1965 but petitioner's
supervisor stopped all logging operations on 15 July 1965; that it had
made several offers to petitioner for respondent to resume logging
operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat its contract
with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect. Respondent ALUMCO contended, and the
lower court, in issuing the injunction order of 25 February 1966,
apparently sustained it (although the order expresses no specific findings
in this regard), that it is only after a final court decree declaring the
contract rescinded for violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the agreement as breached
and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the
"Acknowledgment of Debt and Proposed Manner of Payments" that, upon
default by the debtor ALUMCO, the creditor (UP) has "the right and the
power to consider, the Logging Agreement dated 2 December 1960 as
rescinded without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil Code, this
Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31
October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is
not always necessary for the injured party to resort to court for rescission
of the contract.
Of course, it must be understood that the act of party in treating a
contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court.
If the other party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation,1 since in every case
where the extrajudicial resolution is contested only the final award of the
court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain
contestable and subject to judicial invalidation, unless attack thereon
should become barred by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general
rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code
Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of
abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the initiative of
instituting suit, instead of the rescinder.
In fact, even without express provision conferring the power of
cancellation upon one contracting party, the Supreme Court of Spain, in
construing the effect of Article 1124 of the Spanish Civil Code (of which
Article 1191 of our own Civil; Code is practically a reproduction), has
repeatedly held that, a resolution of reciprocal or synallagmatic contracts
may be made extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de resolver las
obligaciones reciprocas para el caso de que uno de los obligados no
cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este
Tribunal, surge immediatamente despuesque la otra parte incumplio su
deber, sin necesidad de una declaracion previa de los Tribunales. (Sent. of
the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la
resolucioncomo una "facultad" atribuida a la parte perjudicada por el
incumplimiento del contrato, la cual tiene derecho do opcion entre exigir
el cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya
en la via judicial, ya fuera de ella, por declaracion del acreedor, a reserva,
claro es, que si la declaracion de resolucion hecha por una de las partes
se impugna por la otra, queda aquella sometida el examen y sancion de
los Tribunale, que habran de declarar, en definitiva, bien hecha la
resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of Spain,
16 November 1956; Jurisp. Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el
incumplimiento por una de las partes de su respectiva prestacion,
puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la
otra hecha extraprocesalmente, si no es impugnada en juicio luego con
exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el
cumplimientocon la indemnizacion de danos y perjuicios realmente
causados, siempre quese acredite, ademas, una actitud o conducta
persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un
hecho obstativo que de un modoabsoluto, definitivo o irreformable lo
impida, segun el art. 1.124, interpretado por la jurisprudencia de esta
Sala, contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras,
inspiradas por el principio del Derecho intermedio, recogido del Canonico,
por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y
22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, and considering that the complaint
of petitioner University made out a prima facie case of breach of contract
and defaults in payment by respondent ALUMCO, to the extent that the
court below issued a writ of preliminary injunction stopping ALUMCO's
logging operations, and repeatedly denied its motions to lift the
injunction; that it is not denied that the respondent company had profited
from its operations previous to the agreement of 5 December 1964
("Acknowledgment of Debt and Proposed Manner of Payment"); that the
excuses offered in the second amended answer, such as the misconduct
of its former manager Cesar Guy, and the rotten condition of the logs in
private respondent's pond, which said respondent was in a better position
to know when it executed the acknowledgment of indebtedness, do not
constitute on their face sufficient excuse for non-payment; and
considering that whatever prejudice may be suffered by respondent
ALUMCO is susceptibility of compensation in damages, it becomes plain
that the acts of the court a quo in enjoining petitioner's measures to
protect its interest without first receiving evidence on the issues tendered
by the parties, and in subsequently refusing to dissolve the injunction,
were in grave abuse of discretion, correctible by certiorari, since appeal
was not available or adequate. Such injunction, therefore, must be set
aside.
For the reason that the order finding the petitioner UP in contempt of
court has open appealed to the Court of Appeals, and the case is pending
therein, this Court abstains from making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and the order of
the respondent court of 25 February 1966, granting the Associated
Lumber Company's petition for injunction, is hereby set aside. Let the
records be remanded for further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo,
Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., Actg. C.J., is on leave.
FIRST DIVISION
G.R. No. L-29360 January 30, 1982
JOSE C. ZULUETA, petitioner,
vs.
HON. HERMINIO MARIANO, in his capacity as Presiding Judge of Branch X
of the Court of First Instance of Rizal; and LAMBERTO AVELLANA,
respondents.
MELENCIO-HERRERA, J.:
In this action for mandamus and Prohibition, petitioner seeks to compel
respondent Judge to assume appellate, not original jurisdiction over an
Ejectment case appealed from the Municipal Court of Pasig (CC No. 1190
entitled Jose C. Zulueta vs. Lamberto Avellana), and to issue a Writ of
Execution in said case.
The antecedental facts follow:
Petitioner Jose C. Zulueta is the registered owner of a residential house
and lot situated within the Antonio Subdivision, Pasig, Rizal.
On November 6, 1964, petitioner Zulueta and private respondent
Lamberto Avellana, a movie director, entered into a "Contract to Sell" the
aforementioned property for P75,000.00 payable in twenty years with
respondent buyer assuming to pay a down payment of P5,000.00 and a
monthly installment of P630.00 payable in advance before the 5th day of
the corresponding month, starting with December, 1964.
It was further stipulated:
12) That upon failure of the BUYER to fulfill any of the conditions
herein stipulated, BUYER automatically and irrevocably authorizes OWNER
to recover extra-judicially, physical possession of the land, building and
other improvements which are the subject of this contract, and to take
possession also extra-judicially whatever personal properties may be
found within the aforesaid premises from the date of said failure to
answer for whatever unfulfilled monetary obligations BUYER may have
with OWNER; and this contract shall be considered as without force and
effect also from said date; all payments made by the BUYER to OWNER
shall be deemed as rental payments without prejudice to OWNER's right
to collect from BUYER whatever other monthly installments and other
money obligations which may have been paid until BUYER vacates the
aforesaid premises; upon his failure to comply with any of the herein
conditions BUYER forfeits all money claims against OWNER and shall pay
a monthly rental equivalent to his monthly installment under Condition 1
of this Contract from the date of the said failure to the date of recovery of
physical possession by OWNER of the land, building and other
improvements which are the subject of this Contract; BUYER shall not
remove his personal properties without the previous written consent of
OWNER, who, should he take possession of such properties following the
aforesaid failure of BUYER, shall return the same to BUYER only after the
latter shall have fulfilled all money claims against him by OWNER; in all
cases herein, demand is waived;
Respondent Avellana occupied the property from December, 1964, but
title remained with petitioner Zulueta.
Upon the allegation that respondent Avellana had failed to comply with
the monthly amortizations stipulated in the contract, despite demands to
pay and to vacate the premises, and that thereby the contract was
converted into one of lease, petitioner, on June 22, 1966, commenced an
Ejectment suit against respondent before the Municipal Court of Pasig (CC
No. 1190), praying that judgment be rendered ordering respondent 1) to
vacate the premises; 2) to pay petitioner the sum of P11,751.30
representing respondent's balance owing as of May, 1966; 3) to pay
petitioner the sum of P 630.00 every month after May, 1966, and costs.
Respondent controverted by contending that the Municipal Court had no
jurisdiction over the nature of the action as it involved the interpretation
and/or rescission of the contract; that prior to the execution of the
contract to sell, petitioner was already indebted to him in the sum of
P31,269.00 representing the cost of two movies respondent made for
petitioner and used by the latter in his political campaign in 1964 when
petitioner ran for Congressman, as well as the cost of one 16 millimeter
projector petitioner borrowed from respondent and which had never been
returned, which amounts, according to their understanding, would be
applied as down payment for the property and to whatever obligations
respondent had with petitioner. The latter strongly denied such an
understanding. Respondent's total counterclaim against petitioner was in
the amount of P42,629.99 representing petitioner's pleaded indebtedness
to private respondent, claim for moral damages, and attorney's fees.
The counterclaim was dismissed by the Municipal Court for being in an
amount beyond its jurisdiction. However, as a special defense, private
respondent sought to offset the sum of P31,269.00 against his obligations
to petitioner.
Deciding the case on May 10, 1967, the Municipal Court found that
respondent Avellana had failed to comply with his financial obligations
under the contract and ordered him to vacate the premises and deliver
possession thereof to petitioner; to pay petitioner the sum of P21,093.88
representing arrearages as of April, 1967, and P630.00 as monthly rental
from and after May, 1967 until delivery of possession of that premises to
petitioner. That conclusion was premised on title finding that breach of
any of the conditions by private respondent converted the agreement into
a lease contractual and upon the following considerations:
The question involved herein is that of possession, that who of the
contending parties has the better right to possession of the properly in
question. The issue in this case being that of possession, the claim of
defendant against plaintiff or P 31,269.00 indebtedness, has no place as a
defense here. It should be the subject- matter of a separate action
against, plaintiff Jose C. Zulueta. As it is, said indebtedness is only a claim
still debatable and controversial and not a final judgment. 'It is our
considered opinion that to admit and to allow such a defense would be
tantamount to prejuding the claim on its merits prematurely in favor of
defendant. This court can not do without violating some rules of law. This
is not the proper court and this is not the proper case in which to ventilate
the claim.
Respondent Avellana appealed to the Court of First Instance of Rizal
presided by respondent Judge. Thereat, petitioner summoned for
execution alleging private respondent's failure to deposit in accordance
the monthly rentals, which the latter denied. Respondent Judge held
resolution thereof in abeyance.
On February 19, 1968, respondent Avellana filed a Motion to Dismiss
Appeal alleging that, inasmuch as the defense set up in his Answer was
that he had not breached his contract with petitioner, the case necessarily
involved the interpretation and/or rescission of the contract and,
therefore, beyond the jurisdiction of the Municipal Court. Petitioner
opposed claiming that the Complaint had set out a clear case of unlawful
detainer considering that judicial action for the rescission of the contract
was unnecessary due to the automatic rescission clause therein and the
fact that petitioner had cancelled said contract so that respondent's right
to remain in the premises had ceased.
On March 21, 1968, respondent Judge dismissed the case on the ground
of lack of jurisdiction of the Municipal Court, explaining:
The decision of the lower court declared said Contract to Sell to have
been converted into a contract of lease. It is the contention of the
defendant that the lower court had no jurisdiction to entertain the case as
the same involves the interpretation of contract as to whether or not the
same has been converted to lease contract. Although the contract to sell
object of this case states that the same may be converted into a lease
contract upon the failure of the defendant to pay the amortization of the
property in question, there is no showing that before filing this case in the
lower court, the plaintiff has exercised or has pursued his right pursuant
to the contract which should be the basis of the action in the lower court.
Petitioner's Motion for Reconsideration was denied by respondent Judge
as follows:
The plaintiff having filed a motion for reconsideration of this Court's Order
dismissing the appeal, the Court, while standing pat on its Order
dismissing this case for lack of jurisdiction of the lower court over the
subject matter, hereby takes cognizance of the case and will try the case
as if it has been filed originally in this Court.
WHEREFORE, let this case be set for pre-trial on July 12, 1968 at 8:30
a.m. with notice to an parties.
Petitioner then availed of the instant recourse.
Was the action before the Municipal Court of Pasig essentially for detainer
and, therefore, within its exclusive original jurisdiction, or one for
rescission or annulment of a contract, which should be litigated before a
Court of First Instance?
Upon a review of the attendant circumstances, we uphold the ruling of
respondent Judge that the Municipal Court of Pasig was bereft of
jurisdiction to take cognizance of the case filed before it. In his Complaint,
petitioner had alleged violation by respondent Avellana of the stipulations
of their agreement to sell and thus unilaterally considered the contract
rescinded. Respondent Avellana denied any breach on his part and argued
that the principal issue was one of interpretation and/or rescission of the
contract as well as of set-off. Under those circumstances, proof of
violation is a condition precedent to resolution or rescission. It is only
when the violation has been established that the contract can be declared
resolved or rescinded. Upon such rescission, in turn, hinges a
pronouncement that possession of the realty has become unlawful. Thus,
the basic issue is not possession but one of rescission or annulment of a
contract. which is beyond the jurisdiction of the Municipal Court to hear
and determine.
A violation by a party of any of the stipulations of a contract on
agreement to sell real property would entitle the other party to resolved
or rescind it. An allegation of such violation in a detainer suit may be
proved by competent evidence. And if proved a justice of the peace court
might make a finding to that effect, but it certainly cannot declare and
hold that the contract is resolved or rescinded. It is beyond its power so
to do. And as the illegality of the possession of realty by a party to a
contract to sell is premised upon the resolution of the contract, it follows
that an allegation and proof of such violation, a condition precedent to
such resolution or rescission, to render unlawful the possession of the
land or building erected thereon by the party who has violated the
contract, cannot be taken cognizance of by a justice of the peace court. ...
1 fully paid. Paragraph 6 of the contract provided for automatic extrajudicial
True, the contract between the parties provided for extrajudicial
rescission. This has legal effect, however, where the other party does not
oppose it. 2 Where it is objected to, a judicial determination of the issue is
still necessary.
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex proprio vigore
confer upon the former the right to take possession thereof if objected to
without judicial intervention and' determination. 3
But while respondent Judge correctly ruled that the Municipal Court had
no jurisdiction over the case and correctly dismissed the appeal, he erred
in assuming original jurisdiction, in the face of the objection interposed by
petitioner. Section 11, Rule 40, leaves no room for doubt on this point:
Section 11. Lack of jurisdiction —A case tried by an inferior court without
jurisdiction over the subject matter shall be dismiss on appeal by the
Court of First Instance. But instead of dismissing the case, the Court of
First Instance may try the case on the merits, if the parties therein file
their pleadings and go to trial without any objection to such jurisdiction.
There was no other recourse left for respondent Judge, therefore, except
to dismiss the appeal.
If an inferior court tries a case without jurisdiction over the subject-matter
on appeal, the only authority of the CFI is to declare the inferior court to
have acted without jurisdiction and dismiss the case, unless the parties
agree to the exercise by the CFI of its original jurisdiction to try the case
on the merits. 4
The foregoing premises considered, petitioner's prayer for a Writ of
Execution of the judgment of the Municipal Court of Pasig must perforce
be denied.
WHEREFORE, the Writ of mandamus is denied, but the Writ of Prohibition
is granted and respondent Court hereby permanently enjoined from taking
cognizance of Civil Case No. 10595 in the exercise of its original
jurisdiction. No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL HOUSING
AUTHORITY and NAZARIO DUMPIT respondents.
Santos, Calcetas-Santos & Geronimo Law Office for petitioner.
Wilfredo E. Dizon for private respondent.
MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential Executive
Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay,
Inc. and Alberto Onstott jointly and severally, to refund to private
respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest
per annum, as resolved by the National Housing Authority in its Resolution
of July 10, 1979 in Case No. 2167, as well as the Resolution of October
28, 1980 denying petitioners' Motion for Reconsideration of said
Resolution of May 2, 1980, are being assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President, Albert
Onstott executed in favor of private respondent, Nazario Dumpit, a
Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview
Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square
meters, - covered by TCT No. 90454, and owned by said corporation. The
sale price was P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42 until
rescission upon default in payment of any monthly installment after the
lapse of 90 days from the expiration of the grace period of one month,
without need of notice and with forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5,
1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote
petitioner offering to update all his overdue accounts with interest, and
seeking its written consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter dated June 20,
1973 reiterating the same request. Replying petitioners informed
respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed
a letter complaint with the National Housing Authority (NHA) for
reconveyance with an altenative prayer for refund (Case No. 2167). In a
Resolution, dated July 10, 1979, the NHA, finding the rescission void in
the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the corporation, jointly and
severally, to refund immediately to Nazario Dumpit the amount of
P13,722.50 with 12% interest from the filing of the complaint on
November 8, 1974. Petitioners' Motion for Reconsideration of said
Resolution was denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the NHA
Resolution was contrary to law (O.P. Case No. 1459), respondent
Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution
of the NHA. Reconsideration sought by petitioners was denied for lack of
merit. Thus, the present petition wherein the following issues are raised:
I
Whether notice or demand is not mandatory under the circumstances and,
therefore, may be dispensed with by stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the installment
payments made by respondent Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate fiction has
application to the case at bar.
IV
Whether respondent Presidential Executive Assistant committed grave
abuse of discretion in upholding the decision of respondent NHA holding
petitioners solidarily liable for the refund of the installment payments
made by respondent Nazario M. Dumpit thereby denying substantial
justice to the petitioners, particularly petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the
enforcement of the questioned Resolutions and of the Writ of Execution
that had been issued on December 2, 1980. On October 28, 1981, we
dismissed the petition but upon petitioners' motion, reconsidered the
dismissal and gave due course to the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling
the contract to sell without prior notice or demand upon respondent in
view of paragraph 6 thereof which provides-
6. That in case the BUYER falls to satisfy any monthly installment
or any other payments herein agreed upon, the BUYER shall be granted a
month of grace within which to make the payment of the t in arrears
together with the one corresponding to the said month of grace. -It shall
be understood, however, that should the month of grace herein granted
to the BUYER expire, without the payment & corresponding to both
months having been satisfied, an interest of ten (10%) per cent per
annum shall be charged on the amounts the BUYER should have paid; it is
understood further, that should a period of NINETY (90) DAYS elapse to
begin from the expiration of the month of grace hereinbefore mentioned,
and the BUYER shall not have paid all the amounts that the BUYER should
have paid with the corresponding interest up to the date, the SELLER shall
have the right to declare this contract cancelled and of no effect without
notice, and as a consequence thereof, the SELLER may dispose of the
lot/lots covered by this Contract in favor of other persons, as if this
contract had never been entered into. In case of such cancellation of this
Contract, all the amounts which may have been paid by the BUYER in
accordance with the agreement, together with all the improvements made
on the premises, shall be considered as rents paid for the use and
occupation of the above mentioned premises and for liquidated damages
suffered by virtue of the failure of the BUYER to fulfill his part of this
agreement : and the BUYER hereby renounces his right to demand or
reclaim the return of the same and further obligates peacefully to vacate
the premises and deliver the same to the SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that judicial
action for the rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of any of its
terms and conditions. However, even in the cited cases, there was at least
a written notice sent to the defaulter informing him of the rescission. As
stressed in University of the Philippines vs. Walfrido de los Angeles 3 the
act of a party in treating a contract as cancelled should be made known to
the other. We quote the pertinent excerpt:
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved in account of infractions by the other
contracting party must be made known to the other and is always
provisional being ever subject to scrutiny and review by the proper court.
If the other party denies that rescission is justified it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation (Ocejo Perez & Co.,
vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de San
Juan De Dios, et al., 84 Phil 820) since in every case where the
extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action win be necessary, as
without it, the extrajudicial resolution will remain contestable and subject
to judicial invalidation unless attack thereon should become barred by
acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general
rule requiring judicial action (v. Footnote, Padilla Civil Law, Civil Code
Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of
abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the initiative of
instituting suit, instead of the rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4 , reading:
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex propio vigore
confer upon the former the right to take possession thereof if objected to
without judicial intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that
extrajudicial rescission has legal effect where the other party does not
oppose it.6 Where it is objected to, a judicial determination of the issue is
still necessary.
In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination. 7
In this case, private respondent has denied that rescission is justified and
has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as
held in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that
"there was no contract to rescind in court because from the moment the
petitioner defaulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto rescinded." However,
it should be noted that even in that case notice in writing was made to
the vendee of the cancellation and annulment of the contract although the
contract entitled the seller to immediate repossessing of the land upon
default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer. (Emphasis supplied).
The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and
private respondent had no freedom to stipulate. A waiver must be certain
and unequivocal, and intelligently made; such waiver follows only where
liberty of choice has been fully accorded. 9 Moreover, it is a matter of
public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such
onerous and oppressive condition to buyers of real estate on installment
payments.
Regarding the second issue on refund of the installment payments made
by private respondent. Article 1385 of the Civil Code provides:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to
restore.
Neither sham rescission take place when the things which are the object
of the contract are legally in the possession of third persons who did not
act in bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss.

As a consequence of the resolution by petitioners, rights to the lot should
be restored to private respondent or the same should be replaced by
another acceptable lot. However, considering that the property had
already been sold to a third person and there is no evidence on record
that other lots are still available, private respondent is entitled to the
refund of installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 10 It would be
most inequitable if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate the proceeds of
the second sale to another.
We come now to the third and fourth issues regarding the personal
liability of petitioner Onstott who was made jointly and severally liable
with petitioner corporation for refund to private respondent of the total
amount the latter had paid to petitioner company. It is basic that a
corporation is invested by law with a personality separate and distinct
from those of the persons composing it as wen as from that of any other
legal entity to which it may be related. 11 As a general rule, a corporation
may not be made to answer for acts or liabilities of its stockholders or
those of the legal entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when it is used as a
shield to further an end subversive of justice 12 ; or for purposes that
could not have been intended by the law that created it 13 ; or to defeat
public convenience, justify wrong, protect fraud, or defend crime. 14 ; or
to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the
law or perpetuate deception 16 ; or as an alter ego, adjunct or business
conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied,
albeit mistakenly, on paragraph 6 (supra) of its contract with private
respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the
President of the corporation and he a to be the controlling stockholder. No
sufficient proof exists on record that said petitioner used the corporation
to defraud private respondent. He cannot, therefore, be made personally
liable just because he "appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another corporation is not of itself
sufficient ground for disregarding the separate corporate personality. 18
In this respect then, a modification of the Resolution under review is
called for.
WHEREFORE, the questioned Resolution of respondent public official,
dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to
refund to respondent Nazario M. Dumpit the amount of P13,722.50, with
interest at twelve (12%) percent per annum from November 8, 1974, the
date of the filing of the Complaint. The temporary Restraining Order
heretofore issued is hereby lifted.
No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. L-42283 March 18, 1985
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,
vs.
URSULA TORRES CALASANZ, ET AL., defendants-appellants.
GUTIERREZ, JR., J.:
This is an appeal from the decision of the Court of First Instance of Rizal,
Seventh Judicial District, Branch X, declaring the contract to sell as not
having been validly cancelled and ordering the defendants-appellants to
execute a final deed of sale in favor of the plaintiffs-appellees, to pay
P500.00 attorney's fees and costs.
The facts being undisputed, the Court of Appeals certified the case to us
since only pure questions of law have been raised for appellate review.
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and
Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and
Teofila Juani entered into a contract to sell a piece of land located in
Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the
execution of the contract. They promised to pay the balance in monthly
installments of P 41.20 until fully paid, the installments being due and
payable on the 19th day of each month. The plaintiffs-appellees paid the
monthly installments until July 1966, when their aggregate payment
already amounted to P4,533.38. On numerous occasions, the defendants-
appellants accepted and received delayed installment payments from the
plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-
appellees a letter requesting the remittance of past due accounts.
On January 28, 1967, the defendants-appellants cancelled the said
contract because the plaintiffs-appellees failed to meet subsequent
payments. The plaintiffs' letter with their plea for reconsideration of the
said cancellation was denied by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First
Instance of Rizal, Seventh Judicial District, Branch X to compel the
defendants-appellants to execute in their favor the final deed of sale
alleging inter alia that after computing all subsequent payments for the
land in question, they found out that they have already paid the total
amount of P4,533.38 including interests, realty taxes and incidental
expenses for the registration and transfer of the land.
The defendants-appellants alleged in their answer that the complaint
states no cause of action and that the plaintiffs-appellees violated
paragraph six (6) of the contract to sell when they failed and refused to
pay and/or offer to pay the monthly installments corresponding to the
month of August, 1966 for more than five (5) months, thereby
constraining the defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-appellees.
The dispositive portion of the decision reads:
WHEREFORE, based on the foregoing considerations, the Court hereby
renders judgment in favor of the plaintiffs and against the defendants
declaring that the contract subject matter of the instant case was NOT
VALIDLY cancelled by the defendants. Consequently, the defendants are
ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay
the sum of P500.00 by way of attorney's fees. Costs against the
defendants.
A motion for reconsideration filed by the defendants-appellants was
denied.
As earlier stated, the then Court of Appeals certified the case to us
considering that the appeal involves pure questions of law.
The defendants-appellants assigned the following alleged errors of the
lower court:
First Assignment of Error
THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL
(ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY
CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS
NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT
ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE
IN FAVOR OF THE PLAINTIFF.
Third Assignment of Error
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY
PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES.
The main issue to be resolved is whether or not the contract to sell has
been automatically and validly cancelled by the defendants-appellants.
The defendants-appellants submit that the contract was validly cancelled
pursuant to paragraph six of the contract which provides:
xxx xxx xxx
SIXTH.—In case the party of the SECOND PART fails to satisfy any
monthly installments, or any other payments herein agreed upon, he is
granted a month of grace within which to make the retarded payment,
together with the one corresponding to the said month of grace; it is
understood, however, that should the month of grace herein granted to
the party of the SECOND PART expired; without the payments
corresponding to both months having been satisfied, an interest of 10%
per annum will be charged on the amounts he should have paid; it is
understood further, that should a period of 90 days elapse, to begin from
the expiration of the month of grace herein mentioned, and the party of
SECOND PART has not paid all the amounts he should have paid with the
corresponding interest up to that date, the party of the FIRST PART has
the right to declare this contract cancelled and of no effect, and as
consequence thereof, the party of the FIRST PART may dispose of the
parcel of land covered by this contract in favor of other persons, as if this
contract had never been entered into. In case of such cancellation of the
contract, all the amounts paid in accordance with this agreement together
with all the improvements made on the premises, shall be considered as
rents paid for the use and occupation of the above mentioned premises,
and as payment for the damages suffered by failure of the party of the
SECOND PART to fulfill his part of the agreement; and the party of the
SECOND PART hereby renounces all his right to demand or reclaim the
return of the same and obliges himself to peacefully vacate the premises
and deliver the same to the party of the FIRST PART. (Emphasis supplied
by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to pay
the August, 1966 installment despite demands for more than four (4)
months. The defendants-appellants point to Jocson v. Capitol Subdivision
(G.R. No. L-6573, February 28, 1955) where this Court upheld the right of
the subdivision owner to automatically cancel a contract to sell on the
strength of a provision or stipulation similar to paragraph 6 of the contract
in this case. The defendants-appellants also argue that even in the
absence of the aforequoted provision, they had the right to cancel the
contract to sell under Article 1191 of the Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling
does not apply. They state that paragraph 6 of the contract to sell is
contrary to law insofar as it provides that in case of specified breaches of
its terms, the sellers have the right to declare the contract cancelled and
of no effect, because it granted the sellers an absolute and automatic
right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations
provides:
The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party the right to
rescind the contract upon the failure of the other to perform the obligation
assumed thereunder. Moreover, there is nothing in the law that prohibits
the parties from entering into an agreement that violation of the terms of
the contract would cause its cancellation even without court intervention
(Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)—
Well settled is, however, the rule that a judicial action for the rescission of
a contract is not necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions'
(Lopez v. Commissioner of Customs, 37 SCRA 327, and cases cited
therein)
Resort to judicial action for rescission is obviously not contemplated . . .
The validity of the stipulation can not be seriously disputed. It is in the
nature of a facultative resolutory condition which in many cases has been
upheld by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504).
The rule that it is not always necessary for the injured party to resort to
court for rescission of the contract when the contract itself provides that it
may be rescinded for violation of its terms and conditions, was qualified
by this Court in University of the Philippines v. De los Angeles, (35 SCRA
102) where we explained that:
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court.
If the other party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated many consider
it resolved or rescinded, and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the final judgment of
the corresponding court that will conclusively and finally settle whether
the action taken was or was not correct in law. ... .
We see no conflict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co.
v. International Banking Corp., 37 Phil. 631; Republic v. Hospital de San
Juan de Dios, et al., 84 Phil. 820) since in every case where the
extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action will be necessary, as
without it, the extrajudicial resolution will remain contestable and subject
to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
The right to rescind the contract for non-performance of one of its
stipulations, therefore, is not absolute. In Universal Food Corp. v. Court of
Appeals (33 SCRA 1) the Court stated that—
The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827)
The question of whether a breach of a contract is substantial depends
upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-
23707 & L-23720, Jan. 17, 1968). ... .
The defendants-appellants state that the plaintiffs-appellees violated
Section two of the contract to sell which provides:
SECOND.—That in consideration of the agreement of sale of the above
described property, the party of the SECOND PART obligates himself to
pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE
HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency, plus interest
at the rate of 7% per annum, as follows:
(a) The amount of THREE HUNDRED NINETY TWO only (P392.00)
when this contract is signed; and
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or
before the 19th day of each month, from this date until the total payment
of the price above stipulated, including interest.
because they failed to pay the August installment, despite demand, for
more than four (4) months.
The breach of the contract adverted to by the defendants-appellants is so
slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the
monthly installments for a period of almost nine (9) years. In other words,
in only a short time, the entire obligation would have been paid.
Furthermore, although the principal obligation was only P 3,920.00
excluding the 7 percent interests, the plaintiffs- appellees had already
paid an aggregate amount of P 4,533.38. To sanction the rescission made
by the defendants-appellants will work injustice to the plaintiffs-
appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It
would unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
also militates against the unilateral act of the defendants-appellants in
cancelling the contract.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is business, yet, it
cannot be denied that this subdivision is likewise purposely done to afford
those landless, low income group people of realizing their dream of a little
parcel of land which they can really call their own.
The defendants-appellants cannot rely on paragraph 9 of the contract
which provides:
NINTH.-That whatever consideration of the party of the FIRST PART may
concede to the party of the SECOND PART, as not exacting a strict
compliance with the conditions of paragraph 6 of this contract, as well as
any other condonation that the party of the FIRST PART may give to the
party of the SECOND PART with regards to the obligations of the latter,
should not be interpreted as a renunciation on the part of the party of the
FIRST PART of any right granted it by this contract, in case of default or
non-compliance by the party of the SECOND PART.
The defendants-appellants argue that paragraph nine clearly allows the
seller to waive the observance of paragraph 6 not merely once, but for as
many times as he wishes.
The defendants-appellants' contention is without merit. We agree with the
plaintiffs-appellees that when the defendants-appellants, instead of
availing of their alleged right to rescind, have accepted and received
delayed payments of installments, though the plaintiffs-appellees have
been in arrears beyond the grace period mentioned in paragraph 6 of the
contract, the defendants-appellants have waived and are now estopped
from exercising their alleged right of rescission. In De Guzman v. Guieb
(48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long arrearages, neither
they nor their predecessor, Teodoro de Guzman, even took steps to
cancel the option or to eject the appellees from the home-lot in question.
On the contrary, it is admitted that the delayed payments were received
without protest or qualification. ... Under these circumstances, We cannot
but agree with the lower court that at the time appellees exercised their
option, appellants had already forfeited their right to invoke the above-
quoted provision regarding the nullifying effect of the non-payment of six
months rentals by appellees by their having accepted without qualification
on July 21, 1964 the full payment by appellees of all their arrearages.
The defendants-appellants contend in the second assignment of error that
the ledger of payments show a balance of P671,67 due from the plaintiffs-
appellees. They submit that while it is true that the total monthly
installments paid by the plaintiffs-appellees may have exceeded
P3,920.00, a substantial portion of the said payments were applied to the
interests since the contract specifically provides for a 7% interest per
annum on the remaining balance. The defendants-appellants rely on
paragraph 2 of the contract which provides:
SECOND.—That in consideration of the agreement of sale of the above
described property, the party of the SECOND PART obligates himself to
pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE
HUNDRED TWENTY ONLY (P 3,920.00), Philippine Currency, plus interest
at the rate of 7% per annum ... . (Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their submission that
since they have already paid the defendants-appellants a total sum of
P4,533.38, the defendants-appellants must now be compelled to execute
the final deed of sale pursuant to paragraph 12 of the contract which
provides:
TWELFTH.—That once the payment of the sum of P3,920.00, the total
price of the sale is completed, the party to the FIRST PART will execute in
favor of the party of the SECOND PART, the necessary deed or deeds to
transfer to the latter the title of the parcel of land sold, free from all hens
and encumbrances other than those expressly provided in this contract; it
is understood, however, that au the expenses which may be incurred in
the said transfer of title shall be paid by the party of the SECOND PART,
as above stated.
Closely related to the second assignment of error is the submission of the
plaintiffs-appellees that the contract herein is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into by
the parties has some characteristics of a contract of adhesion. The
defendants-appellants drafted and prepared the contract. The plaintiffs-
appellees, eager to acquire a lot upon which they could build a home,
affixed their signatures and assented to the terms and conditions of the
contract. They had no opportunity to question nor change any of the
terms of the agreement. It was offered to them on a "take it or leave it"
basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:
xxx xxx xxx
... (W)hile generally, stipulations in a contract come about after deliberate
drafting by the parties thereto. . . . there are certain contracts almost all
the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the
only participation of the party is the signing of his signature or his
"adhesion" thereto. Insurance contracts, bills of lading, contracts of sale
of lots on the installment plan fall into this category. (Paras, Civil Code of
the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-
appellees to pay the defendants-appellants the sum of P3,920.00 plus 7%
interest per annum, it is likewise true that under paragraph 12 the seller is
obligated to transfer the title to the buyer upon payment of the P3,920.00
price sale.
The contract to sell, being a contract of adhesion, must be construed
against the party causing it. We agree with the observation of the
plaintiffs-appellees to the effect that "the terms of a contract must be
interpreted against the party who drafted the same, especially where such
interpretation will help effect justice to buyers who, after having invested
a big amount of money, are now sought to be deprived of the same thru
the prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect which, in
essence, and in its entirety is most unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00
and the plaintiffs-appellees have already paid an aggregate amount of
P4,533.38, the courts should only order the payment of the few remaining
installments but not uphold the cancellation of the contract. Upon
payment of the balance of P671.67 without any interest thereon, the
defendants-appellants must immediately execute the final deed of sale in
favor of the plaintiffs-appellees and execute the necessary transfer
documents as provided in paragraph 12 of the contract. The attorney's
fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit. The
decision appealed from is AFFIRMED with the modification that the
plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY
ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any
interests. Costs against the defendants-appellants.
SO ORDERED.
SECOND DIVISION
G.R. No. L-22590 March 20, 1987
SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants,
vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL
NIETO, JR., defendants-appellees.
Felipe Torres and Associates for plaintiffs-appellants.
V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil
Promotions, Inc.
RESOLUTION
FERNAN, J.:
This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr.,
from the decision dated July 25, 1963 and other rulings and orders of the
then Court of First Instance [CFI] of Rizal, Quezon City, Branch V in Civil
Case No. Q-5063, entitled "Solomon Boysaw and Alfredo M. Yulo, Jr.,
Plaintiffs versus Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel
Nieto, Jr., Defendants," which, among others, ordered them to jointly and
severally pay defendant-appellee Manuel Nieto, Jr., the total sum of
P25,000.00, broken down into P20,000.00 as moral damages and
P5,000.00 as attorney's fees; the defendants-appellees Interphil
Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as unrealized profits,
P33,369.72 as actual damages and P5,000.00 as attorney's fees; and
defendant-appellee Lope Sarreal, Sr., the additional amount of P20,000.00
as moral damages aside from costs.
The antecedent facts of the case are as follows:
On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum,
signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a
contract to engage Gabriel "Flash" Elorde in a boxing contest for the
junior lightweight championship of the world.
It was stipulated that the bout would be held at the Rizal Memorial
Stadium in Manila on September 30, 1961 or not later than thirty [30]
days thereafter should a postponement be mutually agreed upon, and
that Boysaw would not, prior to the date of the boxing contest, engage in
any other such contest without the written consent of Interphil
Promotions, Inc.
On May 3, 1961, a supplemental agreement on certain details not covered
by the principal contract was entered into by Ketchum and Interphil.
Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar agreement,
that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on
September 30, 1961.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round
non-title bout held in Las Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n., session
of March 14, 1963].
On July 2, 1961, Ketchum on his own behalf and on behalf of his
associate Frank Ruskay, assigned to J. Amado Araneta the managerial
rights over Solomon Boysaw.
Presumably in preparation for his engagement with Interphil, Solomon
Boysaw arrived in the Philippines on July 31, 1961.
On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr.
the managerial rights over Boysaw that he earlier acquired from Ketchum
and Ruskay. The next day, September 2, 1961, Boysaw wrote Lope
Sarreal, Sr. informing him of his arrival and presence in the Philippines.
On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of
his acquisition of the managerial rights over Boysaw and indicating his
and Boysaw's readiness to comply with the boxing contract of May 1,
1961. On the same date, on behalf of Interphil Sarreal wrote a letter to
the Games and Amusement Board [GAB] expressing concern over reports
that there had been a switch of managers in the case of Boysaw, of which
he had not been formally notified, and requesting that Boysaw be called
to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties concerned
culminating in the issuance of its decision to schedule the Elorde-Boysaw
fight for November 4, 1961. The USA National Boxing Association which
has supervisory control of all world title fights approved the date set by
the GAB
Yulo, Jr. refused to accept the change in the fight date, maintaining his
refusal even after Sarreal on September 26, 1961, offered to advance the
fight date to October 28, 1961 which was within the 30-day period of
allowable postponements provided in the principal boxing contract of May
1, 1961.
Early in October 1961, Yulo, Jr. exchanged communications with one
Mamerto Besa, a local boxing promoter, for a possible promotion of the
projected Elorde-Boysaw title bout. In one of such communications dated
October 6, 1961, Yulo informed Besa that he was willing to approve the
fight date of November 4,1961 provided the same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the fight
contemplated in the May 1, 1961 boxing contract never materialized.
As a result of the foregoing occurrences, on October 12, 1961, Boysaw
and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the CFI
of Rizal [Quezon City Branch] for damages allegedly occasioned by the
refusal of Interphil and Sarreal, aided and abetted by Nieto, Jr., then GAB
Chairman, to honor their commitments under the boxing contract of May
1,1961.
On the first scheduled date of trial, plaintiff moved to disqualify Solicitor
Jorge Coquia of the Solicitor General's Office and Atty. Romeo Edu of the
GAB Legal Department from appearing for defendant Nieto, Jr. on the
ground that the latter had been sued in his personal capacity and,
therefore, was not entitled to be represented by government counsel. The
motion was denied insofar as Solicitor General Coquia was concerned, but
was granted as regards the disqualification of Atty. Edu.
The case dragged into 1963 when sometime in the early part of said year,
plaintiff Boysaw left the country without informing the court and, as
alleged, his counsel. He was still abroad when, on May 13, 1963, he was
scheduled to take the witness stand. Thus, the lower court reset the trial
for June 20, 1963. Since Boysaw was still abroad on the later date,
another postponement was granted by the lower court for July 23, 1963
upon assurance of Boysaw's counsel that should Boysaw fail to appear on
said date, plaintiff's case would be deemed submitted on the evidence
thus far presented.
On or about July 16, 1963, plaintiffs represented by a new counsel, filed
an urgent motion for postponement of the July 23, 1963 trial, pleading
anew Boysaw's inability to return to the country on time. The motion was
denied; so was the motion for reconsideration filed by plaintiffs on July
22, 1963.
The trial proceeded as scheduled on July 23, 1963 with plaintiff's case
being deemed submitted after the plaintiffs declined to submit
documentary evidence when they had no other witnesses to present.
When defendant's counsel was about to present their case, plaintiff's
counsel after asking the court's permission, took no further part in the
proceedings.
After the lower court rendered its judgment dismissing the plaintiffs'
complaint, the plaintiffs moved for a new trial. The motion was denied,
hence, this appeal taken directly to this Court by reason of the amount
involved.
From the errors assigned by the plaintiffs, as having been committed by
the lower court, the following principal issues can be deduced:
1. Whether or not there was a violation of the fight contract of
May 1, 1961; and if there was, who was guilty of such violation.
2. Whether or not there was legal ground for the postponement of
the fight date from September 1, 1961, as stipulated in the May 1, 1961
boxing contract, to November 4,1961,
3. Whether or not the lower court erred in the refusing a
postponement of the July 23, 1963 trial.
4. Whether or not the lower court erred in denying the appellant's
motion for a new trial.
5. Whether or not the lower court, on the basis of the evidence
adduced, erred in awarding the appellees damages of the character and
amount stated in the decision.
On the issue pertaining to the violation of the May 1, 1961 fight contract,
the evidence established that the contract was violated by appellant
Boysaw himself when, without the approval or consent of Interphil, he
fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo
admitted this fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].
While the contract imposed no penalty for such violation, this does not
grant any of the parties the unbridled liberty to breach it with impunity.
Our law on contracts recognizes the principle that actionable injury
inheres in every contractual breach. Thus:
Those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the terms
thereof, are liable for damages. [Art. 1170, Civil Code].
Also:
The power to rescind obligations is implied, in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him. [Part
1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to reciprocal
obligations. "Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously, so that the performance
of one is conditioned upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1
The power to rescind is given to the injured party. "Where the plaintiff is
the party who did not perform the undertaking which he was bound by
the terms of the agreement to perform 4 he is not entitled to insist upon
the performance of the contract by the defendant, or recover damages by
reason of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581,
Emphasis supplied].
Another violation of the contract in question was the assignment and
transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo,
Jr., of the managerial rights over Boysaw without the knowledge or
consent of Interphil.
The assignments, from Ketchum to Araneta, and from Araneta to Yulo,
were in fact novations of the original contract which, to be valid, should
have been consented to by Interphil.
Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will
of the latter, but not without the consent of the creditor. [Art. 1293, Civil
Code, emphasis supplied].
That appellant Yulo, Jr., through a letter, advised Interphil on September
5, 1961 of his acquisition of the managerial rights over Boysaw cannot
change the fact that such acquisition, and the prior acquisition of such
rights by Araneta were done without the consent of Interphil. There is no
showing that Interphil, upon receipt of Yulo's letter, acceded to the
"substitution" by Yulo of the original principal obligor, who is Ketchum.
The logical presumption can only be that, with Interphil's letter to the GAB
expressing concern over reported managerial changes and requesting for
clarification on the matter, the appellees were not reliably informed of the
changes of managers. Not being reliably informed, appellees cannot be
deemed to have consented to such changes.
Under the law when a contract is unlawfully novated by an applicable and
unilateral substitution of the obligor by another, the aggrieved creditor is
not bound to deal with the substitute.
The consent of the creditor to the change of debtors, whether in
expromision or delegacion is an, indispensable requirement . . .
Substitution of one debtor for another may delay or prevent the fulfillment
of the obligation by reason of the inability or insolvency of the new
debtor, hence, the creditor should agree to accept the substitution in
order that it may be binding on him.
Thus, in a contract where x is the creditor and y is the debtor, if y enters
into a contract with z, under which he transfers to z all his rights under
the first contract, together with the obligations thereunder, but such
transfer is not consented to or approved by x, there is no novation. X can
still bring his action against y for performance of their contract or
damages in case of breach. [Tolentino, Civil Code of the Philippines, Vol.
IV, p. 3611.
From the evidence, it is clear that the appellees, instead of availing
themselves of the options given to them by law of rescission or refusal to
recognize the substitute obligor Yulo, really wanted to postpone the fight
date owing to an injury that Elorde sustained in a recent bout. That the
appellees had the justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts aforestated. Under
the circumstances, the appellees' desire to postpone the fight date could
neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights on the matter
rested with the appellees, and appellants' claims, if any, to the
enforcement of the contract hung entirely upon the former's pleasure and
sufferance, the GAB did not act arbitrarily in acceding to the appellee's
request to reset the fight date to November 4, 1961. It must be noted
that appellant Yulo had earlier agreed to abide by the GAB ruling.
In a show of accommodation, the appellees offered to advance the
November 4, 1961 fight to October 28, 1961 just to place it within the 30-
day limit of allowable postponements stipulated in the original boxing
contract.
The refusal of appellants to accept a postponement without any other
reason but the implementation of the terms of the original boxing contract
entirely overlooks the fact that by virtue of the violations they have
committed of the terms thereof, they have forfeited any right to its
enforcement.
On the validity of the fight postponement, the violations of the terms of
the original contract by appellants vested the appellees with the right to
rescind and repudiate such contract altogether. That they sought to seek
an adjustment of one particular covenant of the contract, is under the
circumstances, within the appellee's rights.
While the appellants concede to the GAB's authority to regulate boxing
contests, including the setting of dates thereof, [pp. 44-49, t.s.n., Jan. 17,
1963], it is their contention that only Manuel Nieto, Jr. made the decision
for postponement, thereby arrogating to himself the prerogatives of the
whole GAB Board.
The records do not support appellants' contention. Appellant Yulo himself
admitted that it was the GAB Board that set the questioned fight date.
[pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must be stated that one of the
strongest presumptions of law is that official duty has been regularly
performed. In this case, the absence of evidence to the contrary, warrants
the full application of said presumption that the decision to set the Elorde-
Boysaw fight on November 4, 1961 was a GAB Board decision and not of
Manuel Nieto, Jr. alone.
Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice
it to say that the same issue had been raised before Us by appellants in a
petition for certiorari and prohibition docketed as G.R. No. L-21506. The
dismissal by the Court of said petition had laid this issue to rest, and
appellants cannot now hope to resurrect the said issue in this appeal.
On the denial of appellant's motion for a new trial, we find that the lower
court did not commit any reversible error.
The alleged newly discovered evidence, upon which the motion for new
trial was made to rest, consists merely of clearances which Boysaw
secured from the clerk of court prior to his departure for abroad. Such
evidence cannot alter the result of the case even if admitted for they can
only prove that Boysaw did not leave the country without notice to the
court or his counsel.
The argument of appellants is that if the clearances were admitted to
support the motion for a new trial, the lower court would have allowed
the postponement of the trial, it being convinced that Boysaw did not
leave without notice to the court or to his counsel. Boysaw's testimony
upon his return would, then, have altered the results of the case.
We find the argument without merit because it confuses the evidence of
the clearances and the testimony of Boysaw. We uphold the lower court's
ruling that:
The said documents [clearances] are not evidence to offset the evidence
adduced during the hearing of the defendants. In fact, the clearances are
not even material to the issues raised. It is the opinion of the Court that
the 'newly discovered evidence' contemplated in Rule 37 of the Rules of
Court, is such kind of evidence which has reference to the merits of the
case, of such a nature and kind, that if it were presented, it would alter
the result of the judgment. As admitted by the counsel in their pleadings,
such clearances might have impelled the Court to grant the postponement
prayed for by them had they been presented on time. The question of the
denial of the postponement sought for by counsel for plaintiffs is a moot
issue . . . The denial of the petition for certiorari and prohibition filed by
them, had he effect of sustaining such ruling of the court . . . [pp. 296-
297, Record on Appeal].
The testimony of Boysaw cannot be considered newly discovered evidence
for as appellees rightly contend, such evidence has been in existence
waiting only to be elicited from him by questioning.
We cite with approval appellee's contention that "the two qualities that
ought to concur or dwell on each and every of evidence that is invoked as
a ground for new trial in order to warrant the reopening . . . inhered
separately on two unrelated species of proof" which "creates a legal
monstrosity that deserves no recognition."
On the issue pertaining to the award of excessive damages, it must be
noted that because the appellants wilfully refused to participate in the
final hearing and refused to present documentary evidence after they no
longer had witnesses to present, they, by their own acts prevented
themselves from objecting to or presenting proof contrary to those
adduced for the appellees.
On the actual damages awarded to appellees, the appellants contend that
a conclusion or finding based upon the uncorroborated testimony of a
lone witness cannot be sufficient. We hold that in civil cases, there is no
rule requiring more than one witness or declaring that the testimony of a
single witness will not suffice to establish facts, especially where such
testimony has not been contradicted or rebutted. Thus, we find no reason
to disturb the award of P250,000.00 as and for unrealized profits to the
appellees.
On the award of actual damages to Interphil and Sarreal, the records bear
sufficient evidence presented by appellees of actual damages which were
neither objected to nor rebutted by appellants, again because they
adamantly refused to participate in the court proceedings.
The award of attorney's fees in the amount of P5,000.00 in favor of
defendant-appellee Manuel Nieto, Jr. and another P5,000.00 in favor of
defendants-appellees Interphil Promotions, Inc. and Lope Sarreal, Sr.,
jointly, cannot also be regarded as excessive considering the extent and
nature of defensecounsels' services which involved legal work for sixteen
[16] months.
However, in the matter of moral damages, we are inclined to uphold the
appellant's contention that the award is not sanctioned by law and well-
settled authorities. Art. 2219 of the Civil Code provides:
Art. 2219. Moral damages may be recovered in the following analogous
cases:
1) A criminal offense resulting in physical injuries;
2) Quasi-delict 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 Art. 309.
10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30, 32,
34 and 35.
The award of moral damages in the instant case is not based on any of
the cases enumerated in Art. 2219 of the Civil Code. The action herein
brought by plaintiffs-appellants is based on a perceived breach committed
by the defendants-appellees of the contract of May 1, 1961, and cannot,
as such, be arbitrarily considered as a case of malicious prosecution.
Moral damages cannot be imposed on a party litigant although such
litigant exercises it erroneously because if the action has been erroneously
filed, such litigant may be penalized for costs.
The grant of moral damages is not subject to the whims and caprices of
judges or courts. The court's discretion in granting or refusing it is
governed by reason and justice. In order that a person may be made
liable to the payment of moral damages, the law requires that his act be
wrongful. 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 exercise it erroneously. For these the law taxes costs.
[Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G., No. 13, p.
5818.]
WHEREFORE, except for the award of moral damages which is herein
deleted, the decision of the lower court is hereby affirmed.
SO ORDERED.
SECOND DIVISION
June 30, 1987
G.R. No. L-67881
PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to,
The MANUFACTURERS BANK AND TRUST COMPANY, petitioner-appellant
vs.
INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division), and
JOSE W. DIOKNO and CARMEN I. DIOKNO, respondents-appellees.
PARAS, J.:
This is an appeal by certiorari from the Decision 1 of the respondent court
dated May 31, 1984 in CA-G.R. CV No. 67205 entitled "Jose W. Diokno
and Carmen I. Diokno, plaintiffs-appellees, vs. The Manufacturers Bank
and Trust Company, defendant-appellant" which affirmed the decision 2
of the Court of First Instance of Rizal (Pasig Branch XXI) in Civil Case No.
19660, the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against
the defendant, ordering the defendant Manufacturers Bank & Trust
Company:
1. To deliver to the plaintiffs the parcel of land described in
Contract to Sell No. VV-18-(a) in the total area of 5,936 square meters
and to execute in their favor the necessary deed of absolute sale therefor;
2. To pay the sum of P556,160.00 less the amount due on the
contract (i.e., the unpaid installments from December, 1966 until the
contract would have been fully paid together with interest thereon up to
March 25, 1974) with legal interest on said balance from April 22, 1974
until the same is fully paid;
3. P50,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages;
5. Ten per cent (10%) of the judgment by way of attorney's fees;
and
6. Costs of suit.
SO ORDERED. (Rollo, pp. 14-15)
The following are the undisputed facts of the case:
1. On April 18, 1961, Hacienda Benito, Inc. (petitioner's
predecessor-in-interest) as vendor, and private respondents, as vendees
executed Contract to Sell No. VV-18 (a) (Exh. A) over a parcel of land with
an area of 5,936 square meters of the Victoria Valley Subdivision in
Antipolo, Rizal, subject to the following terms and conditions, among
others, relevant to this petition:
(a) The total contract price for the entire 5,936 square-meter-lot
was P47,488.00;
(b) Of the total sum, an amount of Pl2,182.00 was applied thereto
so as to reduce the balance on the principal to P35,306.00;
(c) The aforesaid balance, together with the stipulated interest of
6% per annum, was to be paid over a period of 8-1/2 years starting on
May 1, 1961 at a monthly installment of P446.10 until fully paid-although
this monthly installment was later adjusted to the higher amount of
P797.86, starting on April 1, 1965;
(d) Upon complete payment by the vendee of the total price of the
lot the vendor shall execute a deed of sale in favor of the vendee;
(e) The contract shall be considered automatically rescinded and
cancelled and of no further force and effect upon failure of the vendee to
pay when due, three or more consecutive installments as stipulated
therein or to comply with any of the terms and conditions thereof, in
which case the vendor shall have right to resell the said parcel of land to
any person interested, forfeiting payments made by the vendee as
liquidated damages.
2. On July 27, 1965, petitioner sent to private respondents a
Statement of Account (Exh. F-1) requesting remittance of installment
arrears showing partial payments for the month of April 1965 and May
1965 and complete default for June, July and August, 1965;
3. Likewise, on August 31, 1965, petitioner sent to private
respondents another Statement of Account with the additional entries of
interests and the incoming installment for September, 1965;
4. In partial compliance with the aforesaid Statements of Account,
private respondents paid on September 3, 1965 the sum of Pl,397.00
which answers for the installments for the months of June 1965 to August
1965;
5. On March 17, 1967, petitioner sent private respondents a
simple demand letter showing a delinquency in their monthly
amortizations for 19 months (Exh. 9);
6. On April 17, 1967, petitioner again sent private respondents a
demand letter showing total arrearages of 20 months as of April 1965, but
this time advising that unless they up-date their installment payments,
petitioner shall be constrained to avail of the automatic rescission clause
(Exh. 10);
7. On May 17, 1967, private respondents made a partial payment
of P2,000.00 with the request for an extension of 60 days from May 17,
1967 within which to up-date their account (Exh. 10-a);
8. On July 17, 1967, private respondents wrote a letter to
petitioner asking another extension of sixty (60) days to pay all their
arrearages and update their payments under Contract No. VV-18 (a);
9. On September 18, 1967, private respondents paid P5,000.00 as
partial payment and requested an extension of another 30 days from
September 18, 1967 within which to update their account (Exh. 10-c);
10. On October 19, 1967, however, private respondents failed to
update their arrearages and did not request for any further extension of
time within which to update their account;
11. After almost three (3) years, or on July 16, 1970, private
respondents wrote a letter to petitioner requesting for a Statement of
Account as of date in arrears and interests(Exh. 10-d), to which petitioner
made a reply on July 22, 1970 (Exh. 11);
12. On May 19, 1971, petitioner wrote a letter to private
respondents, reminding them of their balance which will be due on the
31st instant (Exh. J);
13. More than two (2) years from May 19, 1971 or on July 5, 1973,
private respondents wrote a letter to petitioner expressing their desire to
fully settle their obligation, requesting for a complete statement of all the
balance due including interests;
14. On March 14, 1974, private respondents wrote a letter
reiterating their request in their letter dated July 5, 1973, which has not
been complied with despite several follow-ups (Exh. O);
15. On March 25, 1974, private respondent Carmen I. Diokno went
to see the Chairman of petitioner's Board of Directors on the matter
informing him that she had a buyer who was ready to purchase the
property,
16. On March 27, 1974, petitioner wrote a letter to private
respondents, informing them that the contract to sell had been
rescinded/cancelled by a notarial act, to which letter was annexed a
"Demand for Rescission of Contract", notarized on March 25, 1974 (Exh.
12);
17. In view of the foregoing, private respondents filed Complaint for
Specific Performance with Damages to compel petitioner to execute a
deed of sale in their favor, and to deliver to them the title of the lot in
question.
18. Petitioner filed an Answer with counterclaim for damages in the
form of attorney's fees, claiming that Contract to Sell No. VV-18(a) has
been automatically rescinded or cancelled by virtue of private
respondents' failure to pay the installments due in the contract under the
automatic rescission clause.
19. After trial, the lower court rendered a decision in private
respondents' favor, holding that petitioner could not rescind the contract
to sell, because: (a) petitioner waived the automatic rescission clause by
accepting payment on September 1967, and by sending letters advising
private respondents of the balances due, thus, looking forward to
receiving payments thereon; (b) in any event, until May 18, 1977 (when
petitioner made arrangements for the acquisition of additional 870 square
meters) petitioner could not have delivered the entire area contracted for,
so, neither could private respondents be liable in default, citing Art. 1 189
of the New Civil Code. (Decision, pp. 141-148, Amended Record on
Appeal).
Said decision was affirmed on appeal.
Hence, this Petition For Review on Certiorari, raising the main issue of
whether or not the Contract to Sell No. VV-18(a) was rescinded or
cancelled, under the automatic rescission clause contained therein.
We find the petition meritless. While it is true that in the leading case of
Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers
Building Co., 43 SCRA 93 the Supreme Court reiterated among other
things that a contractual provision allowing "automatic rescission"
(without prior need of judicial rescission, resolution or cancellation) is
VALID, the remedy of one who feels aggrieved being to go to Court for
the cancellation of the rescission itself, in case the rescission is found
unjustified under the circumstances, still in the instant case there is a
clear WAIVER of the stipulated right of "automatic rescission," as
evidenced by the many extensions granted private respondents by the
petitioner. In all these extensions, the petitioner never called attention to
the proviso on "automatic rescission."
WHEREFORE the assailed decision is hereby AFFIRMED but the actual
damages are hereby reduced to P250,000.00 (the profit private
respondents could have earned had the land been delivered to them at
the time they were ready to pay all their arrearages) minus whatever
private respondents still owe the petitioner (with the stipulated 6% annual
interest up to March 25, 1974) as a result of the contract.
SO ORDERED.
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO
T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS
BANK, in his capacity as statutory receiver of Island Savings Bank,
petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO,
respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the
decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February
11, 1977, modifying the decision dated February 15, 1972 of the Court of
First Instance of Agusan, which dismissed the petition of respondent
Sulpicio M. Tolentino for injunction, specific performance or rescission,
and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation
of its legal department, approved the loan application for P80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the
same day a real estate mortgage over his 100-hectare land located in
Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which
mortgage was annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in semi-
annual installments for a period of 3 years, with 12% annual interest. It
was required that Sulpicio M. Tolentino shall use the loan proceeds solely
as an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00
loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita
Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract
at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this
pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23,
1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The
Bank, thru its vice-president and treasurer, promised repeatedly the
release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank
against its deposit liabilities, the Board, by unanimous vote, decided as
follows:
1) To prohibit the bank from making new loans and investments
[except investments in government securities] excluding extensions or
renewals of already approved loans, provided that such extensions or
renewals shall be subject to review by the Superintendent of Banks, who
may impose such limitations as may be necessary to insure correction of
the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings
Bank failed to put up the required capital to restore its solvency, issued
Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank (pp. 48-49,
rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an application for the
extra-judicial foreclosure of the real estate mortgage covering the 100-
hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court
of First Instance of Agusan for injunction, specific performance or
rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the
P80,000.00 loan, he is entitled to specific performance by ordering Island
Savings Bank to deliver the P63,000.00 with interest of 12% per annum
from April 28, 1965, and if said balance cannot be delivered, to rescind
the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety
bond, issued a temporary restraining order enjoining the Island Savings
Bank from continuing with the foreclosure of the mortgage (pp. 86-87,
rec.).
On January 29, 1969, the trial court admitted the answer in intervention
praying for the dismissal of the petition of Sulpicio M. Tolentino and the
setting aside of the restraining order, filed by the Central Bank and by the
Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its
decision, finding unmeritorious the petition of Sulpicio M. Tolentino,
ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus
legal interest and legal charges due thereon, and lifting the restraining
order so that the sheriff may proceed with the foreclosure (pp. 135-136.
rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M.
Tolentino, modified the Court of First Instance decision by affirming the
dismissal of Sulpicio M. Tolentino's petition for specific performance, but it
ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance
prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt
covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists,
can his real estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other (Penaco vs. Ruaya, 110
SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and
when one party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When
Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965,
he signified his willingness to pay the P80,000.00 loan. From such date,
the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started on
April 28, 1965, and lasted for a period of 3 years or when the Monetary
Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such
prohibition made it legally impossible for Island Savings Bank to furnish
the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on
June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt
the default of Island Savings Bank in complying with its obligation of
releasing the P63,000.00 balance because said resolution merely
prohibited the Bank from making new loans and investments, and
nowhere did it prohibit island Savings Bank from releasing the balance of
loan agreements previously contracted. Besides, the mere pecuniary
inability to fulfill an engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190
[1918]). And, the mere fact of insolvency of a debtor is never an excuse
for the non-fulfillment of an obligation but 'instead it is taken as a breach
of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of
the pre-deducted interest amounting to P4,800.00 for the supposed
P80,000.00 loan covering a 6-month period cannot be taken as a waiver
of his right to collect the P63,000.00 balance. The act of Island Savings
Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of
the P80,000.00 loan was released. A person cannot be legally charged
interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino
of the pre-deducted interest was an exercise of his right to it, which right
exist independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the
loan collateral cannot exempt it from complying with its reciprocal
obligation to furnish the entire P80,000.00 loan. 'This Court previously
ruled that bank officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural Bank of Caloocan,
Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's
officials and employees that before they approve the loan application of
their customers, they must investigate the existence and evaluation of the
properties being offered as a loan security. The recent rush of events
where collaterals for bank loans turn out to be non-existent or grossly
over-valued underscore the importance of this responsibility. The mere
reliance by bank officials and employees on their customer's
representation regarding the loan collateral being offered as loan security
is a patent non-performance of this responsibility. If ever bank officials
and employees totally reIy on the representation of their customers as to
the valuation of the loan collateral, the bank shall bear the risk in case the
collateral turn out to be over-valued. The representation made by the
customer is immaterial to the bank's responsibility to conduct its own
investigation. Furthermore, the lower court, on objections of' Sulpicio M.
Tolentino, had enjoined petitioners from presenting proof on the alleged
over-valuation because of their failure to raise the same in their pleadings
(pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is
sanctioned by the Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived." Petitioners, thus, cannot raise the same
issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under Article
1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case. But since Island Savings Bank is
now prohibited from doing further business by Monetary Board Resolution
No. 967, WE cannot grant specific performance in favor of Sulpicio M,
Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is concerned,
as there is no doubt that the bank failed to give the P63,000.00. As far as
the partial release of P17,000.00, which Sulpicio M. Tolentino accepted
and executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation
to pay the P17,000.00 loan when it falls due. His failure to pay the
overdue amortizations under the promissory note made him a party in
default, hence not entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had not signed
a promissory note setting the date for payment of P17,000.00 within 3
years, he would be entitled to ask for rescission of the entire loan because
he cannot possibly be in default as there was no date for him to perform
his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not paying his overdue P17,000.00
debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00
debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00,
it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the
same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA
443 [1979]). For the debtor, the consideration of his obligation to pay is
the existence of a debt. Thus, in the accessory contract of real estate
mortgage, the consideration of the debtor in furnishing the mortgage is
the existence of a valid, voidable, or unenforceable debt (Art. 2086, in
relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no debt
yet because Island Savings Bank had not made any release on the loan,
does not make the real estate mortgage void for lack of consideration. It
is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA
122 [1983]). lt may either be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage can take
effect only when the debt secured by it is created as a binding contract to
pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones
on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of such
failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974
ed. CJS, p. 138). Where the indebtedness actually owing to the holder of
the mortgage is less than the sum named in the mortgage, the mortgage
cannot be enforced for more than the actual sum due (Metropolitan Life
Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on
Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P17,000.00
debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article
2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided
among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask
for the proportionate extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt
return the pledge or cancel the mortgage, to the prejudice of other heirs
who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor which
does not obtain in this case. Hence, the rule of indivisibility of a mortgage
cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED
FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN
FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS
P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE
PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST
ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL
PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL
ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED
TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS
HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED
RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
THIRD DIVISION
[G.R. NO. 149338 : July 28, 2008]
UNLAD RESOURCES DEVELOPMENT CORPORATION, UNLAD RURAL BANK
OF NOVELETA, INC., UNLAD COMMODITIES, INC., HELENA Z. BENITEZ,
and CONRADO L. BENITEZ II, Petitioners, v. RENATO P. DRAGON,
TARCISIUS R. RODRIGUEZ, VICENTE D. CASAS, ROMULO M. VIRATA,
FLAVIANO PERDITO, TEOTIMO BENITEZ, ELENA BENITEZ, and ROLANDO
SUAREZ, Respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the Rules of Civil Procedure seeking the reversal of the November 29,
2000 Decision1 and August 2, 2001 Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 54226.
The facts, as found by the CA, are as follows:
On December 29, 1981, the Plaintiffs (herein respondents) and defendant
(herein petitioner) Unlad Resources, through its Chairman[,] Helena Z.
Benitez[,] entered into a Memorandum of Agreement wherein it is
provided that [respondents], as controlling stockholders of the Rural Bank
[of Noveleta] shall allow Unlad Resources to invest four million eight
hundred thousand pesos (P4,800,000.00) in the Rural Bank in the form of
additional equity. On the other hand, [petitioner] Unlad Resources bound
itself to invest the said amount of 4.8 million pesos in the Rural Bank;
upon signing, it was, likewise, agreed that [petitioner] Unlad Resources
shall subscribe to a minimum of four hundred eighty thousand pesos
(P480,000.00) (sic) common or preferred non-voting shares of stock with
a total par value of four million eight hundred thousand pesos
(P4,800,000.00) and pay up immediately one million two hundred
thousand pesos (P1,200,000.00) for said subscription; that the
[respondents], upon the signing of the said agreement shall transfer
control and management over the Rural Bank to Unlad Resources.
According to the [respondents], immediately after the signing of the
agreement, they complied with their obligation and transferred control of
the Rural Bank to Unlad Resources and its nominees and the Bank was
renamed the Unlad Rural Bank of Noveleta, Inc. However, [respondents]
claim that despite repeated demands, Unlad Resources has failed and
refused to comply with their obligation under the said Memorandum of
Agreement when it did not invest four million eight hundred thousand
pesos (P4,800,000.00) in the Rural Bank in the form of additional equity
and, likewise, it failed to immediately infuse one million two hundred
thousand pesos (P1,200,000.00) as paid in capital upon signing of the
Memorandum of Agreement.
On August 10, 1984, the Board of Directors of [petitioner] Unlad
Resources passed Resolution No. 84-041 authorizing the President and
the General Manager to lease a mango plantation situated in Naic, Cavite.
Pursuant to this Resolution, the Bank as [lessee] entered into a Contract
of Lease with the [petitioner] Helena Z. Benitez as [lessor]. The
management of the mango plantation was undertaken by Unlad
Commodities, Inc., a subsidiary of Unlad Resources[,] under a
Management Contract Agreement. The Management Contract provides
that Unlad Commodities, Inc. would receive eighty percent (80%) of the
net profits generated by the operation of the mango plantation while the
Bank's share is twenty percent (20%). It was further agreed that at the
end of the lease period, the Rural Bank shall turn over to the lessor all
permanent improvements introduced by it on the plantation.
xxx
On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents]
regarding [the] Central Bank's approval to retire its [Development Bank of
the Philippines] preferred shares in the amount of P219,000.00 and giving
notice for subscription to proportionate shares. The [respondents]
objected on the grounds that there is already a sinking fund for the
retirement of the said DBP-held preferred shares provided for annually
and that it could deprive the Rural Bank of a cheap source of fund. (sic)
[Respondents] alleged compliance with all of their obligations under the
Memorandum of Agreement in that they have transferred control and
management over the Rural bank to the [petitioners] and are ready,
willing and able to allow [petitioners] to subscribe to a minimum of four
hundred eighty thousand (P480,000.00) (sic) common or preferred non-
voting shares of stocks with a total par value of four million eight hundred
thousand pesos (P4,800,000.00) in the Rural Bank. However, [petitioners]
have failed and refused to subscribe to the said shares of stock and to pay
the initial amount of one million two hundred thousand pesos
(P1,200,000.00) for said subscription.3
On July 3, 1987, herein respondents filed before the Regional Trial Court
(RTC) of Makati City, Branch 61 a Complaint4 for rescission of the
agreement and the return of control and management of the Rural Bank
from petitioners to respondents, plus damages. After trial, the RTC
rendered a Decision,5 the dispositive portion of which provides:
WHEREFORE, Premises Considered, judgment is hereby rendered, as
follows:
1. The Memorandum of Agreement dated 29 December 1991 (sic) is
hereby declared rescinded and:
(a) Defendant Unlad Resources Development Corporation is hereby
ordered to immediately return control and management over the Rural
Bank of Noveleta, Inc. to Plaintiffs; and
(b) Unlad Rural Bank of Noveleta, Inc. is hereby ordered to return to
Defendants the sum of One Million Three Thousand Seventy Pesos
(P1,003,070.00)
2. The Director for Rural Banks of the Bangko Sentral ng Pilipinas is
hereby appointed as Receiver of the Rural Bank;

3. Unlad Rural Bank of Noveleta, Inc. is hereby enjoined from placing the
retired DBP-held preferred shares available for subscription and the same
is hereby ordered to be placed under a sinking fund;
4. Defendant Unlad Resources Development Corporation is hereby
ordered to pay plaintiffs the following:
(a) actual compensatory damages amounting to Four Million Six Hundred
One Thousand Seven Hundred Sixty - Five and 38/100 Pesos
(P4,601,765.38);
(b) moral damages in the amount of Five Hundred Thousand Pesos
(P500,000.00);
(c) exemplary and corrective damages in the amount of One Hundred
Thousand Pesos (P100,000.00); and
(d) attorney's fees in the sum of (P100,000.00), plus cost of suit.
SO ORDERED.6
Herein petitioners appealed the ruling to the CA. Respondents filed a
Motion to Dismiss and, subsequently, a Supplemental Motion to Dismiss,
which were both denied. Later, however, the CA, in a Decision dated
November 29, 2000, dismissed the appeal for lack of merit and affirmed
the RTC Decision in all respects. Petitioners' motion for reconsideration
was denied in CA Resolution dated August 2, 2001.
Petitioners are now before this Court alleging that the CA committed a
grave and serious reversible error in issuing the assailed Decision.
Petitioners question the jurisdiction of the trial court, something they have
done from the beginning of the controversy, contending that the issues
that respondents raised before the trial court are intra-corporate in nature
and are, therefore, beyond the jurisdiction of the trial court. They point
out that respondents' complaint charged them with mismanagement and
alleged dissipation of the assets of the Rural Bank. Since the complaint
challenges corporate actions and decisions of the Board of Directors and
prays for the recovery of the control and management of the Rural Bank,
these matters fall outside the jurisdiction of the trial court. Thus, they
posit that the judgment of the trial court, as affirmed by the CA, is null
and void and may be impugned at any time.
Petitioners further argue that the action instituted by respondents had
already prescribed, because Article 1389 of the Civil Code provides that an
action for rescission must be commenced within four years. They claim
that the trial court and the CA mistakenly applied Article 1144 of the Civil
Code which treats of prescription of actions in general. They submit that
Article 1389, which deals specifically with actions for rescission, is the
applicable law.
Moreover, petitioners assert that they have fully complied with their
undertaking under the subject Memorandum of Agreement, but that the
undertaking has become a "legal and factual impossibility" because the
authorized capital stock of the Rural Bank was increased from P1.7 million
to only P5 million, and could not accommodate the subscription by
petitioners of P4.8 million worth of shares. Such deficiency, petitioners
contend, is with the knowledge and approval of respondent Renato P.
Dragon and his nominees to the Board of Directors.
Petitioners, without conceding the propriety of the judgment of rescission,
also argue that the subject Memorandum of Agreement could not just be
ordered rescinded without the corresponding order for the restitution of
the parties' total contributions and/or investments in the Rural Bank.
Finally, they assail the award for moral and exemplary damages, as well
as the award for attorney's fees, as bereft of factual and legal bases given
that, in the body of the Decision, it was merely stated that respondents
suffered moral damages without any discussion or explanation of, nor any
justification for such award. Likewise, the matter of attorney's fees was
not at all discussed in the body of the Decision. Petitioners claim that
pursuant to the prevailing rule, attorney's fees cannot be recovered in the
absence of stipulation.
On the other hand, respondents declare that immediately after the signing
of the Memorandum of Agreement, they complied with their obligation
and transferred control of the Rural Bank to petitioner Unlad Resources
and its nominees, but that, despite repeated demands, petitioners have
failed and refused to comply with their concomitant obligations under the
Agreement.
Respondents narrate that shortly after taking over the Rural Bank,
petitioners Conrado L. Benitez II and Jorge C. Cerbo, as President and
General Manager, respectively, entered into a Contract of Lease over the
Naic, Cavite mango plantation, and that, as a consequence of this
venture, the bank incurred expenses amounting to P475,371.57,
equivalent to 25.76% of its capital and surplus. The respondents further
assert that the Central Bank found this undertaking not inherently
connected with bona fide rural banking operations, nor does it fall within
the allied undertakings permitted under Section 26 of Central Bank
Circular No. 741 and Section 3379 of the Manual of Regulations of the
Central Bank. Thus, respondents contend that this circumstance, coupled
with the fact that petitioners Helena Z. Benitez and Conrado L. Benitez II
were also stockholders and members of the Board of Directors of Unlad
Resources, Unlad Rural Bank, and Unlad Commodities at that time, is
adequate proof that the Rural Bank's management had every intention of
diverting, dissipating, and/or wasting the bank's assets for petitioners'
own gain.
They likewise allege that because of the failure of petitioners to comply
with their obligations under the Memorandum of Agreement, respondents,
with the exception of Tarcisius Rodriguez, lodged a complaint with the
Securities and Exchange Commission (SEC), seeking rescission of the
Agreement, damages, and the appointment of a management committee,
but the SEC dismissed the complaint for lack of jurisdiction.
Furthermore, when the Rural Bank informed respondents of the Central
Bank's approval of its plan to retire its DBP-held preferred shares, giving
notices for subscription to proportionate shares, respondents objected on
the ground that there was already a sinking fund for the retirement of
said shares provided for annually, and that the retirement would deprive
the petitioner Rural Bank of a cheap source of fund. It was at that point,
respondents claim, that they instituted the aforementioned Complaint
against petitioners before the RTC of Makati.
The respondents also seek the outright dismissal of this Petition for lack of
verification as to petitioners Helena Z. Benitez and Conrado L. Benitez II;
lack of proper verification as to petitioners Unlad Resources Development
Corporation, Unlad Rural Bank of Noveleta, Inc., and Unlad Commodities,
Inc.; lack of proper verified statement of material dates; and lack of
proper sworn certification of non-forum shopping.
They support the proposition that Tijam v. Sibonghanoy7 applies, and that
petitioners are indeed estopped from questioning the jurisdiction of the
trial court. They also share the lower court's view that it is Article 1144 of
the Civil Code, and not Article 1389, that is applicable to this case. Finally,
respondents allege that the failure of petitioner Unlad Resources to
comply with its undertaking under the Agreement, as uniformly found by
the trial court and the CA, may no longer be assailed in the instant
Petition, and that the award of moral and exemplary damages and
attorney's fees is justified.
The Petition is bereft of merit. We uphold the Decision of the CA affirming
that of the RTC.
First, the subject of jurisdiction. The main issue in this case is the
rescission of the Memorandum of Agreement. This is to be distinguished
from respondents' allegation of the alleged mismanagement and
dissipation of corporate assets by the petitioners which is based on the
prayer for receivership over the bank. The two issues, albeit related, are
obviously separate, as they pertain to different acts of the parties
involved. The issue of receivership does not arise from the parties'
obligations under the Memorandum of Agreement, but rather from
specific acts attributed to petitioners as members of the Board of
Directors of the Bank. Clearly, the rescission of the Memorandum of
Agreement is a cause of action within the jurisdiction of the trial courts,
notwithstanding the fact that the parties involved are all directors of the
same corporation.
Still, the petitioners insist that the trial court had no jurisdiction over the
complaint because the issues involved are intra-corporate in nature.
This argument miserably fails to persuade. The law in force at the time of
the filing of the case was Presidential Decree (P.D.) 902-A, Section 5(b) of
which vested the Securities and Exchange Commission with original and
exclusive jurisdiction to hear and decide cases involving controversies
arising out of intra-corporate relations.8 Interpreting this statutorily
conferred jurisdiction on the SEC, this Court had occasion to state:
Nowhere in said decree do we find even so much as an [intimation] that
absolute jurisdiction and control is vested in the Securities and Exchange
Commission in all matters affecting corporations. To uphold the
respondent's arguments would remove without legal imprimatur from the
regular courts all conflicts over matters involving or affecting corporations,
regardless of the nature of the transactions which give rise to such
disputes. The courts would then be divested of jurisdiction not by reason
of the nature of the dispute submitted to them for adjudication, but solely
for the reason that the dispute involves a corporation. This cannot be
done.9
It is well to remember that the respondents had actually filed with the
SEC a case against the petitioners which, however, was dismissed for lack
of jurisdiction due to the pendency of the case before the RTC.10 The
SEC's Order dismissing the respondents' complaint is instructive:
From the foregoing allegations, it is apparent that the present action
involves two separate causes of action which are interrelated, and the
resolution of which hinges on the very document sought to be rescinded.
The assertion that the defendants failed to comply with their contractual
undertaking and the claim for rescission of the contract by the plaintiffs
has, in effect, put in issue the very status of the herein defendants as
stockholders of the Rural Bank. The issue as to whether or not the
defendants are stockholders of the Rural Bank is a pivotal issue to be
determined on the basis of the Memorandum of Agreement. It is a
prejudicial question and a logical antecedent to confer jurisdiction to this
Commission.
It is to be noted, however, that determination of the contractual
undertaking of the parties under a contract lies with the Regional Trial
Courts and not with this Commission. x x x11
Be that as it may, this point has been rendered moot by Republic Act
(R.A.) No. 8799, also known as the Securities Regulation Code. This law,
which took effect in 2000, has transferred jurisdiction over such disputes
to the RTC. Specifically, R.A. 8799 provides:
Sec. 5. Powers and Functions of the Commission
xxx
5.2. The Commission's jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby transferred to the
Courts of general jurisdiction or the appropriate Regional Trial Court:
Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final resolution
which should be resolved within one (1) year from the enactment of this
Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed.
Section 5 of P.D. No. 902-A reads, thus:
Sec. 5. In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and
other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction
to hear and decide cases involving:
a) Devices and schemes employed by or any acts of the board of
directors, business associates, its officers or partnership, amounting to
fraud and misrepresentation which may be detrimental to the interest of
the public and/or of the stockholder, partners, members of associations or
organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members, or associates; between any
or all of them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors, trustees,
officers or managers of such corporations, partnerships or associations.
Consequently, whether the cause of action stems from a contractual
dispute or one that involves intra-corporate matters, the RTC already has
jurisdiction over this case. In this light, the question of whether the
doctrine of estoppel by laches applies, as enunciated by this Court in
Tijam v. Sibonghanoy, no longer finds relevance.
Second, the issue of prescription. Petitioners further contend that the
action for rescission has prescribed under Article 1398 of the Civil Code,
which provides:
Article 1389. The action to claim rescission must be commenced within
four years x x x.
This is an erroneous proposition. Article 1389 specifically refers to
rescissible contracts as, clearly, this provision is under the chapter entitled
"Rescissible Contracts."
In a previous case,12 this Court has held that Article 1389:
applies to rescissible contracts, as enumerated and defined in Articles
1380 and 1381. We must stress however, that the "rescission" in Article
1381 is not akin to the term "rescission" in Article 1191 and Article 1592.
In Articles 1191 and 1592, the rescission is a principal action which seeks
the resolution or cancellation of the contract while in Article 1381, the
action is a subsidiary one limited to cases of rescission for lesion as
enumerated in said article.
The prescriptive period applicable to rescission under Articles 1191 and
1592, is found in Article 1144, which provides that the action upon a
written contract should be brought within ten years from the time the
right of action accrues.
Article 1381 sets out what are rescissible contracts, to wit:
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants
or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.
The Memorandum of Agreement subject of this controversy does not fall
under the above enumeration. Accordingly, the prescriptive period that
should apply to this case is that provided for in Article 1144, to wit:
Article 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
xxx
Based on the records of this case, the action was commenced on July 3,
1987, while the Memorandum of Agreement was entered into on
December 29, 1981. Article 1144 specifically provides that the 10-year
period is counted from "the time the right of action accrues." The right of
action accrues from the moment the breach of right or duty occurs.13
Thus, the original Complaint was filed well within the prescriptive period.
We now proceed to determine if the trial court, as affirmed by the CA,
correctly ruled for the rescission of the subject Agreement.
Petitioners contend that they have fully complied with their obligation
under the Memorandum of Agreement. They allege that due to
respondents' failure to increase the capital stock of the corporation to an
amount that will accommodate their undertaking, it had become
impossible for them to perform their end of the Agreement.
Again, petitioners' contention is untenable. There is no question that
petitioners herein failed to fulfill their obligation under the Memorandum
of Agreement. Even they admit the same, albeit laying the blame on
respondents.
It is true that respondents increased the Rural Bank's authorized capital
stock to only P5 million, which was not enough to accommodate the P4.8
million worth of stocks that petitioners were to subscribe to and pay for.
However, respondents' failure to fulfill their undertaking in the agreement
would have given rise to the scenario contemplated by Article 1191 of the
Civil Code, which reads:
Article 1191. The power to rescind reciprocal obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
Thus, petitioners should have exacted fulfillment from the respondents or
asked for the rescission of the contract instead of simply not performing
their part of the Agreement. But in the course of things, it was the
respondents who availed of the remedy under Article 1191, opting for the
rescission of the Agreement in order to regain control of the Rural Bank.
Having determined that the rescission of the subject Memorandum of
Agreement was in order, the trial court ordered petitioner Unlad
Resources to return to respondents the management and control of the
Rural Bank and for the latter to return the sum of P1,003,070.00 to
petitioners.
Mutual restitution is required in cases involving rescission under Article
1191. This means bringing the parties back to their original status prior to
the inception of the contract.14 Article 1385 of the Civil Code provides,
thus:
ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obligated to restore.
Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act
in bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss.
This Court has consistently ruled that this provision applies to rescission
under Article 1191:
[S]ince Article 1385 of the Civil Code expressly and clearly states that
"rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its
interest," the Court finds no justification to sustain petitioners' position
that said Article 1385 does not apply to rescission under Article 1191.15
Rescission has the effect of "unmaking a contract, or its undoing from the
beginning, and not merely its termination."16 Hence, rescission creates
the obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever he may
be obliged to restore. To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to
their relative positions as if no contract has been made.17
Accordingly, when a decree for rescission is handed down, it is the duty of
the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his
original situation. The rescission has the effect of abrogating the contract
in all parts.18
Clearly, the petitioners failed to fulfill their end of the agreement, and
thus, there was just cause for rescission. With the contract thus
rescinded, the parties must be restored to the status quo ante, that is,
before they entered into the Memorandum of Agreement.
Finally, we must resolve the question of the propriety of the award for
damages and attorney's fees.
The trial court's Decision mentioned that the "evidence is clear and
convincing that Plaintiffs (herein respondents) suffered actual
compensatory damages amounting to Four Million Six Hundred One
Thousand Seven Hundred Sixty-Five and 38/100 Pesos (P4,601,765.38)
moral damages and attorney's fees."
Though not discussed in the body of the Decision, the records show that
the amount of P4,601,765.38 pertains to actual losses incurred by
respondents as a result of petitioners' non-compliance with their
undertaking under the Memorandum of Agreement. On this point,
respondent Dragon presented testimonial and documentary evidence to
prove the actual amount of damages, thus:
Atty. Cruz
Q: Was there any consequence to you Mr. Dragon due to any breach of
the agreement marked as Exhibit A?
A: Yes sir I could have earned thru the shares of stock that I have, or we
have or we had by this time amounting to several millions pesos (sic).
They have only put in the whole amount that we have agreed upon (sic).
Q: In this connection did you cause computation of these losses that you
incured (sic)?
A: Yes sir.
xxx
Q: Will you please kindly go through this computation and explain the
same to the Honorable Court?
A: Number 1 is an Organ (sic) income from the sale of 60% (sic) at only
Three Hundred Ninety Nine Thousand Two hundred for Nineteen
Thousand Nine Hundred Sixty shares which should have been sold if it
were sold to others for P50.00 each for a total of Nine Hundred Ninety
Eight Thousand but sold to them for Three Hundred Ninety nine (sic)
Thousand two (sic) Hundred only and of which only Three Hundred
Twenty Four Thousand Six Hundred was paid to me. Therefore, there was
a difference of Six Hundred Seven Three (sic) Thousand Four Hundred
(P673,400.00). On the basis of the commulative (sic) lost income every
year from March 1982 from the amount of Seven Six Hundred (sic)
Seventy Three Thousand four (sic) Hundred (P673,400.) (sic) there would
be a discommulative (sic) lost (sic) of One Million Ninety Three Thousand
Nine Hundred Fifty Two Pesos and forty two (sic) centavos
(P1,093,952.42). Please note that the interest imputed is only at 12% per
annum but it should had (sic) been much higher. In 1984 to 1986 (sic)
alone rates went as higher (sic) as 40% per annum from the so called
(sic) Jobo Bills and yet we only computed the imputed income or lost
income at 12% per annum and then there is a 40% participation on the
unrealized earnings due to their failure to put in an stabilized (sic)
earnings. You will note that if they put in 4.8 million Pesos and it would be
earning money, 40% of that will go to us because 40% of the bank would
be ours and 60% would be there (sic). But because they did put in the 4.8
million our 40% did not earn up to that extent and computed again on the
basis of 12% the amount (sic) on the commulative (sic) basis up to
September 1990 is 2 million three hundred fifty two thousand sixty five
pesos and four centavos (sic). (P2,352,065.04). You will note again that
the average return of investment of any Cavite based (sic) Rural Bank has
been no less than 20% or about 30% per annum. And we computed only
the earnings at 12%.
xxx
There were loans granted fraudulently to members of the board and some
borrowers which were not all charged interest for several years and on
this basis we computed a 40% shares (sic) on the foregone income
interest income (sic) on all these fraudulently granted loans, without
interest being collected and none a project (sic) among a plantation
project (sic), which was funded by the bank but nothing was given back
to the bank for several hundred thousand of pesos (sic). And we arrived
an (sic) estimate of the foregone interest income a total of One Million
Two Hundred Five Thousand Eight Hundred Sixty None Pesos and eighty
one (sic) centavos and 40 percent share of this (sic) would be Four
Hundred Eighty Two Thousand Three Hundred Forty Seven Pesos and
Ninety Two Centavos. All in all our estimate of the damages we have
suffered is Four Million Six Hundred one (sic) Thousand Seven Hundred
Sixty Five Pesos and thirty eight (sic) centavos (P4,601,765.38).19
More importantly, petitioners never raised in issue before the CA this
award of actual compensatory damages. They did not raise the matter of
damages in their Appellants' Brief, while in their Motion for
Reconsideration, they questioned only the award of moral and exemplary
damages, not the award of actual damages. Even in the present Petition
for Review, what petitioners raised was the propriety of the award of
moral and exemplary damages and attorney's fees.
On the grant of moral and exemplary damages and attorney's fees, we
note that the trial court's Decision did not discuss the basis for the award.
No mention of these damages awarded - or their factual basis - is made in
the body of the Decision, only in the dispositive portion. Be that as it may,
we have examined the records of the case and found that the award must
be sustained.
It should be remembered that there are two separate causes of action in
this case: one for rescission of the Memorandum of Agreement and the
other for receivership based on alleged mismanagement of the company
by the plaintiffs. While the award of actual compensatory damages was
based on the breach of duty under the Memorandum of Agreement, the
award of moral damages appears to be based on petitioners'
mismanagement of the company when they became members of the
Board of Directors of the Rural Bank.
Thus, the trial court said:
Under the Rural Bank's management, a systematic diversion of the bank's
assets was conceived whereby: (a) The Rural Bank's funds would be
funneled in the development and improvements of the Benitez Mango
Plantation in the guise of an investment in said plantation; (b) Of the net
profits earned from the plantation's operations, the Rural Bank's share
therein, although it shoulders all of the financial risks, would be a measly
twenty percent (20%) thereof while UCI, without investing a single
centavo, would earn eighty percent (80%) of the said profits. Thus, the
bulk of the profits of the mango plantation was also sought to be diverted
to an entity wherein Helena Z. Benitez and Conrado L. Benitez II are not
only principal stockholders but also the Chairman of the Board of Directors
and President, respectively. Moreover, Defendant Helena Z. Benitez would
be entitled to receive, under the lease contract, rentals in the total
amount of Three Hundred Thousand Pesos (P300,000.00) or ten percent
(10%) of gross profits, whichever is higher. (c) Finally, at the end of the
lease period, the Rural Bank was obliged to turn over to the lessor
(Helena Z. Benitez) all permanent improvements introduced by it on the
plantation at no cost to Ms. Benitez.
Further, in its report dated March 13, 1985, the [Central Bank] after
conducting its general examination upon the Rural Bank ordered the latter
to "explain satisfactorily why the bank engage (sic) in an undertaking not
inherently connected with [bona fide] rural banking operations nor within
the allowed allied undertakings," contrary to the provisions of Section
3379 of the CB Manual of Regulations and Section 26 of CB Circular No.
741, otherwise known as the "Circular on Rural Banks[.]"
The aforestated CB report states that "total exposure to this project now
amounts to P475,371.57 or 25.76% of its capital and surplus[.]"
Notwithstanding a finding by the CB of the undertaking's illegality, the
defendants nevertheless persisted in pursuing the Mango Plantation
Project and never acceded to the call of [the] CB for it to desist from
further implementing the said project. It was only after another letter
from the CB was received when defendant finally shelved the mango
plantation project.
The result of the aforestated report, as well as the actuations of the
Defendants in not yielding to the order of the CB, adequately establishes
not only a violation of CB Rules (specifically Section 26, Circular 741 and
Section 3379 of the CB Manual of Regulations, but also, that it has caused
undue damage both to the Rural bank as well as its stockholders.
The initial CB report should have sufficiently apprised Defendants of the
illegality of the undertaking. Defendants, therefore have the duty to
terminate the Mango Plantation Project. They, however, [chose] to
continue it, apparently to further their [own] interest in the scheme for
their own personal benefit and gain, an act which is clearly contrary to the
fiduciary nature of their relationship with the corporation in which they are
officers. Such persistence proves evident bad faith, or a breach of a
known duty through some motive or ill-will, which resulted in the further
dissipation and wastage of the Rural Bank's assets, unjustly depriving
Plaintiffs of their fair share in the assets of the bank.
All the foregoing satisfactorily affirms the allegations of Plaintiffs to the
effect that these contracts were but part of a device employed by
Defendants to siphon [off] the Rural bank for their personal gain.20
Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of precise pecuniary
computation, moral damages may be recovered if they are the proximate
result of the defendant's wrongful act or omission.21 Article 2220 of the
Civil Code further provides that moral damages may be recovered in case
of a breach of contract where the defendant acted in bad faith.22
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 2219.23 chanrobles virtual law library
Accordingly, based upon the findings of the trial court, it is clear that
respondents are entitled to moral damages. The acts attributed to the
petitioners as directors of the Rural Bank manifestly prejudiced the
respondents causing detriment to their standing as directors and
stockholders of the Rural Bank.
Exemplary damages cannot be recovered as a matter of right.24 While
these need not be proved, respondents must show that they are entitled
to moral, temperate or compensatory damages before the court may
consider the question of awarding exemplary damages.25 We find that
respondents are indeed entitled to moral damages; thus, the award for
exemplary damages is in order.
Anent the award for attorney's fees, Article 2208 of the Civil Code states:
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.
Hence, the award of exemplary damages is in itself sufficient justification
for the award of attorney's fees.26

WHEREFORE, the foregoing premises considered, the petition is hereby
DENIED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 54226 are AFFIRMED.
SO ORDERED.
THIRD DIVISION
G.R. No. 207133, March 09, 2015
SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner, v. JAYNE YU,
Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules
of Civil Procedure which seeks to reverse and set aside the Decision 1
dated January 24, 2013 and Resolution 2 dated April 30, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty Development
Corporation entered into a Contract to Sell on July 25, 1995 covering one
residential condominium unit, specifically Unit 3007 of the Palace of
Makati, located at P. Burgos corner Caceres Sts., Makati City, with an area
of 137.30 square meters for the total contract price of P7,519,371.80,
payable in equal monthly installments until September 24, 1997.
Respondent likewise purchased a parking slot in the same condominium
building for P600,000.00.
On September 24, 1997, respondent paid the full purchase price of
P7,519,371.80 for the unit while making a down payment of P20,000.00
for the parking lot. However, notwithstanding full payment of the contract
price, petitioner failed to complete and deliver the subject unit on time.
This prompted respondent to file a Complaint for Rescission of Contract
with Damages before the Housing and Land Use Regulatory Board
(HLURB) Expanded National Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision 3
dismissing respondent�s complaint. It ruled that rescission is not
permitted for slight or casual breach of the contract but only for such
breaches as are substantial and fundamental as to defeat the object of
the parties in making the agreement. It disposed of the case as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
ordering [petitioner] the following:
To finish the subject unit as pointed out in the inspection Report
To pay [respondent] the following:
the amount of P100,000 as compensatory damages for the minor
irreversible defects in her unit [respondent], or, in the alternative, conduct
the necessary repairs on the subject unit to conform to the intended
specifications;
moral damages of P20,000.00
Attorney�s fees of P20,000.00
On the other hand, [respondent] is hereby directed to immediately update
her account insofar as the parking slot is concerned, without interest,
surcharges or penalties charged therein.
All other claims and counterclaims are hereby dismissed for lack of merit.
IT IS SO ORDERED. 4
Respondent then elevated the matter to the HLURB Board of
Commissioners.
In a Decision 5 dated March 30, 2006, the HLURB Board of
Commissioners reversed and set aside the ruling of the HLURB ENCRFO
and ordered the rescission of the Contract to Sell,
ratiocinating:chanRoblesvirtualLawlibrary
We find merit in the appeal. The report on the ocular inspection
conducted on the subject condominium project and subject unit shows
that the amenities under the approved plan have not yet been provided as
of May 3, 2002, and that the subject unit has not been delivered to
[respondent] as of August 28, 2002, which is beyond the period of
development of December 1999 under the license to sell. The delay in the
completion of the project as well as of the delay in the delivery of the unit
are breaches of statutory and contractual obligations which entitles
[respondent] to rescind the contract, demand a refund and payment of
damages.
The delay in the completion of the project in accordance with the license
to sell also renders [petitioner] liable for the payment of administrative
fine.
Wherefore, the decision of the Office below is set aside and a new
decision is rendered as follows:
Declaring the contract to sell as rescinded and directing [petitioner] to
refund to [respondent] the amount of P7,519,371.80 at 6% per annum
from the time of extrajudicial demand on January 05, 2001: subject to
computation and payment of the correct filing
fee;ChanRoblesVirtualawlibrary
Directing [petitioner] to pay respondent attorney�s fees in the amount of
P20,000.00;ChanRoblesVirtualawlibrary
Directing [petitioner] to pay an administrative fine of P10,000.00 for
violation of Section 20, in relation to Section 38 of P.D. 957:
SO ORDERED. 6
Petitioner moved for reconsideration, but the same was denied by the
HLURB Board of Commissioners in a Resolution 7 dated June 14, 2007.
Unfazed, petitioner appealed to the Office of the President (OP) on August
7, 2007.
In a Decision 8 dated November 21, 2007, the OP, through then Deputy
Executive Secretary Manuel Gaite, dismissed petitioner�s appeal on the
ground that it failed to promptly file its appeal before the OP. It
held:chanRoblesvirtualLawlibrary
Records show that [petitioner] received its copy of the 30 March 2006
HLURB Decision on 17 April 2006 and instead of filing an appeal, it opted
first to file a Motion for Reconsideration on 28 April 2006 or eleven (11)
days thereafter. The said motion interrupted the 15-day period to appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution dated 14
June 2007 denying the Motion for Reconsideration.
Based on the ruling in United Overseas Bank Philippines, Inc. v. Ching
(486 SCRA 655), the period to appeal decisions of the HLURB Board of
Commissioners to the Office of the President is 15 days from receipt
thereof pursuant to Section 15 of P.D. No. 957 and Section 2 of P.D. No.
1344 which are special laws that provide an exception to Section 1 of
Administrative Order No. 18.
Corollary thereto, par. 2, Section 1 of Administrative Order No. 18, Series
of 1987 provides that:
The time during which a motion for reconsideration has been pending
with the Ministry/Agency concerned shall be deducted from the period of
appeal. But where such a motion for reconsideration has been filed during
office hours of the last day of the period herein provided, the appeal must
be made within the day following receipt of the denial of said motion by
the appealing party.� (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt on 23
July 2007 of HLURB Resolution dated 14 June 2007, or until 27 July 2007
to file the Notice of Appeal before this Office. However, [petitioner] filed
its appeal only on 7 August 2007 or eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal filed as the
records clearly show that the said appeal was filed out of time.
WHEREFORE, premises considered, [petitioner]�s appeal is hereby
DISMISSED, and the HLURB Decision dated 30 March 2006 and HLURB
Resolution dated 14 June 2007 are hereby AFFIRMED.
SO ORDERED. 9
Immediately thereafter, petitioner filed a motion for reconsideration
against said decision.
In a Resolution 10 dated February 17, 2009, the OP, through then
Executive Secretary Eduardo Ermita, granted petitioner�s motion and set
aside Deputy Executive Secretary Gaite�s decision. It held that after a
careful and thorough evaluation and study of the records of the case, the
OP was more inclined to agree with the earlier decision of the HLURB
ENCRFO as it was more in accord with facts, law and jurisprudence
relevant to the case. Thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for Reconsideration
is hereby GRANTED. The Decision and Resolution of the HLURB Third
Division Board of Commissioners, dated March 30, 2006 and June 14,
2007, respectively, are hereby SET ASIDE, and the HLURB ENCRFO
Decision dated October 19, 2004 is hereby REINSTATED.
SO ORDERED. 11
Respondent sought reconsideration of said resolution, however, the same
was denied by the OP in a Resolution 12 dated August 18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted respondent�s
appeal and reversed and set aside the Order of the OP. The fallo of its
decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Petition is hereby GRANTED. The assailed Resolution
dated 17 February 2009 and Order dated 18 August 2011 of the Office of
the President, in O.P. Case No. 07-H-283, are hereby REVERSED and SET
ASIDE. Accordingly, the Decision dated 30 March 2006 and Resolution
dated 14 June 2007 of the HLURB Board of Commissioners in HLURB Case
No. REM-A-050127-0014, are REINSTATED.
SO ORDERED. 13
Petitioner moved for reconsideration, however, the CA denied the same in
a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the following
grounds to support its petition:chanRoblesvirtualLawlibrary
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL
PRECEPTS THAT:
TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE
AGENCIES; and
RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH
COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT THE OBJECT OF THE
PARTIES IN ENTERING INTO THE AGREEMENT. 14
In essence, the issues are: (1) whether petitioner�s appeal was timely
filed before the OP; and (2) whether rescission of the contract is proper in
the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of
Commissioners to the Office of the President has long been settled in the
case of SGMC Realty Corporation v. Office of the President, 15 as
reiterated in the cases of Maxima Realty Management and Development
Corporation v. Parkway Real Estate Development Corporation 16 and
United Overseas Bank Philippines, Inc. v. Ching. 17
In the aforementioned cases, we ruled that the period to appeal decisions
of the HLURB Board of Commissioners is fifteen (15) days from receipt
thereof pursuant to Section 15 18 of PD No. 957 19 and Section 2 20 of
PD No. 1344 21 which are special laws that provide an exception to
Section 1 of Administrative Order No. 18. Thus, in the SGMC Realty
Corporation v. Office of the President case, the Court
explained:chanRoblesvirtualLawlibrary
As pointed out by public respondent, the aforecited administrative order
allows aggrieved party to file its appeal with the Office of the President
within thirty (30) days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the qualification that
there are no other statutory periods of appeal applicable. If there are
special laws governing particular cases which provide for a shorter or
longer reglementary period, the same shall prevail over the thirty-day
period provided for in the administrative order. This is in line with the rule
in statutory construction that an administrative rule or regulation, in order
to be valid, must not contradict but conform to the provisions of the
enabling law.
We note that indeed there are special laws that mandate a shorter period
of fifteen (15) days within which to appeal a case to public respondent.
First, Section 15 of Presidential Decree No. 957 provides that the decisions
of the National Housing Authority (NHA) shall become final and executory
after the lapse of fifteen (15) days from the date of receipt of the
decision. Second, Section 2 of Presidential Decree No. 1344 states that
decisions of the National Housing Authority shall become final and
executory after the lapse of fifteen (15) days from the date of its receipt.
The latter decree provides that the decisions of the NHA is appealable
only to the Office of the President. Further, we note that the regulatory
functions of NHA relating to housing and land development has been
transferred to Human Settlements Regulatory Commission, now known as
HLURB.� x x x 22
Records show that petitioner received a copy of the HLURB Board of
Commissioners� decision on April 17, 2006. Correspondingly, it had
fifteen days from April 17, 2006 within which to file its appeal or until May
2, 2006. However, on April 28, 2006, or eleven days after receipt of the
HLURB Board of Commissioner�s decision, it filed a Motion for
Reconsideration, instead of an appeal.
Concomitantly, Section 1 of Administrative Order No. 18 23 provides that
the time during which a motion for reconsideration has been pending with
the ministry or agency concerned shall be deducted from the period for
appeal. Petitioner received the HLURB Board Resolution denying its
Motion for Reconsideration on July 23, 2007 and filed its appeal only on
August 7, 2007. Consequently therefore, petitioner had only four days
from July 23, 2007, or until July 27, 2007, within which to file its appeal to
the OP as the filing of the motion for reconsideration merely suspended
the running of the 15-day period. However, records reveal that petitioner
only appealed to the OP on August 7, 2007, or eleven days late. Ergo, the
HLURB Board of Commissioners� decision had become final and
executory on account of the fact that petitioner did not promptly appeal
with the OP.
In like manner, we find no cogent reason to exempt petitioner from the
effects of its failure to comply with the rules.
In an avuncular case, we have held that while the dismissal of an appeal
on purely technical grounds is concededly frowned upon, it bears
emphasizing that the procedural requirements of the rules on appeal are
not harmless and trivial technicalities that litigants can just discard and
disregard at will. Neither being a natural right nor a part of due process,
the rule is settled that the right to appeal is merely a statutory privilege
which may be exercised only in the manner and in accordance with the
provisions of the law. 24
Time and again, we have held that rules of procedure exist for a noble
purpose, and to disregard such rules, in the guise of liberal construction,
would be to defeat such purpose. Procedural rules are not to be disdained
as mere technicalities. They may not be ignored to suit the convenience of
a party. 25 The reason for the liberal application of the rules before quasi-
judicial agencies cannot be used to perpetuate injustice and hamper the
just resolution of the case. Neither is the rule on liberal construction a
license to disregard the rules of procedure. 26
Thus, while there may be exceptions for the relaxation of technical rules
principally geared to attain the ends of justice, petitioner�s fatuous belief
that it had a fresh 15-day period to elevate an appeal with the OP is not
the kind of exceptional circumstance that merits relaxation.
Second, Article 1191 of the Civil Code sanctions the right to rescind the
obligation in the event that specific performance becomes impossible, to
wit:chanRoblesvirtualLawlibrary
Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
Basic is the rule that the right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by
the other party who violates the reciprocity between them. The breach
contemplated in the said provision is the obligor�s failure to comply with
an existing obligation. When the obligor cannot comply with what is
incumbent upon it, the obligee may seek rescission and, in the absence of
any just cause for the court to determine the period of compliance, the
court shall decree the rescission. 27
In the instant case, the CA aptly found that the completion date of the
condominium unit was November 1998 pursuant to License No. 97-12-
3202 dated November 2, 1997 but was extended to December 1999 as
per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the
time of the ocular inspection conducted by the HLURB ENCRFO, the unit
was not yet completely finished as the kitchen cabinets and fixtures were
not yet installed and the agreed amenities were not yet available. Said
inspection report states:chanRoblesvirtualLawlibrary
The unit of the [respondent] is Unit 3007, which was labeled as P2-07, at
the Palace of Makati, located at the corner of P. Burgos Street and
Caceres Street, Poblacion, Makati City. Based on the approved plans, the
said unit is at the 26th Floor.
During the time of inspection, the said unit appears to be completed
except for the installation of kitchen cabinets and fixtures.
Complainant pinpointed to the undersigned the deficiencies as follows:
The delivered unit has high density fiber (HDF) floorings instead of narra
wood parquet.
The [petitioners] have also installed baseboards as borders instead of pink
porrino granite boarders.
Walls are newly painted by the respondent and the alleged obvious signs
of cladding could not be determined.
Window opening at the master bedroom conforms to the approved plans.
As a result it leaves a 3 inches (sic) gap between the glass window and
partitioning of the master�s bedroom.
It was verified and confirmed that a square column replaced the round
column, based on the approved plans.
At the time of inspection, amenities such as swimming pool and change
room are seen at the 31st floor only. These amenities are reflected on the
27th floor plan of the approved condominium plans. Health spa for men
and women, Shiatsu Massage Room, Two-Level Sky Palace Restaurant
and Hall for games and entertainments, replete with billiard tables, a bar,
indoor golf with spectacular deck and karaoke rooms were not yet
provided by the [petitioner].
The [master�s] bedroom door bore sign of poor quality of workmanship
as seen below.
The stairs have been installed in such manner acceptable to the
undersigned.
Bathrooms and powder room have been installed in such manner
acceptable to the undersigned. 28
From the foregoing, it is evident that the report on the ocular inspection
conducted on the subject condominium project and subject unit shows
that the amenities under the approved plan have not yet been provided as
of May 3, 2002, and that the subject unit has not been delivered to
respondent as of August 28, 2002, which is beyond the period of
development of December 1999 under the license to sell. Incontrovertibly,
petitioner had incurred delay in the performance of its obligation
amounting to breach of contract as it failed to finish and deliver the unit
to respondent within the stipulated period. The delay in the completion of
the project as well as of the delay in the delivery of the unit are breaches
of statutory and contractual obligations which entitle respondent to
rescind the contract, demand a refund and payment of damages.
WHEREFORE, premises considered, the instant petition is DENIED. The
Decision dated January 24, 2013 and Resolution dated April 30, 2013 of
the Court of Appeals in CA-G.R. SP No. 121175 are hereby AFFIRMED,
with MODIFICATION that moral damages be awarded in the amount of
P20,000.00
SO ORDERED.
THIRD DIVISION
G.R. No. 196251 July 9, 2014
OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ,
Petitioner,
vs.
BENJAMIN CASTILLO, Respondent.
DECISION
LEONEN, J.:
Trial may be dispensed with and a summary judgment rendered if the
case can be resolved judiciously by plain resort to the pleadings,
affidavits, depositions, and other papers filed by the parties.
This is a petition for review on certiorari1 of the Court of Appeals'
decision2 dated July 20, 2010 and resolution3 dated March 18, 2011 in
CAG.R. CV No. 91244.
The facts as established from the pleadings of the parties are as follows:
Benjamin Castillo was the registered owner of a 346,918-squaremeter
parcel of land located in Laurel, Batangas, covered by Transfer Certificate
of Title No. T-19972.4 The Philippine Tourism Authority allegedly claimed
ownership of the sameparcel of land based on Transfer Certificate of Title
No. T-18493.5 On April 5, 2000, Castillo and Olivarez Realty Corporation,
represented by Dr. Pablo R. Olivarez, entered into a contract of
conditional sale6 over the property. Under the deed of conditional sale,
Castillo agreed to sell his property to Olivarez Realty Corporation for
₱19,080,490.00. Olivarez Realty Corporation agreed toa down payment of
₱5,000,000.00, to be paid according to the following schedule:
DATE AMOUNT
April 8, 2000 500,000.00
May 8, 2000 500,000.00
May 16, 2000 500,000.00
June 8, 2000 1,000,000.00
July 8, 2000 500,000.00
August 8, 2000 500,000.00
September 8, 2000 500,000.00
October 8, 2000 500,000.00
November 8, 2000 500,000.00 7 contract of adhesion, Castillo prayed for rescission of contract under
As to the balance of ₱14,080,490.00, Olivarez Realty Corporation agreed
to pay in 30 equal monthly installments every eighth day of the month
beginning in the month that the parties would receive a decision voiding
the Philippine Tourism Authority’s title to the property.8 Under the deed of
conditional sale, Olivarez RealtyCorporation shall file the action against the
Philippine Tourism Authority "with the full assistance of [Castillo]."9
Paragraph C of the deed of conditional sale provides:
C. [Olivarez Realty Corporation] assumes the responsibility of taking
necessary legal action thru Court to have the claim/title TCT T-18493 of
Philippine Tourism Authority over the above-described property be
nullified and voided; with the full assistance of [Castillo][.]10
Should the action against the Philippine Tourism Authority be denied,
Castillo agreed to reimburse all the amounts paid by Olivarez Realty
Corporation. Paragraph D of the deed of conditional sale provides:
D. In the event that the Court denie[s] the petition against the Philippine
Tourism Authority, all sums received by [Castillo] shall be reimbursed to
[Olivarez Realty Corporation] without interest[.]11
As to the "legitimate tenants" occupying the property, Olivarez Realty
Corporation undertook to pay them "disturbance compensation," while
Castillo undertook to clear the land of the tenants within six months from
the signing of the deed of conditional sale. Should Castillo fail to clear the
land within six months, Olivarez Realty Corporation may suspend its
monthly down payment until the tenants vacate the property. Paragraphs
E and F of the deed of conditional sale provide: E. That [Olivarez Realty
Corporation] shall pay the disturbance compensation to legitimate
agricultural tenants and fishermen occupants which in no case shall
exceed ONE MILLION FIVE HUNDRED THOUSAND (₱1,500,000.00)
PESOS. Said amountshall not form part of the purchase price. In excess of
this amount, all claims shall be for the account of [Castillo];
F. That [Castillo] shall clear the land of [the] legitimate tenants within a
period of six (6) months upon signing of this Contract, and in case
[Castillo] fails, [Olivarez Realty Corporation] shall have the right to
suspend the monthly down payment until such time that the tenants
[move] out of the land[.]12
The parties agreed thatOlivarez Realty Corporation may immediately
occupy the property upon signing of the deed of conditional sale. Should
the contract be cancelled, Olivarez RealtyCorporation agreed to return the
property’s possession to Castillo and forfeit all the improvements it may
have introduced on the property. Paragraph I of the deed of conditional
sale states:
I. Immediately upon signing thisContract, [Olivarez Realty Corporation]
shall be entitled to occupy, possess and develop the subject property. In
case this Contract is canceled [sic], any improvement introduced by [the
corporation] on the property shall be forfeited in favor of [Castillo][.]13
On September 2, 2004, Castillo filed a complaint14 against Olivarez Realty
Corporation and Dr. Olivarez with the Regional Trial Court of Tanauan
City, Batangas.
Castillo alleged that Dr. Olivarez convinced him into selling his property to
Olivarez Realty Corporation on the representation that the corporation
shall be responsible in clearing the property of the tenants and in paying
them disturbance compensation. He further alleged that Dr. Olivarez
solely prepared the deed of conditional sale and that he was made to sign
the contract with its terms "not adequately explained [to him] in
Tagalog."15
After the parties had signed the deed of conditional sale, Olivarez Realty
Corporation immediately took possession of the property. However, the
corporation only paid 2,500,000.00 ofthe purchase price. Contrary to the
agreement, the corporation did not file any action against the Philippine
Tourism Authority to void the latter’s title to the property. The corporation
neither cleared the land of the tenants nor paid them disturbance
compensation. Despite demand, Olivarez Realty Corporation refused to
fully pay the purchase price.16
Arguing that Olivarez Realty Corporation committed substantial breach of
the contract of conditional sale and that the deed of conditional sale was a
Article 1191 of the Civil Code of the Philippines. He further prayed that
Olivarez Realty Corporation and Dr. Olivarez be made solidarily liable for
moral damages, exemplary damages, attorney’s fees, and costs of suit.17
In their answer,18 Olivarez Realty Corporation and Dr. Olivarez admitted
that the corporation only paid ₱2,500,000.00 ofthe purchase price. In
their defense, defendants alleged that Castillo failed to "fully assist"19 the
corporation in filing an action against the Philippine Tourism Authority.
Neither did Castillo clear the property of the tenants within six months
from the signing of the deed of conditional sale. Thus, according to
defendants, the corporation had "all the legal right to withhold the
subsequent payments to [fully pay] the purchase price."20
Olivarez Realty Corporation and Dr. Olivarez prayedthat Castillo’s
complaint be dismissed. By way of compulsory counterclaim, they prayed
for ₱100,000.00 litigation expenses and ₱50,000.00 attorney’s fees.21
Castillo replied to the counterclaim,22 arguing that Olivarez Realty
Corporation and Dr. Olivarez had no right to litigation expenses and
attorney’s fees. According to Castillo, the deed of conditional sale clearly
states that the corporation "assume[d] the responsibility of taking
necessary legal action"23 against the Philippine Tourism Authority, yet the
corporation did not file any case. Also, the corporation did not pay the
tenants disturbance compensation. For the corporation’s failure to fully
pay the purchase price, Castillo claimed that hehad "all the right to pray
for the rescission of the [contract],"24 and he "should not be held liable . .
. for any alleged damages by way of litigation expenses and attorney’s
fees."25
On January 10, 2005, Castillo filed a request for admission,26 requesting
Dr. Olivarez to admit under oath the genuineness of the deed of
conditional sale and Transfer Certificate of Title No. T-19972. He likewise
requested Dr. Olivarez to admit the truth of the following factual
allegations:
1. That Dr. Olivarez is the president of Olivarez Realty Corporation;
2. That Dr. Olivarez offered to purchase the parcel of land from Castillo
and that he undertook to clear the property of the tenants and file the
court action to void the Philippine Tourism Authority’s title to the property;
3. That Dr. Olivarez caused the preparation of the deed of conditional
sale;
4. That Dr. Olivarez signed the deed of conditional sale for and on behalf
of Olivarez Realty Corporation;
5. That Dr. Olivarez and the corporation did not file any action against the
Philippine Tourism Authority;
6. That Dr. Olivarez and the corporation did not pay the tenants
disturbance compensation and failed to clear the property of the tenants;
and
7. That Dr. Olivarez and the corporation only paid ₱2,500,000.00 of the
agreed purchase price.27
On January 25, 2005, Dr. Olivarez and Olivarez Realty Corporation filed
their objections to the request for admission,28 stating that they
"reiterate[d] the allegations [and denials] in their [answer]."29
The trial court conducted pre-trial conference on December 17, 2005.
On March 8, 2006, Castillo filed a motion for summary judgment and/or
judgment on the pleadings.30 He argued that Olivarez Realty Corporation
and Dr. Olivarez "substantially admitted the material allegations of [his]
complaint,"31 specifically:
1. That the corporation failed to fully pay the purchase price for his
property;32
2. That the corporation failed to file an action to void the Philippine
Tourism Authority’s title to his property;33 and

3. That the corporation failed to clear the property of the tenants and pay
them disturbance compensation.34
Should judgment on the pleadings beimproper, Castillo argued that
summary judgment may still be rendered asthere is no genuine issue as
to any material fact.35 He cited Philippine National Bank v. Noah’s Ark
Sugar Refinery36 as authority.
Castillo attached to his motion for summary judgment and/or judgment on
the pleadings his affidavit37 and the affidavit of a Marissa Magsino38
attesting to the truth of the material allegations of his complaint.
Olivarez Realty Corporation and Dr. Olivarez opposed39 the motion for
summary judgment and/or judgment on the pleadings, arguing that the
motion was "devoid of merit."40 They reiterated their claim that the
corporation withheld further payments of the purchase price because
"there ha[d] been no favorable decision voiding the title of the Philippine
Tourism Authority."41 They added that Castillo sold the property to
another person and that the sale was allegedly litigated in Quezon City.42
Considering that a title adverse to that of Castillo’s existed, Olivarez Realty
Corporation and Dr. Olivarez argued that the case should proceed to trial
and Castillo be required to prove that his title to the property is "not
spurious or fake and that he had not sold his property to another
person."43
In reply to the opposition to the motion for summary judgment and/or
judgment on the pleadings,44 Castillo maintained that Olivarez Realty
Corporation was responsible for the filing of an action against the
Philippine Tourism Authority. Thus, the corporation could not fault Castillo
for not suing the PhilippineTourism Authority.45 The corporation illegally
withheld payments of the purchase price.
As to the claim that the case should proceed to trial because a title
adverse to his title existed, Castillo argued that the Philippine Tourism
Authority’s title covered another lot, not his property.46
During the hearing on August 3, 2006, Olivarez Realty Corporation and Dr.
Olivarez prayed that they be given 30 days to file a supplemental
memorandum on Castillo’s motion for summary judgment and/or
judgment on the pleadings.47
The trial court granted the motion. Itgave Castillo 20 days to reply to the
memorandum and the corporation and Dr. Olivarez 15 days to respond to
Castillo’s reply.48
In their supplemental memorandum,49 Olivarez Realty Corporation and
Dr. Olivarez argued that there was "an obvious ambiguity"50 as to which
should occur first — the payment of disturbance compensation to the
tenants or the clearing of the property of the tenants.51 This ambiguity,
according to defendants, is a genuine issue and "oughtto be threshed out
in a full blown trial."52
Olivarez Realty Corporation and Dr. Olivarez added that Castillo prayed for
irreconcilable reliefs of reformation of instrument and rescission of
contract.53 Thus, Castillo’s complaint should be dismissed.
Castillo replied54 to the memorandum, arguing that there was no genuine
issue requiring trial of the case. According to Castillo, "common sense
dictates . . . that the legitimate tenants of the [property] shall not vacate
the premises without being paid any disturbance compensation . . ."55
Thus, the payment of disturbance compensation should occur first before
clearing the property of the tenants.
With respect to the other issuesraised in the supplemental memorandum,
specifically, that Castillo sold the property to another person, he argued
that these issues should not be entertained for not having been presented
during pre-trial.56
In their comment on the reply memorandum,57 Olivarez Realty
Corporation and Dr. Olivarez reiterated their arguments that certain
provisions of the deed of conditional sale were ambiguous and that the
complaint prayed for irreconcilable reliefs.58
As to the additional issues raised in the supplemental memorandum,
defendants argued that issues not raised and evidence not identified and
premarked during pre-trial may still be raised and presented during trial
for good cause shown. Olivarez Realty Corporation and Dr. Olivarez
prayed that Castillo’s complaint be dismissed for lack of merit.59
Ruling of the trial court
The trial court found that Olivarez Realty Corporation and Dr. Olivarez’s
answer "substantially [admitted the material allegations of Castillo’s]
complaint and [did] not . . . raise any genuine issue [as to any material
fact]."60
Defendants admitted that Castillo owned the parcel of land covered by
Transfer Certificate of Title No. T-19972. They likewise admitted the
genuineness of the deed of conditional sale and that the corporation only
paid ₱2,500,000.00 of the agreed purchase price.61
According to the trial court, the corporation was responsible for suing the
Philippine Tourism Authority and for paying the tenants disturbance
compensation. Since defendant corporation neither filed any case nor paid
the tenants disturbance compensation, the trial court ruled that defendant
corporation had no right to withhold payments from Castillo.62
As to the alleged ambiguity of paragraphs E and F of the deed of
conditional sale, the trial court ruled that Castillo and his witness, Marissa
Magsino, "clearly established"63 in their affidavits that the deed of
conditional sale was a contract of adhesion. The true agreement between
the parties was that the corporation would both clear the land of the
tenants and pay them disturbance compensation.
With these findings, the trial court ruled that Olivarez Realty Corporation
breached the contract ofconditional sale.1âwphi1 In its decision64 dated
April 23, 2007, the trial court ordered the deed of conditional sale
rescinded and the ₱2,500,000.00 forfeited in favor of Castillo "as damages
under Article 1191 of the Civil Code."65
The trial court declared Olivarez Realty Corporation and Dr. Olivarez
solidarily liable to Castillo for 500,000.00 as moral damages, ₱50,000.00
as exemplary damages, and ₱50,000.00 as costs of suit.66
Ruling of the Court of Appeals
Olivarez Realty Corporation and Dr. Olivarez appealed to the Court of
Appeals.67
In its decision68 dated July 20, 2010, the Court of Appeals affirmed in
totothe trial court’s decision. According to the appellate court, the trial
court "did not err in its finding that there is no genuine controversy as to
the facts involved [in this case]."69 The trial court, therefore, correctly
rendered summary judgment.70
As to the trial court’s award of damages, the appellatecourt ruled that a
court may award damages through summary judgment "if the parties’
contract categorically [stipulates] the respective obligations of the parties
in case of default."71 As found by the trial court,paragraph I of the deed
of conditional sale categorically states that "in case [the deed of
conditional sale] is cancelled, any improvementintroduced by [Olivarez
Realty Corporation] on the property shall be forfeited infavor of
[Castillo]."72 Considering that Olivarez Realty Corporation illegally
retained possession of the property, Castillo forewent rentto the property
and "lost business opportunities."73 The ₱2,500,000.00 down payment,
according to the appellate court, shouldbe forfeited in favor of Castillo.
Moral and exemplary damages and costs ofsuit were properly awarded.
On August 11, 2010, Olivarez RealtyCorporation and Dr. Olivarez filed
their motion for reconsideration,74 arguing that the trial court exceeded
its authority in forfeiting the ₱2,500,000.00 down payment and awarding
₱500,000.00 in moral damages to Castillo. They argued that Castillo only
prayed for a total of ₱500,000.00 as actual and moral damages in his
complaint.75 Appellants prayed that the Court of Appeals "take a second
hard look"76 at the case and reconsider its decision.
In the resolution77 dated March 18, 2011, the Court of Appeals denied
the motion for reconsideration.
Proceedings before this court
Olivarez Realty Corporation and Dr. Olivarez filed their petition for review
on certiorari78 with this court. Petitionersargue that the trial court and the
Court of Appeals erred in awarding damages to Castillo. Under Section 3,
Rule 35 of the 1997 Rules ofCivil Procedure, summary judgment may be
rendered except as to the amountof damages. Thus, the Court of Appeals
"violated the procedural steps in rendering summary judgment."79
Petitioners reiterate that there are genuine issues ofmaterial fact to be
resolved in this case. Thus, a full-blown trial is required, and the trial court
prematurely decided the case through summary judgment. They cite
Torres v. Olivarez Realty Corporation and Dr. Pablo Olivarez,80 a case
decided by the Ninth Division of the Court of Appeals.
In Torres, Rosario Torres was the registeredowner of a parcel of land
covered by Transfer Certificate of Title No. T-19971. Under a deed of
conditional sale, she sold her property to OlivarezRealty Corporation for
₱17,345,900.00. When the corporation failed to fully pay the purchase
price, she sued for rescission of contractwith damages. In their answer,
the corporation and Dr. Olivarez argued thatthey discontinued payment
because Rosario Torres failed to clear the land of the tenants.
Similar to Castillo, Torres filed a motion for summary judgment, which the
trial court granted. On appeal, the Court of Appeals set aside the trial
court’s summary judgment and remanded the case to the trial court for
further proceedings.81 The Court of Appeals ruled that the material
allegations of the complaint "were directly disputed by [the corporation
and Dr. Olivarez] in their answer"82 when they argued that they refused
to pay because Torres failed to clear the land of the tenants.
With the Court of Appeals’ decision in Torres,Olivarez Realty Corporation
and Dr. Olivarez argue that this case should likewise be remanded to the
trial court for further proceedings under the equipoise rule.
Petitioners maintain that Castillo availed himself of the irreconcilable
reliefs of reformation of instrument and rescission of contract.83 Thus, the
trial court should have dismissed the case outright.
Petitioners likewise argue that the trial court had no jurisdiction to decide
the case as Castillo failed topay the correct docket fees.84 Petitioners
argue that Castillo should have paid docket fees based on the property’s
fair market value since Castillo’s complaint is a real action.85
In his comment,86 Castillo maintains that there are no genuine issues as
to any material fact inthis case. The trial court, therefore, correctly
rendered summary judgment.
As to petitioners’ claim that the trial court had no jurisdiction to decide the
case, Castillo argues that he prayed for rescission of contract in his
complaint. This action is incapable of pecuniary estimation, and the Clerk
of Court properly computed the docket fees based on this prayer.87
Olivarez Realty Corporation and Dr. Olivarez replied,88 reiterating their
arguments in the petition for review on certiorari.
The issues for our resolution are the following:
I. Whether the trial court erred in rendering summary judgment;
II. Whether proper docket fees were paid in this case.
The petition lacks merit.
I property. However, paragraph C of the deed of conditional sale is clear
The trial court correctly rendered
summary judgment, as there were no
genuine issues of material fact in this case
Trial "is the judicial examination and determination of the issues between
the parties to the action."89 During trial, parties "present their respective
evidence of their claims and defenses."90 Parties to an action have the
right "to a plenary trial of the case"91 to ensure that they were given a
right to fully present evidence on their respective claims.
There are instances, however, whentrial may be dispensed with. Under
Rule 35 of the 1997 Rules of Civil Procedure, a trial court may dispense
with trial and proceed to decide a case if from the pleadings, affidavits,
depositions, and other papers on file, there is no genuine issue as to any
material fact. In such a case, the judgment issued is called a summary
judgment.
A motion for summary judgment is filed either by the claimant or the
defending party.92 The trial court then hears the motion for summary
judgment. If indeed there are no genuine issues of material fact, the trial
court shall issue summary judgment. Section 3, Rule 35 of the 1997 Rules
of Civil Procedure provides:
SEC. 3. Motion and proceedings thereon. – The motion shall be served at
least ten (10) days beforethe time specified for the hearing. The adverse
party may serve opposing affidavits, depositions, or admission at least
three (3) days before the hearing. After the hearing, the judgment sought
shall be rendered forthwith ifthe pleadings, supporting affidavits,
depositions, and admissions on file, showthat, except as to the amount of
damages, there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.
An issue of material fact exists if the answer or responsive pleading filed
specifically denies the material allegations of fact set forth in the
complaint or pleading. If the issue offact "requires the presentation of
evidence, it is a genuine issue of fact."93 However, if the issue "could be
resolved judiciously by plain resort"94 to the pleadings, affidavits,
depositions, and other paperson file, the issue of fact raised is sham, and
the trial court may resolve the action through summary judgment.
A summary judgment is usually distinguished from a judgment on the
pleadings. Under Rule 34 of the 1997 Rules of Civil Procedure, trial may
likewise be dispensed with and a case decided through judgment on the
pleadings if the answer filed fails to tender an issue or otherwise admits
the material allegations of the claimant’s pleading.95
Judgment on the pleadings is proper when the answer filed fails to tender
any issue, or otherwise admitsthe material allegations in the complaint.96
On the other hand, in a summary judgment, the answer filed tenders
issues as specific denials and affirmative defenses are pleaded, but the
issues raised are sham, fictitious, or otherwise not genuine.97
In this case, Olivarez Realty Corporation admitted that it did not fully pay
the purchase price as agreed upon inthe deed of conditional sale. As to
why it withheld payments from Castillo, it set up the following affirmative
defenses: First, Castillo did not filea case to void the Philippine Tourism
Authority’s title to the property; second,Castillo did not clear the land of
the tenants; third, Castillo allegedly sold the property to a third person,
and the subsequent sale is currently being litigated beforea Quezon City
court.
Considering that Olivarez RealtyCorporation and Dr. Olivarez’s answer
tendered an issue, Castillo properly availed himself of a motion for
summary judgment.
However, the issues tendered by Olivarez Realty Corporation and Dr.
Olivarez’s answer are not genuine issues of material fact. These are issues
that can be resolved judiciously by plain resort to the pleadings, affidavits,
depositions, and other papers on file; otherwise, these issues are sham,
fictitious, or patently unsubstantial.
Petitioner corporation refused to fully pay the purchase price because no
court case was filed to void the Philippine Tourism Authority’s title on the
that petitioner Olivarez Realty Corporation is responsible for initiating
court action against the Philippine Tourism Authority:
C. [Olivarez Realty Corporation] assumes the responsibility of taking
necessary legal action thru Court to have the claim/title TCT T-18493 of
Philippine Tourism Authority over the above-described property be
nullified and voided; with the full assistance of [Castillo].98
Castillo’s alleged failureto "fully assist"99 the corporation in filing the case
is not a defense. As the trial court said, "how can [Castillo] assist [the
corporation] when [the latter] did not file the action [in the first
place?]"100

Neither can Olivarez Realty Corporation argue that it refused to fully pay
the purchase price due to the Philippine Tourism Authority’s adverse claim
on the property. The corporation knew of this adverse claim when it
entered into a contract of conditional sale. It even obligated itself under
paragraph C of the deed of conditional sale to sue the Philippine Tourism
Authority. This defense, therefore, is sham.
Contrary to petitioners’ claim, there is no "obvious ambiguity"101 as to
which should occur first — the payment of the disturbance compensation
or the clearing of the land within six months from the signing of the deed
of conditional sale. The obligations must be performed simultaneously. In
this case, the parties should have coordinated to ensure that tenants on
the property were paid disturbance compensation and were made to
vacate the property six months after the signingof the deed of conditional
sale.
On one hand, pure obligations, or obligations whose performance do not
depend upon a future or uncertainevent, or upon a past event unknown
to the parties, are demandable at once.102 On the other hand, obligations
with a resolutory period also take effect at once but terminate upon
arrival of the day certain.103
Olivarez Realty Corporation’s obligation to pay disturbance compensation
is a pure obligation. The performance of the obligation to pay disturbance
compensation did not depend on any condition. Moreover, the deed of
conditional sale did not give the corporation a period to perform the
obligation. As such, the obligation to pay disturbance compensation was
demandable at once. Olivarez RealtyCorporation should have paid the
tenants disturbance compensation upon execution of the deed of
conditional sale.
With respect to Castillo’s obligation to clear the land of the tenants within
six months from the signing of the contract, his obligation was an
obligation with a resolutory period. The obligation to clear the land of the
tenants took effect at once, specifically, upon the parties’ signing of the
deed of conditional sale. Castillo had until October 2, 2000, six months
from April 5, 2000 when the parties signed the deed of conditional sale, to
clear the land of the tenants.
Olivarez Realty Corporation, therefore, had no right to withhold payments
of the purchase price. As the trial court ruled, Olivarez Realty Corporation
"can only claim non-compliance [of the obligation to clear the land of the
tenants in] October 2000."104 It said:
. . . it is clear that defendant [Olivarez Realty Corporation] should have
paid the installments on the ₱5 million downpayment up to October 8,
2000, or a total of ₱4,500,000.00. That is the agreement because the only
time that defendant [corporation] can claim non-compliance of the
condition is after October, 2000 and so it has the clear obligation topay up
to the October 2000 the agreed installments. Since it paid only
2,500,000.00, then a violation of the contract has already been
committed. . . .105
The claim that Castillo sold the property to another is fictitious and was
made in bad faith to prevent the trial court from rendering summary
judgment. Petitioners did not elaborate on this defense and insisted on
revealing the identity of the buyer only during trial.106 Even in their
petition for review on certiorari, petitioners never disclosed the name of
this alleged buyer. Thus, as the trial court ruled, this defense did not
tender a genuine issue of fact, with the defense "bereft of details."107
Castillo’s alleged prayer for the irreconcilable reliefs of rescission of
contract and reformation of instrument is not a ground to dismiss his
complaint. A plaintiff may allege two or more claims in the complaint
alternatively or hypothetically, either in one cause of action or in separate
causes of action per Section 2, Rule 8 of the 1997 Rules of Civil
Procedure.108 It is the filing of two separatecases for each of the causes
of action that is prohibited since the subsequently filed case may be
dismissed under Section 4, Rule 2 of the 1997 Rules of Civil Procedure109
on splitting causes of action.
As demonstrated, there are no genuineissues of material fact in this case.
These are issues that can be resolved judiciously by plain resort to the
pleadings, affidavits, depositions, and other papers on file. As the trial
court found, Olivarez Realty Corporation illegally withheld payments of the
purchase price. The trial court did not err in rendering summary
judgment.
II
Castillo is entitled to cancel the contract
of conditional sale
Since Olivarez Realty Corporation illegally withheld payments of the
purchase price, Castillo is entitled to cancel his contract with petitioner
corporation. However, we properly characterize the parties’ contract as a
contract to sell, not a contract of conditional sale.
In both contracts to sell and contracts of conditional sale, title to the
property remains with the seller until the buyer fully pays the purchase
price.110 Both contracts are subject to the positive suspensive condition
of the buyer’s full payment of the purchase price.111
In a contract of conditional sale, the buyer automatically acquires title to
the property upon full payment of the purchase price.112 This transfer of
title is "by operation of law without any further act having to be
performed by the seller."113 In a contract to sell, transfer of title to the
prospective buyer is not automatic.114 "The prospective seller [must]
convey title to the property [through] a deed of conditional sale."115
The distinction is important to determine the applicable laws and remedies
in case a party does not fulfill his or her obligations under the contract. In
contracts of conditional sale, our laws on sales under the Civil Code of the
Philippines apply. On the other hand, contracts to sell are not governed by
our law on sales116 but by the Civil Code provisions on conditional
obligations.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal
obligations does not apply to contracts to sell.117 As this court explained
in Ong v. Court of Appeals,118 failure to fully pay the purchase price in
contracts to sell is not the breach of contract under Article 1191.119
Failure to fully pay the purchase price is "merely an event which prevents
the [seller’s] obligation to convey title from acquiring binding force."120
This is because "there can be no rescission of an obligation that is still
nonexistent, the suspensive condition not having [happened]."121
In this case, Castillo reserved his title to the property and undertook to
execute a deed of absolute sale upon Olivarez Realty Corporation’s full
payment of the purchase price.122 Since Castillo still has to execute a
deed of absolute sale to Olivarez RealtyCorporation upon full payment of
the purchase price, the transfer of title is notautomatic. The contract in
this case is a contract to sell.
As this case involves a contract tosell, Article 1191 of the Civil Code of the
Philippines does not apply. The contract to sell is instead cancelled, and
the parties shall stand as if the obligation to sell never existed.123
Olivarez Realty Corporation shall return the possession of the property to
Castillo. Any improvement that Olivarez Realty Corporation may have
introduced on the property shall be forfeited in favor of Castillo per
paragraph I of the deed of conditional sale:
I. Immediately upon signing thisContract, [Olivarez Realty Corporation]
shall be entitled to occupy, possess and develop the subject property. In
case this Contract is cancelled, any improvement introduced by [Olivarez
Realty Corporation] on the property shall be forfeited in favor of
[Castillo.]124
As for prospective sellers, thiscourt generally orders the reimbursement of
the installments paidfor the property when setting aside contracts to
sell.125 This is true especially ifthe property’s possession has not been
delivered to the prospective buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession of the property to
Olivarez Realty Corporation prior to the transfer of title. We cannot order
the reimbursement of the installments paid.
In Gomez v. Court of Appeals,126 the City of Manila and Luisa Gomez
entered into a contract to sell over a parcel of land. The city delivered the
property’s possession to Gomez. She fully paid the purchase price for the
property but violated the terms of the contract to sell by renting out the
property to other persons. This court set aside the contract to sell for her
violation of the terms of the contract to sell. It ordered the installments
paid forfeited in favor of the City of Manila "as reasonable compensation
for [Gomez’s] use of the [property]"127 for eight years.
In this case, Olivarez Realty Corporation failed to fully pay the purchase
price for the property. It only paid ₱2,500,000.00 out of the
₱19,080,490.00 agreed purchase price. Worse, petitioner corporation has
been in possession of Castillo’s property for 14 years since May 5, 2000
and has not paid for its use of the property.
Similar to the ruling in Gomez, we order the ₱2,500,000.00 forfeited in
favor of Castillo as reasonable compensation for Olivarez Realty
Corporation’s use of the property.
III
Olivarez Realty Corporation is liable for
moral and exemplary damages and
attorney’s fees
We note that the trial court erred in rendering summary judgment on the
amount of damages. Under Section 3, Rule 35 of the 1997 Rules of Civil
Procedure, summary judgment may be rendered, except as to the amount
of damages.
In this case, the trial court erred in forfeiting the ₱2,500,000.00 in favor of
Castillo as damages under Article 1191 of the Civil Code of the Philippines.
As discussed, there is nobreach of contract under Article 1191 in this case.
The trial court likewise erred inrendering summary judgment on the
amount of moral and exemplary damages and attorney’s fees.
Nonetheless, we hold that Castillois entitled to moral damages, exemplary
damages, and attorney’s fees.
Moral damages may be awarded in case the claimant experienced physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury.128
As for exemplary damages, they are awarded in addition to moral
damages by way of example or correction for the public good.129
Specifically in contracts, exemplary damages may be awarded if the
defendant acted in a wanton, fraudulent,reckless, oppressive, or
malevolent manner.130
Under the deed of conditional sale, Olivarez Realty Corporation may only
suspend the monthly down payment in case Castillo fails to clear the land
of the tenants six months from the signing of the instrument. Yet, even
before the sixth month arrived, Olivarez Realty Corporation withheld
payments for Castillo’s property. It evenused as a defense the fact that no
case was filed against the PhilippineTourism Authority when, under the
deed of conditional sale, Olivarez Realty Corporation was clearly
responsible for initiating action against the Philippine Tourism Authority.
These are oppressive and malevolent acts, and we find Castillo entitled to
₱500,000.00 moral damages and ₱50,000.00 exemplary damages:
Plaintiff Castillo is entitled to moral damages because of the evident bad
faith exhibited by defendants in dealing with him regarding the sale of his
lot to defendant [Olivarez Realty Corporation]. He suffered much
prejudice due to the failure of defendants to pay him the balance of
purchase price which he expected touse for his needs which caused him
wounded feelings, sorrow, mental anxiety and sleepless nights for which
defendants should pay ₱500,000.00 as moral damages more than six (6)
years had elapsed and defendants illegally and unfairly failed and refused
to pay their legal obligations to plaintiff, unjustly taking advantage of a
poor uneducated man like plaintiff causing much sorrow and financial
difficulties. Moral damages in favor of plaintiff is clearly justified . . .
[Castillo] is also entitled to ₱50,000.00 as exemplary damages to serve as
a deterrent to other parties to a contract to religiously comply with their
prestations under the contract.131
We likewise agree that Castillo is entitled to attorney’s fees in addition to
the exemplary damages.132 Considering that Olivarez Realty Corporation
refused to satisfy Castillo’splainly valid, just, and demandable claim,133
the award of ₱50,000.00 as attorney’s fees is in order. However, we find
that Dr. Pablo R.Olivarez is not solidarily liable with Olivarez Realty
Corporation for the amount of damages.
Under Article 1207 of the Civil Code of the Philippines, there is solidary
liability only when the obligation states it or when the law or the nature of
the obligation requires solidarity.134 In case of corporations, they are
solely liable for their obligations.135 The directors or trustees and officers
are not liable with the corporation even if it is through their acts that the
corporation incurred the obligation. This is because a corporation is
separate and distinct from the persons comprising it.136
As an exception to the rule, directors or trustees and corporate officers
may be solidarily liable with the corporation for corporate obligations if
they acted "in bad faith or with gross negligence in directing the corporate
affairs."137
In this case, we find that Castillo failed to prove with preponderant
evidence that it was through Dr. Olivarez’s bad faith or gross negligence
that Olivarez Realty Corporation failed to fully pay the purchase price for
the property. Dr. Olivarez’s alleged act of making Castillo sign the deed of
conditional sale without explaining to the latter the deed’s terms in
Tagalog is not reason to hold Dr. Olivarez solidarily liable with the
corporation. Castillo had a choice not to sign the deed of conditional sale.
He could have asked that the deed of conditional sale be written in
Tagalog. Thus, Olivarez Realty Corporation issolely liable for the moral
and exemplary damages and attorney’s fees to Castillo.
IV
The trial court acquired jurisdiction over
Castillo’s action as he paid the correct
docket fees
Olivarez Realty Corporation and Dr. Olivarez claimed that the trial court
had no jurisdiction to take cognizance of the case. In the reply/motion to
dismiss the complaint138 they filed with the Court of Appeals, petitioners
argued that Castillo failed to pay the correct amount of docket fees.
Stating that this action is a real action, petitioners argued that the docket
fee Castillo paid should have been based on the fair market value of the
property. In this case, Castillo only paid 4,297.00, which is insufficient "if
the real nature of the action was admitted and the fair market value of
the property was disclosed and made the basis of the amount of docket
fees to be paid to the court."139 Thus, according to petitioners, the case
should be dismissed for lack of jurisdiction.
Castillo countered that his action for rescission is an action incapable of
pecuniary estimation. Thus, the Clerk of Court of the Regional Trial Court
of Tanauan City did not err in assessing the docket fees based on his
prayer.
We rule for Castillo. In De Leon v. Court of Appeals,140 this court held
that an action for rescission of contract of sale of real property is an
action incapable of pecuniary estimation. In De Leon, the action involved
a real property. Nevertheless, this court held that "it is the nature of the
action as one for rescission of contract which is controlling."141
Consequently, the docket fees to be paid shall be for actions incapableof
pecuniary estimation, regardless if the claimant may eventually recover
the real property. This court said:
. . . the Court in Bautista v.Lim, held that an action for rescission of
contract is one which cannot be estimated and therefore the docket fee
for its filing should be the flat amount of ₱200.00 as then fixed in the
former Rule 141, §141, §5(10). Said this Court:
We hold that Judge Dalisay did not err in considering Civil Case No. V-144
as basically one for rescission or annulment of contract which is not
susceptible of pecuniary estimation (1 Moran's Comments on the Rules of
Court, 1970 Ed, p. 55; Lapitan vs. Scandia, Inc., L-24668, July 31, 1968,
24 SCRA 479, 781-483).
Consequently, the fee for docketing it is ₱200, an amount already paid by
plaintiff, now respondent Matilda Lim.1âwphi1 (She should pay also the
two pesos legal research fund fee, if she has not paid it, as required in
Section 4 of Republic Act No. 3870, the charter of the U.P. Law Center).
Thus, although eventually the result may be the recovery of land, it is the
nature of the action as one for rescission of contract which is controlling.
The Court of Appeals correctly applied these cases to the present one. As
it said:
We would like to add the observations that since the action of petitioners
[private respondents] against private respondents [petitioners] is solely
for annulment or rescission which is not susceptible of pecuniary
estimation, the action should not be confused and equated with the
"value of the property" subject of the transaction; that by the very nature
of the case, the allegations, and specific prayer in the complaint, sans any
prayer for recovery of money and/or value of the transaction, or for actual
or compensatory damages, the assessment and collection of the legal fees
should not be intertwined with the merits of the case and/or what may be
its end result; and that to sustain private respondents' [petitioners']
position on what the respondent court may decide after all, then the
assessment should be deferred and finally assessed only after the court
had finally decided the case, which cannot be done because the rules
require that filing fees should be based on what is alleged and prayed for
in the face of the complaint and paid upon the filing of the complaint.142

Although we discussed that there isno rescission of contract to speak of in

contracts of conditional sale, we hold that an action to cancel a contract
to sell, similar to an action for rescission of contract of sale, is an action
incapable of pecuniary estimation. Like any action incapable of pecuniary
estimation, an action to cancel a contract to sell "demands an inquiry into
other factors"143 aside from the amount of money to be awarded to the
claimant. Specifically in this case, the trial court principally determined
whether Olivarez Realty Corporation failed to pay installments of the
property’s purchase price as the parties agreed upon in the deed of
conditional sale. The principal natureof Castillo’s action, therefore, is
incapable of pecuniary estimation.

All told, there is no issue that the parties in this case entered into a
contract to sell a parcel of land and that Olivarez Realty Corporation failed
to fully pay the installments agreed upon.Consequently, Castillo is entitled
to cancel the contract to sell.

WHEREFORE, the petition for review on certiorari is DENIED. The Court of

Appeals’ decision dated July 20, 2010 and in CA-G.R. CV No. 91244 is
AFFIRMEDwith MODIFICATION.

The deed of conditional sale dated April 5, 2000 is declared CANCELLED.

Petitioner Olivarez Realty Corporation shall RETURN to respondent
Benjamin Castillo the possession of the property covered by Transfer
Certificate of Title No. T-19972 together with all the improvements that
petitioner corporation introduced on the property. The amount of
₱2,500,000.00 is FORFEITED in favor of respondent Benjamin Castillo as
reasonable compensation for the use of petitioner Olivarez Realty
Corporation of the property.

Petitioner Olivarez Realty Corporation shall PAY respondent Benjamin

Castillo ₱500,000.00 as moral damages, ₱50,000.00 as exemplary
damages, and ₱50,000.00 as attorney's fees with interest at 6% per
annum from the time this decision becomes final and executory until
petitioner

corporation fully pays the amount of damages.144

SO ORDERED.