Court rules on illegal recruitment, estafa case

G.R. No.
127848 July 17, 2003
PEOPLE OF THE PHILIPPINES, appellee,
vs.
MARLENE OLERMO @ Marlene Tolentino, appellant.
AZCUNA, J.:
In separate informations filed before the Regional Trial Court (RTC) of Valenzuela, Metro Manila, Branch
172, Marlene Olermo a.k.a. Marlene Tolentino was accused of illegal recruitment in large scale and five
counts of estafa.
In Criminal Case No. 2860-V-93, a prosecution for illegal recruitment in large scale, the information
reads:
That during the period of February to June 1993, in Valenzuela, Metro Manila and within the jurisdiction
of this Honorable Court, the above-named accused, representing herself to have the capacity to
contract, enlist and recruit workers for employment abroad, did then and there wil[l]fully and
unlawfully, for a fee, recruit and promise employment/job placement in a large scale to ARISTON B.
VILLANUEVA, MARY JANE AQUINO-VILLANUEVA, ALFRED BRYANT BERADOR, FRENNIE MAJARUCON and
WILFREDO TUBALE, without said accused having secured first the necessary license or authority to
engage in recruitment activity from the Philippine Overseas Employment Administration (POEA), in
violation of the aforementioned provision of Law.
Contrary to Law.1
The five informations for estafa, on the other hand, docketed as Criminal Cases Nos. 2861-V-93, 2862-V-
93, 2863-V-93, 2864-V-93, and 2865-V-93, allege that the appellant violated paragraph 2(a), Article 315
of the Revised Penal Code, thus:
In Criminal Case No. 2861-V-93:
That sometime in the month of February 1993 or thereabouts in Valenzuela, Metro Manila and within
the jurisdiction of this Honorable Court, the above-named accused, defrauded and deceived one
NAPOLEON APARICIO y CLEMENTE in the following manner to wit: said accused, by means of false
manifestations and fraudulent representation made to the said complainant to the effect that she has
the capacity and power to recruit and employ complainant abroad and facilitate the necessary amount
to meet the requirements thereof, knowing said manifestations and representation to be false and
fraudulent and made only to induce said complainant to give, as in fact, the latter did give and deliver to
said accused cash money amounting to P40,000, but said accused, once in possession of the same, with
intent to defraud and deceive the herein complainant, did then and there willfully, unlawfully and
feloniously misapply, misappropriate and convert [the same] to her own personal use and benefit, [and]
despite demands made upon her to return the said amount of P40,000, said accused failed and refused
and still fails and refuses to do so, to the damage and prejudice of the complainant in the
aforementioned amount of P40,000.
Contrary to Law.2
That sometime in May 1993 or thereabouts in Valenzuela, Metro Manila and within the jurisdiction of
this Honorable Court, the above-named accused, defrauded and deceived one MARY JANE AQUINO-
VILLANUEVA in the following manner to wit: said accused, by means of false manifestations and
fraudulent representation made to the said complainant to the effect that she has the capacity and
power to recruit and employ complainant abroad and facilitate the necessary amount to meet the
requirements thereof knowing said manifestations and representation to be false and fraudulent and
made only to induce said complainant to give, as in fact, the latter did give and deliver to said accused
cash money amounting to P35,000, but said accused, once in possession of the same, with intent to
defraud and deceive the herein complainant, did then and there willfully, unlawfully and feloniously
misapply, misappropriate and convert [the same] to her own personal use and benefit, [and] despite
demands made upon her to return the said amount of P35,000, said accused failed and refused and still
fails and refuses to do so, to the damage and prejudice of the complainant in the aforementioned
amount of P35,000.
Contrary to Law.3
That sometime in May and June 1993 or thereabouts in Valenzuela, Metro Manila and within the
jurisdiction of this Honorable Court, the above-named accused, defrauded and deceived one ARISTON B.
VILLANUEVA in the following manner to wit: said accused, by means of false manifestations and
requirement thereof, knowing said manifestations and representation to be false and fraudulent and
made only to induce said complainant to give, as in fact, the latter did give and deliver to said accused
cash money amounting to P35,000, but said accused, once in possession of the same, with the intent to
amount of P35,000.
Contrary to Law.4
That sometime in the month of March 1993 or thereabouts in Valenzuela, Metro Manila and within the
jurisdiction of this Honorable Court, the above-named accused, defrauded and deceived one FRENNIE
MAJARUCON y BACO in the following manner to wit: said accused, by means of false manifestations and
requirements thereof, knowing said manifestations and representation to be false and fraudulent and
made only to induce said complainant to give, as in fact, the latter did give and deliver to said accused,
cash money amounting to P20,000, but said accused, once in possession of the same, with intent to
amount of P20,000.
Contrary to Law.5
That sometime in the month of February 1993 or thereabouts in Valenzuela, Metro Manila and within
the jurisdiction of this Honorable Court, the above-named accused, defrauded and deceived one ALFRED
BRYANT BERADOR y OCHOA in the following manner to wit: said accused, by means of false
said accused cash money amounting to P25,350, but said accused, once in possession of the same, with
intent to defraud and deceive the herein complainant, did then and there willfully, unlawfully and
feloniously misapply, misappropriate and convert [the same] to her own personal USC and benefit, [and]
aforementioned amount of P25,350.
Contrary to Law.6
Complainant Napoleon C. Aparicio,7 jobless, testified that he came to know appellant through his sister
in February 1993. He allegedly talked with appellant Marlene Olermo a.k.a. Marlene Tolentino regarding
the latter's offer to give him a job overseas. She informed complainant Aparicio that he needed to pay
her P40,000 for a work permit and a plane ticket to Saipan where he is allegedly to be employed.
Aparicio agreed to pay her the said amount. He made his first payment of P20,000 on March 30, 1993.
Appellant allegedly called him up and instructed him to deliver the money, which he did, to a certain
Jennifer Balduesa at Danding Building, Municipal Site, Valenzuela, Metro Manila where appellant's
office, Jirk Manpower Services, is located. Complainant Aparicio made his second payment on April 21,
1993. Again, he delivered the amount of P20,000 to Jennifer Balduesa in appellant's office in Valenzuela
upon the instructions of appellant. He was issued a cash voucher for each payment he made.8 Appellant
promised him that he would leave for Saipan on May 3, 1993 and she even showed him his plane ticket.
However, he was not able to leave on said date. The date of his departure was moved several times by
appellant until he began to suspect something was amiss. Hence, he reported the matter to the National
Bureau of Investigation (NBI). Appellant thereafter pretended to refund the amounts he paid by issuing
him a check, which, however, bounced when it was presented for payment.9 He later learned that
appellant was not a duly-licensed recruiter.
Complainant Ariston Villanueva,10 jobless, is married to another complainant Mary Jane Aquino-
Villanueva. They were not married yet when they first encountered appellant. He testified that he read
the advertisement of appellant in a newspaper, sometime in April 1993, offering assistance to those
who would like to work overseas.11 He called the number indicated therein and spoke to appellant.
They first agreed to meet in Greenbelt, Makati, but during the appointed hour, appellant did not show,
up. The following day, they spoke again on the telephone and agreed to meet in the office of appellant
in Valenzuela. When they met, appellant informed him and complainant Aquino-Villanueva that she can
help them find work in Hong Kong. However, they must pay her P35,000 each for their plane fares and
placement fees. On May 3, 1993, complainant Villanueva paid appellant an initial amount of P40,000.
On May 20, 1993, he gave appellant P30,000. Appellant issued him a receipt for each payment he
made.12 Their departure, however, kept on being postponed by appellant. Finally, they asked for a
refund of their payments. Appellant issued three checks on different dates amounting to P70,000.
However, these checks were dishonored when they were presented for payment.13 In the end,
appellant gave back only P19,000. Complainants Villanueva and Aquino-Villanueva subsequently
inquired with the Philippine Overseas Employment Agency (POEA) whether or not appellant was
licensed to recruit persons for overseas employment. They were informed that appellant is not a
licensed recruiter and they procured a certification to this effect.14
Complainant Alfred Bryant Berador,15 a cook, testified that on or about February 22, 1993, he was
introduced to appellant by one of her partners in the agency. He met her in their office in front of the
Municipal Hall of Valenzuela. He paid her a total amount of P24,000 as placement and processing fees
for his employment in Japan. He was issued a receipt for each payment made.16 He was not, however,
allowed to leave for Japan immediately. Complainant Berador was first required by appellant to undergo
a seminar to learn Nippongo for one week. However, on the fourth day of the seminar, appellant was
arrested by the authorities. Complainant Berador subsequently learned that appellant did not have a
license to recruit workers for overseas employment. He went to the POEA and was issued a certification
stating this fact.17
Complainant Frennie Majarucon,18 jobless, testified that she was introduced to appellant by her
kumadre named Elvie sometime in March 1993. They first met in the office of appellant in front of the
Municipal Hall of Valenzuela. Appellant informed her that she had an available job for her in Hong Kong
and that she would need P45,000 for placement and processing fees and P2,000 for her passport.
Complainant Majarucon was only able to give P22,000, which was evidenced by the receipts issued to
her by appellant.19 However, complainant Majarucon never left for Hong Kong. She thus inquired from
the people in appellant's office whether the amount she paid to appellant can be refunded. She was
promptly informed, however, that appellant had been arrested and was already in jail for illegal
recruitment. Complainant Majarucon then proceeded to the POEA where she found out that the
appellant was indeed not a licensed recruiter.
For her part, appellant Olermo denied all the charges against her.20 She alleged that she was engaged
only in visa assistance. She denied ever having represented herself as possessing authority to deploy
workers for overseas employment. She thus explained that she only offered complainants Villanueva,
Aquino-Villanueva, Aparicio and Majarucon assistance in processing their tourist visas. With respect to
the accusation of complainant Berador, appellant alleged that she was only helping him process his
trainee's visa.
On August 23, 1996, the trial court rendered a decision convicting appellant of the crimes charged. The
dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered as follows:
(1) In Crim. Case No. 2860-V-93, the Court finds accused Marlene Olermo @ Marlene Tolentino
guilty beyond reasonable doubt and as principal of the crime of Illegal Recruitment in large scale as
defined and penalized under Article 38 in relation to Article 39 (a) of the Labor Code, as amended by
P.D. 2018, without any attending mitigating or aggravating circumstance and hereby sentences her to a
penalty of life imprisonment and a fine of P100,000, without subsidiary imprisonment in case of
insolvency;
guilty beyond reasonable doubt and as principal of the crime of Estafa as defined and penalized under
paragraph 2(a) in relation to the first paragraph of Article 315 of the Revised Penal Code without any
attending mitigating or aggravating circumstance and, applying the Indeterminate Sentence Law, hereby
sentences her to a penalty of SIX (6) YEARS and TWO (2) MONTHS of prision mayor as minimum to TEN
(10) YEARS and ONE (1) DAY of prision mayor as maximum. The accused is further sentenced to pay
complaining witness Napoleon Aparicio the amount of P40,000, without subsidiary imprisonment in
case of insolvency, plus the costs of suit;
attending mitigating or aggravating circumstances and, applying the Indeterminate Sentence Law,
hereby sentences her to a penalty of SIX (6) YEARS and TWO (2) MONTHS of prision mayor as minimum
to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum. The accused is further sentenced to
pay complaining witness Mary Jane Aquino-Villanueva the amount of P35,000, without subsidiary
imprisonment in case of insolvency, plus the costs of suit;
hereby sentences her to a penalty of SIX (6) YEARS and TWO (2) MONTHS of prision mayor as minimum
to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum. The accused is further sentenced to
pay complaining witness Ariston B. Villanueva the amount of P35,000, without subsidiary imprisonment
in case of insolvency, plus the costs of suit;
hereby sentences her to a penalty of TWO (2) YEARS, FOUR (4), MONTHS and ONE (1) DAY of prision
correccional as minimum to SIX (6) YEARS and ONE (1) DAY of prision mayor as maximum. The accused is
further sentenced to pay complaining witness Frennie Majarucon y Baco the amount of P20,000,
without subsidiary imprisonment in case of insolvency, plus the costs of suit.
attending mitigating or aggravating circumstance, and, applying the Indeterminate Sentence Law,
hereby sentences her to a penalty of FOUR (4) YEARS and TWO (2) MONTHS of prision correccional as
minimum to EIGHT (8) YEARS of prision mayor as maximum. The accused is further sentenced to pay
complaining witness Alfred Bryant Berador y Ochoa the amount of P25,350, without subsidiary
imprisonment in case of insolvency, plus the costs of suit.
SO ORDERED.21
Appeal followed and the following are assigned as errors:
The trial court gravely erred in giving full weight and credence to the testimonies of the prosecution
witnesses and in not considering the defense interposed by the accused-appellant.
II
The court a quo gravely erred in convicting accused-appellant of the crimes charged despite failure of
the prosecution to prove her guilt beyond reasonable doubt.
III
The court a quo gravely erred in finding the accused-appellant guilty beyond reasonable doubt of the
crime of large-scale recruitment despite its lack of jurisdiction.
IV
The court a quo gravely erred in disregarding the right of the appellant to have a competent and
independent counsel.
The court a quo gravely erred in finding the accused-appellant guilty beyond reasonable doubt for the
crime of estafa.
VI
The court a quo gravely erred in ordering the payment of P35,000, to complainant Mary Jane Aquino
Villanueva; P35,000, to complainant Napoleon Aparicio; P20,000, to complainant Frennie Majarucon and
P35,000, [sic] to complainant Alfred Bryant Berador.22
First and Second Issues: Credibility of Witnesses and Proof Beyond
Reasonable Doubt in Illegal Recruitment in Large Scale
Appellant contends that the prosecution failed to prove beyond reasonable doubt all the essential
elements of the crime of illegal recruitment in large scale. Furthermore, she contends that her alleged
act of illegally recruiting at least three persons was not sufficiently established by the testimonies of the
witnesses for the prosecution.
Article 13, paragraph (b) of the Labor Code enumerates the acts that constitute recruitment and
placement:
(b) 'Recruitment and placement' refers to any act of canvassing, enlisting, contracting, transporting,
utilizing, hiring, or procuring workers, and includes referrals, contract services, promising or advertising
for employment, locally or abroad, whether for profit or not: Provided, That any person or entity which,
in any manner, offers or promises for a fee employment to two or more persons shall be deemed
engaged in recruitment and placement.
Appellant's acts of promising, offering and assuring employment overseas to complainants fall squarely
within the ambit of recruitment and placement as defined above. The fact that she did not sign nor issue
some of the receipts for amounts received from complainants has no bearing on her culpability. The
complainants have shown through their respective testimonies and evidence that she was indeed
involved in the prohibited recruitment. In fact, it was even proven that appellant advertised her services
in a newspaper.
Article 38 of the Labor Code renders illegal those recruitment activities without the necessary license or
authority from the POEA. Article 38 provides:
Article 38. Illegal Recruitment. — (a) Any recruitment activities, including the prohibited practices
enumerated under Article 34 of this Code, to be undertaken by non-licensees or non-holders of
authority shall be deemed illegal and punishable under Article 39 of this Code. The Department of Labor
and Employment or any law enforcement officer may initiate complaints under this Article.
(b) Illegal Recruitment when committed by a syndicate or in large scale shall be considered an
offense involving economic sabotage and shall be penalized in accordance with Article 39 hereof.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more
persons conspiring and/or confederating with one another in carrying out any unlawful or illegal
transaction, enterprise or scheme defined under the first paragraph hereof. Illegal recruitment is
deemed committed in large scale if committed against three (3) or more persons individually or as a
group, x x x.
Article 39 of the Labor Code, in turn, provides:
Article 38. Illegal Recruitment. — (a) The penalty of life imprisonment and a fine of One Hundred
Thousand Pesos (P100,000) shall be imposed if illegal recruitment constitutes economic sabotage as
defined herein; x x x.
The elements of illegal recruitment in large scale are: (1) the person undertakes any recruitment activity
defined under Article 13, paragraph (b), or any prohibited practice enumerated under Article 34 of the
Labor Code; (2) said person does not have a license or authority to engage in the recruitment and
placement of workers; and (3) the act is committed against three or more persons, individually or as a
group.23
All these three elements were proven by the prosecution beyond reasonable doubt. First, the
complaining witnesses have satisfactorily established that appellant promised them employment and
assured them of placement overseas. Appellant even had her services advertised in a newspaper,
undoubtedly to reach more people seeking jobs abroad. Second, appellant did not have any license to
recruit persons for overseas work. The Licensing Division of the POEA issued a certification to this effect.
Third, appellant undertook the recruitment of not less than three workers. The complainants herein
were recruited individually on different occasions. The law applies whether the workers were recruited
individually or as a group.
It is not material that complainants Mary Jane Aquino Villanueva and Wilfredo Tubale were not
presented in court to substantiate their claims against appellant. The law applies if appellant committed
the illegal act against at least three persons, individually or as a group. In the case at bar, the
prosecution proved beyond reasonable doubt that at least three persons were recruited by appellant:
Ariston B. Villanueva, Alfred Bryant Berador and Frennie Majarucon.
With respect to the credibility of these witnesses, it is settled that where the issue is on credibility, the
findings of the trial court will generally not be disturbed. The trial court has the advantage of hearing the
witnesses and observing their conduct during the trial, circumstances that carry great weight in
appreciating credibility.24 The trial court is thus in a better position to settle such an issue.
Third Issue: Jurisdiction or Venue
Appellant argues that she cannot be convicted of illegal recruitment in large scale because the alleged
prohibited acts against complainants were committed beyond the jurisdiction of the Regional Trial Court
of Valenzuela. She points out that in complainant Villanueva's affidavit, he stated that he first met
appellant in her residence in Quezon City. However, during complainant Villanueva's testimony in court,
he stated that he first met appellant in her office in Valenzuela.
The Rules of Court provide that in all criminal prosecutions, the action shall be instituted and tried in the
court of the municipality or province wherein the offense was committed or any of the essential
ingredients thereof took place.25 In the case at bar, the prosecution proved that the element of
offering, promising, and advertising overseas employment to the complainants took place in appellant's
office in Valenzuela. Furthermore, it is elementary that jurisdiction in criminal cases is determined by
the allegations in the information.26 In this case, the information filed against appellant for illegal
recruitment in large scale clearly placed the locus criminis in Valenzuela. As stated earlier, it was in
Valenzuela where the complainants were offered or promised overseas employment by appellant.
Furthermore, based on the prosecutions evidence, the Court is sufficiently convinced that at least one
element of the crime of illegal recruitment in large scale took place in Valenzuela. Where some acts
material and essential to the crime and requisite to its consummation occur in one province or city and
some in another, the court of either province or city has jurisdiction to try the case, it being understood
that the court first taking cognizance of the case will exclude the others.27
Fourth Issue: Right to Competent Counsel
Appellant, next maintains that the court a quo gravely erred in disregarding her right to a competent
and independent counsel. Appellant notes that during the presentation of the prosecutions first witness
on August 11, 1993, appellant was represented by Atty. Hortensio Domingo, who was not her retained
counsel for the case. During the hearing, Atty. Domingo manifested that appellant herself requested him
to represent her in that day's hearing since her counsel, Atty. Yuseco, was still in Cagayan. During the
second, third, fourth and fifth hearings, appellant was represented by another counsel, a de officio one,
a certain Atty. Ricardo Perez, again because counsel for appellant was not around. Because of these
instances, appellant claims that she was deprived of her right to competent counsel because the lawyers
who represented her in the abovementioned hearings were not familiar with her case and, hence, were
not able adequately to protect her interests.
Article III, Section 12, paragraph (1) of the Constitution provides:
"Any person under investigation for the commission of an offense shall have the right x x x to have
competent and independent counsel preferably of his own choice. x x x."
The right to counsel is intended to preclude the slightest coercion as would lead the appellant to admit
something false.28 Moreover, the words "preferably of his own choice" do not mean that the choice of
a lawyer by appellant is exclusive as to preclude other equally competent and independent attorneys
from handling the defense. If this were so, the tempo of justice would be solely within the control of
appellant who could choose to impede the judicial process by simply selecting a lawyer who, for one
reason or another, is not available to defend her.
Fifth and Sixth Issues: Proof Beyond Reasonable Doubt in the Charges of Estafa, and the Order of
Payment
Five separate informations were filed against appellant charging her of violating subdivision 2(a) of
Article 315 of the Revised Penal Code. Except for the names of the offended parties, the dates of the
commission of the crime, and the amounts involved, all informations were similarly worded:
"That sometime in the month of February 1993 or thereabouts in Valenzuela, Metro Manila and within
the jurisdiction of this Honorable Court, the above-named accused, defrauded and deceived one
NAPOLEON APARICIO y CLEMENTE in the following manner to wit: said accused by means of false
said appellant cash money amounting to P40,000, but said accused, once in possession of the same,
with intent to defraud and deceive the herein complainant, did then and there wilfully, unlawfully and
feloniously misapply, misappropriate and convert [the same] to her own personal use and benefit, [and]
aforementioned amount of P40,000."
Contrary to Law.29
Except in Criminal Case No. 2862-V093, the prosecution was able to prove beyond reasonable doubt
appellant's guilt in the cases of estafa.
Subdivision 2(a) of Article 315 of the Revised Penal Code lists ways by which estafa may be committed:
2. By means of any of the following pretenses or fraudulent acts executed prior to or

simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications,
property, credit, agency, business or imaginary transactions; or by means of other similar deceits.
There are three ways of committing estafa under this provision: (1) by using a fictitious name; (2) by
falsely pretending to possess power, influence, qualifications, property, credit, agency, business or
imaginary transactions; and (3) by means of other similar deceits. Under this class of estafa, the element
of deceit is indispensable. Such deceit consists of the false statement or fraudulent representation of the
appellant, which was made prior to, or at least simultaneously with, the delivery of the thing by the
complainant, it being essential that such false statement or fraudulent representation constitutes the
very cause or the only motive that induces the complainant to part with the thing of value. If there is no
prior or simultaneous false statement or fraudulent representation, any subsequent act of appellant,
however fraudulent and suspicious it may appear, cannot serve as a basis for prosecution for this class
of estafa.
The Solicitor General, correctly states in the appellee's brief, that all the elements of the
abovementioned crime have been established beyond reasonable doubt. Appellant represented herself,
personally and by way of the advertisement in the newspaper, that she can provide complainants with
work abroad. Hence, relying on her representations, complainants parted with their money and
delivered the same to appellant. The truth, however, was that appellant never had the license from the
POEA to recruit persons for overseas employment. Complainants were never given any employment
abroad and thus they suffered damage by reason of appellant's illegal acts.
We note, however, that in Criminal Case No. 2863-V-93, the trial court only ordered appellant to pay
complainant Ariston B. Villanueva a total amount of P35,000 in actual damages. The fundamental
principle of the law on damages is that one injured by a breach of contract or by a wrongful or negligent
act or omission shall have a fair and just compensation, commensurate with the loss sustained as a
consequence of the defendant's acts. Actual damages are such compensation or damages for an injury
that will put the injured party in the position in which he had been before he was injured. These pertain
to such injuries or losses that are actually sustained and susceptible of measurement.30 To justify an
award of actual damages, there must be competent proof of the actual amount of loss. Credence can be
given only to claims that are duly supported by receipts.31 In this case, it was duly proven by the
receipts presented by complainant Villanueva and his testimony during trial that he handed appellant a
total amount of P70,000 and only got back P19,000. Hence, correction of the trial court's award is called
for. Appellant should be ordered to pay complainant Ariston B. Villanueva the total amount of P51,000
in actual damages in Criminal Case No. 2863-V-93.
Correction of the trial court's penalty imposed upon appellant in Criminal Case No. 2863-V-93 is
therefore likewise called for. Article 315 of the Revised Penal Code provides:
Article 38. Swindling (estafa). — Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
1st. The penalty of prision correctional in its maximum period to prision mayor in its minimum period, if
the amount of the fraud is over P12,000 but does not exceed P22,000; and if such amount exceeds the
latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional P10,000; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be; x x x.
Hence, applying the Indeterminate Sentence Law, the accused in Criminal Case No. 2863-V-93 should be
sentenced to a penalty of FOUR (4) YEARS and TWO (2) MONTHS of prision correccional as minimum to
TEN (10) YEARS of prision mayor as maximum.
With respect to Criminal Case No. 2862-V093, the prosecution failed to fulfill its duty to produce
evidence showing appellant's guilt beyond reasonable doubt of the charges of estafa committed against
Mary Jane Aquino-Villanueva. Absolute certainty of guilt is not demanded by the law to convict of any
criminal charge but moral certainty is required, and this certainty is required as to every proposition of
proof requisite to constitute the offense.32 In the said criminal case for estafa, no proof whatsoever was
adduced by the prosecution. The offended party, Mary Jane Aquino-Villanueva, was not even asked to
testify in open court.
WHEREFORE, judgment is hereby rendered as follows:
I. The judgment of the trial court in Criminal Case No. 2860-V-93 finding appellant Marlene
Olermo a.k.a. Marlene Tolentino guilty of Illegal Recruitment in Large Scale and sentencing her to life
imprisonment, as well as to pay a fine of One Hundred Thousand Pesos (P100,000) is AFFIRMED.
II. The judgments in Criminal Cases Nos. 2861-V-93, 2864-V-93 and 2865-V-93, finding appellant
guilty beyond reasonable doubt of four separate offenses of estafa are AFFIRMED in toto.
III. The judgment in Criminal Case No. 2863-V-93 finding appellant guilty beyond reasonable doubt
of estafa is MODIFIED, and appellant is hereby sentenced to FOUR (4) YEARS and TWO (2) MONTHS of
prision correccional as minimum to TEN (10) YEARS of prision mayor as maximum and appellant is
further ordered to pay complainant Ariston B. Villanueva the amount of P51,000, without subsidiary
imprisonment in case of insolvency, plus costs of suit.
IV. The judgment in Criminal Case No. 2862-V-93 is REVERSED and appellant is ACQUITTED from the
charge of estafa.
Costs de officio.
SO ORDERED.
G.R. No. 111584 September 17, 2001
PRODUCERS BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and SPOUSES SALVADOR Y. CHUA and EMILIA U. CHUA, respondents.
MELO, J.:
The instant petition assails the decision of the Court of Appeals in its CA G.R.CV No. 20220, dated
October 31, 1991, affirming with modification the decision of Branch 48 of the Regional Trial Court of
the 6th Judicial Region stationed in Bacolod City, as well as the resolution dated August 12, 1993
denying petitioner's motion for partial consideration. Undersigned ponente was given this case in
pursuance of A. M. No. 00-9-03-SC dated February 27, 2001 distributing the so-called back-log cases.
The generative facts of the case may be chronicled as follows:
Sometime in April, 1982, respondent Salvador Chua was offered by Mr. Jimmy Rojas, manager of
petitioner bank, to transfer his account from Pacific Banking Corporation to herein petitioner Producers
Bank of the Philippines. In view of Rojas' assurances of longer loan terms and lower rates of interest,
respondent spouses opened and maintained substantial savings and current deposits with the Bacolod
branch of petitioner bank. Likewise, private respondents obtained various loans from petitioner bank,
one of which was a loan for P2,000,000.00 which was secured by a real estate mortgage and payable
within a period of three (3) years or from 1982 to 1985. On January 20, 1984, private respondents
deposited with petitioner bank the total sum of P960,000.00, which was duly entered in private
respondents' savings account passbook. However, petitioner bank failed to credit this deposit in private
respondents' savings account due to the fact that its Branch Manager, Sixto Castillo, absconded with the
money of the bank's depositors. Also, petitioner bank dishonored the checks drawn out by private
respondents in favor of their various creditors on the ground of insufficient funds, despite the fact that
at that time, the balance of private respondents' deposit was in the amount of P1,051,051.19. These
events prompted private respondents to request for copies of their ledgers covering their savings and
current accounts, but petitioner bank refused. Due to petitioner bank's refusal to furnish private
respondents copies of their ledgers, private respondents instituted on January 30, 1984 an action for
damages against petitioner bank which was docketed as Civil Case No. 2718. On the other hand,
petitioner bank filed with the City Sheriff of Bacolod a petition for extrajudicial foreclosure of the real
estate mortgage during the pendency of Civil Case No. 2718. As a result, private respondents filed a
complaint for injunction and damages docketed as Civil Case No. 3276, alleging that the petition for
extrajudicial foreclosure was without basis and was instituted maliciously in order to harass private
respondents. On April 26, 1988, the trial court rendered its decision on the latter case, the dispositive
portion of which reads:
WHEREFORE, from the evidence adduced, judgment is hereby rendered in favor of plaintiff ordering the
defendant as follows:
1) To pay plaintiff the sum of P2,000,000.00 as moral damages, with legal rate of interest; the sum
of P90,000.00 per month and P18,000.00 per month representing plaintiff's unrealized profits from his
cement and gasoline station business, respectively, to commence from October 16, 1984, with legal rate
of interest until fully paid; the sum of P250,000.00 as exemplary damages;
2) To off-set the sum of P960,000.00 deposited by plaintiff on January 20, 1984 and entered in his
Passbook No. 38240, together with its incremental interests computed at banking rate and to
commence from January 20, 1984 with his agricultural loan account in the sum of P1,300,000.00 with
interest thereon computed at fourteen (14%) percent per annum, to commence from January 4, 1984,
covered by a real estate mortgage, both of which shall have a cut-off time frame on the date of this
decision;
3) That should the said savings deposit and its interest be sufficient to cover the off-setting,
compensation shall take place and to be taken from the amounts awarded to plaintiff in the form of
moral, actual and compensatory damages;
4) That the time loan in the sum of P175,000.00 and the clean loan of P400,000.00, both without
interest, shall be off-settled by the moral, actual and compensatory damages herein awarded to
plaintiff;
5) That after compensation or set-off had taken place, to pay plaintiff the balance of the adjudged
moral, actual and compensatory damages, with legal rate of interest until fully paid;
6) To render an accounting to plaintiff with respect to his Account Nos. 0142-0014-0 and 042-0014-
1 for the period covering January to December, 1982;
7) That in order to make the bank's record complete, to reform the deed of real estate mortgage
conformably with the agreement by stipulating in the said document that the maturity date of the
agricultural loan is April 5, 1987 at the same rate of interest of fourteen (14%) percent per annum,
deducting from the original amount of the loan the payments made on the principal and interests; this
reformation shall take place simultaneously with the off-setting of accounts;
8) To pay plaintiff the sum equivalent to fifteen (15%) percent of the amount representing the
balance of the sums awarded as moral, actual and compensatory damages as attorney's fees;
9) To pay plaintiff the costs of suit;
10) The writ of preliminary injunction issued by this Court is rendered permanent; and
11) The counterclaim is hereby dismissed.
SO ORDERED.
(Rollo, pp. 261-263.)

On October 31, 1991, upon appeal by petitioner bank, the Court of Appeals modified the decision of the
trial court as follows:
WHEREFORE, from the evidence adduced, judgment is hereby rendered as follows:
1. Ordering the defendant —
a. To pay plaintiff the sum of P500,000.00 as moral and exemplary damages;
b. To pay the sum of P18,000.00 per month representing plaintiffs' unrealized profits from his
gasoline station business to commence from October 16, 1984, with legal rate of interest, until fully
paid;
c. To allow the plaintiffs to offset their financial obligation with the defendant bank by the moral,
exemplary, actual and compensatory damages herein awarded in favor of the aforesaid plaintiffs;
d. If, after the off-setting, a balance remains in favor of the plaintiffs, to pay the said plaintiffs such
balance of the adjudged moral, exemplary, actual and compensatory damages, with legal rate of interest
until fully paid, as of the time of off-setting;
e. To render an accounting to plaintiffs with respect to their Account Nos. 0142-0014-0 and 042-
0014-1 for the period covering January to December, 1982;
f. To pay plaintiffs the sum of P100,000.00 as attorney's fees.
g. To pay the costs of suit.
2. Ordering the plaintiffs —

a. To settle their loan obligation with the defendant bank within 90 days from the finality of this
decision, subject to the resolution of this Court to the effect that they shall be relieved from the
payment of penalties and surcharges on their outstanding balance starting January 20, 1984;
3. The plaintiffs' prayer for reformation of their mortgage contract or annulment thereof is hereby
denied;
4. The counterclaim of defendant-appellant are hereby dismissed.
SO ORDERED.
(Rollo, pp. 86-87.)
Petitioner moved for a partial reconsideration of the above decision but the same was denied on August
12, 1993. Hence, the instant petition with the following submissions which allegedly warrant our review
of the assailed decision, viz.:
1. The Court of Appeals erred in not ruling that the application for extrajudicial foreclosure of real
estate mortgage is legal and valid;
2. The Court of Appeals erred in not granting petitioner bank its right to foreclose extrajudicially
the real estate mortgage and to proceed with its application for extrajudicial foreclosure of real estate
mortgage;
3. The Court of Appeals erred in ruling that private respondents be relieved from the payment of
penalties and surcharges on their outstanding balance starting January 20, 1984;
4. The Court of Appeals erred in awarding moral and exemplary damages of P500,000.00,
unrealized profit of P18,000.00 per month, and attorney's fees of P100,000.00 against petitioner bank;
5. The Court of Appeals erred in ordering an accounting to private respondents with respect to
their Account Nos. 0142-0014-0 and 042-0014-1 for the period covering January to December, 1982.
It should at once be apparent that except for the first and second imputed errors which involve
petitioner bank's right to foreclose extrajudicially the real estate mortgage, the resolution of the
assigned errors entails a review of the factual conclusions of the appellate court and the evidentiary
bases thereof. Such an assessment is not, as a rule, proper in appeals from the Court of Appeals which
should be confined to a consideration and determination only of issues of law as its findings of fact are
deemed conclusive (Villanueva vs. Court of Appeals, 294 SCRA 90 [1998]) especially so in this case
because the findings of fact of the appellate court concur with those of the trial court. To reiterate, this
Court's jurisdiction is only limited to reviewing errors of law in the absence of any showing that the
findings complained of are totally devoid of support in the record or they are glaringly erroneous as to
constitute serious abuse of discretion. Nonetheless, considering the amount involved, as well as for the
satisfaction of the parties who have vigorously pursued this case since 1984, the Court, in the exercise of
its discretion, examined the factual bases, particularly with respect to the propriety of the damages
awarded to private respondents.
The first and second assignments of error, being interrelated, shall be jointly discussed.
Petitioner contends that it has the right to foreclose the real estate mortgage executed by private
respondents in its favor as the loan under the real estate mortgage contract had become due and
demandable. This argument is not well-taken. Foreclosure is but a necessary consequence of non-
payment of a mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the debt
remains unpaid at the time it is due (Gov't. of the P.I. vs. Espejo, 57 Phil. 496 [1932]). As found by the
trial court and the Court of Appeals, and as borne by the evidence on record, private respondents were
constantly paying their loan obligations with petitioner bank. In fact the amount of P960,000.00 was
properly deposited with petitioner bank as evidenced by the corresponding deposit slip and the entry
made in private respondents' savings account passbook. It is, therefore, not the fault of private
respondents that their payment amounting to P960,000.00 was not credited to their account. Thus, it is
certain that the loan which was secured by a real estate mortgage cannot be considered as unpaid so as
to warrant foreclosure on the mortgage.
Clearly, private respondents have not yet defaulted on the payment of their loans. Moreover, the term
of the loan, as agreed upon by the parties, is three years, or from 1982 to 1985. But petitioner filed its
application for extrajudicial foreclosure on October 15, 1984. Indisputably, the application for
foreclosure of the mortgage on October 15, 1984 was premature because by then, private respondents'
loan was not yet due and demandable.
Likewise, both the Court of Appeals and the trial court found that private respondents are entitled to
moral and exemplary damages. We agree. Moral and exemplary damages may be awarded without
proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances
obtaining in the case and assess damages according to its discretion. As borne out by the record of this
case, private respondents are engaged in several businesses, such as rice and corn trading, cement
dealership, and gasoline proprietorship. The dishonor of private respondents' checks and the
foreclosure initiated by petitioner adversely affected the credit standing as well as the business dealings
of private respondents as their suppliers discontinued credit lines resulting in the collapse of their
businesses. In the case of Leopoldo Araneta vs. Bank of America (40 SCRA 144 [1971]), we held that:
"The financial credit of a businessman is a prized and valuable asset, it being a significant part of the
foundation of his business. Any adverse reflection thereon constitutes some financial loss to him."
The damage to private respondents' reputation and social standing entitles them to moral damages.
Article 2217, in relation to Article 2220, of the Civil Code explicitly provides that "moral damages include
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury." Obviously, petitioner bank's wrongful act caused
serious anxiety, embarrassment, and humiliation to private respondents for which they are entitled to
recover moral damages in the amount of P300,000.00 which we deem to be reasonable.
The award of exemplary damages is in order in view of the malicious and unwarranted application for
extrajudicial foreclosure by petitioner which was obviously done to harass, embarrass, annoy, or ridicule
private respondents. Likewise, petitioner, in its application for extrajudicial foreclosure, included the
other loans of private respondents which were not covered by the real estate mortgage agreement,
such as the loan of P175,000.00 which was a time loan, and the amount of P400,000.00 which was a
clean loan. Moreover, petitioner unjustifiably refused to give private respondents copies of their
account ledgers which would show the deposits made by them. Also, petitioner bank's failure to credit
the deposit in the account of private respondents constituted gross negligence in the performance of its
contractual obligation which amounts to evident bad faith. Verily, all these acts of petitioner were
accompanied by bad faith and done in wanton, fraudulent and malevolent manner warranting the
award of exemplary damages in favor of private respondents, in accordance with Article 2232 of the
Civil Code which provides:
ART. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Of course, a plaintiff need not prove the actual extent of exemplary damages, for its determination is
addressed to the sound discretion of the court upon proof of the plaintiff's entitlement to moral,
temperate, or compensatory damages (Article 2234, Civil Code). In the instant case, exemplary damages
in the amount of P150,000.00 are proper.
Anent the award of actual damages, the Court of Appeals granted private respondents the amount of
P18,000.00 per month representing private respondents' unrealized profits from his gasoline station
business, to commence from October 16, 1984. Under Articles 2199 and 2200 of the Civil Code, actual or
compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury
sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has
been done. There are two kinds of actual or compensatory damages one is the loss of what a person
already possesses, and the other is the failure to receive as a benefit that which would have pertained to
him (Tolentino, Civil Code of the Phil., Vol. V, 1992 ed., pp. 633-636). In the latter instance, the familiar
rule is that damages consisting of unrealized profits, frequently referred as "ganacias frustradas" or
"lucrum cessans," are not to be granted on the basis of mere speculation, conjecture, or surmise, but
rather by reference to some reasonably definite standard such as market value, established
experienced, or direct inference from known circumstances (Talisay-Silay Milling Co., Inc. vs. Asociacion
de Agricultores de Talisay-Silay, Inc., 247 SCRA 361 [1995])
In the case at bar, actual damages in the form of unrealized profits were awarded on the basis of the
sole testimony of private respondent Salvador Chua, to wit:
Atty. Chua:
Q: You mentioned earlier during your direct testimony that you are engaged in gasoline business.
Do you have a gasoline station?
A: Yes, sir.
Q: Where is that located?
A: It is located at Corner Araneta-San Sebastian Sts.
Q: Before the filing of the Extra Judicial Foreclosure, how much more or less, you earned from that
gasoline station by way of conservative estimate?
A: In my gasoline business, based on my record, I have an average of 114,000 liters.
Q: Do you mean to say you can dispose 114,000 liters a month?
A: Yes, sir.
Q: How much is the mark up per liter?
A: Before the publication of the Extra Judicial Foreclosure the markup is P0.27 per liter. So, it comes
out that the profit is P30,78.00 (sic).
Q: How much is your overhead for disposing that much liters of gasoline every month?
A: The overhead is about 12,280.00.
Q: That will give you an average of P18,000.00 a month?

A: Yes, sir.
Q: After the filing of the Extra Judicial Foreclosure, what happened to your gasoline business?
A: Because of the publication of the Extra Judicial Foreclosure I did not have credit line anymore.
Since I have no capital I was forced to sell my right to operate to my relatives.
(tsn, March 25, 1986, pp. 9-12)
However, other than the testimony of Salvador Chua, private respondents failed to present
documentary evidence which is necessary to substantiate their claim for actual or compensatory
damages. In order to recover this kind of damages, the injured party must prove his case, thus:
When the existence of a loss is established, absolute certainty as to its amount is not required. The
benefit to be derived from a contract which one of the parties has absolutely failed to perform is of
necessity to some extent, a matter of speculation, but the injured party is not to be denied for that
reason alone. He must produce the best evidence of which his case is susceptible and if that evidence
warrants the inference that he has been damaged by the loss of profits which he might with reasonable
certainty have anticipated but for the defendant's wrongful act, he is entitled to recover. (Cerreno vs.
Tan Chuco, 28 Phil. 312 [1914] quoted in Central Bank of the Philippines vs. Court of Appeals, 63 SCRA
431 [1975])
Applying the foregoing test to the instant case, the Court finds the evidence of private respondents
insufficient to be considered within the purview of "best evidence." The bare assertion of private
respondent Salvador Chua that he lost an average of P18,000.00 per month is inadequate if not
speculative and should be admitted with extreme caution especially because it is not supported by
independent evidence. Private respondents could have presented such evidence as reports on the
average actual profits earned by their gasoline business, their financial statements, and other evidence
of profitability which could aid the court in arriving with reasonable certainty at the amount of profits
which private respondents failed to earn. Private respondents did not even present any instrument or
deed evidencing their claim that they have transferred their right to operate their gasoline station to
their relatives. We cannot, therefore, sustain the award of P18,000.00 a month as unrealized profits
commencing from October 16, 1984 because this amount is not amply justified by the evidence on
record.
Further, well-settled is the rule that even if the petition for extrajudicial foreclosure filed by petitioner
against private respondents is clearly unfounded, this does not necessarily mean, in the absence of
specific facts proving damages, that actual damage has been sustained. The Court cannot rely on
speculations as to the fact and amount of damages. It must depend on actual proof of the damages
alleged to have been suffered (Perfecto vs. Gonzales, 128 SCRA 635 [1984]).
Finally, the award of attorney's fees as part of damages is deemed just and equitable under the
circumstances. Attorney's fees may be awarded when a party is compelled to litigate or to incur
expenses to protect his interest by reason of an unjustified act of the other party (Ching Sen Ben vs.
Court of Appeals, 314 SCRA 762 [1999]). In this case, petitioner bank's act of not crediting private
respondents' deposit of P960,000.00, as well as the premature filing of the extrajudicial foreclosure,
have compelled private respondents to institute an action for injunction and damages primarily in order
to protect their rights and interests. The award of attorney's fees is also justified under Article 2208 of
the Civil Code which provides:
ART. 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;
WHEREFORE, the decision of the Court of Appeals in its CA-G.R. CV No. 20220 is affirmed with
MODIFICATION only as to the award of damages in that petitioner bank is ordered to pay private
respondents the following:
1. Three Hundred Thousand Pesos (P300,000.00) as moral damages;
2. One Hundred Fifty Thousand Pesos (P150,000.00) as exemplary damages; and

3. One Hundred Thousand Pesos (P100,000.00) as attorney's fees and litigation expenses.
In all other respects, the said judgment is affirmed.
SO ORDERED.
G.R. No. 132869 October 18, 2001
GREGORIO DE VERA, JR., petitioner,
vs.
COURT OF APPEALS, Q. P. SAN DIEGO CONSTRUCTION, INC., ASIATRUST DEVELOPMENT BANK, SECOND
LAGUNA DEVELOPMENT BANK, CAPITOL CITY DEVELOPMENT BANK, EX-OFFICIO SHERIFF OF QUEZON
CITY and/or HIS DEPUTY, respondents.
BELLOSILLO, J.:
This is a Petition for Review, under Rule 45 of the Revised Rules of Court, of the Decision of the Court of
Appeals in CA-G.R. CV No. 37281, "Gregorio de Vera, Jr. v. Court of Appeals, QP San Diego Construction,
Inc., Asiatrust Development Bank, Second Laguna Development Bank, Capitol City Development Bank,
Ex-Officio Sheriff of Quezon City and/or his Deputy," and of its Resolution of 18 February 1998 denying
petitioner's Manifestation with Motion for Reconsideration.
Respondent Q. P. San Diego Construction, Inc. (QPSDCI), owned a parcel of land located at 101 Panay
Avenue, Quezon City, on which it built Lourdes I Condominium. On 10 June 1983, to finance its
construction and development, QPSDCI entered into a Syndicate Loan Agreement1 with respondents
Asiatrust Development Bank (ASIATRUST) as lead bank, and Second Laguna Development Bank
(LAGUNA) and Capitol City Development Bank (CAPITOL) as participating banks (hereafter collectively
known as FUNDERS). QPSDCI mortgaged to the creditor banks as security the herein mentioned Panay
Avenue property and the condominium constructed thereon. The mortgage deed was registered with
the Register of Deeds of Quezon City and annotated on the individual condominium certificates of title
(CCT) of each condominium unit.2
On 23 June 1983 petitioner Gregorio de Vera Jr. and QPSDCI, through its authorized agent Fil-Estate
Realty Corporation (FIL-ESTATE), entered into a Condominium Reservation Agreement3 where
petitioner undertook to buy Unit 211-2C of the condominium for P325,000.00 under the following
agreed terms of payment: (a) an option money of P5,000.00 payable upon signing of the agreement to
form part of the purchase price; (b) a full downpayment of P175,675.00 broken down into the
reservation fee of P5,000.00 and three (3) equal monthly installments payable beginning the month
after the signing of the contract; and, (c) the remaining balance of P160,000.00 to be secured through
petitioner's Pag-IBIG and Open-Housing Loan. Pending release of the loan, petitioner was to avail of a
bridge financing loan with ASIATRUST or any accredited originating bank of the Pag-IBIG program.
On 2 June 1983 petitioner paid the reservation fee of P5,000.00, and on 11 July 1983 the balance of the
downpayment of P167,000.00, thus completing the downpayment of P175,675.00 well before the due
date. As incentive, petitioner was given a full discount on cash payment by QPSDCI to bring the total
payment to P184,040.00.
Pursuant to their Condominium Reservation Agreement, petitioner submitted through FIL-ESTATE his
application for the Pag-IBIG loan. On 28 December 1983 ASIATRUST as originating bank notified FIL-
ESTATE that petitioner's Pag-IBIG loan application had been approved.4 In a letter dated 18 January
1984 QPSDCI President Quintin P. San Diego forwarded the letter to petitioner. However, the amount
approved was only P139,100.00 and not P160,000.00. Additional charges further reduced the amount to
P117,043.33.
Petitioner De Vera Jr. approached QPSDCI to have the P12,040.00 discount credited to his additional
equity. Since the resultant net loan of P117,043.33 was insufficient to cover the balance of the purchase
price, De Vera Jr. negotiated with QPSDCI to defer payment of the P23,916.67 deficiency until the
project was completed and the unit was ready for turnover. QPSDCI agreed.5
The condominium project was substantially completed in June 1984 and the unit was turned over to De
Vera Jr. the following month. Accordingly, petitioner paid QPSDCI the P23,916.67 shortfall between the
balance and the granted loan.
On 26 June 1984 ASIATRUST through its Vice-President Pedro V. Lucero and Manager Nicanor T.
Villanueva wrote to QPSDCI asking the unit buyers to pay in advance the costs of the transfer of titles
and registration of their Pag-IBIG loan mortgages.6 QPSDCI forwarded the letter to De Vera Jr. and
requested that he pay the amount to QPSDCI.7 As ASIATRUST indicated that the amount be paid directly
to it, De Vera Jr. went to the bank for clarification. On 23 August 1983, after learning that ASIATRUST
was in possession of the certificate of title, De Vera Jr. paid the transfer expenses directly to ASIATRUST.
On 17 September 1984 ASIATRUST sent another notice of approval8 to QPSDCI and De Vera Jr. with the
notation, "additional equity of all accounts have (sic) to be paid directly to the Bank."
On 3 October 1984 ASIATRUST wrote another letter9 asking QPSDCI to advise the unit buyers, among
others, to pay all additional and remaining equities on 10 October 1984; that their Pag-IBIG loan
mortgages would be registered only upon payment of those equities; and, that loan mortgages
registered after 31 October 1984 would be subject to the increased Pag-IBIG interest rates.
On 12 October 1984 ASIATRUST also wrote a letter to petitioner and signed by its Assistant Manager
Leticia R. de la Cruz informing him that his housing loan would only be implemented upon the following
conditions: (a) Payment of the remaining equity directly to ASIATRUST Development Bank; and (b)
Signing of all Pag-IBIG documents not later than 20 October 1984, so his mortgages could be registered
on or before 31 October 1984. Mortgages registered beyond said date shall subject the Pag-IBIG loan to
the increased interest rates of the National Home Mortgage Finance Corp. (per Circular #27 dated June
21, 1984).
According to petitioner, the letter came as a total surprise to him; all the while he thought that his loan
had already been released to QPSDCI and the titles transferred to his name; he promptly wrote
ASIATRUST to seek clarification; ASIATRUST responded by informing De Vera Jr. that the developmental
loan agreement between QPSDCI and the three (3) banks, under which the individual titles of the
condominium units were mortgaged in favor of the FUNDERS to secure the loan, shall be paid out of the
net proceeds of the Pag-IBIG loans of the buyers; that the total amount of loan from the FUNDERS was
distributed among all condominium units such that each unit had to bear a certain portion of the total
loan, or a "loan value;" that per agreement with QPSDCI, ASIATRUST would only grant the Pag-IBIG-
Housing Loan with the release of the mortgage liens, which could not be released unless the buyers fully
paid their respective loan values; and that petitioner's equity payments to QPSDCI had not been
remitted to the bank.
On 30 May 1985 ASIATRUST informed QPSDCI that it could no longer extend the bridge financing loan to
some of the buyers, including petitioner, for various reasons,10 among which was that petitioner had
already exceeded the age limit, hence, he was disqualified.11
After learning of the disapproval of his loan, petitioner wrote the president of QPSDCI to make
arrangements to settle his balance. Since petitioner had already invested a substantial amount in
remodelling and improving his unit, rescinding the sale was no longer a viable option. Consequently, he
only asked the president of QPSDCI for some assurance that the title would be turned over to him upon
full payment.
In response, QPSDCI suggested that petitioner deal directly with ASIATRUST for any matter regarding the
sale of the unit.12 President San Diego explained that "as far as we are concerned we have sold to you
our property at a certain price and we have correspondingly issued to your goodself, thru the Bank, a
Deed of Absolute Sale for the unit we sold to you taking into consideration that the Bank has approved
your loan per their advice dated December 28, 1983 and presumably credited us for the approved
amount of loan."
As petitioner failed to obtain the housing loan, he was not able to pay the balance of the purchase price.
QPSDCI sent him a letter13 dated 6 August 1987 presenting him with two options: (a) to pay the
remaining balance of the purchase price, with interest, which had already ballooned to P263,751.63, on
or before 15 August 1987; or, (b) to pay rent for the use of the unit from 28 July 1984 to June 1987.
On 20 May 1988 petitioner, upon discovering that the FUNDERS had already published a notice14 of
extrajudicial foreclosure of the mortgage, filed a complaint against respondents for damages and
injunction with urgent prayer for issuance of a writ of preliminary injunction, annulment of mortgage
based on fraud, with urgent prayer for the issuance of a writ of preliminary attachment and specific
performance. The complaint was docketed as Civil Case No. Q-53737 and subsequently raffled to Branch
107 of the Regional Trial Court of Quezon City.
Meanwhile, QPSDCI failed to pay its obligations to the FUNDERS. On 23 May 1988 ASIATRUST
extrajudicially foreclosed the mortgage on twenty-seven (27) condominium units, including that of
petitioner De Vera Jr. The units were sold at public auction, with the FUNDERS as the highest bidder. The
certificate of sale was issued and annotated on the CCTs.
On 3 March 1992 the trial court rendered judgment "directing the defendants (herein respondents) to
pay to the plaintiff (herein petitioner) jointly and severally the sum equivalent to the penalties and
charges plus whatever amount may be necessary to redeem Unit 211-2C from any lien and
encumbrances so that the title may be released and delivered to the plaintiff, free from any lien and
encumbrances, subject only to the deduction of his unpaid balance of P139,000.00, which the plaintiff
should pay out of his own funds, plus exemplary damages of P100,000.00 each and to pay plaintiff
attorney's fees jointly and severally x x x P50,000.00 plus the expenses of litigation." The lower court
denied plaintiff's prayer for moral damages and dismissed defendants' counterclaim against the plaintiff
and cross-claims against each other.15
The Court of Appeals affirmed the decision of the trial court with the modification that respondents
were ordered solidarily to pay petitioner P50,000.00 as nominal damages, but the award for actual and
exemplary damages was deleted.
On 9 July 1997 petitioner filed a "Compliance with Manifestation and Motion for Extension of Time to
File Motion for Reconsideration" alleging that he received the decision of the Court of Appeals on 4 July
1997 and requesting a thirty (30)-day extension within which to file a motion for reconsideration. The
motion was denied by respondent appellate court.
On 8 August 1997 petitioner filed a "Manifestation with Motion for Reconsideration," and on 6 February
1998 a "Compliance with Motion to Resolve Manifestation with Motion for Reconsideration," with
respondent court. Reckoning the deadline of the period to file a motion for reconsideration at 19 July
1997, the Court of Appeals denied petitioner's Motion for Reconsideration for having been filed out of
time. Hence, the instant petition for review on certiorari.
Petitioner assails the 18 February 1998 Resolution denying his Motion for Reconsideration, asserting
that the Court of Appeals should not have denied his motion on mere technicality. Petitioner claims that
his counsel was not notified of the Court of Appeals' decision. The Notice of Judgment16 of the decision
of the Court of Appeals shows that the same was served on petitioner Gregorio de Vera himself and not
on his counsel. Petitioner asserts that service to a party is allowed only if the party is not represented by
counsel. But if he is represented by a counsel, then service shall be made upon his counsel unless service
upon the party himself is ordered by the court. Unless so ordered, service on the party himself who is
represented by counsel is not notice in law, hence, invalid.17
Furthermore, justice will be better served by entertaining this petition than by dismissing it outright. It is
always in the power of this Court to suspend its own rules, or to except a particular case from its
operation, whenever the purposes of justice require it.18
The trial court found that petitioner's failure to pay the balance of the price of Unit 211-2C was not his
fault. It also found that petitioner was a real party in interest to annul the loan agreement between
QPSDCI and the FUNDERS, and that he had priority in right to the unit over the FUNDERS. The trial court
rejected QPSDCI's counterclaim against petitioner for rentals and sustained petitioner's claim for
damages against private respondents.
The Court of Appeals ruled that the regular courts had no jurisdiction over the subject matter of the
case, the proper venue being the Housing and Land Use Regulatory Board (HLURB). However,
respondents were estopped from questioning jurisdiction because they filed counterclaims in the lower
court.
As to the issue of who had superior right over the Unit 211-2C, the Court of Appeals ruled in favor of
petitioner, holding that the mortgage in favor of ASIATRUST, which was the basis for its title, did not
bind petitioner inasmuch as the same was not registered with the National Housing Authority (NHA),
contrary to the mandate of Sec. 18 of PD 957, or "The Subdivision and Condominium Buyers' Protective
Decree.''19 The appellate court further found that QPSDCI breached its warranties as seller under Art.
1547, and also violated its obligation to deliver to petitioner a clean title as required by Sec. 4 of PD 957.
It declared that delivery of the unit to petitioner operated to transfer ownership to him from QPSDCI.
Respondents did not appeal. Petitioner contests the decision of the Court of Appeals only insofar as it
deleted the award of actual and exemplary damages and attorney's fees. The only issue to be addressed
by this Court therefore is the propriety of the award of damages in favor of petitioner.
In finding QPSDCI liable for damages, the trial court held —
x x x it (QPSDCI) has not exerted any reasonable diligence or effort to procure the issuance of the title to
the plaintiff. All that it did was to refer the plaintiff to the Funder(s), alleging that he (plaintiff) should
transact business with them as the matter of loan is between the plaintiff and the Funder(s), and they
had nothing to do with it. However, it collected the additional equity and never forwarded the same to
the Funder(s) nor informed the latter of plaintiff's payment thereof. Thus, to the mind of Asiatrust,
plaintiff never paid the additional equity, although per records of the Seller, he already had.
All these show negligence on the part of the Seller to perform its obligations under the contract — to
the detriment of the plaintiff, for which it should be liable for damages under Art. 2201 of the Civil Code,
for the natural and probable consequences of the breach of the obligation which the parties, specially
the Seller, should have foreseen or could have reasonably foreseen at the time the obligation was
contracted.
As to respondent ASIATRUST, the trial court held that its failure to notify petitioner of the required steps
to be taken after the approval of the loan, of the requirement that additional equity be paid directly to
the bank and other important aspects of the bridging loan, made it liable for damages under the general
provisions on torts under Art. 2176 of the Civil Code, in relation to Art. 2202.
In deleting the award for damages, the respondent Court of Appeals explained —
As earlier found, QPSDCI failed to comply with its warranties as seller. Unfortunately, plaintiff-appellee
posits the propriety of the award of actual damages only in the probable sense: that such award is to the
amount of interests, penalties and other charges as plaintiff may stand liable for by reason of the non-
payment of the purchase price. In other words, plaintiff-appellee admits not having suffered damages in
consequence of non-compliance of seller's warranties. Since actual damages are predicated on such
pecuniary loss as duly proved, the award of the lower court therefor is plainly not in order x x x (citations
omitted).
We agree with the respondent Court of Appeals on this point. Petitioner did not present any proof that
he suffered any damage as a result of the breach of seller's warranty. He did not lose possession of his
condominium unit, although the same had not yet been registered in his name. In his Consolidated
Reply, petitioner came up with this feeble argument for claiming actual damages, a rehash of his motion
for reconsideration with the Court of Appeals —
Petitioner reiterates that the compensatory damages awarded is to the amount of interests, penalties
and other charges as (he) may stand liable for by reason of the non-payment of the balance of the
purchase price of Unit #211 in consequence of the respondent's fault or negligence as evidenced by
Exhs. S and S-1. The compensation is the same amount as whatever the liability may be and therefore
merely offsets the liability x x x x
The cost of clearing the CCT of liens and encumbrances and transferring it to the name of the petitioner
are also part of the actual or compensatory damages and are its own proof.
Article 2199 of the Civil Code provides that one is entitled to adequate compensation only for such
pecuniary loss suffered by him as is "duly proved."20 This provision denies the grant of speculative
damages, or such damage not actually proved to have existed and to have been caused to the party
claiming the same.21 Actual damages, to be recoverable, must not only be capable of proof, but must
actually be proved with reasonable degree of certainty. Courts cannot simply rely on speculation,
conjecture or guesswork in determining the fact and amount of damages.22
This does not mean however that petitioner is liable to private respondents for penalties, interests and
other charges that accrued by reason of non-payment of the balance of the purchase price. Respondent
ASIATRUST had made several representations to petitioner that his loan had been approved. The tenor
of the letters sent by ASIATRUST would lead a reasonable man to believe that there was nothing left to
do but await the release of the loan. ASIATRUST cannot hide behind the pithy excuse that the grant of
the bridge financing loan was subject to the release of the Pag-IBIG loan. The essence of bridge financing
loans is to obtain funds through an interim loan while the Pag-IBIG funds are not yet available. To await
the release of the Pag-IBIG loan would render any bridge financing nugatory. Thus, we agree with the
trial court when it said that "the conclusion is inevitable that although the plaintiff was not able to pay,
he was a victim of circumstances and his failure was not due to his own fault."
Furthermore, Sec. 25 of PD 957 provides:
SECTION 25. Issuance of Title. — The owner or developer shall deliver the title of the lot or unit to
the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the
deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a
mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the
owner or developer shall redeem the mortgage or the corresponding portion thereof within six months
from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to
the buyer in accordance herewith.
From the foregoing it is clear that upon full payment, the seller is duty-bound to deliver the title of the
unit to the buyer. Even with a valid mortgage over the lot, the seller is still bound to redeem said
mortgage without any cost to the buyer apart from the balance of the purchase price and registration
fees. It has been established that respondent QPSDCI had been negligent in failing to remit petitioner's
payments to ASIATRUST. If QPSDCI had not been negligent, then even the possibility of charges, liens or
penalties would not have arisen. Therefore, as between QPSDCI and petitioner, the former should be
held liable for any charge, lien or penalty that may arise. However, it was error for the trial court to
remedy the situation in the form of an award for damages because, as discussed earlier, the basis for
the same does not appear indubitable.
Part of the confusion lies in the deficiency of the trial court's decision. It had found that petitioner had
superior right to the unit over the FUNDERS and the mortgage in favor of the FUNDERS was contrary to
Condominium laws. Therefore, the proper remedy was to annul the mortgage foreclosure sale and the
CCT issued in favor of ASIATRUST, and not merely decree an award for damages. We held in Union Bank
of the Philippines v. HLURB —23
Clearly, FRDC's act of mortgaging the condominium project to Bancom and FEBTC, without the
knowledge and consent of David as buyer of a unit therein, and without the approval of the NHA (now
HLURB) as required by P.D. No. 957, was not only an unsound real estate business practice but also
highly prejudicial to the buyer David, (who) has a cause of action for annulment of the mortgage, the
mortgage foreclosure sale, and the condominium certificate of title that was issued to the UBP and
FEBTC as highest bidders of the sale.
These remedies were clearly within those sought for in petitioner's complaint. The trial court should
have also ordered QPSDCI to credit petitioner's payments to his outstanding balance and deliver to
petitioner a clean CCT upon full payment of the purchase price as mandated by Sec. 25 of PD 957.
We note that petitioner, believing that he won, did not appeal the trial court's decision. Petitioner is
partly to blame for the difficult situation he is in, having filed his complaint with the regular courts
instead of the HLURB. Nevertheless, both trial court and the Court of Appeals found that petitioner had
superior rights over the condominium unit, that petitioner was not bound by the mortgage in favor of
the FUNDERS and, that QPSDCI violated its contract with petitioner by its failure to remit the latter's
payments. Such findings are uncontested before us and provide enough ground to warrant the
modification of the ruling, so that full relief may be accorded to petitioner. The general rule that an
appellate court may only pass upon errors assigned may be waived, and the appellate court may
consider matters not assigned when consideration of which is necessary in arriving at a just decision and
complete resolution of the case or serve the interests of justice or to avoid dispensing piecemeal
justice.24
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 37281 is MODIFIED thus
(a) The mortgage over Unit 211-2C of Lourdes I Condominium covered by CCT No. 2307 as well as
its foreclosure sale is declared NULL and VOID. The Ex-Officio Sheriff of Quezon City is ordered to cancel
the certificate of sale in favor of ASIATRUST Development Bank over the aforesaid Unit 211-2C and the
Register of Deeds of Quezon City to cancel the Annotation of the Real Estate Mortgage (Entry No. 7714)
and the Annotation of the Certificate of Sale (Entry No. 8087); and
(b) Respondents Q. P. San Diego Construction, Inc., and ASIATRUST are ordered to credit all
payments made by petitioner Gregorio de Vera Jr., to his outstanding balance, and to deliver to
petitioner the certificate of title over Unit 211-2C, Lourdes I Condominium, upon full payment of the
purchase price, free from all penalties, liens, charges, except those accruing after finality of this
Decision.
The award of nominal damages in favor of petitioner in the amount of P50,000.00 is AFFIRMED.
SO ORDERED.
G.R. No. 131723 December 13, 2007
MANILA ELECTRIC COMPANY, petitioner,
vs.
T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT

PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the
Decision1 of the Court of Appeals (CA) dated June 18, 1997 and its Resolution2 dated December 3, 1997
in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric Company.
The facts of the case, as culled from the records, are as follows:
Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines),
Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent
Technology Electronics Assembly and Management Pacific Corporation (TPC). On the other hand,
petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro
Manila area.
Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were
parties to two separate contracts denominated as Agreements for the Sale of Electric Energy under the
following account numbers: 09341-1322-163 and 09341-1812-13.4 Under the aforesaid agreements,
petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) located
at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another
contract was entered into for the supply of electric power to TEC's NS Building under Account No.
19389-0900-10.
In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a
Contract of Lease5 with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's
DCIM building for a period of five years or until September 1991. Ultra was, however, ejected from the
premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and
conditions of the lease contract.
On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric
meters installed at the DCIM building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two
meters covered by account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly
tampered with and did not register the actual power consumption in the building. The results of the
inspection were reflected in the Service Inspection Reports7 prepared by the team.
In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and
demanded from the latter the payment of P7,040,401.01 representing its unregistered consumption
from February 10, 1986 until September 28, 1987, as a result of the alleged tampering of the meters.8
TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject building during
the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra9
which, in turn, informed TEC that its Executive Vice-President had met with petitioner's representative.
Ultra further intimated that assuming that there was tampering of the meters, petitioner's assessment
was excessive.10 For failure of TEC to pay the differential billing, petitioner disconnected the electricity
supply to the DCIM building on April 29, 1988.
TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do
with the alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on
May 27, 1988 before the Energy Regulatory Board (ERB) praying that electric power be restored to the
DCIM building.11 The ERB immediately ordered the reconnection of the service but petitioner complied
with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the
ERB was later withdrawn as the parties deemed it best to have the issues threshed out in the regular
courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled inspection of the
questioned meters and found them to have been tampered anew.12
Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building.
The inspection allegedly revealed that the electric meters were not registering the correct power
consumption. Petitioner, thus, sent a letter dated June 18, 1988 demanding payment of P280,813.72
representing the differential billing.13 TEC denied petitioner's allegations and claim in a letter dated
June 29, 1988.14 Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount,
with a warning that the electric service would be disconnected in case of continued refusal to pay the
differential billing.15 To avert the impending disconnection of electrical service, TEC paid the above
amount, under protest.16
On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra17 before
the Regional Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil
Case No. 56851.18 Upon the filing of the parties' answer to the complaint, pre-trial was scheduled.
At the pre-trial, the parties agreed to limit the issues, as follows:
1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at
DCIM Building.
2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount
of P7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary damages.19
For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992,
the trial court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra
and petitioner. The pertinent portion of the decision reads:
WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the
defendants as follows:
(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally
reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest
from the date of the filing of this case on January 19, 1989 until the said amount shall have been fully
paid;
(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages
with legal rate of interest also from January 19, 1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages
with interest at legal rate from January 19, 1989;
(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pf P500,000.00;
(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the
amount of P200,000.00;
(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00
Costs against defendant Meralco.
SO ORDERED.20
The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering
the meter installations. The deformed condition of the meter seal and the existence of an opening in the
wire duct leading to the transformer vault did not, in themselves, prove the alleged tampering,
especially since access to the transformer was given only to petitioner's employees.21 The sudden drop
in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the
sending of notice of the results of the inspection was likewise viewed by the court as evidence of
inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of
disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for
damages.22 The court further denied petitioner's claim of differential billing primarily on the ground of
equitable negligence.23 Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of
electric power; and because Ultra manifested to settle the claims of petitioner, the court imposed
solidary liability on both Ultra and petitioner for the payment of the P1,000,000.00.
Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the
amount of actual damages and interest thereon. The dispositive portion of the CA decision dated June
18, 1997, states:
WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with
the slight modification that the interest at legal rate shall be computed from January 13, 1989 and that
Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and
Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual
damages incurred when it was compelled to lease a generator set with interest at the legal rate from the
above-stated date.
SO ORDERED.24
The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for
failing to discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the
results of the inspection; and in disconnecting the electric power without prior notice.
Petitioner now comes before this Court in this petition for review on certiorari contending that:
The Court of Appeals committed grievous errors and decided matters of substance contrary to law and
the rulings of this Honorable Court:
1. In finding that the issue in the case is whether there was deliberate tampering of the metering
installations at the building owned by TEC.
2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not
petitioner is entitled to differential billing, and if so, how much.
3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing
evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering.
4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of
Ultra.
5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM
Building.
6. In finding that there was no notice of disconnection.
7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.
8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7,
1988 the meter installations, they were found to be tampered.
9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.
10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of
electricity consumed is questionable";
11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is
oppressive, wanton and reckless.
12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building.
13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.
14. In not declaring that petitioner is entitled to the differential bill.
15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and
expenses for litigation.25
The petition must fail.
The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the
electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the
differential billing as computed by petitioner; and 3) whether or not petitioner was justified in
disconnecting the electric power supply in TEC's DCIM building.
Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned
by respondent TEC has been established by overwhelming evidence, as specifically shown by the
shorting devices found during the inspection. Thus, says petitioner, tampering of the meter is no longer
an issue.
It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-
established is the doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact,
may be raised before the Court. We would like to stress that this Court is not a trier of facts and may not
re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial court,
especially those affirmed by the Court of Appeals, are binding on this Court.26
Looking at the record, we note that petitioner claims to have discovered three incidences of meter-
tampering; twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS
building on April 24, 1988.
The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the
presence of a short circuiting device and saw that the meter seal was deformed. In addition, petitioner,
through the Supervising Engineer of its Special Billing Analysis Department,27 claimed that there was a
sudden and unexplainable drop in TEC's electrical consumption starting February 10, 1986. On the basis
of the foregoing, petitioner concluded that the electric meters were tampered with.
However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric
consumption during the affected period, the Pattern of TEC's Electrical Consumption28 shows that the
sudden drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise:
In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by
Exhibits "35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984
which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at
87,600 or a difference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same
dropped to 18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700
could be equally categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco
claimed as "unexplainable. x x x.29
The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that
tampering is committed by consumers to prevent the meter from registering the correct amount of
electric consumption, and result in a reduced monthly electric bill, while continuing to enjoy the same
power supply. Only the registration of actual electric energy consumption, not the supply of electricity,
is affected when a meter is tampered with.30 The witnesses claimed that after the inspection, the
tampered electric meters were corrected, so that they would register the correct consumption of TEC.
Logically, then, after the correction of the allegedly tampered meters, the customer's registered
consumption would go up.
In this case, the period claimed to have been affected by the tampered electric meters is from February
1986 until September 1987. Based on petitioner's Billing Record31 (for the DCIM building), TEC's
monthly electric consumption on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.32
Account No. 9341-1812-13 showed a monthly consumption between 9,600 and 34,200 kwh.33 It is
interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric
consumption from October 1987 to February 1988 (the last month that Ultra occupied the DCIM
building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the
second account.
Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on
the first and second accounts, respectively, a month prior to the inspection. On the first month after the
meters were corrected, TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the
respective accounts. These figures clearly show that there was no palpably drastic difference between
the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of
meter-tampering. Indeed, Ultra's explanation that the corporation was losing; thus, it had lesser
consumption of electric power appear to be the more plausible reason for the drop in electric
consumption.
Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they
were found to have been tampered anew. The Court notes that prior to the inspection, TEC was
informed about it; and months before the inspection, there was an unsettled controversy between TEC
and petitioner, brought about by the disconnection of electric power and the non-payment of
differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe
that a customer previously apprehended for tampered meters and assessed P7 million would further
jeopardize itself in the eyes of petitioner.34 If it is true that there was evidence of tampering found on
September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters
were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro
Textile Mills Corporation35 would apply, where we said that we cannot sanction a situation wherein the
defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities
demand payment for the unrecorded electricity utilized when they could have remedied the situation
immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of
the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to
make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not
malfunction, and the due diligence to discover and repair defects therein. Failure to perform such duties
constitutes negligence.36 By reason of said negligence, public utilities run the risk of forfeiting amounts
originally due from their customers.37
As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the
allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the
metal seal of which was unbroken, with petitioner having sole access to the said meters.38
In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS
buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts.
With greater reason, therefore, could petitioner not exercise the right of immediate disconnection.
The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 40139 issued
on March 1, 1974.40 The decree penalized unauthorized installation of water, electrical or telephone
connections and such acts as the use of tampered electrical meters. It was issued in answer to the
urgent need to put an end to illegal activities that prejudice the economic well-being of both the
companies concerned and the consuming public.41 P.D. 401 granted the electric companies the right to
conduct inspections of electric meters and the criminal prosecution42 of erring consumers who were
found to have tampered with their electric meters. It did not expressly provide for more expedient
remedies such as the charging of differential billing and immediate disconnection against erring
consumers. Thus, electric companies found a creative way of availing themselves of such remedies by
inserting into their service contracts (or agreements for the sale of electric energy) a provision for
differential billing with the option of disconnection upon non-payment by the erring consumer. The
Court has recognized the validity of such stipulations.43 However, recourse to differential billing with
disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.44
Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is
true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include
any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies
granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical
services without first notifying it of the impending disconnection. Accordingly, the CA did not err in
affirming the RTC decision.
As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are
compensation for an injury that will put the injured party in the position where it was before the injury.
They pertain to such injuries or losses that are actually sustained and susceptible of measurement.
Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such
pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the
amount of loss be capable of proof; it must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best evidence obtainable.45
Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid
P1,000,000.00 and P280,813.72 under protest, the amounts representing a portion of the latter's claim
of differential billing. With the finding that no tampering was committed and, thus, no differential billing
due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the Court of
Appeals and pursuant to the guidelines set forth by the Court.46
However, despite the appellate court's conclusion that no tampering was committed, it held Ultra
solidarily liable with petitioner for P1,000,000.00, only because the former, as occupant of the building,
promised to settle the claims of the latter. This ruling is erroneous. Ultra's promise was conditioned
upon the finding of defect or tampering of the meters. It did not acknowledge any culpability and
liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was
petitioner who received the P1 million; thus, it alone should be held liable for the return of the amount.
TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the
generator set it was constrained to rent by reason of the illegal disconnection of electrical service. The
official receipts and purchase orders submitted by TEC as evidence sufficiently show that such rentals
were indeed made. However, the amount of P150,000.00 per month for five months, awarded by the
CA, is excessive. Instead, a total sum of P150,000.00, as found by the RTC, is proper.
As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the
same. Exemplary damages are imposed by way of example or correction for the public good in addition
to moral, temperate, liquidated, or compensatory damages.47 In this case, to serve as an example – that
before a disconnection of electrical supply can be effected by a public utility, the requisites of law must
be complied with – we affirm the award of P200,000.00 as exemplary damages. With the award of
exemplary damages, the award of attorney's fees is likewise proper, pursuant to Article 220848 of the
Civil Code. It is obvious that TEC needed the services of a lawyer to argue its cause through three levels
of the judicial hierarchy. Thus, the award of P200,000.00 is in order.49
We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly
on the damage to its goodwill and reputation.50 As a rule, a corporation is not entitled to moral
damages because, not being a natural person, it cannot experience physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is
when the corporation has a reputation that is debased, resulting in its humiliation in the business
realm.51 But in such a case, it is imperative for the claimant to present proof to justify the award. It is
essential to prove the existence of the factual basis of the damage and its causal relation to petitioner's
acts.52 In the present case, the records are bereft of any evidence that the name or reputation of
TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral
damages in the dispositive portion of its decision without stating the basis thereof.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282
dated June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following
MODIFICATIONS: (1) the award of P150,000.00 per month for five months as reimbursement for the
rentals of the generator set is REDUCED to P150,000.00; and (2) the award of P500,000.00 as moral
damages is hereby DELETED.
SO ORDERED.
G.R. No. 79578 March 13, 1991
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), petitioner,

vs.
HON. COURT OF APPEALS, and SPOUSES MINERVA TIMAN and FLORES TIMAN, respondents.
Salalima, Trenas, Pagaoa & Associates for petitioner.
Paul P. Lentejas for private respondents.
SARMIENTO, J.:
A social condolence telegram sent through the facilities of the petitioner gave rise to the present
petition for review on certiorari assailing the decision 1 of the respondent Court of Appeals which
affirmed in toto the judgment 2 of the trial court, dated February 14, 1985, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant RCPI to pay plaintiff the amount of P30,848.05 representing actual and
compensatory damages; P10,000.00 as moral damages and P5,000.00 as exemplary damages.
2. Awarding of attorney's fees in the sum of P5,000.00. Costs against the defendant.
SO ORDERED. 3
The facts as gleaned from the records of the case are as follows:
On January 24, 1983, private respondents-spouses Minerva Timan and Flores Timan sent a telegram of
condolence to their cousins, Mr. and Mrs. Hilario Midoranda, at Trinidad, Calbayog City, through
petitioner Radio Communications of the Philippines, Inc. (RCPI, hereinafter) at Cubao, Quezon City, to
convey their deepest sympathy for the recent death of the mother-in-law of Hilario Midoranda 4 to wit:
MR. & MRS. HILARIO MIDORANDA
TRINIDAD, CALBAYOG CITY
MAY GOD GIVE YOU COURAGE AND STRENGTH TO BEAR YOUR LOSS. OUR DEEPEST SYMPATHY TO YOU
AND MEMBERS OF THE FAMILY.
MINER & FLORY. 5
The condolence telegram was correctly transmitted as far as the written text was concerned. However,
the condolence message as communicated and delivered to the addressees was typewritten on a
"Happy Birthday" card and placed inside a "Christmasgram" envelope. Believing that the transmittal to
the addressees of the aforesaid telegram in that nonsuch manner was done intentionally and with gross
breach of contract resulting to ridicule, contempt, and humiliation of the private respondents and the
addressees, including their friends and relatives, the spouses Timan demanded an explanation.
Unsatisfied with RCPI's explanations in its letters, dated March 9 and April 20, 1983, the Timans filed a
complaint for damages. 6
The parties stipulated at the pre-trial that the issue to be resolved by the trial court was:
WHETHER or not the act of delivering the condolence message in a Happy Birthday" card with a
"Christmasgram" envelope constitutes a breach of contract on the part of the defendant. If in the
affirmative, whether or not plaintiff is entitled to damages. 7
The trial court rendered judgment in favor of the respondents Timans which was affirmed in toto by the
Court of Appeals. RCPI now submits the following assignment of errors:
I
THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY ACTUAL AND COMPENSATORY
DAMAGES IN THE AMOUNT OF P30,848.05.
II
THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY MORAL DAMAGES IN THE
AMOUNT OF P10,000.00.
III
THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY EXEMPLARY DAMAGES IN THE
AMOUNT OF P5,000.00.
IV
THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY ATTORNEYS FEES IN THE
AMOUNT OF P5,000.00 PLUS COSTS OF SUIT. 8
The four assigned errors are going to be discussed jointly because they are all based on the same
findings of fact.
We fully agree with the appellate court's endorsement of the trial court's conclusion that RCPI, a
corporation dealing in telecommunications and offering its services to the public, is engaged in a
business affected with public interest. As such, it is bound to exercise that degree of diligence expected
of it in the performance of its obligation. 9
One of RCPI's main arguments is that it still correctly transmitted the text of the telegram and was
received by the addressees on time despite the fact that there was "error" in the social form and
envelope used. 10 RCPI asserts that there was no showing that it has any motive to cause harm or
damage on private respondents:
Petitioner humbly submits that the "error" in the social form used does not come within the ambit of
fraud, malice or bad faith as understood/defined under the law. 11
We do not agree.
In a distinctly similar case, 12 and oddly also involving the herein petitioner as the same culprit, we held:
Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages.
Everytime a person transmits a message through the facilities of the petitioner, a contract is entered
into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately
. . . As a corporation, the petitioner can act only through its employees. Hence the acts of its employees
in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not
liable directly for the acts of its employees in the pursuit of petitioner's business is to deprive the
general public availing of the services of the petitioner of an effective and adequate remedy. 13
Now, in the present case, it is self-evident that a telegram of condolence is intended and meant to
convey a message of sorrow and sympathy. Precisely, it is denominated "telegram of condolence"
because it tenders sympathy and offers to share another's grief. It seems out of this world, therefore, to
place that message of condolence in a birthday card and deliver the same in a Christmas envelope for
such acts of carelessness and incompetence not only render violence to good taste and common sense,
they depict a bizarre presentation of the sender's feelings. They ridicule the deceased's loved ones and
destroy the atmosphere of grief and respect for the departed.
Anyone who avails of the facilities of a telegram company like RCPI can choose to send his message in
the ordinary form or in a social form. In the ordinary form, the text of the message is typed on plain
newsprint paper. On the other hand, a social telegram is placed in a special form with the proper
decorations and embellishments to suit the occasion and the message and delivered in an envelope
matching the purpose of the occasion and the words and intent of the message. The sender pays a
higher amount for the social telegram than for one in the ordinary form. It is clear, therefore, that when
RCPI typed the private respondents' message of condolence in a birthday card and delivered the same in
a colorful Christmasgram envelope, it committed a breach of contract as well as gross negligence. Its
excuse that it had run out of social condolence cards and envelopes 14 is flimsy and unacceptable. It
could not have been faulted had it delivered the message in the ordinary form and reimbursed the
difference in the cost to the private respondents. But by transmitting it unfittingly—through other
special forms clearly, albeit outwardly, portraying the opposite feelings of joy and happiness and
thanksgiving—RCPI only exacerbated the sorrowful situation of the addressees and the senders. It bears
stress that this botchery exposed not only the petitioner's gross negligence but also its callousness and
disregard for the sentiments of its clientele, which tantamount to wanton misconduct, for which it must
be held liable for damages.
It is not surprising that when the Timans' telegraphic message reached their cousin, it became the joke
of the Midorandas' friends, relatives, and associates who thought, and rightly so, that the unpardonable
mix-up was a mockery of the death of the mother-in-law of the senders' cousin. Thus it was not
unexpected that because of this unusual incident, which caused much embarrassment and distress to
respondent Minerva Timan, he suffered nervousness and hypertension resulting in his confinement for
three days starting from April 4, 1983 at the Capitol Medical Center in Quezon City. 15
The petitioner argues that "a court cannot rely on speculation, conjectures or guess work as to the fact
and amount of damages, but must depend on the actual proof that damages had been suffered and
evidence of the actual amount. 16 In other words, RCPI insists that there is no causal relation of the
illness suffered by Mr. Timan with the foul-up caused by the petitioner. But that is a question of fact.
The findings of fact of the trial court and the respondent court concur in favor of the private
respondents. We are bound by such findings—that is the general rule well-established by a long line of
cases. Nothing has been shown to convince us to justify the relaxation of this rule in the petitioner's
favor. On the contrary, these factual findings are supported by substantial evidence on record.
Anent the award of moral and exemplary damages assigned as errors, the findings of the respondent
court are persuasive.1âwphi1
. . . When plaintiffs placed an order for transmission of their social condolence telegram, defendant did
not inform the plaintiff of the exhaustion of such social condolence forms. Defendant-appellant
accepted through its authorized agent or agency the order and received the corresponding
compensation therefor. Defendant did not comply with its contract as intended by the parties and
instead of transmitting the condolence message in an ordinary form, in accordance with its guidelines,
placed the condolence message expressing sadness and sorrow in forms conveying joy and happiness.
Under the circumstances, We cannot accept the defendant's plea of good faith predicated on such
exhaustion of social condolence forms. Gross negligence or carelessness can be attributed to defendant-
appellant in not supplying its various stations with such sufficient and adequate social condolence forms
when it held out to the public sometime in January, 1983, the availability of such social condolence
forms and accepted for a fee the transmission of messages on said forms. Knowing that there are no
such forms as testified to by its Material Control Manager Mateo Atienza, and entering into a contract
for the transmission of messages in such forms, defendant-appellant committed acts of bad faith, fraud
or malice. . . . 17
RCPI's argument that it can not be held liable for exemplary damages, being penal or punitive in
character, 18 is without merit. We have so held in many cases, and oddly, quite a number of them
likewise involved the herein petitioner as the transgressor.
xxx xxx xxx
. . . In contracts and quasi-contracts, exemplary damages may be awarded if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.1âwphi1 There was gross negligence on
the part of RCPI personnel in transmitting the wrong telegram, of which RCPI must be held liable. Gross
carelessness or negligence constitutes wanton misconduct.
xxx xxx xxx
. . . punitive damages may be recovered for wilful or wantonly negligent acts in respect of messages,
even though those acts are neither authorized nor ratified (Arkansas & L.R. Co. vs. Stroude 91 SW 18;
West vs. Western U. Tel. Co., 17 P807; Peterson vs. Western U. Tel. Co., 77 NW 985; Brown vs. Western
U. Tel. Co., 6 SE 146). Thus, punitive damages have been recovered for mistakes in the transmission of
telegrams (Pittman vs. Western Union Tel. Co., 66 SO 977; Painter vs. Western Union Tel. Co., 84 SE 293)
(emphasis supplied). 19
We wish to add a little footnote to this Decision. By merely reviewing the number of cases that has
reached this Court in which the petitioner was time and again held liable for the same causes as in the
present case breach of contract and gross negligence—the ineluctable conclusion is that it has not in any
way reformed nor improved its services to the public. It must do so now or else next time the Court may
be constrained to adjudge stricter sanctions.
WHEREFORE, premises considered, the decision appealed from is AFFIRMED in toto.

Costs against the petitioner.
SO ORDERED.
G.R. No. 100401 August 24, 1992
CONSOLIDATED DAIRY PRODUCTS CO., JESUS B. BITO and FEDERICO B. GUILAS, as Acting Trustees of
CONSOLIDATED PHILIPPINES, INC. and DAIRY EXPORT CO., INC., petitioners,
vs.
THE COURT OF APPEALS and STANDARD INVESTMENT CORPORATION, respondents.
Tomas O. Del Castillo, Jr. for petitioners.
Eduardo O. Chan and Virgilio E. Polido for the respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 01644
entitled "Consolidated Dairy Products Co., et al., versus The Court of Appeals and Standard Investment
Corporation," which affirmed in toto the decision of the then Court of First Instance (now Regional Trial
Court) of Rizal (Pasay City).
The facts of the case as summarized by the trial court and adopted by the Court of Appeals are as
follows:
Sometime in 1956 Consolidated Dairy Products Company, Inc., a foreign corporation in Seattle,
Washington, U.S.A. (hereinafter referred to as Consolidated Seattle), agreed with Santiago Syjuco, Inc.
(hereinafter referred to as Syjuco, Inc.) to go into a joint venture to manufacture and sell Darigold milk
and other dairy products in this country. To achieve this purpose, they organized and incorporated
defendant Consolidated Philippines, Inc. (hereinafter referred to as Consolidated Philippines),with
offices at Parañaque, Rizal. Consolidated Seattle owned 51% of the capital stock while the remaining
49% of the capital stock was owned by the Syjuco Inc. Thereafter, Consolidated Seattle extended to
Consolidated Philippines the exclusive right to use the tradename Darigold in the Philippines. In turn,
Consolidated Philippines began processing and distributing Darigold evaporated filled milk in the
Philippines.
At the start of its operation, Consolidated Philippines was importing its can requirements from the
United States. However, due to economic policy then prevailing in the country, Consolidated Philippines
was constrained to secure its can requirement from local sources. Hence, on April 2, 1959, Consolidated
Philippines entered into a contract with plaintiff Standard Investment Corporation (hereinafter referred
to as Standard), operating under the tradename Standard Can Company. Under the said can supply
agreement, Consolidated Philippines agreed to purchase from the latter all its requirements of can up to
May 31, 1969 (Exhibit C). Pursuant to this agreement, plaintiff constructed a can-making plant and
purchased the required machineries and equipment and sent technicians to train in the United States
under and for the account of Consolidated Philippines.
In 1966, Dairy Export Company (hereinafter referred to as Dexco), a subsidiary of Consolidated Seattle
and also holding office at 635 Elliot Avenue West, Seattle, Washington, U.S.A. with Consolidated Seattle,
applied for a license to do business in the Philippines which was approved by the Securities and
Exchange Commission. It held office in the very office of Consolidated Philippines. Thereafter, on
September 30, 1966, Dexco entered into a contract with Consolidated Philippines whereby the latter
agreed to purchase from the former packaged sweetened condensed filled milk.
On May 6, 1968, plaintiff Standard, Consolidated Philippines and Dexco signed a memorandum of
agreement by virtue of which the tenure of the can supply agreement of April 2, 1959 between the
plaintiff and Consolidated Philippines was extended up to December 31, 1981.
On January 12, 1972, Consolidated Seattle thru Louis Arrigoni, notified Consolidated Philippines that the
former was placing the control and licensing of the Darigold trademark in the Orient, including the
Republic of the Philippines, into the hands of Dexco (Exhibit 8).
On August 28, 1974, Consolidated Seattle, through its President, Dr. Louis Arrigoni, wrote Mr. Augusto
Syjuco of Syjuco, Inc, a personal and confidential letter offering to sell to him the interest of
Consolidated Seattle in Consolidated Philippines, alleging a great many economies could be made by a
single management and production organization running the three organizations, the Standard,
Consolidated Philippines and Dexco, as the set up then existing will ultimately result in the demise of
Consolidated Philippines (Exhibit O). This was refused by Mr. Augusto Syjuco.
On November 13, 1974, Dexco wrote Consolidated Philippines that it was cancelling effective January
25, 1975 the license granted to Consolidated Philippines to use the tradename Darigold (Exhibit P).
Mr. Augusto Syjuco, in his behalf and in behalf of Syjuco, Inc., the minority stockholder in Consolidated
Philippines, protested the cancellation of the license (Exhibit Q).
Subsequently, Dr. Louis Arrigoni, speaking as President of Consolidated Seattle, offered Syjuco, Inc. to
sell (sic) Consolidated Seattle's share in Consolidated Philippines for P 1.00 or to buy Syjuco, Inc.'s share
in Consolidated Philippines or to file bankruptcy proceedings for Consolidated Philippines.
Left with no better choice, Syjuco, Inc. chose to sell its 49% equity in Consolidated Philippines to
Consolidated Seattle. Consequently, on October 8, 1976, Syjuco, Inc. executed a memorandum
agreement by virtue of which it agreed to sell to Consolidated Seattle all its Interest in Consolidated
Philippines and to dissolve Consolidated Philippines, subject to the condition that the right of plaintiff to
submit claims it may have shall be respected in case Consolidated Philippines is not dissolved (Exhibit E).
Accordingly, Consolidated Seattle bought the entire interest of Syjuco, Inc. and its stockholdings
Consolidated Philippines and proceeded to dissolve Consolidated Philippines (TSN, October 22, 1979, p.
20).
Before Consolidated Philippines could be dissolved, however, Dexco the wholly owned subsidiary of
Consolidated Seattle took over the marketing activities of Consolidated Philippines (Exhibits A and A-1)
and proceeded to sell milk under the tradename Darigold upon the dissolution of Consolidated
Philippines (TSN, October 22, 1979, pp. 31 and 105; Exhibits AA, AA-1, AA-2, AA-4, BB, BB-1 and BB-3).
Earlier, however, on November 3, 1976, E.L. Benitez, then general manager of Consolidated Philippines,
notified plaintiff that it was cancelling the can supply contract of April 2, 1959 (Exhibit B), prompting
plaintiff to demand reimbursement for the separation pay of the employees concerned due to the
cessation of their operation on November 15, 1976 in the amount of P1,022,472.59 and payment of
unrealized profits (Exhibits H, I and N).
Since plaintiff's demands were rejected (Exhibit 11), it was constrained to file this case and to engage
the services of counsel for 25% of all recoveries (Exhibit X).
After summons have been validly served on the defendants, defendant Dexco in its answer claims that
plaintiff Standard had no cause of action against it considering that the basis for its instant action was
the can supply contract between the said plaintiff and Consolidated Philippines wherein Dexco was not a
party and therefore no(t) privy (to the) contract existing between them, and that assuming that it was
bound by the can supply contract and liable to the plaintiff, this action was premature as no demand
relative thereto was made.
Defendant Consolidated Philippines, through its trustees, defendant Jesus Bito and Federico Guilas,
claims that the plaintiff's action was premature as the same never referred to an impartial referee which
was provided for by can supply agreement, that the dissolution and liquidation of Consolidated
Philippines was mutually agreed upon by the Consolidated Seattle and Syjuco, Inc., and that the
dissolution and liquidation of Consolidated Philippines extinguished its obligation under the can supply
contract, and finally that the guarantee extended by Consolidated Seattle for Consolidated Philippines'
liability under the can supply contract covered only liabilities for cans already supplied and not liabilities
accruing subsequent to the execution of the memorandum agreement of October 8. In both answers
Consolidated Philippines as well as Dexco filed Counterclaims which were denied by the plaintiff.
Defendant, Consolidated Seattle did not file any answer. (pp. 1-4, Decision; p. 14, Record) (pp. 53-56,
Rollo)
After the parties presented their respective evidence, the trial court rendered judgment in favor of
Standard. The dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court hereby orders the defendants, namely, Consolidated Dairy
Products Company of Seattle, Washington, U.S.A. and/or its alter ego Dairy Export Company Inc., as well
as Consolidated Philippines. Inc. (represented by its Acting Trustees Jesus B. Bito and Federico B. Guilas)
to pay plaintiff, jointly and severally, the following:
a) P1,022,472.59 representing the separation pay that plaintiff had to pay its employees plus 6%
interest per annum computed from the date of the filing of this case on April 4, 1977 until the
defendants fully pay their obligation;
b) P8,107,931.13 representing plaintiff's aggregate unrealized profit from the years 1974 to 1981
plus 6% interest per annum computed from April 4, 1977, the date of the filing of this case until
defendants fully pay their obligation;
c) Pl,150,197.80 representing inventory losses suffered by plaintiff plus 6% interest per annum
computed from April 4, 1977 until defendants fully settle their obligation; and
d) Pl,000,000.00 as exemplary damages, considering the damages caused the plaintiff and the
fraudulent scheme used by the defendants, plus 25% of all the abovementioned amounts as attorney's
fees.
The counterclaim of the defendants Consolidated Philippines and Dexco are denied for lack of merit.
(pp. 9-10, Decision; pp. 564-565, Record)
Not satisfied with the decision of the trial court, Consolidated Seattle and Consolidated Philippines, thru
its acting trustees, appealed to the Court of Appeals. On April 19, 1991, the Court of Appeals rendered a
decision affirming the decision of the trial court in toto.
In this petition for review, Consolidated Seattle and Consolidated Philippines pray for the reversal of the
decision of the Court of Appeals and the dismissal of the complaint of Standard. The following
assignment of errors were raised:
FIRST ASSIGNMENT OF ERROR

THE LOWER COURT ERRED IN NOT DISMISSING THE AMENDED COMPLAINT FOR FAILURE TO STATE A
CAUSE OF ACTION AGAINST DEFENDANT DAIRY EXPORT COMPANY INC. (DEXCO).
SECOND ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN NOT RULING THAT PLAINTIFF HAD KNOWLEDGE OF AND APPROVED, OR
AT LEAST, AGREED TO, THE DISSOLUTION OF CONSOLIDATED PHILIPPINES INC. (CPI) WHICH WOULD
NECESSARILY HAVE THE EFFECT OF TERMINATING THE CAN SUPPLY CONTRACT (EXHIBIT "C") AND
EXTINGUISHING CPI'S OBLIGATIONS UNDER SAID CONTRACT.
THIRD ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN NOT RULING THAT PLAINTIFF'S ACTION IS PREMATURE FOR FAILURE OF
PLAINTIFF TO FIRST REFER ITS CLAIM TO AN IMPARTIAL REFEREE AS CALLED FOR UNDER THE CAN
SUPPLY CONTRACT.
FOURTH ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN SUSTAINING PLAINTIFF'S CLAIM FOR UNREALIZED PROFITS.
FIFTH ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN AWARDING PLAINTIFF INVENTORY LOSSES IN THE SUM OF P1,150,197.00
SIXTH ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN AWARDING EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF
PLAINTIFF.
(pp. 15-16, Rollo)
It is a settled rule that only questions of law may be raised in a petition for certiorari under Rule 45 of
the Rules of Court. Findings of fact of the Court of Appeals are final and binding upon this Court unless it
is shown that they are grounded entirely on speculations, surmises or conjectures. In this case, We have
carefully reviewed the records and found that the findings of facts of both the court a quo and the
appellate court are supported by evidence.
In its first assigned error, petitioner faulted respondent appellate court in affirming the decision of the
trial court denying Dexco's motion to dismiss amended complaint filed by respondent-plaintiff Standard
on the ground that in the amended complaint Standard impleaded as additional defendant herein
petitioner Dexco but said amended complaint did not state any cause of action against the latter.
The pertinent allegations in the amended complaint which tended to show Dexco's participation in the
transactions subject of this case states:
15. That subsequent to the arbitrary termination of the Can Supply Contract by CPI, * defendant
Dexco took over the business of CPI with E.L. Benitez, the Manager of CPI being appointed by Dr. Loius
Arrigoni, the President of defendant CDPC and defendant DEXCO in the United States of America, as the
new General Manager of the Dexco branch in the Philippines;
16. That the dissolution of CPI which prejudiced plaintiff Standard was caused by defendant CDPC in
order for its Dexco branch in the Philippines to be able to take over the business of CPI;
17. That the act of defendants CDPC and Dexco mentioned above, constituted a breach of contract
with plaintiff, in bad faith;
18. That defendant Dexco is not only a subsidiary of defendant CDPC, but also an alter ego of the
latter, defendant CDPC making use of defendant Dexco as a vehicle for the evasion of its obligation
under the "Can Supply Contract" and Memorandum Agreement (Annexes "A" and "B" hereof);
19. That, therefore, defendant Dexco and defendant CDPC being one and the same juridical person,
the liability of defendant CDPC to plaintiff for evading its obligation is, likewise, the liability of defendant
Dexco; . . . (p. 20, Rollo).
A cause of action is the fact or combination of facts which affords a party a right to judicial interference
in his behalf. The cause of action must always consist of two (2) elements: (1) the plaintiff's primary right
and the defendant's corresponding primary duty, whatever may be the subject to which they
relate — person, character, property or contract; and (2) the delict or wrongful act or omission of the
defendant, by which the primary right and duty have been violated (De Guzman, Jr., v. CA, G.R. No.
92029-30, 20 December 1990). The allegations in the amended complaint were sufficient to make out a
case against Dexco. It alleged that Dexco took over the business of Consolidated Philippines and that
both corporations are actually one and the same, the former being the alter ego of the latter and that
Dexco was used as a vehicle for the evasion by Consolidated Seattle (the mother company of
Consolidated Philippines in Seattle) of its liabilities to Standard. Indeed, if these allegations are proven,
Dexco can be held liable to Standard by applying the doctrine of piercing the veil of corporate entity. The
applicable law to the set of facts stated in the complaint need not be set out directly. In this case, it is
sufficient that Standard claimed it had a right against Consolidated Philippines by virtue of the can
supply contract it executed with them and that the termination of Consolidated Philippines was only a
ploy to escape from its liabilities in favor of Standard because in truth, Consolidated Philippines
continued to do its business thru Dexco, which is an alter ego of the former. The test of sufficiency of
the facts alleged is whether or not the Court could render a valid judgment as prayed for, accepting as
true the exclusive facts set forth in the complaint (Sumalinog v. Doronio, G.R. No. 42281, 6 April 1990).
The petitioners further argue that Dexco cannot be held liable because it was not privy to the can supply
contract between Standard and Consolidated Philippines. It is true that in the agreement whereby
Standard undertook to supply cans to Consolidated Philippines, Dexco was not a party. The said
agreement dated April 2, 1959 was for Standard to supply and Consolidated Philippines to buy. It should
be noted that before the expiration of the first can supply contract in 1969 Dexco, another subsidiary of
Consolidated Seattle, was already organized and was licensed to do business in the Philippines in 1966.
Thus, on May 6, 1968, the said can supply agreement was extended to December 31, 1981 and Dexco
was a party to this extension. Dexco, in this extension agreement was in fact an active party. As held by
respondent appellate court:
It is argued that the can supply contract dated April 2, 1959 was, executed by Standard Investment
Corporation and Consolidated Philippines only and therefore Dexco should not be bound by the
contents thereof, much less obligated to answer for the undertakings thereunder by reason of the rule
on privity of contracts. Verily, Dexco nonchalantly admitted that it signed the subsequent agreement on
May 6, 1968 with plaintiff-appellee (Standard) and Consolidated Philippines (Exhibit "D") but its
participation therein was limited only to the contract dated September 30, 1966 between Consolidated
Philippines and Dexco referred to in paragraph 2 of Exhibit "D-l." Pursuing this chain of arguments, if,
indeed, Dexco was never privy to the transaction dated April 2, 1959, it is a wonder then for Dexco to
have signed and approved the extension of that contract in the Memorandum of Agreement dated May
6, 1968 which principally stipulated:
1. That certain Agreement dated April 2, 1959 between the above-named STANIN and the above-
named CPI, relating to the supply of cans by STANIN to CPI (a copy of which agreement is attached
hereto as Exhibit "A" and by this reference incorporated herein) is hereby extended for a period
commencing on its present expiration date and ending on December 31, 1981, upon the terms and
conditions set forth in the said agreement dated April 2, 1959 (Exhibit D-1). (p. 63, Rollo)
The petitioners also alleged that Standard should be estopped from demanding any claim from them
because Standard and Syjuco, Inc. had identical officers. Since the officers of Syjuco, Inc. voted for the
dissolution of Consolidated Philippines and acceded to the dissolution of Standard, they cannot now
complain and ask for damages in favor of Standard against the petitioners. It is allegedly proper that the
veil of corporate fiction of Standard and Syjuco, Inc. should be pierced and considering that SSI had
knowledge of the dissolution and in fact accepted the dissolution of CPI, Standard is therefore bound by
the dissolution.
The records revealed that Syjuco, Inc. which originally owned 49% of the shares of stock of Consolidated
Philippines (with Consolidated Seattle owning 51%) was left with no choice but to sell its shares in
Consolidated Philippines to Consolidated Seattle. Consolidated Philippines however, cannot continue its
existence because Consolidated Seattle cancelled the license granted to it to use the tradename
Darigold. With the cancellation of the license Consolidated Philippines had no more reason to continue
its existence. Moreover, while Syjuco, Inc. agreed to the subsequent dissolution of CPI, it signed the
agreement (Exhibit E) because of the condition that Consolidated Seattle in Washington will guarantee
full payment of Consolidated Philippines' liabilities to Standard in the can supply contract [Par. 6(d) of
the Memorandum of Agreement].
The appellate court allegedly erred when it ruled that the clause on Section 6(d) of the Memorandum of
Agreement (p. 5, Exhibit "E") which provided:
(d) It guarantees the full payment under the terms of the Can Supply Contract between CPI and
Standard Can Company, of CPI's liability to Standard Can Company for cans already supplied by Standard
Can Company. This however does not preclude Standard Can Company from submitting directly to CPI
other claims that it may have under the Can Supply Contract.
was enough safeguard for the preservation of Standard's claims without elaborating on the reason why
it held so. It is the opinion of the petitioners that the above clause referred only to claims already due
and owing as of the effective date of Consolidated Philippines' dissolution, but does not refer to claims
for reimbursement of separation pay and for loss of expected profits for the unexpired portion of the
can supply contract.
While the first paragraph of the said clause had specific reference to Consolidated Philippines' liability to
Standard for cans already supplied, the second part of the clause covers all other claims which Standard
may have against Consolidated Philippines. The terms of the agreement are clear and need no
explanation or interpretation. None could suit petitioner's contention legally.
We agree with respondent appellate court that petitioners had no right to invoke the defense that the
claim must first be referred to an impartial referee as provided for in the can supply agreement because
there was an outright rejection by the petitioners of private respondent's claim. The records showed
that two (2) letters dated November 7 and 18, 1976 were sent by private respondent demanding the
payment of separation pay to its employees but petitioners, through the law offices of Salcedo, del
Rosario, Bito, Misa and Lozada, denied the claim outright (p. 473, Records, Exh. 11) because these claims
were allegedly outside of the cost of the purchased and delivered cans as agreed upon in the contract.
We now go to the propriety of the award of damages. The trial court received evidence to support
private respondent's claim for damages. It should be emphasized here that the damages claimed by
private respondents do not refer to claims which were already due from the can supply contract. The
claims here are for damages caused by the fraudulent termination by petitioners of the can supply
contract four (4) years before the end of its term and for such a short notice. We reproduce herein the
findings of the trial court and adopt them with modifications as regards the amount:
Plaintiff's first claim is for reimbursement for the separation pay it paid its employees due to the
termination of the can supply agreement in the amount of Pl,022,472.59.
The evidence supports plaintiff's claim above (sub-par. A and C, par. 111 of Exhibit C and Exhibit J-1). The
amount actually paid by plaintiffs to the separated employee is P929,520.54 (Exhibits L and R to R-54).
To this was added 10% since 10% must be added to costs of production, thus making the total of
P1,022,472.59 (Exhibit C and I).
(p. 521, Record)
There is no question that Standard paid these amounts to their separated employees. It was obliged to
do so by virtue of the CBA it signed with the employees.
The second claim of plaintiff is for unrealized profit amounting to P8,101,931.13. In support of this claim
plaintiff showed that from 1971 to 1975 It made an aggregate profit of P 8,107,931.13 (Exhibits M, U, U-
2, U-4, U-6, U-8, U-10, U-12, U-14, U-16 and U-18), and argued that since the can supply contract had
another five (5) years to go (1977 to 1981) plaintiff would have earned that much. (Ibid.)
Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of
the profits which the obligee failed to obtain (Art. 2200 NCC). The presumption that Standard would
earn exactly the same profit as it did five (5) years before its closure is speculative. A more reasonable
amount would be the average of the yearly profit for the five years preceding the closure (1971-1975)
multiplied by the number of years remaining as provided for in the contract. The average yearly profit
for 1971 to 1975 is P1,041,095.76 (p. 280, Records). This amount multiplied by five (years) amounts to
P5,205,478.80.
We also affirm the findings of the appellate court on inventory losses as it is sufficiently supported by
evidence, to wit:
The financial statement of plaintiff further shows that it incurred inventory losses in the year 1977
(Exhibit V), due to cans which rusted and could not have been disposed of (TSN, November 27, 1979, p.
13), administrative expenses connected with the cost of the cans, cost of raw materials and depreciated
portion of the machinery all amounting to P1,150,197.80 (TSN, November 26, 1979, Exhibit V). These
losses were due to the cancellation of the can supply contract before its agreed expiration date. It is only
right that defendants be held liable for them.
(p. 64, Rollo)

There is no doubt that the breach committed by the petitioners was made in a wanton and fraudulent
manner. There was no reason for petitioners to terminate the can supply contract with Standard. The
latter was purposely organized for the benefit of Consolidated Philippines. Neither was there a need to
close Consolidated Philippines because Consolidated Seattle had all the intentions of continuing its
business only this time to be undertaken by its sole subsidiary, Dexco to the prejudice of Standard.
Where a defendant violates a contract with plaintiff, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive and malevolent manner (Art. 2232, Civil
Code).
The claim for attorney's fees of 25% percent of all recoveries is unconscionable. It is hereby reduced to
15%.
ACCORDINGLY, the decision of respondent Court of Appeals is affirmed with modification on the amount
of damages awarded as discussed above.
SO ORDERED.
G.R. No. L-3678 February 29, 1952
JOSE MENDOZA, plaintiff-appellant,
vs.
PHILIPPINE AIR LINES, INC., defendant-appellee.
Manuel O. Chan, Reyes and Dy-Liaco for appellant.
Daniel Me. Gomez and Emigdio Tanjuatco for appellee.
MONTEMAYOR, J.:
The present appeal by plaintiff Jose Mendoza from the decision of the Court of First Instance of
Camarines Sur, has come directly to this Tribunal for the reason that both parties, appellant and
appellee, accepted the findings of fact made by the trial court and here raise only questions of law. On
our part, we must also accept said findings of fact of the lower court.
In the year 1948, appellant Jose Mendoza was the owner of the Cita Theater located in the City of Naga,
Camarines Sur, where he used to exhibit movie pictures booked from movie producers or film owners in
Manila. The fiesta or town holiday of the City of Naga, held on September 17 and 18, yearly, was usually
attended by a great many people, mostly from the Bicol region, especially since the Patron Saint Virgin
of Peña Francia was believed by many to be miraculous. As a good businessman, appellant, taking
advantage of these circumstances, decided to exhibit a film which would fit the occasion and have a
special attraction and significance to the people attending said fiesta. A month before the holiday, that
is to say, August 1948, he contracted with the LVN pictures, Inc., a movie producer in Manila for him to
show during the town fiesta the Tagalog film entitled "Himala ng Birhen" or Miracle of the Virgin. He
made extensive preparations; he had two thousand posters printed and later distributed not only in the
City of Naga but also in the neighboring towns. He also advertised in a weekly of general circulation in
the province. The posters and advertisement stated that the film would be shown in the Cita theater on
the 17th and 18th of September, corresponding to the eve and day of the fiesta itself.
In pursuance of the agreement between the LVN Pictures Inc. and Mendoza, the former on September
17th, 1948, delivered to the defendant Philippine Airlines (PAL) whose planes carried passengers and
cargo and made regular trips from Manila to the Pili Air Port near Naga, Camarines Sur, a can containing
the film "Himala ng Birhen" consigned to the Cita Theater. For this shipment the defendant issued its Air
Way Bill No. 317133 marked Exhibit "1". This can of films was loaded on flight 113 of the defendant, the
plane arriving at the Air Port at Pili a little after four o'clock in the afternoon of the same day, September
17th. For reasons not explained by the defendant, but which would appear to be the fault of its
employees or agents, this can of film was not unloaded at Pili Air Port and it was brought ba to Manila.
Mendoza who had completed all arrangements for the exhibition of the film beginning in the evening of
September 17th, to exploit the presence of the big crowd that came to attend the town fiesta, went to
the Air Port and inquired from the defendant's station master there about the can of film. Said station
master could not explain why the film was not unloaded and sent several radiograms to his principal in
Manila making inquiries and asking that the film be sent to Naga immediately. After investigation and
search in the Manila office, the film was finally located the following day, September 18th, and then
shipped to the Pili Air Port on September 20th. Mendoza received it and exhibited the film but he had
missed his opportunity to realize a large profit as he expected for the people after the fiesta had already
left for their towns. To recoup his losses, Mendoza brought this action against the PAL. After trial, the
lower court found that because of his failure to exhibit the film "Himala ng Birhen" during the town
fiesta, Mendoza suffered damages or rather failed to earn profits in the amount of P3,000.00, but
finding the PAL not liable for said damages, dismissed the complaint.
To avoid liability, defendant-appellee, called the attention of the trial court to the terms and conditions
of paragraph 6 of the Way Bill printed on the back thereof which paragraph reads as follows:
6. The Carrier does not obligate itself to carry the Goods by any specified aircraft or on a specified time.
Said Carrier being hereby authorized to deviate from the route of the shipment without any liability
therefor.
It claimed that since there was no obligation on its part to carry the film in question on any specified
time, it could not be held accountable for the delay of about three days. The trial court, however, found
and held that although the defendant was not obligated to load the film on any specified plane or on
any particular day, once said can film was loaded and shipped on one of its planes making trip to
Camarines, then it assumed the obligation to unload it at its point of destination and deliver it to the
consignee, and its unexplained failure to comply with this duty constituted negligence. If however found
that fraud was not involved and that the defendant was a debtor in good faith.
The trial court presided over by Judge Jose N. Leuterio in a well-considered decision citing authorities,
particularly the case of Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil. 587, held that not
because plaintiff failed to realize profits in the sum of P3,000.00 due to the negligence of the defendant,
should the latter be made to reimburse him said sum. Applying provisions of Art. 1107 of the Civil Code
which provides that losses and those foreseen, or which might have been foreseen, at the time of
constituting the obligation, and which are a necessary consequence of the failure to perform it, the trial
court held that inasmuch as these damages suffered by Mendoza were not foreseen or could not have
been foreseen at the time that the defendant accepted the can of film for shipment, for the reason that
neither the shipper LVN Pictures Inc. nor the consignee Mendoza had called its attention to the special
circumstances attending the shipment and the showing of the film during the town fiesta of Naga,
plaintiff may not recover the damages sought.
Counsel for appellant insists that the articles of the Code of Commerce rather than those of the Civil
Code should have been applied in deciding this case for the reason that the shipment of the can of film
is an act of commerce; that the contract of transportation in this case should be considered commercial
under Art. 349 of the Code of Commerce because it only involves merchandise or an object of
commerce but also the transportation company, the defendant herein, was a common carrier, that is to
say, customarily engaged in transportation for the public, and that although the contract of
transportation was not by land or waterways as defined in said Art. 349, nevertheless, air transportation
being analogous to land and water transportation, should be considered as included, especially in view
of the second paragraph of Art. 2 of the same Code which says that transactions covered by the Code of
Commerce and all others of analogous character shall be deemed acts of commerce. The trial court,
however, disagreed to this contention and opined that air transportation not being expressly covered by
the Code of Commerce, cannot be governed by its provisions.
We believe that whether or not transportation by air should be regarded as a commercial contract
under Art. 349, would be immaterial in the present case, as will be explained later. Without making a
definite ruling on the civil or commercial nature of transportation by air, it being unnecessary, we are
inclined to believe and to hold that a contract of transportation by air may be regarded as commercial.
The reason is that at least in the present case the transportation company (PAL) is a common carrier;
besides, air transportation is clearly similar or analogous to land and water transportation. The obvious
reason for its non-inclusion in the Code of Commerce was that at the time of its promulgation,
transportation by air on a commercial basis was not yet known. In the United Sates where air
transportation has reached its highest development, an airline company engaged in the transportation
business is regarded as a common carrier.
The principles which govern carriers by other means, such as by railroad or motor bus, govern carriers
by aircraft. 6 Am. Jur., Aviation, Sec. 56, p. 33.
When Aircraft Operator is Common Carrier. — That aircraft and the industry of carriage by aircraft are
new is no reason why one in fact employing aircraft as common-carrier vehicles should not be classified
as a common carrier and charged with liability as such. There can be no doubt, under the general law of
common carriers, that those air lines and aircraft owners engaged in the passenger service on regular
schedules on definite routes, who solicit the patronage of the traveling public, advertise schedules for
routes, time of leaving, and rates of fare, and make the usual stipulation as to baggage, are common
carriers by air. A flying service company which, according to its printed advertising, will take anyone
anywhere at any time, though not operating on regular routes or schedules, and basing its charges not
on the number of passengers, but on the operating cost of the plane per mile, has been held to be a
common carrier. It is not necessary, in order to make one carrying passengers by aircraft a common
carrier of passengers that the passengers can be carried from one point to another; the status and the
liability as a common carrier may exist notwithstanding the passenger's ticket issued by an airplane
carrier of passengers for hire contains a statement that it is not a common carrier, etc., or a stipulation
that it is to be held only for its proven negligence. But an airplane owner cannot be classed as a common
carrier of passengers unless he undertakes, for hire, to carry all persons who apply for passage
indiscriminately as long as there is room and no legal excuse for refusing. . . . 6 Am. Jur., Aviation, Sec.
58, pp. 34-35.
The rules governing the business of a common carrier by airship or flying machine may be readily
assimilated to those applied to other common carriers. 2 C.J.S., 1951, Cumulative Pocket Part, Aerial
Navigation, Sec. 38, p. 99.
The test of whether one is a common carrier by air is whether he holds out that he will carry for hire, so
long as he has room, goods for everyone bringing goods to him for carriage, not whether he is carrying
as a public employment or whether he carries to a fixed place. (Ibid., Sec. 39, p. 99.)
Appellant contends that Art. 358 of the Code of Commerce should govern the award of the damages in
his favor. Said article provides that if there is no period fixed for the delivery of the goods, the carrier
shall be bound to forward them in the first shipment of the same or similar merchandise which he may
make to the point of delivery, and that upon failure to do so, the damages caused by the delay should be
suffered by the carrier. This is a general provision for ordinary damages and is no different from the
provisions of the Civil Code, particularly Art. 1101 thereof, providing for the payment of damages caused
by the negligence or delay in the fulfillment of one's obligation. Even applying the provisions of the Code
of Commerce, as already stated, the pertinent provisions regarding damages only treats of ordinary
damages or damages in general, not special damages like those suffered by the plaintiff herein. Article 2
of the Code of Commerce provides that commercial transactions are to be governed by the provisions of
the Code of Commerce, but in the absence of applicable provisions, they will be governed by the usages
of commerce generally observed in each place; and in default of both, by those of the Civil Law. So that
assuming that the present case involved a commercial transaction, still inasmuch as the special damages
herein claimed finds no applicable provision in the Code of Commerce, neither has it been shown that
there are any commercial usages applicable thereto, then in the last analysis, the rules of the civil law
would have to come into play. Under Art. 1107 of the Civil Code, a debtor in good faith like the
defendant herein, may be held liable only for damages that were foreseen or might have been foreseen
at the time the contract of the transportation was entered into. The trial court correctly found that the
defendant company could not have foreseen the damages that would be suffered by Mendoza upon
failure to deliver the can of film on the 17th of September, 1948 for the reason that the plans of
Mendoza to exhibit that film during the town fiesta and his preparations, specially the announcement of
said exhibition by posters and advertisement in the newspaper, were not called to the defendant's
attention.
In our research for authorities we have found a case very similar to the one under consideration. In the
case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered picture films
to the defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the time
of the shipment the attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their destination, rush.
There was delay in their delivery and it was found that the plaintiff because of his failure to exhibit the
film in Utica due to the delay suffered damages or loss of profits. But the highest court in the State of
New York refused to award him special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss of profits on
account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery
to him of the particular circumstances attending the shipment, and which probably would lead to such
special loss if he defaulted. Or, as the rule has been stated in another form, in order to impose on the
defaulting party further liability than for damages naturally and directly, i.e., in the ordinary course of
things, arising from a breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of a breach at the time of or prior
to contracting. Generally, notice then of any special circumstances which will show that the damages to
be anticipated from a breach would be enhanced has been held sufficient for this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the
purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in the
present case.
But appellants now contends that he is not suing on a breach of contract but on a tort as provided for in
Art. 1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First, he
insists that the articles of the Code of Commerce should be applied; that he invokes the provisions of
said Code governing the obligations of a common carrier to make prompt delivery of goods given to it
under a contract of transportation. Later, as already said, he says that he was never a party to the
contract of transportation and was a complete stranger to it, and that he is now suing on a tort or
violation of his rights as a stranger (culpa aquiliana). If he does not invoke the contract of carriage
entered into with the defendant company, then he would hardly have any leg to stand on. His right to
prompt delivery of the can of film at the Pili Air Port stems and is derived from the contract of carriage
under which contract, the PAL undertook to carry the can of film safely and to deliver it to him promptly.
Take away or ignore that contract and the obligation to carry and to deliver and the right to prompt
delivery disappear. Common carriers are not obligated by law to carry and to deliver merchandise, and
persons are not vested with the right of prompt delivery, unless such common carriers previously
assume the obligation. Said rights and obligations are created by a specific contract entered into by the
parties. In the present case, the findings of the trial court which as already stated, are accepted by the
parties and which we must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one
side, and the defendant company on the other, entered into a contract of transportation. (p. 29, Rec. on
Appeal). One interpretation of said finding is that the LVN Pictures Inc. through previous agreement with
Mendoza acted as the latter's agent. When he negotiated with the LVN Pictures Inc. to rent the film
"Himala ng Birhen" and show it during the Naga town fiesta, he most probably authorized and enjoined
the Picture Company to ship the film for him on the PAL on September 17th. Another interpretation is
that even if the LVN Pictures Inc. as consignor of its own initiative, and acting independently of Mendoza
for the time being, made Mendoza as consignee, a stranger to the contract if that is possible,
nevertheless when he, Mendoza, appeared at the Pili Air Port armed with the copy of the Air Way Bill
(Exh. 1) demanding the delivery of the shipment to him, he thereby made himself a party to the contract
of the transportation. The very citation made by appellant in his memorandum supports this view.
Speaking of the possibility of a conflict between the order of the shipper on the one hand and the order
of the consignee on the other, as when the shipper orders the shipping company to return or retain the
goods shipped while the consignee demands their delivery, Malagarriga in his book Codigo de Comercio
Comentado, Vol. I, p. 400, citing a decision of Argentina Court of Appeals on commercial matters, cited
by Tolentino in Vol. II of his book entitled "Commentaries and Jurisprudence on the Commercial Laws of
the Philippines" p. 209, says that the right of the shipper to countermand the shipment terminates when
the consignee or legitimate holder of the bill of lading appears with such bill of lading before the carrier
and makes himself a party to the contract. Prior to that time, he is stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil
Code which reads thus:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment,
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of the delivery to Mendoza as consignee. His demand for the delivery of the can of film to
him at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in
his favor contained in the contract of carriage, such demand being one of the fulfillment of the contract
of carriage and delivery. In this case he also made himself a party to the contract, or at least has come to
court to enforce it. His cause of action must necessarily be founded on its breach.
One can readily sympathize with the appellant herein for his loss of profits which he expected to realize.
But he overlooked the legal angle. In situations like the present where failure to exhibit films on a
certain day would spell substantial damages or considerable loss of profits, including waste of efforts on
preparations and expenses incurred in advertisements, exhibitors, for their security, may either get hold
of the films well ahead of the time of exhibition in order to make allowance for any hitch in the delivery,
or else enter into a special contract or make a suitable arrangement with the common carrier for the
prompt delivery of the films, calling the attention of the carrier to the circumstances surrounding the
case and the approximate amount of damages to be suffered in case of delay.
Finding no reversible error in the decision appealed from, the same is hereby affirmed. No
pronouncement as to costs. So ordered.
G.R. No. L-22415 March 30, 1966
FERNANDO LOPEZ, ET AL., plaintiffs-appellants,
vs.
PAN AMERICAN WORLD AIRWAYS, defendant-appellant.
Ross, Selph and Carrascoso for the defendant-appellant.
Vicente J. Francisco for the plaintiffs-appellants.
BENGZON, J.P., J.:
Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal. Since the value in
controversy exceeds P200,000 the appeals were taken directly to this Court upon all questions involved
(Sec. 17, par. 3[5], Judiciary Act).
Stated briefly the facts not in dispute are as follows: Reservations for first class accommodations in
Flight No. 2 of Pan American World Airways — hereinafter otherwise called PAN-AM — from Tokyo to
San Francisco on May 24, 1960 were made with
PAN-AM on March 29, 1960, by "Your Travel Guide" agency, specifically, by Delfin Faustino, for then
Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo Montelibano, Jr., and his
daughter, Mrs. Alfredo Montelibano, Jr., (Milagros Lopez Montelibano). PAN-AM's San Francisco head
office confirmed the reservations on March 31, 1960.
First class tickets for the abovementioned flight were subsequently issued by
PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez and his party. The total fare of P9,444 for all
of them was fully paid before the tickets were issued.
As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in
Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the
Philippine Embassy to contact PAN-AM's Tokyo office regarding their first class accommodations for that
evening's flight. For the given reason that the first class seats therein were all booked up, however, PAN-
AM's Tokyo office informed Minister Busuego that PAN-AM could not accommodate Senator Lopez and
party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to
Minister Busuego for him to show the same to PAN-AM's Tokyo office, but the latter firmly reiterated
that there was no accommodation for them in the first class, stating that they could not go in that flight
unless they took the tourist class therein.
Due to pressing engagements awaiting Senator Lopez and his wife, in the United States — he had to
attend a business conference in San Francisco the next day and she had to undergo a medical check-up
in Mayo Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before that in San
Francisco — Senator Lopez and party were constrained to take PAN-AM's flight from Tokyo to San
Francisco as tourist passengers. Senator Lopez however made it clear, as indicated in his letter to PAN-
AM's Tokyo office on that date (Exh. A), that they did so "under protest" and without prejudice to
further action against the airline.1äwphï1.ñët
Suit for damages was thereafter filed by Senator Lopez and party against PAN-AM on June 2, 1960 in the
Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs asked for
P500,000 actual and moral damages, P100,000 exemplary damages, P25,000 attorney's fees plus costs.
PAN-AM filed its answer on June 22, 1960, asserting that its failure to provide first class
accommodations to plaintiffs was due to honest error of its employees. It also interposed a
counterclaim for attorney's fees of P25,000.
Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25, 1960;
plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's supplemental
answer, on March 8, 1962; plaintiffs' reply to supplemental answer, on March 10, 1962; and defendant's
amended supplemental answer, on July 10, 1962.
After trial — which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963 —
the Court of First Instance rendered its decision on November 13, 1963, the dispositive portion stating:
In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a) P100,000.00
as moral damages; (b) P20,000.00 as exemplary damages; (c) P25,000.00 as attorney's fees, and the
costs of this action.
So ordered.
Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment, asking that
moral damages be increased to P400,000 and that six per cent (6%) interest per annum on the amount
of the award be granted. And defendant opposed the same. Acting thereon the trial court issued an
order on December 14, 1963, reconsidering the dispositive part of its decision to read as follows:
In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a) P150,000.00
as moral damages; (b) P25,000.00 as exemplary damages; with legal interest on both from the date of
the filing of the complaint until paid; and (c) P25,000.00 as attorney's fees; and the costs of this action.
So ordered.
It is from said judgment, as thus reconsidered, that both parties have appealed.
Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to provide
them with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In its appeal,
however, it takes issue with the finding of the court a quo that it acted in bad faith in the branch of said
contracts. Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their
favor, seeking that the same be increased to a total of P650,000.
Anent the issue of bad faith the records show the respective contentions of the parties as follows.
According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its
contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And
in support of its contention that what was done to plaintiffs is an oftrepeated practice of defendant,
evidence was adduced relating to two previous instances of alleged racial discrimination by defendant
against Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to
(1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife.
And from plaintiffs' evidence this is what allegedly happened; Jalbuena bought a first class ticket from
PAN-AM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20,
1960; PAN-AM similarly confirmed it on April 20, 1960. At the airport he and another Oriental — Mr.
Tung — were asked to step aside while other passengers - including "white" passengers — boarded
PAN-AM's plane. Then PAN-AM officials told them that one of them had to stay behind. Since Mr. Tung
was going all the way to London, Jalbuena was chosen to be left behind. PAN-AM's officials could only
explain by saying there was "some mistake". Jalbuena thereafter wrote PAN-AM to protest the incident
(Exh. B).
As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-AM on September 29, 1958 from
Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class tickets,
which they had previously confirmed, because their seats in first class were given to "passengers from
London."
Against the foregoing, however, defendant's evidence would seek to establish its theory of honest
mistake, thus:
The first class reservations of Senator Lopez and party were made on March 29, 1960 together with
those of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint
reservation card (Exh. 1). Subsequently on March 30, 1960, two other Rufinos secured reservations and
were given a separate reservation card (Exh. 2). A new reservation card consisting of two pages (Exhs. 3
and 4) was then made for the original of eight passengers, namely, Senator Lopez and party and four
members of the Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1
Rufino and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your Travel Guide" agency
cancelled the reservations of the Rufinos. A telex message was thereupon sent on that date to PAN-
AM's head office at San Francisco by Mariano Herranz, PAN-AM's reservations employee at its office in
Escolta, Manila. (Annex A-Acker's to Exh. 6.) In said message, however, Herranz mistakenly cancelled all
the seats that had been reserved, that is, including those of Senator Lopez and party.
The next day — April 1960 — Herranz discovered his mistake, upon seeing the reservation card newly
prepared by his co-employee Pedro Asensi for Sen. Lopez and party to the exclusion of the Rufinos (Exh.
5). It was then that Herranz sent another telex wire to the San Francisco head office, stating his error
and asking for the reinstatement of the four (4) first class seats reserved for Senator Lopez and party
(Annex A-Velasco's to Exh. 6). San Francisco head office replied on April 22, 1960 that Senator Lopez and
party are waitlisted and that said office is unable to reinstate them (Annex B-Velasco's to Exh. 6).
Since the flight involved was still more than a month away and confident that reinstatement would be
made, Herranz forgot the matter and told no one about it except his co-employee, either Armando
Davila or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961).
Subsequently, on April 27, 1960, Armando Davila, PAN-AM's reservations employee working in the same
Escolta office as Herranz, phoned PAN-AM's ticket sellers at its other office in the Manila Hotel, and
confirmed the reservations of Senator Lopez and party.
PAN-AM's reservations supervisor Alberto Jose, discovered Herranz's mistake after "Your Travel Guide"
phone on May 18, 1960 to state that Senator Lopez and party were going to depart as scheduled.
Accordingly, Jose sent a telex wire on that date to PAN-AM's head office at San Francisco to report the
error and asked said office to continue holding the reservations of Senator Lopez and party (Annex B-
Acker's to Exh. 6). Said message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-
Acker's to Exh. 6). San Francisco head office replied on May 19, 1960 that it regrets being unable to
confirm Senator Lopez and party for the reason that the flight was solidly booked (Exh. 7). Jose sent a
third telex wire on May 20, 1960 addressed to PAN-AM's offices at San Francisco, New York (Idlewild
Airport), Tokyo and Hongkong, asking all-out assistance towards restoring the cancelled spaces and for
report of cancellations at their end (Annex D-Acker's to Exh. 6). San Francisco head office reiterated on
May 20, 1960 that it could not reinstate the spaces and referred Jose to the Tokyo and Hongkong offices
(Exh. 8). Also on May 20, the Tokyo office of PAN-AM wired Jose stating it will do everything possible
(Exh. 9).
Expecting that some cancellations of bookings would be made before the flight time, Jose decided to
withhold from Senator Lopez and party, or their agent, the information that their reservations had been
cancelled.
Armando Davila having previously confirmed Senator Lopez and party's first class reservations to PAN-
AM's ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the corresponding
first class tickets on the 21st and 23rd of May, 1960.
From the foregoing evidence of defendant it is in effect admitted that defendant — through its agents
— first cancelled plaintiffs, reservations by mistake and thereafter deliberately and intentionally
withheld from plaintiffs or their travel agent the fact of said cancellation, letting them go on believing
that their first class reservations stood valid and confirmed. In so misleading plaintiffs into purchasing
first class tickets in the conviction that they had confirmed reservations for the same, when in fact they
had none, defendant wilfully and knowingly placed itself into the position of having to breach its a
foresaid contracts with plaintiffs should there be no last-minute cancellation by other passengers before
flight time, as it turned out in this case. Such actuation of defendant may indeed have been prompted
by nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as
passengers in its flight and foreclosing on their chances to seek the services of other airlines that may
have been able to afford them first class accommodations. All the time, in legal contemplation such
conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through
some motive of interest or ill-will (Spiegel vs. Beacon Participations, 8 NE 2d 895, 907). As stated in
Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: "Self-enrichment or fraternal interest, and not
personal ill-will, may well have been the motive; but it is malice nevertheless."
As of May 18, 1960 defendant's reservations supervisor, Alberto Jose knew that plaintiffs' reservations
had been cancelled. As of May 20 he knew that the San Francisco head office stated with finality that it
could not reinstate plaintiffs' cancelled reservations. And yet said reservations supervisor made the
"decision" — to use his own, word — to withhold the information from the plaintiffs. Said Alberto Jose
in his testimony:
Q Why did you not notify them?
A Well, you see, sir, in my fifteen (15) years of service with the air lines business my experience is that
even if the flights are solidly booked months in advance, usually the flight departs with plenty of empty
seats both on the first class and tourist class. This is due to late cancellation of passengers, or because
passengers do not show up in the airport, and it was our hope others come in from another flight and,
therefore, are delayed and, therefore, missed their connections. This experience of mine, coupled with
that wire from Tokyo that they would do everything possible prompted me to withhold the information,
but unfortunately, instead of the first class seat that I was hoping for and which I anticipated only the
tourists class was open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were
accommodated. Well, I fully realize now the gravity of my decision in not advising Senator and Mrs.
Lopez, Mr. and Mrs. Montelibano nor their agents about the erroneous cancellation and for which I
would like them to know that I am very sorry.
xxx xxx xxx
Q So it was not your duty to notify Sen. Lopez and parties that their reservations had been cancelled
since May 18, 1960?
A As I said before it was my duty. It was my duty but as I said again with respect to that duty I have the
power to make a decision or use my discretion and judgment whether I should go ahead and tell the
passenger about the cancellation. (Tsn., pp. 17-19, 28-29, March 15, 1962.)
At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made
plaintiffs believe that their reservation had not been cancelled. An additional indication of this is the fact
that upon the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on
May 21, 1960 (Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the
reservation status is stated as "OK". Such willful-non-disclosure of the cancellation or pretense that the
reservations for plaintiffs stood — and not simply the erroneous cancellation itself — is the factor to
which is attributable the breach of the resulting contracts. And, as above-stated, in this respect
defendant clearly acted in bad faith.
As if to further emphasize its bad faith on the matter, defendant subsequently promoted the employee
who cancelled plaintiffs' reservations and told them nothing about it. The record shows that said
employee — Mariano Herranz — was not subjected to investigation and suspension by defendant but
instead was given a reward in the form of an increase of salary in June of the following year (Tsn., 86-88,
Nov. 20, 1961).
At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so
gross and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4, 1959;
Necesito v. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding the entries in the reservation
cards (Exhs. 1 & 3) that the reservations cancelled are those of the Rufinos only, Herranz made the
mistake, after reading said entries, of sending a wire cancelling all the reservations, including those of
Senator Lopez and party (Tsn., pp. 108-109, Nov. 17, 1961). Secondly, after sending a wire to San
Francisco head office on April 19, 1960 stating his error and asking for reinstatement, Herranz simply
forgot about the matter. Notwithstanding the reply of San Francisco head Office on April 22, 1960 that it
cannot reinstate Senator Lopez and party (Annex B-Velasco's to Exh. 6), it was assumed and taken for
granted that reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in
a phone call on April 27, 1960 to defendant's ticket sellers, when at the time it appeared in plaintiffs'
reservation card (Exh. 5) that they were only waitlisted passengers. Fourthly, defendant's ticket sellers
issued plaintiffs' tickets on May 21 and 23, 1960, without first checking their reservations just before
issuing said tickets. And, finally, no one among defendant's agents notified Senator Lopez and party that
their reservations had been cancelled, a precaution that could have averted their entering with
defendant into contracts that the latter had already placed beyond its power to perform.
Accordingly, there being a clear admission in defendant's evidence of facts amounting to a bad faith on
its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss
the evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course
of the trial does not need to be proved (Sec. 2, Rule 129, Rules of Court).
Addressing ourselves now to the question of damages, it is well to state at the outset those rules and
principles. First, moral damages are recoverable in breach of contracts where the defendant acted
fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages,
exemplary or corrective damages may be imposed by way of example or correction for the public good,
in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner (Articles 2229, 2232, New Civil Code). And, third, a written contract for an attorney's
services shall control the amount to be paid therefor unless found by the court to be unconscionable or
unreasonable (Sec. 24, Rule 138, Rules of Court).
First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts
with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and mental
anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they were given
only the tourist class. At stop-overs, they were expected to be among the first-class passengers by those
awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating to
travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is
rightfully to be expected from the contractual undertaking.
Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know the
prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but
the nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office Senator Lopez
was in a position to preside in impeachment cases should the Senate sit as Impeachment Tribunal. And
he was former Vice-President of the Philippines. Senator Lopez was going to the United States to attend
a private business conference of the Binalbagan-Isabela Sugar Company; but his aforesaid rank and
position were by no means left behind, and in fact he had a second engagement awaiting him in the
United States: a banquet tendered by Filipino friends in his honor as Senate President Pro Tempore
(Tsn., pp. 14-15, Nov. 25, 1960). For the moral damages sustained by him, therefore, an award of
P100,000.00 is appropriate.
Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In
addition she suffered physical discomfort during the 13-hour trip,(5 hours from Tokyo to Honolulu and 8
hours from Honolulu to San Francisco). Although Senator Lopez stated that "she was quite well" (Tsn., p.
22, Nov. 25, 1960) — he obviously meant relatively well, since the rest of his statement is that two
months before, she was attackedby severe flu and lost 10 pounds of weight and that she was advised by
Dr. Sison to go to the United States as soon as possible for medical check-up and relaxation, (Ibid). In
fact, Senator Lopez stated, as shown a few pages after in the transcript of his testimony, that Mrs. Lopez
was sick when she left the Philippines:
A. Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the first place,
she was sick when we left the Philippines, and then with that discomfort which she [experienced] or
suffered during that evening, it was her worst experience. I myself, who was not sick, could not sleep
because of the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960).
It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may
well be considered a physical suffering. And even without regard to the noise and trepidation inside the
plane — which defendant contends, upon the strengh of expert testimony, to be practically the same in
first class and tourist class — the fact that the seating spaces in the tourist class are quite narrower than
in first class, there beingsix seats to a row in the former as against four to a row in the latter, and that in
tourist class there is very little space for reclining in view of the closer distance between rows (Tsn., p.
24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed experienced physical
suffering during the trip. Added to this, of course, was the painfull thought that she was deprived by
defendant — after having paid for and expected the same — of the most suitable, place for her, the first
class, where evidently the best of everything would have been given her, the best seat, service, food and
treatment. Such difference in comfort between first class and tourist class is too obvious to be
recounted, is in fact the reason for the former's existence, and is recognized by the airline in charging a
higher fare for it and by the passengers in paying said higher rate Accordingly, considering the totality of
her suffering and humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral damages will be
reasonable.
Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of Senator
Lopez. They formed part of the Senator's party as shown also by the reservation cards of PAN-AM. As
such they likewise shared his prestige and humiliation. Although defendant contends that a few weeks
before the flight they had asked their reservations to be charged from first class to tourist class — which
did not materialize due to alleged full booking in the tourist class — the same does not mean they
suffered no shared in having to take tourist class during the flight. For by that time they had already
been made to pay for first class seats and therefore to expect first class accommodations. As stated, it is
one thing to take the tourist class by free choice; a far different thing to be compelled to take it
notwithstanding having paid for first class seats. Plaintiffs-appellants now ask P37,500.00 each for the
two but we note that in their motion for reconsideration filed in the court a quo, they were satisfied
with P25,000.00 each for said persons. (Record on Appeal, p. 102). For their social humiliation,
therefore, the award to them of P25,000.00 each is reasonable.
The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for public good. Defendant having breached its contracts in bad faith, the court, as stated
earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil
Code).
In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter
similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to
award P75,000.00 as exemplary or corrective damages.
Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960
(Exh. F) whereunder plaintiffs-appellants engaged the services of their counsel — Atty. Vicente J.
Francisco — and agreedto pay the sum of P25,000.00 as attorney's fees upon the termination of the
case in the Court of First Instance, and an additional sum of P25,000.00 in the event the case is appealed
to the Supreme Court. As said earlier, a written contract for attorney's services shall control the amount
to be paid therefor unless found by the court to be unconscionable or unreasonable. A consideration of
the subject matter of the present controversy, of the professional standing of the attorney for plaintiffs-
appellants, and of the extent of the service rendered by him, shows that said amount provided for in the
written agreement is reasonable. Said lawyer — whose prominence in the legal profession is well known
— studied the case, prepared and filed the complaint, conferred with witnesses, analyzed documentary
evidence, personally appeared at the trial of the case in twenty-two days, during a period of three years,
prepared four sets of cross-interrogatories for deposition taking, prepared several memoranda and the
motion for reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as
appellants consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed
pages. And we are further convinced of its reasonableness because defendant's counsel likewise valued
at P50,000.00 the proper compensation for his services rendered to defendant in the trial court and on
appeal.
In concluding, let it be stressed that the amount of damages awarded in this appeal has been
determined by adequately considering the official, political, social, and financial standing of the
offended parties on one hand, and the business and financial position of the offender on the other
(Domingding v. Ng, 55 O.G. 10). And further considering the present rate of exchange and the terms at
which the amount of damages awarded would approximately be in U.S. dollars, this Court is all the more
of the view that said award is proper and reasonable.
Wherefore, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and
against defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus:
P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez;
P25,000.00 for his son-in-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo
Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the legal rate of 6%
per annum on the moral and exemplary damages aforestated, from December 14, 1963, the date of the
amended decision of the court a quo, until said damages are fully paid; (4) P50,000.00 as attorney's fees;
and (5) the costs. Counterclaim dismissed.So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Makalintal, Zaldivar and
Sanchez, JJ., concur.
Dizon, J., is on leave.
G.R. No. L-21438 September 28, 1966
AIR FRANCE, petitioner,
vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.
Lichauco, Picazo and Agcaoili for petitioner.

Bengzon Villegas and Zarraga for respondent R. Carrascoso.
SANCHEZ, J.:
The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso
P25,000.00 by way of moral damages; P10,000.00 as exemplary damages; P393.20 representing the
difference in fare between first class and tourist class for the portion of the trip Bangkok-Rome, these
various amounts with interest at the legal rate, from the date of the filing of the complaint until paid;
plus P3,000.00 for attorneys' fees; and the costs of suit.
On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket
from P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects", with costs
against petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:
Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes on
March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to Bangkok,
plaintiff travelled in "first class", but at Bangkok, the Manager of the defendant airline forced plaintiff to
vacate the "first class" seat that he was occupying because, in the words of the witness Ernesto G.
Cuento, there was a "white man", who, the Manager alleged, had a "better right" to the seat. When
asked to vacate his "first class" seat, the plaintiff, as was to be expected, refused, and told defendant's
Manager that his seat would be taken over his dead body; a commotion ensued, and, according to said
Ernesto G. Cuento, "many of the Filipino passengers got nervous in the tourist class; when they found
out that Mr. Carrascoso was having a hot discussion with the white man [manager], they came all across
to Mr. Carrascoso and pacified Mr. Carrascoso to give his seat to the white man" (Transcript, p. 12,
Hearing of May 26, 1959); and plaintiff reluctantly gave his "first class" seat in the plane.3
1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent Court
of Appeals. Petitioner charges that respondent court failed to make complete findings of fact on all the
issues properly laid before it. We are asked to consider facts favorable to petitioner, and then, to
overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of
record without expressing therein clearly and distinctly the facts and the law on which it is based". 5 This
is echoed in the statutory demand that a judgment determining the merits of the case shall state
"clearly and distinctly the facts and the law on which it is based"; 6 and that "Every decision of the Court
of Appeals shall contain complete findings of fact on all issues properly raised before it". 7
A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law,
however, solely insists that a decision state the "essential ultimate facts" upon which the court's
conclusion is drawn. 9 A court of justice is not hidebound to write in its decision every bit and piece of
evidence 10 presented by one party and the other upon the issues raised. Neither is it to be burdened
with the obligation "to specify in the sentence the facts" which a party "considered as proved". 11 This is
but a part of the mental process from which the Court draws the essential ultimate facts. A decision is
not to be so clogged with details such that prolixity, if not confusion, may result. So long as the decision
of the Court of Appeals contains the necessary facts to warrant its conclusions, it is no error for said
court to withhold therefrom "any specific finding of facts with respect to the evidence for the defense".
Because as this Court well observed, "There is no law that so requires". 12 Indeed, "the mere failure to
specify (in the decision) the contentions of the appellant and the reasons for refusing to believe them is
not sufficient to hold the same contrary to the requirements of the provisions of law and the
Constitution". It is in this setting that in Manigque, it was held that the mere fact that the findings "were
based entirely on the evidence for the prosecution without taking into consideration or even mentioning
the appellant's side in the controversy as shown by his own testimony", would not vitiate the judgment.
13 If the court did not recite in the decision the testimony of each witness for, or each item of evidence
presented by, the defeated party, it does not mean that the court has overlooked such testimony or
such item of evidence. 14 At any rate, the legal presumptions are that official duty has been regularly
performed, and that all the matters within an issue in a case were laid before the court and passed upon
by it. 15
Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written
statement of the ultimate facts as found by the court ... and essential to support the decision and
judgment rendered thereon". 16 They consist of the court's "conclusions" with respect to the
determinative facts in issue". 17 A question of law, upon the other hand, has been declared as "one
which does not call for an examination of the probative value of the evidence presented by the parties."
18
2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the
Court of Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of
this Court to alter the facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals
support its judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class
ticket. But petitioner asserts that said ticket did not represent the true and complete intent and
agreement of the parties; that said respondent knew that he did not have confirmed reservations for
first class on any specific flight, although he had tourist class protection; that, accordingly, the issuance
of a first class ticket was no guarantee that he would have a first class ride, but that such would depend
upon the availability of first class seats.
These are matters which petitioner has thoroughly presented and discussed in its brief before the Court
of Appeals under its third assignment of error, which reads: "The trial court erred in finding that plaintiff
had confirmed reservations for, and a right to, first class seats on the "definite" segments of his journey,
particularly that from Saigon to Beirut". 21
And, the Court of Appeals disposed of this contention thus:
Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee
that the passenger to whom the same had been issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet to make arrangements upon arrival at every
station for the necessary first-class reservation. We are not impressed by such a reasoning. We cannot
understand how a reputable firm like defendant airplane company could have the indiscretion to give
out tickets it never meant to honor at all. It received the corresponding amount in payment of first-class
tickets and yet it allowed the passenger to be at the mercy of its employees. It is more in keeping with
the ordinary course of business that the company should know whether or riot the tickets it issues are
to be honored or not.22
Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:
On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart
from his testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's
own witness, Rafael Altonaga, confirmed plaintiff's testimony and testified as follows:
Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, "first class". (Transcript, p. 169)
xxx xxx xxx
Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that
although plaintiff paid for, and was issued a "first class" airplane ticket, the ticket was subject to
confirmation in Hongkong. The court cannot give credit to the testimony of said witnesses. Oral
evidence cannot prevail over written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1"
belie the testimony of said witnesses, and clearly show that the plaintiff was issued, and paid for, a first
class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the
reservation for a "first class" accommodation for the plaintiff was confirmed. The court cannot believe
that after such confirmation defendant had a verbal understanding with plaintiff that the "first class"
ticket issued to him by defendant would be subject to confirmation in Hongkong. 23
We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount
refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of
Appeals in all other respects. We hold the view that such a judgment of affirmance has merged the
judgment of the lower court. 24 Implicit in that affirmance is a determination by the Court of Appeals
that the proceeding in the Court of First Instance was free from prejudicial error and "all questions
raised by the assignments of error and all questions that might have been raised are to be regarded as
finally adjudicated against the appellant". So also, the judgment affirmed "must be regarded as free
from all error". 25 We reached this policy construction because nothing in the decision of the Court of
Appeals on this point would suggest that its findings of fact are in any way at war with those of the trial
court. Nor was said affirmance by the Court of Appeals upon a ground or grounds different from those
which were made the basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat,
notwithstanding the fact that seat availability in specific flights is therein confirmed, then an air
passenger is placed in the hollow of the hands of an airline. What security then can a passenger have? It
will always be an easy matter for an airline aided by its employees, to strike out the very stipulations in
the ticket, and say that there was a verbal agreement to the contrary. What if the passenger had a
schedule to fulfill? We have long learned that, as a rule, a written document speaks a uniform language;
that spoken word could be notoriously unreliable. If only to achieve stability in the relations between
passenger and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The lower
courts refused to believe the oral evidence intended to defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that there are facts upon which the
Court of Appeals predicated the finding that respondent Carrascoso had a first class ticket and was
entitled to a first class seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27
We perceive no "welter of distortions by the Court of Appeals of petitioner's statement of its position",
as charged by petitioner. 28 Nor do we subscribe to petitioner's accusation that respondent Carrascoso
"surreptitiously took a first class seat to provoke an issue". 29 And this because, as petitioner states,
Carrascoso went to see the Manager at his office in Bangkok "to confirm my seat and because from
Saigon I was told again to see the Manager". 30 Why, then, was he allowed to take a first class seat in
the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that
Carrascoso's action is planted upon breach of contract; that to authorize an award for moral damages
there must be an averment of fraud or bad faith;31 and that the decision of the Court of Appeals fails to
make a finding of bad faith. The pivotal allegations in the complaint bearing on this issue are:
3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on
defendant's plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting point
up to and until plaintiff's return trip to Manila, ... .
4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok,
defendant furnished to the plaintiff First Class accommodation but only after protestations, arguments
and/or insistence were made by the plaintiff with defendant's employees.
5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff only Tourist
Class accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has been compelled
by defendant's employees to leave the First Class accommodation berths at Bangkok after he was
already seated.
6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments
brought by defendant's breach of contract was forced to take a Pan American World Airways plane on
his return trip from Madrid to Manila.32
xxx xxx xxx
2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid,
plaintiff suffered inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental
anguish, serious anxiety, wounded feelings, social humiliation, and the like injury, resulting in moral
damages in the amount of P30,000.00. 33
xxx xxx xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a
first class passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was
breached when petitioner failed to furnish first class transportation at Bangkok; and Third, that there
was bad faith when petitioner's employee compelled Carrascoso to leave his first class accommodation
berth "after he was already, seated" and to take a seat in the tourist class, by reason of which he
suffered inconvenience, embarrassments and humiliations, thereby causing him mental anguish, serious
anxiety, wounded feelings and social humiliation, resulting in moral damages. It is true that there is no
specific mention of the term bad faith in the complaint. But, the inference of bad faith is there, it may be
drawn from the facts and circumstances set forth therein. 34 The contract was averred to establish the
relation between the parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed
petitioner on guard on what Carrascoso intended to prove: That while sitting in the plane in Bangkok,
Carrascoso was ousted by petitioner's manager who gave his seat to a white man; 35 and (b) evidence of
bad faith in the fulfillment of the contract was presented without objection on the part of the petitioner.
It is, therefore, unnecessary to inquire as to whether or not there is sufficient averment in the complaint
to justify an award for moral damages. Deficiency in the complaint, if any, was cured by the evidence. An
amendment thereof to conform to the evidence is not even required. 36 On the question of bad faith,
the Court of Appeals declared:
That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his
consent but against his will, has been sufficiently established by plaintiff in his testimony before the
court, corroborated by the corresponding entry made by the purser of the plane in his notebook which
notation reads as follows:
"First-class passenger was forced to go to the tourist class against his will, and that the captain refused
to intervene",
and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of the
plane who was asked by the manager of defendant company at Bangkok to intervene even refused to do
so. It is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the
plaintiff. It could have been easy for defendant to present its manager at Bangkok to testify at the trial
of the case, or yet to secure his disposition; but defendant did neither. 37
The Court of appeals further stated —
Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence, if
the employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had already
been taken, surely the plaintiff should not have been picked out as the one to suffer the consequences
and to be subjected to the humiliation and indignity of being ejected from his seat in the presence of
others. Instead of explaining to the white man the improvidence committed by defendant's employees,
the manager adopted the more drastic step of ousting the plaintiff who was then safely ensconsced in
his rightful seat. We are strengthened in our belief that this probably was what happened there, by the
testimony of defendant's witness Rafael Altonaga who, when asked to explain the meaning of the letters
"O.K." appearing on the tickets of plaintiff, said "that the space is confirmed for first class. Likewise,
Zenaida Faustino, another witness for defendant, who was the chief of the Reservation Office of
defendant, testified as follows:
"Q How does the person in the ticket-issuing office know what reservation the passenger has arranged
with you?
A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the trial Judge has said on this point:
Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right" to the
seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove "any better",
nay, any right on the part of the "white man" to the "First class" seat that the plaintiff was occupying
and for which he paid and was issued a corresponding "first class" ticket.
If there was a justified reason for the action of the defendant's Manager in Bangkok, the defendant
could have easily proven it by having taken the testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that evidence willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances, the Court is constrained to
find, as it does find, that the Manager of the defendant airline in Bangkok not merely asked but
threatened the plaintiff to throw him out of the plane if he did not give up his "first class" seat because
the said Manager wanted to accommodate, using the words of the witness Ernesto G. Cuento, the
"white man".38
It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the
term "bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager
not only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his
arbitrary will; he forcibly ejected him from his seat, made him suffer the humiliation of having to go to
the tourist class compartment - just to give way to another passenger whose right thereto has not been
established. Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different
from what is understood in law. For, "bad faith" contemplates a "state of mind affirmatively operating
with furtive design or with some motive of self-interest or will or for ulterior purpose." 39
And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of
the Court of First Instance, thus:
The evidence shows that the defendant violated its contract of transportation with plaintiff in bad faith,
with the aggravating circumstances that defendant's Manager in Bangkok went to the extent of
threatening the plaintiff in the presence of many passengers to have him thrown out of the airplane to
give the "first class" seat that he was occupying to, again using the words of the witness Ernesto G.
Cuento, a "white man" whom he (defendant's Manager) wished to accommodate, and the defendant
has not proven that this "white man" had any "better right" to occupy the "first class" seat that the
plaintiff was occupying, duly paid for, and for which the corresponding "first class" ticket was issued by
the defendant to him.40
5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well
settled in law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must
answer. Article 21 of the Civil Code says:
ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions
of Article 2219 (10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree from any other contractual
relation. 43 And this, because of the relation which an air-carrier sustains with the public. Its business is
mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or
malfeasance of the carrier's employees, naturally, could give ground for an action for damages.
Passengers do not contract merely for transportation. They have a right to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such employees. So it is,
that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an
action for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract
and a tort, giving a right of action for its agent in the presence of third persons to falsely notify her that
the check was worthless and demand payment under threat of ejection, though the language used was
not insulting and she was not ejected." 46 And this, because, although the relation of passenger and
carrier is "contractual both in origin and nature" nevertheless "the act that breaks the contract may be
also a tort". 47 And in another case, "Where a passenger on a railroad train, when the conductor came
to collect his fare tendered him the cash fare to a point where the train was scheduled not to stop, and
told him that as soon as the train reached such point he would pay the cash fare from that point to
destination, there was nothing in the conduct of the passenger which justified the conductor in using
insulting language to him, as by calling him a lunatic," 48 and the Supreme Court of South Carolina there
held the carrier liable for the mental suffering of said passenger.1awphîl.nèt
Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action
as we have said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner
air carrier — a case of quasi-delict. Damages are proper.
7. Petitioner draws our attention to respondent Carrascoso's testimony, thus —
Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already — that was already in the trip — I could not help it. So one of the flight
attendants approached me and requested from me my ticket and I said, What for? and she said, "We
will note that you transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to
accepting my transfer." And I also said, "You are not going to note anything there because I am
protesting to this transfer".
Q Was she able to note it?
A No, because I did not give my ticket.
Q About that purser?
A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I
stood up and I went to the pantry that was next to me and the purser was there. He told me, "I have
recorded the incident in my notebook." He read it and translated it to me — because it was recorded in
French — "First class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene."
Mr. VALTE —
I move to strike out the last part of the testimony of the witness because the best evidence would be
the notes. Your Honor.
COURT —
I will allow that as part of his testimony. 49
Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his
notebook reading "First class passenger was forced to go to the tourist class against his will, and that the
captain refused to intervene" is predicated upon evidence [Carrascoso's testimony above] which is
incompetent. We do not think so. The subject of inquiry is not the entry, but the ouster incident.
Testimony on the entry does not come within the proscription of the best evidence rule. Such testimony
is admissible. 49a
Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the
startling occurrence was still fresh and continued to be felt. The excitement had not as yet died down.
Statements then, in this environment, are admissible as part of the res gestae. 50 For, they grow "out of
the nervous excitement and mental and physical condition of the declarant". 51 The utterance of the
purser regarding his entry in the notebook was spontaneous, and related to the circumstances of the
ouster incident. Its trustworthiness has been guaranteed. 52 It thus escapes the operation of the
hearsay rule. It forms part of the res gestae.
At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would
have been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really
true that no such entry was made, the deposition of the purser could have cleared up the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.
8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary
damages — in contracts and quasi- contracts. The only condition is that defendant should have "acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The manner of ejectment of
respondent Carrascoso from his first class seat fits into this legal precept. And this, in addition to moral
damages.54
9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar
judgment for attorneys' fees. The least that can be said is that the courts below felt that it is but just and
equitable that attorneys' fees be given. 55 We do not intend to break faith with the tradition that
discretion well exercised — as it was here — should not be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals,
thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as
attorneys' fees. The task of fixing these amounts is primarily with the trial court. 56 The Court of Appeals
did not interfere with the same. The dictates of good sense suggest that we give our imprimatur
thereto. Because, the facts and circumstances point to the reasonableness thereof.57
On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We
accordingly vote to affirm the same. Costs against petitioner. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur.
Bengzon, J.P., J., took no part.
G.R. No. L-28589 January 8, 1973
RAFAEL ZULUETA, ET AL., plaintiffs-appellees,
vs.
PAN AMERICAN WORLD AIRWAYS, INC., defendant-appellant.
Alfredo L. Benipayo for plaintiffs-appellee Rafael Zulueta and Carolina Zulueta.
Justo L. Albert for plaintiff-appellee Telly Albert Zulueta.
V.E. del Rosario and Associates and Salcedo, Del Rosario, Bito, Misa and Lozada for defendant-appellant.
RESOLUTION
CONCEPCION, C.J.:
Both parties in this case have moved for the reconsideration of the decision of this Court promulgated
on February 29, 1972. Plaintiffs maintain that the decision appealed from should be affirmed in toto.
The defendant, in turn, prays that the decision of this Court be "set aside ... with or without a new trial,
... and that the complaint be dismissed, with costs; or, in the alternative, that the amount of the award
embodied therein be considerably reduced." .
Subsequently to the filing of its motion for reconsideration, the defendant filed a "petition to annul
proceedings and/or to order the dismissal of plaintiffs-appellees' complaint" upon the ground that
"appellees' complaint actually seeks the recovery of only P5,502.85 as actual damages, because, for the
purpose of determining the jurisdiction of the lower court, the unspecified sums representing items of
alleged damages, may not be considered, under the settled doctrines of this Honorable Court," and "the
jurisdiction of courts of first instance when the complaint in the present case was filed on Sept. 30,
1965" was limited to cases "in which the demand, exclusive of interest, or the value of the property in
controversy amounts to more than ten thousand pesos" and "the mere fact that the complaint also
prays for unspecified moral damages and attorney's fees, does not bring the action within the
jurisdiction of the lower court."
We find no merit in this contention. To begin with, it is not true that "the unspecified sums representing
items or other alleged damages, may not be considered" — for the purpose of determining the
jurisdiction of the court — "under the settled doctrines of this Honorable Court." In fact, not a single
case has been cited in support of this allegation.
Secondly, it has been held that a clam for moral damages is one not susceptible of pecuniary estimation.
1 In fact, Article 2217 of the Civil Code of the Philippines explicitly provides that "(t)hough incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the
defendant's wrongful act or omission." Hence, "(n)o proof pecuniary loss necessary" — pursuant to
Article 2216 of the same Code — "in order that moral ... damages may be adjudicated." And "(t)he
assessment of such damages ... is left to the discretion of the court" - said article adds - "according to
the circumstances of each case." Appellees' complaint is, therefore, within the original jurisdiction of
courts of first instance, which includes "all civil actions in which the subject of the litigation is not
capable of pecuniary estimation." 2
Thirdly, in its answer to plaintiffs' original and amended complainants, defendant had set up a
counterclaim in the aggregate sum of P12,000, which is, also, within the original jurisdiction of said
courts, thereby curing the alleged defect if any, in plaintiffs' complaint. 3
We need not consider the jurisdictional controversy as to the amount the appellant sues to recover
because the counterclaim interposed establishes the jurisdiction of the District Court. Merchants' Heat
& Light Co. v. James B. Clow & Sons, 204 U.S. 286, 27 S. Ct. 285, 51 L. Ed. 488; O. J. Lewis Mercantile Co.
v. Klepner, 176 F. 343 (C.C.A. 2), certiorari denied 216 U.S. 620, 30 S Ct. 575, 54 L. Ed. 641. ... . 4
... courts have said that "when the jurisdictional amount is in question, the tendering of a counterclaim
in an amount which in itself, or added to the amount claimed in the petition, makes up a sum equal to
the amount necessary to the jurisdiction of this court, jurisdiction is established, whatever may be the
state of the plaintiff's complaint." American Sheet & Tin Plate Co. v. Winzeler (D.C.) 227 F. 321, 324. 5
Thus, in Ago v. Buslon, 6 We held:
... . Then, too, petitioner's counterclaim for P37,000.00 was, also, within the exclusive original
jurisdiction of the latter courts, and there are ample precedents to the effect that "although the original
claim involves less than the jurisdictional amount, ... jurisdiction can be sustained if the counterclaim (of
the compulsory type)" — such as the one set up by petitioner herein, based upon the damages allegedly
suffered by him in consequence of the filing of said complaint — "exceeds the jurisdictional amount."
(Moore Federal Practice, 2nd ed. [1948], Vol. 3, p. 41; Ginsburg vs. Pacific Mutual Life Ins. Co. of
California, 69 Fed. [2d] 97; Home Life Ins. Co. vs. Sipp., 11 Fed. [2d]474; American Sheet & Tin Plate Co.
vs. Winzeler [D.C.], 227 Fed. 321, 324; Brix vs. People's Mutual Life Ins. Co., 41 P. 2d. 537, 2 Cal. 2d. 446;
Emery vs. Pacific Employees Ins. Co., 67 P. 2d. 1046, 8 Cal. 2d. 663).
Needless to say, having not only failed to question the jurisdiction of the trial court — either in that
court or in this Court, before the rendition of the latter's decision, and even subsequently thereto, by
filing the aforementioned motion for reconsideration and seeking the reliefs therein prayed for — but,
also, urged both courts to exercise jurisdiction over the merits of the case, defendant is now estopped
from impugning said jurisdiction. 7
Before taking up the specific questions raised in defendant's motion for reconsideration, it should be
noted that the same is mainly predicated upon the premise that plaintiffs' version is inherently
incredible, and that this Court should accept the theory of the defense to the effect that petitioner was
off-loaded because of a bomb-scare allegedly arising from his delay in boarding the aircraft and
subsequent refusal to open his bags for inspection. We need not repeat here the reasons given in Our
decision for rejecting defendant's contention and not disturbing the findings of fact of His Honor, the
Trial Judge, who had the decided advantage — denied to Us — of observing the behaviour of the
witnesses in the course of the trial and found those of the plaintiffs worthy of credence, not the
evidence for the defense.
It may not be amiss however, to stress the fact that, in his written report, made in transit from Wake to
Manila — or immediately after the occurrence and before the legal implications or consequences
thereof could have been the object of mature deliberation, so that it could, in a way, be considered as
part of the res gestae — Capt. Zentner stated that Zulueta had been off-loaded "due to drinking" and
"belligerent attitude," thereby belying the story of the defense about said alleged bomb-scare, and
confirming the view that said agent of the defendant had acted out of resentment because his ego had
been hurt by Mr. Zulueta's adamant refusal to be bullied by him. Indeed, had there been an iota of truth
in said story of the defense, Capt. Zentner would have caused every one of the passengers to be frisked
or searched and the luggage of all of them examined — as it is done now — before resuming the flight
from Wake Island. His failure to do so merely makes the artificious nature of defendant's version more
manifest. Indeed, the fact that Mrs. Zulueta and Miss Zulueta were on board the plane shows beyond
doubt that Mr. Zulueta could not possibly have intended to blow it up.
The defense tries to explain its failure to introduce any evidence to contradict the testimony of Mr.
Zulueta as to why he had gone to the beach and what he did there, alleging that, in the very nature of
things, nobody else could have witnessed it. Moreover, the defense insists, inter alia, that the testimony
of Mr. Zulueta is inherently incredible because he had no idea as to how many toilets the plane had; it
could not have taken him an hour to relieve himself in the beach; there were eight (8) commodes at the
terminal toilet for men ; if he felt the need of relieving himself, he would have seen to it that the soldiers
did not beat him to the terminal toilets; he did not tell anybody about the reason for going to the beach,
until after the plane had taken off from Wake.
We find this pretense devoid of merit. Although Mr. Zulueta had to look for a secluded place in the
beach to relieve himself, beyond the view of others, defendant's airport manager, whom Mr. Zulueta
informed about it, soon after the departure of the plane, could have forthwith checked the veracity of
Mr. Zulueta's statement by asking him to indicate the specific place where he had been in the beach and
then proceeding thereto for purposes of verification.
Then, again, the passenger of a plane seldom knows how many toilets it has. As a general rule, his
knowledge is limited to the toilets for the class — first class or tourist class — in which he is. Then, too, it
takes several minutes for the passengers of big aircrafts, like those flying from the U.S. to the
Philippines, to deplane. Besides, the speed with which a given passenger may do so depends, largely,
upon the location of his seat in relation to the exit door. He cannot go over the heads of those nearer
than he thereto. Again, Mr. Zulueta may have stayed in the toilet terminal for some time, expecting one
of the commodes therein to be vacated soon enough, before deciding to go elsewhere to look for a
place suitable to his purpose. But he had to walk, first, from the plane to the terminal building and, then,
after vainly waiting therein for a while, cover a distance of about 400 yards therefrom to the beach, and
seek there a place not visible by the people in the plane and in the terminal, inasmuch as the terrain at
Wake Island is flat. What is more, he must have had to takeoff part, at least, of his clothing, because,
without the facilities of a toilet, he had to wash himself and, then, dry himself up before he could be
properly attired and walk back the 400 yards that separated him from the terminal building and/or the
plane. Considering, in addition to the foregoing, the fact that he was not feeling well, at that time, We
are not prepared to hold that it could not have taken him around an hour to perform the acts narrated
by him.
But, why — asks the defendant — did he not reveal the same before the plane took off? The record
shows that, even before Mr. Zulueta had reached the ramp leading to the plane, Capt. Zentner was
already demonstrating at him in an intemperate and arrogant tone and attitude ("What do you think
you are?), thereby impelling Mr. Zulueta to answer back in the same vein. As a consequence, there
immediately ensued an altercation in the course of which each apparently tried to show that he could
not be cowed by the other. Then came the order of Capt. Zentner to off-load all of the Zuluetas,
including Mrs. Zulueta and the minor Miss Zulueta, as well as their luggage, their overcoats and other
effects handcarried by them; but, Mr. Zulueta requested that the ladies be allowed to continue the trip.
Meanwhile, it had taken time to locate his four (4) pieces of luggage. As a matter of fact, only three (3)
of them were found, and the fourth eventually remained in the plane. In short, the issue between Capt.
Zentner and Mr. Zulueta had been limited to determining whether the latter would allow himself to be
browbeaten by the former. In the heat of the altercation, nobody had inquired about the cause of Mr.
Zulueta's delay in returning to the plane, apart from the fact that it was rather embarrassing for him to
explain, in the presence and within the hearing of the passengers and the crew, then assembled around
them, why he had gone to the beach and why it had taken him some time to answer there a call of
nature, instead of doing so in the terminal building.
Defendant's motion for reconsideration assails: (1) the amount of damages awarded as excessive; (2)
the propriety of accepting as credible plaintiffs' theory; (3) plaintiffs' right to recover either moral or
exemplary damages; (4) plaintiffs' right to recover attorney's fees; and (5) the non-enforcement of the
compromise agreement between the defendant and plaintiff's wife, Mrs. Zulueta. Upon the other hand,
plaintiffs' motion for reconsideration contests the decision of this Court reducing the amount of
damages awarded by the trial court to approximately one-half thereof, upon the ground, not only that,
contrary to the findings of this Court, in said decision, plaintiff had not contributed to the aggravation of
his altercation or incident with Capt. Zentner by reacting to his provocation with extreme belligerency
thereby allowing himself to be dragged down to the level on which said agent of the defendant had
placed himself, but, also, because the purchasing power of our local currency is now much lower than
when the trial court rendered its appealed decision, over five (5) years ago, on July 5, 1967, which is an
undeniable and undisputed fact. Precisely, for this reason, defendant's characterization as exorbitant of
the aggregate award of over P700,000 by way of damages, apart from attorney's fees in the sum of
P75,000, is untenable. Indeed, said award is now barely equivalent to around 100,000 U. S. dollars.
It further support of its contention, defendant cites the damages awarded in previous cases to
passengers of airlines, 8 as well as in several criminal cases, and some cases for libel and slander. None
of these cases is, however, in point. Said cases against airlines referred to passengers who were merely
constrained to take a tourist class accommodation, despite the fact that they had first class tickets, and
that although, in one of such cases, there was proof that the airline involved had acted as it did to give
preference to a "white" passenger, this motive was not disclosed until the trial in court. In the case at
bar, plaintiff Rafael Zulueta was "off-loaded" at Wake Island, for having dared to retort to defendant's
agent in a tone and manner matching, if not befitting his intemperate language and arrogant attitude.
As a consequence, Capt. Zentner's attempt to humiliate Rafael Zulueta had boomeranged against him
(Zentner), in the presence of the other passengers and the crew. It was, also, in their presence that
defendant's agent had referred to the plaintiffs as "monkeys," a racial insult not made openly and
publicly in the abovementioned previous cases against airlines.
In other words, Mr. Zulueta was off-loaded, not to protect the safety of the aircraft and its passengers,
but to retaliate and punish him for the embarrassment and loss of face thus suffered by defendant's
agent. This vindictive motive is made more manifest by the note delivered to Mr. Zulueta by defendant's
airport manager at Wake Island, Mr. Sitton, stating that the former's stay therein would be "for a
minimum of one week," during which he would be charged $13.30 per day. This reference to a
"minimum of one week" revealed the intention to keep him there stranded that long, for no other
plane, headed for Manila, was expected within said period of time, although Mr. Zulueta managed to
board, days later, a plane that brought him to Hawaii, whence he flew back to the Philippines, via Japan.
Neither may criminal cases, nor the cases for libel and slander cited in the defendant's motion for
reconsideration, be equated with the present case. Indeed, in ordinary criminal cases, the award for
damages is, in actual practice, of purely academic value, for the convicts generally belong to the poorest
class of society. There is, moreover, a fundamental difference between said cases and the one at bar.
The Zuluetas had a contract of carriage with the defendant, as a common carrier, pursuant to which the
latter was bound, for a substantial monetary consideration paid by the former, not merely to transport
them to Manila, but, also, to do so with "extraordinary diligence" or "utmost diligence." 9 The
responsibility of the common carrier, under said contract, as regards the passenger's safety, is of such a
nature, affecting as it does public interest, that it "cannot be dispensed with" or even "lessened by
stipulation, by the posting of notices, by statements on tickets, or otherwise." 10 In the present case,
the defendant did not only fail to comply with its obligation to transport Mr. Zulueta to Manila, but,
also, acted in a manner calculated to humiliate him, to chastise him, to make him suffer, to cause to him
the greatest possible inconvenience, by leaving him in a desolate island, in the expectation that he
would be stranded there for a "minimum of one week" and, in addition thereto, charged therefor
$13.30 a day.
It is urged by the defendant that exemplary damages are not recoverable in quasi-delicts, pursuant to
Article 2231 of our Civil Code, except when the defendant has acted with "gross negligence," and that
there is no specific finding that it had so acted. It is obvious, however, that in off-loading plaintiff at
Wake Island, under the circumstances heretofore adverted to, defendant's agents had acted with malice
aforethought and evident bad faith. If "gross negligence" warrants the award of exemplary damages,
with more reason is its imposition justified when the act performed is deliberate, malicious and tainted
with bad faith. Thus, in Lopez v. PANAM, 11 We held:
The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for public good. Defendant having breached its contracts in bad faith, the court, as stated
earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil
Code.)
Similarly, in NWA v. Cuenca, 12 this Court declared that an award for exemplary damages was justified
by the fact that the airline's "agent had acted in a wanton, reckless and oppressive manner" in
compelling Cuenca, upon arrival at Okinawa, to transfer, over his objection, from the first class, where
he was accommodated from Manila to Okinawa, to the tourist class, in his trip to Japan, "under threat of
otherwise leaving him in Okinawa," despite the fact that he had paid in full the first class fare and was
issued in Manila a first class ticket.
Defendant cites Rotea v. Halili, 13 in support of the proposition that a principal is not liable for
exemplary damages owing to acts of his agent unless the former has participated in said acts or ratified
the same. Said case involved, however, the subsidiary civil liability of an employer arising from criminal
acts of his employee, and "exemplary damages ... may be imposed when the crime was committed with
one or more aggravating circumstances." 14 Accordingly, the Rotea case is not in point, for the case at
bar involves a breach of contract, as well as a quasi-delict.
Neither may the case of Palisoc v. Brillantes, 15 invoked by the defendant, be equated with the case at
bar. The Palisoc case dealt with the liability of school officials for damages arising from the death of a
student (Palisoc) due to fist blows given by another student (Daffon), in the course of a quarrel between
them, while in a laboratory room of the Manila Technical Institute. In an action for damages, the head
thereof and the teacher in charge of said laboratory were held jointly and severally liable with the
student who caused said death, for failure of the school to provide "adequate supervision over the
activities of the students in the school premises," to protect them "from harm, whether at the hands of
fellow students or other parties." Such liability was predicated upon Article 2180 of our Civil Code, the
pertinent part of which reads:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they remain in their custody.
xxx xxx xxx
Obviously, the amount of damages warded in the Palisoc case is not and cannot serve as the measure of
the damages recoverable in the present case, the latter having been caused directly and intentionally by
an employee or agent of the defendant, whereas the student who killed the young Palisoc was in no
wise an agent of the school. Moreover, upon her arrival in the Philippines, Mrs. Zulueta reported her
husband's predicament to defendant's local manager and asked him to forthwith have him (Mr. Zulueta)
brought to Manila, which defendant's aforementioned manager refused to do, thereby impliedly
ratifying the off-loading of Mr. Zulueta at Wake Island.
It is next urged that, under the contract of carriage with the defendant, Mr. Zulueta was bound to be
present at the time scheduled for the departure of defendant's plane and that he had, consequently,
violated said contract when he did not show up at such time. This argument might have had some
weight had defendant's plane taken off before Mr. Zulueta had shown up. But the fact is that he was
ready, willing and able to board the plane about two hours before it actually took off, and that he was
deliberately and maliciously off-loaded on account of his altercation with Capt. Zentner. It should, also,
be noted that, although Mr. Zulueta was delayed some 20 to 30 minutes, the arrival or departure of
planes is often delayed for much longer periods of time. Followed to its logical conclusion, the argument
adduced by the defense suggests that airlines should be held liable for damages due to the
inconvenience and anxiety, aside from actual damages, suffered by many passengers either in their
haste to arrive at the airport on scheduled time just to find that their plane will not take off until later,
or by reason of the late arrival of the aircraft at its destination.
PANAM impugns the award of attorney's fees upon the ground that no penalty should be imposed upon
the right to litigate; that, by law, it may be awarded only in exceptional cases; that the claim for
attorney's fees has not been proven; and that said defendant was justified in resisting plaintiff's claim
"because it was patently exorbitant."
Nothing, however, can be farther from the truth. Indeed apart from plaintiff's claim for actual damages,
the amount of which is not contested, plaintiffs did not ask any specific sum by way of exemplary and
moral damages, as well as attorney's fees, and left the amount thereof to the "sound discretion" of the
lower court. This, precisely, is the reason why PANAM, now, alleges — without justification that the
lower court had no jurisdiction over the subject matter of the present case.
Moreover, Article 2208 of our Civil Code expressly authorizes the award of attorney's fees "when
exemplary damages are awarded," — as they are in this case —as well as "in any other case where the
court deems it just and equitable that attorney's fees ... be recovered," and We so deem it just and
equitable in the present case, considering the "exceptional" circumstances obtaining therein,
particularly the bad faith with which defendant's agent had acted, the place where and the conditions
under which Rafael Zulueta was left at Wake Island, the absolute refusal of defendant's manager in
Manila to take any step whatsoever to alleviate Mr. Zulueta's predicament at Wake and have him
brought to Manila — which, under their contract of carriage, was defendant's obligation to discharge
with "extra-ordinary" or "utmost" diligence — and, the "racial" factor that had, likewise, tainted the
decision of defendant's agent, Capt. Zentner, to off-load him at Wake Island.
As regards the evidence necessary to justify the sum of P75,000 awarded as attorney's fees in this case,
suffice it to say that the quantity and quality of the services rendered by plaintiffs' counsel appearing on
record, apart from the nature of the case and the amount involved therein, as well as his prestige as one
of the most distinguished members of the legal profession in the Philippines, of which judicial
cognizance may be taken, amply justify said award, which is a little over 10% of the damages (P700,000)
collectible by plaintiffs herein. Indeed, the attorney's fees in this case is proportionally much less than
that adjudged in Lopez v. PANAM 16 in which the judgment rendered for attorney's fees (P50,000) was
almost 20% of the damages (P275,000) recovered by the plaintiffs therein.
The defense assails the last part of the decision sought to be reconsidered, in which — relying upon
Article 172 of our Civil Code, which provides that "(t)he wife cannot bind the conjugal partnership
without the husband's consent, except in cases provided by law," and it is not claimed that this is one of
such cases — We denied a motion, filed by Mrs. Zulueta, for the dismissal of this case, insofar as she is
concerned - she having settled all her differences with the defendant, which appears to have paid her
the sum of P50,000 therefor - "without prejudice to this sum being deducted from the award made in
said decision." Defendant now alleges that this is tantamount to holding that said compromise
agreement is both effective and ineffective.
This, of course, is not true. The payment is effective, insofar as it is deductible from the award, and,
because it is due (or part of the amount due) from the defendant, with or without its compromise
agreement with Mrs. Zulueta. What is ineffective is the compromise agreement, insofar as the conjugal
partnership is concerned. Mrs. Zulueta's motion was for the dismissal of the case insofar as she was
concerned, and the defense cited in support thereof Article 113 of said Code, pursuant to which "(t)he
husband must be joined in all suits by or against the wife except: ... (2) If they have in fact been
separated for at least one year." This provision, We held, however, refers to suits in which the wife is the
principal or real party in interest, not to the case at bar, "in which the husband is the main party in
interest, both as the person principally aggrieved and as administrator of the conjugal partnership ... he
having acted in this capacity in entering into the contract of carriage with PANAM and paid the amount
due to the latter, under the contract, with funds of the conjugal partnership," to which the amounts
recoverable for breach of said contract, accordingly, belong. The damages suffered by Mrs. Zulueta were
mainly an in accident of the humiliation to which her husband had been subjected. The Court ordered
that said sum of P50,00 paid by PANAM to Mrs. Zulueta be deducted from the aggregate award in favor
of the plaintiffs herein for the simple reason that upon liquidation of the conjugal partnership, as
provided by law, said amount would have to be reckoned with, either as part of her share in the
partnership, or as part of the support which might have been or may be due to her as wife of Rafael
Zulueta. It would surely be inane to sentence the defendant to pay the P700,000 due to the plaintiffs
and to direct Mrs. Zulueta to return said P50,000 to the defendant.
In this connection, it is noteworthy that, for obvious reasons of public policy, she is not allowed by law
to waive her share in the conjugal partnership, before the dissolution thereof. 17 She cannot even
acquire any property by gratuitous title, without the husband's consent, except from her ascendants,
descendants, parents-in-law, and collateral relatives within the fourth degree. 18
It is true that the law favors and encourages the settlement of litigations by compromise agreement
between the contending parties, but, it certainly does not favor a settlement with one of the spouses,
both of whom are plaintiffs or defendants in a common cause, such as the defense of the rights of the
conjugal partnership, when the effect, even if indirect, of the compromise is to jeopardize "the solidarity
of the family" — which the
law 19 seeks to protect — by creating an additional cause for the misunderstanding that had arisen
between such spouses during the litigation, and thus rendering more difficult a reconciliation between
them.
It is urged that there is no proof as to the purpose of the trip of the plaintiffs, that neither is there any
evidence that the money used to pay the plane tickets came from the conjugal funds and that the award
to Mrs. Zulueta was for her personal suffering or injuries. There was, however, no individual or specific
award in favor of Mrs. Zulueta or any of the plaintiffs. The award was made in their favor collectively.
Again, in the absence of said proof, the presumption is that the purpose of the trip was for the common
benefit of the plaintiffs and that the money had come from the conjugal funds, for, unless there is proof
to the contrary, it is presumed "(t)hat things have happened according to the ordinary course of nature
and the ordinary habits of life." 20 In fact Manresa maintains 21 that they are deemed conjugal, when
the source of the money used therefor is not established, even if the purchase had been made by the
wife. 22 And this is the rule obtaining in the Philippines. Even property registered, under the Torrens
system, in the name of one of the spouses, or in that of the wife only, if acquired during the marriage, is
presumed to belong to the conjugal partnership, unless there is competent proof to the contrary. 23
PANAM maintains that the damages involved in the case at bar are not among those forming part of the
conjugal partnership pursuant to Article 153 of the Civil Code, reading:
ART. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage at the expense of the common fund,
whether the acquisition be for the partnership, or for only one of the spouses;
(2) That which is obtained by the industry, or work, or as salary of the spouses, or of either of them;
(3) The fruits, rents or interests received or due during the marriage, coming from the common
property or from the exclusive property of each spouse.
Considering that the damages in question have arisen from, inter alia, a breach of plaintiffs' contract of
carriage with the defendant, for which plaintiffs paid their fare with funds presumably belonging to the
conjugal partnership, We hold that said damages fall under paragraph (1) of said Article 153, the right
thereto having been "acquired by onerous title during the marriage ... ." This conclusion is bolstered up
by Article 148 of our Civil Code, according to which:
ART. 148. The following shall be the exclusive property of each spouse:
(1) That which is brought to the marriage as his or her own;
(2) That which each acquires, during the marriage, by lucrative title;
(3) That which is acquired by right of redemption or by exchange with other property belonging to
only one of the spouses;
(4) That which is purchased with exclusive money of the wife or of the husband.
The damages involved in the case at bar do not come under any of these provisions or of the other
provisions forming part of Chapter 3, Title VI, of Book I of the Civil Code, which chapter is entitled
"Paraphernal Property." What is more, if "(t)hat which is acquired by right of redemption or by exchange
with other property belonging to only one of the spouses," and "(t)hat which is purchased with exclusive
money of the wife or of the husband," 24 belong exclusively to such wife or husband, it follows
necessarily that that which is acquired with money of the conjugal partnership belongs thereto or forms
part thereof. The rulings in Maramba v. Lozano 25 and Perez v. Lantin, 26 cited in defendant's motion
for reconsideration, are, in effect, adverse thereto. In both cases, it was merely held that the
presumption under Article 160 of our Civil Code — to the effect that all property of the marriage belong
to the conjugal partnership — does not apply unless it is shown that it was acquired during marriage. In
the present case, the contract of carriage was concededly entered into, and the damages claimed by the
plaintiffs were incurred, during marriage. Hence, the rights accruing from said contract, including those
resulting from breach thereof by the defendant, are presumed to belong to the conjugal partnership of
Mr. and Mrs. Zulueta. The fact that such breach of contract was coupled, also, with a quasi-delict
constitutes an aggravating circumstance and can not possibly have the effect of depriving the conjugal
partnership of such property rights.
Defendant insists that the use of conjugal funds to redeem property does not make the property
redeemed conjugal if the right of redemption pertained to the wife. In the absence, however, of proof
that such right of redemption pertains to the wife — and there is no proof that the contract of carriage
with PANAM or the money paid therefor belongs to Mrs. Zulueta — the property involved, or the rights
arising therefrom, must be presumed, therefore, to form part of the conjugal partnership.
It is true that in Lilius v. Manila Railroad Co., 27 it was held that the "patrimonial and moral damages"
awarded to a young and beautiful woman by reason of a scar — in consequence of an injury resulting
from an automobile accident — which disfigured her face and fractured her left leg, as well as caused a
permanent deformity, are her paraphernal property. Defendant cites, also, in support of its contention
the following passage from Colin y Capitant:
No esta resuelta expresamente en la legislacion española la cuestion de si las indemnizaciones debidas

por accidentes del trabaho tienen la consideracion de gananciales, o son bienes particulares de los
conyuges.
Inclinan a la solucion de que estas indemnizaciones deben ser consideradas como gananciales, el hecho
de que la sociedad pierde la capacidad de trabajocon el accidente, que a ella le pertenece, puesto que
de la sociedad son losfrutos de ese trabajo; en cambio, la consideracion de que igual manera que
losbienes que sustituyen a los que cada conyuge lleva al matrimonio como propiostienen el caracter de
propios, hace pensar que las indemnizaciones que vengana suplir la capacidad de trabajo aportada por
cada conyuge a la sociedad, debenser juridicamente reputadas como bienes propios del conyuge que
haya sufrido elaccidente. Asi se llega a la misma solucion aportada por la jurisprudencia francesca. 28
This opinion is, however, undecisive, to say the least. It should be noted that Colin y Capitant were
commenting on the French Civil Code; that their comment referred to indemnities due in consequence
of "accidentes del trabajo "resulting in physical injuries sustained by one of the spouses (which Mrs.
Zulueta has not suffered); and that said commentators admit that the question whether or not said
damages are paraphernal property or belong to the conjugal partnership is not settled under the
Spanish law. 29 Besides, the French law and jurisprudence — to which the comments of Planiol and
Ripert, likewise, refer — are inapposite to the question under consideration, because they differ
basically from the Spanish law in the treatment of the property relations between husband and wife.
Indeed, our Civil Code, like the Spanish Civil Code, favors the system of conjugal partnership of gains.
Accordingly, the former provides that, "(i)n the absence of marriage settlements, or when the same are
void, the system of relative community or conjugal partnership of gains ... shall govern the property
relations between" the spouses. 30 Hence, "(a)ll property of the marriage is presumed to belong to the
conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife." 31
No similar rules are found in the French Civil Code. What is more, under the provisions thereof, the
conjugal partnership exists only when so stipulated in the "capitulaciones matrimoniales" or by way of
exception. In the language of Manresa —
Prescindimos de los preceptos de los Condigos de Francia, Italia, Holanda, Portugal, Alemania y Suiza,
porsue solo excepcionalmente, o cuando asi se pacta en las capitulaciones, admiten el sistema de
gananciales. 32
Again, Colin y Capitant, as well as the Lilius case, refer to damages recovered for physical injuries
suffered by the wife. In the case at bar, the party mainly injured, although not physically, is the husband.
Accordingly, the other Philippine cases 33 and those from Louisiana — whose civil law is based upon the
French Civil Code — cited by the defendant, which similarly refer to moral damages due to physical
injuries suffered by the wife, are, likewise, inapplicable to the case at bar.
We find, therefore, no plausible reason to disturb the views expressed in Our decision promulgated on
February 29, 1972.
WHEREFORE, the motions for reconsideration above-referred to should be, as they are hereby denied.
Makalintal, Zaldivar, Fernando, Makasiar, Antonio and Esguerra, JJ., concur.
Castro and Teehankee, JJ., took no part.
Barredo, J., voted to modify the judgment by reducing the amount of the awarded damages and
individualizing the same, and now reserves the filing of a separate concurring and dissenting opinion in
support of his vote.
G.R. No. L-19495 February 2, 1924
HONORIO LASAM, ET AL., plaintiffs-appellants,
vs.
FRANK SMITH, JR., defendant-appellant.
Palma and Leuterio for plaintiffs-appellants.
Mariano Alisangco for defendant-appellant.
OSTRAND, J.:
The plaintiff are husband and wife and this action is brought to recover damages in the sum of P20,000
for physical injuries sustained by them in an automobile accident. The trial court rendered a judgment in
their favor for the sum of P1,254.10, with legal interest from the date of the judgment. Both the
plaintiffs and the defendant appeal, the former maintaining that the damages awarded are insufficient
while the latter denies all liability for any damages whatever.
It appears from the evidence that on February 27, 1918, the defendant was the owner of a public garage
in the town of San Fernando, La Union, and engaged in the business of carrying passengers for hire from
the one point to another in the Province of La Union and the surrounding provinces. On the date
mentioned, he undertook to convey the plaintiffs from San Fernando to Currimao, Ilocos Norte, in a
Ford automobile. On leaving San Fernando, the automobile was operated by a licensed chauffeur, but
after having reached the town of San Juan, the chauffeur allowed his assistant, Remigio Bueno, to drive
the car. Bueno held no driver's license, but had some experience in driving, and with the exception of
some slight engine trouble while passing through the town of Luna, the car functioned well until after
the crossing of the Abra River in Tagudin, when, according to the testimony of the witnesses for the
plaintiffs, defects developed in the steering gear so as to make accurate steering impossible, and after
zigzagging for a distance of about half a kilometer, the car left the road and went down a steep
embankment.
The defendant, in his testimony, maintains that there was no defect in the steering gear, neither before
nor after the accident, and expresses the opinion that the swaying or zigzagging of the car must have
been due to its having been driven at an excessive rate of speed. This may possibly be true, but it is,
from our point of view, immaterial whether the accident was caused by negligence on the part of the
defendant's employees, or whether it was due to defects in the automobile; the result would be
practically the same in either event.
In going over the bank of the road, the automobile was overturned and the plaintiffs pinned down under
it. Mr. Lasam escaped with a few contusions and a "dislocated" rib , but his wife, Joaquina Sanchez,
received serious injuries, among which was a compound fracture of one of the bones in her left wrist.
She also appears to have suffered a nervous breakdown from which she had not fully recovered at the
time of the trial.
The complaint in the case was filed about a year and a half after the occurrence above related. It alleges,
among other things, that the accident was due to defects in the automobile as well as to the
incompetence and negligence of the chauffeur, and the case appears to have been tried largely upon
the theory that it sounds in tort and that the liability of the defendant is governed by article 1903 of the
Civil Code. The trial court held, however, that the cause of action rests on the defendant's breach of the
contract of carriage and that, consequently, articles 1101-1107 of the Civil Code, and not article 1903,
are applicable. The court further found that the breach of the contract was not due to fortuitous events
and that, therefore, the defendant was liable in damages.
In our opinion, the conclusions of the court below are entirely correct. That upon the facts stated the
defendant's liability, if any, is contractual, is well settled by previous decisions of the court, beginning
with the case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil., 359), and the distinction between extra-
contractual liability and contractual liability has been so ably and exhaustively discussed in various other
cases, that nothing further need here be said upon that subject. (See Cangco vs. Manila Railroad Co., 38
Phil., 768; Manila Railroad Co. vs. Compania Trasatlantica and Atlantic, Gulf & Pacific Co., 38 Phil., 875;
De Guia vs. Manila Electric Railroad & Light Co., 40 Phil., 706.) It is sufficient to reiterate that the source
of the defendant's legal liability is the contract of carriage; that by entering into that contract he bound
himself to carry the plaintiffs safely and securely to their destination; and that having failed to do so he
is liable in damages unless he shows that the failure to fulfill his obligation was due to causes mentioned
in article 1105 of the Civil Code, which reads as follows:
No one shall be liable for events which could not be foreseen or which, even if foreseen, were
inevitable, with the exception of the cases in which the law expressly provides otherwise and those in
which the obligation itself imposes such liability.
This brings us to the principal question in the case:
What is meant by "events which cannot be foreseen and which, having been foreseen, are inevitable?"
The Spanish authorities regard the language employed as an effort to define the term caso fortuito and
hold that the two expressions are synonymous. (Manresa, Comentarios al Codigo Civil Español, vol. 8,
pp. 88 et seq.; Scævola, Codigo Civil, vol. 19, pp. 526 et seq.)
The antecedent to article 1105 is found in Law 11, Title 33, Partida 7, which defines caso fortuito as
"occasion que a case por aventura de que non se puede ante ver. E son estos, derrivamientos de casas e
fuego que se enciende a so ora, e quebrantamiento de navio, fuerca de ladrones. . . . (An event that
takes place by accident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers. . . .)"
Escriche defines caso fortuito as "an unexpected event or act of God which could either be foreseen nor
resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsion, insurrections,
destructions, destruction of buildings by unforseen accidents and other occurrences of a similar nature."
In discussing and analyzing the term caso fortuito the Enciclopedia Juridica Española says: "In a legal
sense and, consequently, also in relation to contracts, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of the
debtor to comply with his obligation, must be independent of the human will. (2) It must be impossible
to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to
avoid. (3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner. And (4) the obligor (debtor) must be free from any participation in the aggravation of
the injury resulting to the creditor." (5 Enciclopedia Juridica Española, 309.)
As will be seen, these authorities agree that some extraordinary circumstance independent of the will of
the obligor, or of his employees, is an essential element of a caso fortuito. Turning to the present case, it
is at once apparent that this element is lacking. It is not suggested that the accident in question was due
to an act of God or to adverse road conditions which could not have been foreseen. As far as the records
shows, the accident was caused either by defects in the automobile or else through the negligence of its
driver. That is not a caso fortuito.
We agree with counsel that neither under the American nor Spanish law is a carrier of passengers an
absolute insurer against the risks of travel from which the passenger may protect himself by exercising
ordinary care and diligence. The case of Alba vs. Sociedad Anonima de Tranvias, Jurisprudencia Civil, vol.
102, p. 928, cited by the defendant in support of his contentions, affords a good illustration of the
application of this principle. In that case Alba, a passenger on a street car, was standing on the platform
of the car while it was in motion. The car rounded a curve causing Alba to lose his balance and fall off
the platform, sustaining severe injuries. In an action brought by him to recover damages, the supreme
court of Spain held that inasmuch as the car at the time of the accident was travelling at a moderate
rate of speed and there was no infraction of the regulations, and the plaintiff was exposed to no greater
danger than that inherent in that particular mode of travel, the plaintiff could not recover, especially so
since he should have been on his guard against a contingency as natural as that of losing his balance to a
greater or less extent when the car rounded the curve.
But such is not the present case; here the passengers had no means of avoiding the danger or escaping
the injury.
The plaintiffs maintain that the evidence clearly establishes that they are entitled to damages in the sum
of P7,832.80 instead of P1,254.10 as found by the trial court, and their assignments of error relate to
this point only.
There can be no doubt that the expenses incurred by the plaintiffs as a result of the accident greatly
exceeded the amount of the damages awarded. But bearing in mind that in determining the extent of
the liability for losses or damages resulting from negligence in the fulfillment of a contractual obligation,
the courts have "a discretionary power to moderate the liability according to the circumstances" (De
Guia vs. Manila Electric Railroad & Light Co., 40 Phil., 706; art. 1103, Civil Code), we do not think that the
evidence is such as to justify us in interfering with the discretion of the court below in this respect. As
pointed out by that court in its well-reasoned and well-considered decision, by far the greater part of
the damages claimed by the plaintiffs resulted from the fracture of a bone in the left wrist of Joaquina
Sanchez and from her objections to having a decaying splinter of the bone removed by a surgical
operation. As a consequence of her refusal to submit such an operation, a series of infections ensued
and which required constant and expensive medical treatment for several years. We agree with the
court below that the defendant should not be charged with these expenses.
For the reasons stated, the judgment appealed from is affirmed, without costs in this instance. So
ordered.
Araullo, C.J., Street, Malcolm, Johns and Romualdez, JJ., concur.
G.R. No. 160709 February 23, 2005
NELEN LAMBERT, assisted by her husband, GLENROY ALOYSUIS LAMBERT, petitioners,
vs.
HEIRS OF RAY CASTILLON, Represented by MARILOU T. CASTILLON and SERGIO LABANG, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision1 of
the Court of Appeals dated October 21, 2002 in CA-G.R. CV No. 43734, which affirmed the June 29, 1993
decision of the Regional Trial Court of Iligan City, Branch 06, in Civil Case No. 06-2086.
In the evening of January 13, 1991, Ray Castillon visited the house of his brother Joel Castillon at Tambo,
Iligan City and borrowed his motorcycle. He then invited his friend, Sergio Labang, to roam around Iligan
City. Ray drove the motorcycle with Sergio as the backrider.2
At around past 10:00 p.m., after eating supper at Hona’s Restaurant and imbibing a bottle of beer, they
traversed the highway towards Tambo at a high speed. Upon reaching Brgy. Sto. Rosario, they figured in
an accident with a Tamaraw jeepney, owned by petitioner Nelen Lambert and driven by Reynaldo
Gamot, which was traveling on the same direction but made a sudden left turn. The incident resulted in
the instantaneous death of Ray and injuries to Sergio.3
Respondents, the heirs of Ray Castillon, thus filed an action for damages with prayer for preliminary
attachment against the petitioner Nelen Lambert. The complaint was docketed as Civil Case No. 06-2086
of the RTC of Iligan City, Branch 06.4 The complaint was subsequently amended to include the claim by
Joel Castillon for the damages caused to the motorcycle.51ªvvphi1.nét
On June 29, 1993, after a full-blown trial, the court a quo rendered a decision in favor of herein private
respondents but reduced petitioner’s liability by 20% in view of the contributory negligence of Ray. The
dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
directing the latter, jointly and severally, to pay the former the following:
1. The sum of SIX HUNDRED THIRTY-THREE THOUSAND AND NINETY-ONE (P633,091) PESOS,
representing loss of support, death indemnity, funeral and related expenses, moral damages and
attorney’s fees and
2. Costs of the suit.
For lack of merit, defendants’ counterclaim is dismissed.
On the claim of Joel Castillon, the evidence shows that he is not the real owner of the motorcycle. He is
not the real party in interest. Accordingly, his complaint is dismissed.
On the third-party complaint, the third-party defendant Zenith Insurance Corporation is ordered to pay
the sum of P16,500.00 directly to the plaintiffs. This sum, if paid, should be deducted from the amount
adjudged in par. 1 above.
SO ORDERED.6
The Court of Appeals affirmed the decision of the trial court.7 Hence the present petition, based on the
following arguments:
1. The Honorable Court of Appeals committed serious error of law and grave abuse of discretion when it
did not apply the ruling of this Honorable Court in the case of Philippine Rabbit Bus Lines vs. The
Honorable Intermediate Appellate Court and Casiano Pascua, Et. Al., [189 SCRA 168, August 30, 1990],
as reiterated recently in the case of Edna A. Raynera vs. Freddie Hiceta and Jimmy Orpilla [306 SCRA
102, April 21, 1999], in which this Honorable Court enunciated that drivers of vehicles "who bump the
rear of another vehicle" are presumed to be the cause of the accident.
2. The erroneous conclusion of the Honorable Trial Court as affirmed by the Honorable Court of Appeals
that the act of tailgating, at high speed, constitutes contributory negligence only, is contrary to the
rulings of this Honorable Court in the case of Sanitary Steam Laundry, INC. vs. The Honorable Court of
Appeals [300 SCRA 20, December 10, 1998] and the case of Edna A. Raynera vs. Freddie Hiceta and
Jimmy Orpilla [306 SCRA 102, April 21, 1999].
3. The Honorable Court of Appeals grossly erred in its conclusion that petitioner’s driver was negligent,
without taking into consideration the presumptions enunciated by this Honorable Court in the case of
Philippine Rabbit Bus Lines vs. The Honorable Intermediate Appellate Court and Casiano Pascua, Et. Al.,
[189 SCRA 168, August 30, 1990], and the case of Edna A. Raynera vs. Freddie Hiceta and Jimmy Orpilla
[306 SCRA 102, April 21, 1999].
4. As an alternative relief, petitioner most respectfully assigns as error the Honorable Trial Court’s
computation as to the loss of earning capacity of Ray Castillon. Such computation is contrary to the
formula enunciated by this Honorable Court in the case of Villa Rey Transit, Inc. vs. The Honorable Court
of Appeals [31 SCRA 511 (1970)].
5. The Honorable Trial Court’s award of moral damages is contrary to the pronunciation of this
Honorable Court in the case of Ace Haulers Corporation vs. The Honorable Court of Appeals and Abiva
[338 SCRA 572, August 23, 2000], wherein the award of moral damages was disallowed absent any
evidence of bad faith or ill-motive.8
Petitioner insists that the negligence of Ray Castillon was the proximate cause of his unfortunate death
and therefore she is not liable for damages.
In petitions for review on certiorari under Rule 45 of the Rules of Court, only questions of law may be
put into issue. Questions of fact cannot be entertained. The finding of negligence by the Court of
Appeals is a question of fact which we cannot pass upon as it would entail going into factual matters on
which the finding of negligence was based. As a rule, factual findings of the trial court, especially those
affirmed by the Court of Appeals, are conclusive on this Court when supported by the evidence on
record.9
Our examination of the records shows that both the trial court and the Court of Appeals carefully
considered the factual backdrop of the case. No cogent reason exists for disturbing the following
findings of the trial court, which the Court of Appeals affirmed:
… To the mind of the court, this is exactly what happened. When Reynaldo Gamot was approaching the
side road, he slightly veered to the right for his allowance. Ray Castillon, who was following closely
behind, instinctively veered to the left but it was also the moment when Reynaldo Gamot sharply turned
to the left towards the side road. At this juncture both were moving obliquely to the left.l^vvphi1.net
Thus the motorcycle sliced into the side of the jeepney throwing the driver forward so that his forehead
hit the angle bar on the left front door of the jeepney even as the motorcycle shot forward and the
jeepney veered back to the right and sped away.
The testimonies of the witnesses Frias, Opada, Labang and Sumile show that he did not stop even for a
second, or less before making the left turn. On the contrary, he slightly veered to the right immediately
followed by the abrupt and sudden turn to the left in order to enter the side road. It is apparent that
Reynaldo Gamot did not keep a lookout for vehicles or persons following him before proceeding to turn
left. He failed to take into account the possibility that others may be following him. He did not employ
the necessary precaution to see to it that the road was clear.10
Clearly, the abrupt and sudden left turn by Reynaldo, without first establishing his right of way, was the
proximate cause of the mishap which claimed the life of Ray and injured Sergio. Proximate cause is
defined as that which, in the natural and continuous sequence, unbroken by any efficient, intervening
cause, produces the injury, and without which the result would not have occurred.11 The cause of the
collision is traceable to the negligent act of Reynaldo for, as the trial court correctly held, without that
left turn executed with no precaution, the mishap in all probability would not have happened.12
Petitioner misunderstood our ruling in Raynera v. Hiceta.13 That case also involved a motorcycle
crashing into the left rear portion of another vehicle, and we declared therein that drivers of vehicles
"who bump the rear of another vehicle" are presumed to be "the cause of the accident, unless
contradicted by other evidence".14 In Raynera, the death of the victim was solely attributable to his
own negligence in bumping the rear of the trailer truck which was traveling ahead of him at 20 to 30
kilometers per hour. Raynera, being the driver of the rear vehicle, had full control of the situation as he
was in a position to observe the vehicle in front of him. The trailer truck therein did not make a sudden
left turn as in the case at bar. Thus, the theory that drivers of vehicles "who bump the rear of another
vehicle" are presumed to be the cause of the accident is, as in this case, sufficiently contradicted by
evidence, which is the sudden left turn made by Reynaldo which proximately caused the collision.
While we agree with the trial court that Ray was likewise guilty of contributory negligence as defined
under Article 2179 of the Civil Code, we find it equitable to increase the ratio of apportionment of
damages on account of the victim’s negligence.
Article 2179 reads as follows:
When the plaintiff’s negligence was the immediate and proximate cause of his injury, he cannot recover
damages. But if his negligence was only contributory, the immediate and proximate cause of the injury
being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate
the damages to be awarded.
The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his
own injury should not be entitled to recover damages in full but must bear the consequences of his own
negligence. The defendant must thus be held liable only for the damages actually caused by his
negligence.15 The determination of the mitigation of the defendant’s liability varies depending on the
circumstances of each case. The Court had sustained a mitigation of 50% in Rakes v. AG & P;1620% in
Phoenix Construction, Inc. v. Intermediate Appellate Court17 and LBC Air Cargo, Inc. v. Court of
Appeals;18 and 40% in Bank of the Philippine Islands v. Court of Appeals19 and Philippine Bank of
Commerce v. Court of Appeals.201awphi1.nét
In the case at bar, it was established that Ray, at the time of the mishap: (1) was driving the motorcycle
at a high speed; (2) was tailgating the Tamaraw jeepney; (3) has imbibed one or two bottles of beer; and
(4) was not wearing a protective helmet.21 These circumstances, although not constituting the
proximate cause of his demise and injury to Sergio, contributed to the same result. The contribution of
these circumstances are all considered and determined in terms of percentages of the total cause.
Hence, pursuant to Rakes v. AG & P, the heirs of Ray Castillon shall recover damages only up to 50% of
the award. In other words, 50% of the damage shall be borne by the private respondents; the remaining
50% shall be paid by the petitioner.
Anent the award of loss of earning capacity, we agree with the petitioner that the trial court erred in the
computation of the net earnings.
In considering the earning capacity of the victim as an element of damages, the following factors are
considered in determining the compensable amount of lost earnings: (1) the number of years for which
the victim would otherwise have lived; and (2) the rate of loss sustained by the heirs of the deceased.
Jurisprudence provides that the first factor, i.e., life expectancy, is computed by applying the formula
(2/3 x [80 - age at death]) adopted in the American Expectancy Table of Mortality or the Actuarial
Combined Experience Table of Mortality. As to the second factor, it is computed by multiplying the life
expectancy by the net earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses. The net earning is
ordinarily computed at fifty percent (50%) of the gross earnings. Thus, the formula used by this Court in
computing loss of earning capacity is: Net Earning Capacity = [2/3 x (80 – age at time of death) x (gross
annual income – reasonable and necessary living expenses)].22
It was established that Ray was 35 at the time of his death and was earning a gross annual income of
P31,876.00 as a driver at the Mindanao State University. In arriving at the net earnings, the trial court
deducted from the gross annual income the annual living expenses in the amount of P9,672.00, broken
down as follows: P20.00 a day for travel or P520.00 per month; P60.00 a month for cigarettes; P26.00
for drinks; and other personal expenses like clothing, toiletries, etc. estimated at P200.00 per month.23
The amount of P9,672.00, however, appears unrealistic, and constitutes only 30.34% of the gross
earnings. It even includes expenses for cigarettes which by no means can be classified as a necessary
expense. Using the cited formula with the net earnings computed at 50% of the gross earnings, a
detailed computation is as follows:
1ªvvphi1.nét
NET EARNING CAPACITY (X) = LIFE EXPECTANCY [2/3 (80-age at the time of death)] x GROSS
ANNUAL INCOME (GAI) - LIVING EXPENSES (50% of GAI)
X = [2/3 (80-35)] x [P31,876.00 -50% x P31,876.00]
X = [2/3 (45)] x [P31,876.00 - P15,938.00]
X = 30 x 15,938.00
X = P478,140.00
We sustain the awards of P33,215.00 as funeral and burial expenses being supported with receipts;24
P50,000.00 as death indemnity; and P50,000.00 as moral damages. However, the award of P20,000.00
as attorney’s fees must be deleted for lack of basis.
The indemnity for death caused by a quasi-delict used to be pegged at P3,000.00,25 based on Article
2206 of the Civil Code, which reads:
ART. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity
shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by
the court, unless the deceased on account of permanent physical disability not caused by the defendant,
had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient
who is not an heir called to the decedent’s inheritance by the law of testate or intestate succession, may
demand support from the person causing the death, for a period of not exceeding five years, the exact
duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand
moral damages for mental anguish by reason of the death of the deceased.
However, the amount has been gradually increased through the years. At present, prevailing
jurisprudence fixes the amount at P50,000.00.26
Paragraph 3 of the same provision also serves as the basis for the award of moral damages in quasi-
delict. The reason for the grant of moral damages has been explained, thus:
… the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status
quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the pain
experienced by the relatives of the victim is proportionate to the intensity of affection for him and bears
no relation whatsoever with the wealth or means of the offender.27
While it is true that there can be no exact or uniform rule for measuring the value of human life and the
measure of damages cannot be arrived at by a precise mathematical calculation,28 we hold that the trial
court’s award of moral damages of P50,000.00 for the death of Ray Castillon is in accord with the
prevailing jurisprudence.29
With respect to attorney’s fees, it is well settled that the same should not be awarded in the absence of
stipulation except under the instances enumerated in Article 2208 of the Civil Code. The trial court did
not indicate the basis for its award. As we have held in Rizal Surety and Insurance Company v. Court of
Appeals:30
"Article 2208 of the Civil Code allows attorney’s fess to be awarded by a court when its claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission of the party from whom it is sought.l^vvphi1.net While judicial discretion is
here extant, an award thereof demands, nevertheless, a factual, legal or equitable
justification.1a\^/phi1.net The matter cannot and should not be left to speculation and conjecture
(Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA
619).
In the case at bench, the records do not show enough basis for sustaining the award for attorney’s fees
and to adjudge its payment by petitioner…"
Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals that:
"In Abrogar v. Intermediate Appellate Court [G.R. No. 67970, January 15, 1988, 157 SCRA 57] the Court
had occasion to state that ‘[t]he reason for the award of attorney’s fees must be stated in the text of the
court’s decision, otherwise, if it is stated only in the dispositive portion of the decision, the same must
be disallowed on appeal.’ …1awphi1.nét
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of
Appeals is AFFIRMED with the MODIFICATION that the net earnings is computed at 50% of the gross
annual income to conform with the prevailing jurisprudence, and the FURTHER MODIFICATION that
petitioner NELEN LAMBERT is ordered to pay the heirs of Ray Castillon only 50% of the damages herein
awarded, except attorney’s fees which is DELETED for lack of basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

Court rules on illegal recruitment, estafa case

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Court rules on illegal recruitment, estafa case

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G.R. No.

127848 July 17, 2003

PEOPLE OF THE PHILIPPINES, appellee,

MARLENE OLERMO @ Marlene Tolentino, appellant.

In Criminal Case No. 2862-V-93:

In Criminal Case No. 2864-V-93:

In Criminal Case No. 2865-V-93:

WHEREFORE, judgment is hereby rendered as follows:

First and Second Issues: Credibility of Witnesses and Proof Beyond

Reasonable Doubt in Illegal Recruitment in Large Scale

Article 39 of the Labor Code, in turn, provides:

Third Issue: Jurisdiction or Venue

Article III, Section 12, paragraph (1) of the Constitution provides:

2. By means of any of the following pretenses or fraudulent acts executed prior to or

WHEREFORE, judgment is hereby rendered as follows:

G.R. No. 111584 September 17, 2001

PRODUCERS BANK OF THE PHILIPPINES, petitioner,

The generative facts of the case may be chronicled as follows:

9) To pay plaintiff the costs of suit;

11) The counterclaim is hereby dismissed.

(Rollo, pp. 261-263.)

WHEREFORE, from the evidence adduced, judgment is hereby rendered as follows:

1. Ordering the defendant —

a. To pay plaintiff the sum of P500,000.00 as moral and exemplary damages;

f. To pay plaintiffs the sum of P100,000.00 as attorney's fees.

g. To pay the costs of suit.

2. Ordering the plaintiffs —

4. The counterclaim of defendant-appellant are hereby dismissed.

(Rollo, pp. 86-87.)

Q: Where is that located?

A: It is located at Corner Araneta-San Sebastian Sts.

A: In my gasoline business, based on my record, I have an average of 114,000 liters.

Q: Do you mean to say you can dispose 114,000 liters a month?

Q: How much is the mark up per liter?

A: The overhead is about 12,280.00.

Q: That will give you an average of P18,000.00 a month?

(tsn, March 25, 1986, pp. 9-12)

(1) when exemplary damages are awarded;

1. Three Hundred Thousand Pesos (P300,000.00) as moral damages;

2. One Hundred Fifty Thousand Pesos (P150,000.00) as exemplary damages; and

In all other respects, the said judgment is affirmed.

G.R. No. 132869 October 18, 2001

GREGORIO DE VERA, JR., petitioner,

In finding QPSDCI liable for damages, the trial court held —

Furthermore, Sec. 25 of PD 957 provides:

G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner,

T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT

At the pre-trial, the parties agreed to limit the issues, as follows:

3. Whether or not the plaintiff is liable to defendant for exemplary damages.19

Costs against defendant Meralco.

6. In finding that there was no notice of disconnection.

14. In not declaring that petitioner is entitled to the differential bill.

G.R. No. 79578 March 13, 1991

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), petitioner,

Salalima, Trenas, Pagaoa & Associates for petitioner.

Paul P. Lentejas for private respondents.

WHEREFORE, premises considered, judgment is hereby rendered:

TRINIDAD, CALBAYOG CITY

MINER & FLORY. 5

xxx xxx xxx

xxx xxx xxx

WHEREFORE, premises considered, the decision appealed from is AFFIRMED in toto.